THE EUROPEAN UNION-SOUTH AFRICA TRADE AGREEMENT:

There is an enormous gap between the importance of trade issues on the global economic agenda and the attention which churches devote to trade policy. The collapse of negotiations at the World Trade Organisation (WTO) ministerial meeting in Seattle last November should be seen as a success to the extent that developing countries--and African nations in particular--exposed and frustrated the attempts of the industrialised powers to negotiate private deals outside the plenary sessions. The lull also provides churches and other organs of civil society a chance to analyse the impact of emerging trade regimes, build awareness of the relationship between trade policy and economic justice and popularise the campaign for fair trading practices.

From Lomé to TDCA: A Paradigm Shift

The recently-concluded trade agreement between South Africa and the European Union (EU) heralded a major shift in the EU's approach to trade relations with the developing world. The Lomé Convention has governed trade between the EU and a group of 71 states in Africa, the Caribbean and the Pacific--the ACP countries--since the first agreement (Lomé I) was reached in 1975. In the post-colonial period, European nations consolidated their relationships with developing countries by instituting a pyramid of preferences in which former colonies enjoyed the most unrestricted access to European markets, followed by the rest of the developing world. Meanwhile, industrial nations were subject to quotas, protective tariffs and other trade restrictions. The principles of non-reciprocity (ACP countries got more concessions from the EU than they were expected to give), stability (preferences were granted for longer periods), and contract (preferences could not be unilaterally changed by the EU, but only as the result of negotiation) were central to the Lomé agreements.

By the mid 1990s, however, the EU was searching for a new model. The existing Lomé IV agreement was set to expire at the end of February 2000, and EU officials argued that the system of preferences embodied in Lomé was incompatible with "free market" WTO rules. In an atmosphere of hard-nosed commercial competition with the United States and Japan in a globalised economy, the EU gave top priority to securing the emerging markets of its comparatively affluent Eastern European neighbours (especially Poland, Hungary, and the Czech Republic)--the countries most eligible for incorporation into the European Community. Secondary preference was extended to the Baltic countries, the Mediterranean states, and the Middle East. Despite the rhetoric of "partnership" (and "free" trade), ACP countries--and Africa in particular--were to be peripheralised once again.

The trade negotiations with South Africa were the first the EU conducted in terms of this emerging paradigm. In September 1994, shortly after the inauguration of South Africa's first democratic government, foreign ministers from the EU and the Southern Africa Development Community (SADC) met in Berlin. The meeting produced the "Berlin Declaration" in which the EU pledged support for South Africa's transition to democracy and regional economic integration.

However, when South Africa applied two months later for full membership of Lomé (minus certain privileges--such as use of price stabilisation mechanisms and preferential access to European markets for beef and cane sugar exports--that might have damaged other ACP countries), the EU rejected the request. It argued that, as a relatively developed nation, South Africa was not eligible for Lomé preferences under WTO rules. Instead, it offered South Africa a bilateral Free Trade Agreement. South Africa made a counter proposal: a Trade, Development and Cooperation Agreement (TDCA) that would address the country's development needs while promoting regional integration.

Talks began in earnest in early 1997 and continued for two years as negotiators battled over the details of roughly 8000 tariff arrangements associated with specific agricultural products. Finally, in January 1999, the two teams agreed on a common text for ratification by their respective governments. In reporting to the Trade Committee of the European Parliament, the EU's Trade Commissioner claimed, "We have pressed the last drop out of South Africa." Even so, the deal nearly collapsed again a year later when Greece and Italy made new demands for a ban on the use of the terms ouzo and grappa by South African producers. South Africa agreed, but asked the WTO to make a final ruling on the issue of making exclusive claims on generic names. In February, the trade chapter came into effect, pending final EU ratification.

The TCDA's Implications for South Africa and Southern Africa

Article XXIV of the General Agreement on Tariffs and Trade (GATT) requires that a Free Trade Agreement eliminate duties and other trade restrictions for "substantially all" goods originating in the nations involved. At first, the EU argued that both parties to the agreement had to liberalise tariffs on 90% of exports from the other party. In the end, the EU accepted that liberalisation need not be reciprocal, provided that the restrictions were reduced or eliminated on 90% of the total volume of trade between the two parties. In terms of the final deal, the EU is to give 95% of South African exports improved access to its markets over a ten year period, while South Africa pledged to relax restrictions on 86% of EU exports over twelve years.

