The Implications of a COMESA-EAC-SADC Tripartite Free Trade Agreement, Part 2: A South African Perspective by Malose Anthony Letsoalo Class of 2011
Copyright tralac, 2011. Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac. This publication should be cited as: Letsoalo, M.A. 2011. The implications of a COMESA-EAC- SADC Tripartite Free Trade Agreement, Part 2: A South African perspective. Stellenbosch: tralac. Table of Contents List of Abbreviations 3 EXECUTIVE SUMMARY 4 1. Regional Economic Communities in Africa 5 1.1. Southern African Customs Union (SACU) 7 1.1.1. Notification to the WTO 7 1.1.2. General Functioning of SACU 7 1.2. Southern African Development Community (SADC) 9 1.2.1. Notification to the WTO 9 1.2.2. General Functioning of SADC 10 1.3. East African Community (EAC) 11 1.3.1. Notification to the WTO 11 1.3.2. General Functioning of the EAC 11 1.4. Common Market for Eastern and Southern Africa (COMESA) 11 1.4.1. Notification to the WTO 11 1.4.2. General Functioning of COMESA 12 2. Policy Decision on the RECs 12 2.1. SACU 12 2.2. SADC 13 2.3. EAC 14 2.4. COMESA 15 3. Implications for South Africa 15 4. Conclusion 16 REFERENCES 17
Abbreviations AMU CEN-SAD CET CMA COMESA EAC ECCAS ECOWAS FTA GATS GATT GSP IEPA IGAD ITAC LDC REC RISDP RTA SACU SADC SVE WTO Arab Maghreb Union Community of Sahel-Saharan States Common External Tariff Common Monetary Agreement Common Market for Eastern and Southern Africa East African Community Economic Community of Central African States Economic Community of West African States Free Trade Area General Agreement on Trade in Services General Agreement on Tariffs and Trade Generalised System of Preferences Interim Economic Partnership Agreement Intergovernmental Authority on Development International Trade Administration Commission Least Development Countries Regional Economic Communities Regional Indicative Strategic Development Plan Regional Trade Arrangements Southern Africa Customs Union Southern Africa Development Community Small and Vulnerable Economies World Trade Organisation 3
Executive Summary Africa as a continent has embraced regional integration as a tool towards greater cooperation and development. This follows the realisation that the destiny for African countries is intertwined. The Abuja Treaty laid a roadmap for regional integration in Africa, with the objective being to achieve an African Economic Community by 2025. The fourth step of the Treaty calls for coordination and harmonization of tariff and non-tariff systems among the various regional economic communities with a view to establishing a Customs Union at the continental level by means of adopting a common external tariff. To this end, Heads of State and Government for the EAC, COMESA and SADC decided that these RECs should negotiate a tripartite FTA covering Eastern and Southern Africa. In addition, they directed that this trade arrangement should be compatible with the rules of the World Trade Organisation (WTO) and be better suited to the challenges facing the continent. Consequently, this second paper in a two-part series addresses how SADC, SACU, COMESA, and the EAC fit into the WTO scheme of things, and analyses the general functioning of the three RECs. It also provides advice on whether to retain the RECs in Eastern and Southern Africa in their current format or to adopt changes. Finally, the paper discusses the implications this would have for South Africa as a member of a SADC-COMESA-EAC Tripartite FTA. Currently, all RECs in Eastern and Southern Africa are notified in the WTO as per the requirement of the Transparency Mechanism. SACU and SADC are notified under GATT Article XXIV whilst the EAC and COMESA are notified under the Enabling Clause to the Committees on Regional Trade Arrangements, and Trade and Development, respectively. GATS Article V provides a legal basis for economic integration in trade in services, although none of the RECs in Africa have notified anything under the agreement. Most RTAs in Africa have pursued liberalisation in trade in goods only; however, all the RECs in Eastern and Southern Africa have begun work on trade in services. It has been reported that the EAC has liberalised trade in services since July 2010, but this was not notified to the WTO. Some RECs have not yet established all the institutions required for the healthy functioning of these economic communities as per their constitutive legislations. SACU, despite being the oldest customs union in the world, and SADC, lag behind and are yet to establish all their institutions. This paper recommends that all the RECs be retained in the current format and should work towards establishing outstanding institutions. South Africa stands to benefit from the Tripartite FTA due to the larger market, in terms of population, and availability of cheap inputs. South Africa should lobby SACU and SADC to negotiate liberalisation of both trade in goods and services. The country has offensive interest in manufactured goods as well as services. 4
1. Regional Economic Communities in Africa The Abuja Treaty of 