The EU also attempted to exclude nearly half of all South African agricultural products from tariff liberalisation. In the end, 28% of South Africa's agricultural exports were placed on a "reserve list" of items not eligible for tariff reduction (although this list is subject to periodic review). Vulnerable commodities continue to be protected by special protocols, while agricultural production and exports are subsidised by the EU to make them more competitive with South African commodities. The agreement provides improved access for South African fish products, though a number of details require further negotiation. Meanwhile, 76% of all EU goods will gain greater access to South African markets.

During the negotiations, two major studies assessed the agreement's likely impact on South Africa and Southern Africa. The first, conducted by UNCTAD, concluded that EU imports to South African would increase faster than South African exports to the EU. This could "crowd" South African producers out of the local market and have a negative impact on South Africa's balance of payments. A second survey, looking at fiscal policy and labour markets, was commissioned by members of the Southern Africa Customs Union (Namibia, Botswana, Lesotho, and Swaziland--South Africa did not take part) and was carried out by Britain's Institute for Development Studies and the Botswana Institute for Development Policy Analysis. This foresaw a more mixed economic impact.

More recently, Germany's Coordination Southern Africa (KOSA) published an analysis of the agreement's impact on SADC. This predicted the agreement will have a particularly severe impact on SACU countries. The study foresaw a potential loss of income of between 5 and 9% for Botswana, 13-21% for Lesotho, 8-14% for Namibia and 14-23% for Swaziland. The report also concluded that the agreement will impede regional integration by undermining the SADC free trade protocol and by requiring South Africa and its neighbours to deal with the EU on different terms. (South Africa asked the EU to delay free trade negotiations for ten years to permit regional integration to get a head start, but the EU refused.)

Implications for Post-Lomé Trade Agreements

Key elements of the TCDA approach--bilateral negotiations, insistence on reciprocal lowering of trade barriers, and continued protection of vulnerable European markets, especially agricultural markets--seem set to become central to the EU's general model for a post-Lomé, post-cold war, globalised trade policy toward the developing world.

In terms of WTO rules, least developed countries may still negotiate preferential agreements with industrialised nations. However, the parallel--and growing--use of free trade agreements like the TCDA is likely to force less developed nations to choose between preferences and regional integration.

The EU seems to have explicitly acknowledged this tension. Initially, it proposed Regional Economic Partnership Arrangements (REPAs) as the model for post-Lomé trade agreements. Essentially, these were to be WTO-compatible free trade agreements concluded with a number of ACP countries in one region. More recently, the EU has been speaking simply of EPAs, with the quiet removal of the word "regional" emblematic of a diminished emphasis on regional integration.

ACP countries will be expected to confront these choices soon. The EU timetable gives Lomé members a two-year window (2000-2002) to decide if they want to negotiate (R)EPAs or stick with preferential agreements. With six years for negotiations and a twelve-year implementation horizon, the EU is aiming to secure virtually unfettered access to global markets by 2020. Unless, of course, the ACP countries can build on their success at Seattle to force a radical rethinking of global trade policy and practice so that fair trade, not free trade, becomes the principle underpinning new trade agreements.

This update was compiled from material presented at a 27 March 2000 seminar in Cape Town sponsored by the SACC and the Ecumenical Service for Socio-Economic Transformation (ESSET). The seminar featured a presentation by Dr. Theobald Kneifel of the Ecumenical Service for Advocacy Work on Southern Africa (KASA) in Heidelberg, Germany, with a response by Dr. Robert Davies, MP, Chair of the Portfolio Committee on Trade and Industry.

Additional material was drawn from Gottfried Wellmer's study, SADC Between Regional Integration and Reciprocal Free Trade with the European Union: A Study on Future Trade Relations between the EU and SADC States, published in February 2000 by World House Bielefeld and Coordination Southern Africa (KOSA). This publication is available from the publishers at a cost of DM12,00 plus postage:

World House Bielefeld/KOSA
August Bebel Street 62
D-33602 Bielefeld
GERMANY
tel. +49 521 62802
fax. +49 521 63789
e-mail. welthaus@aol.com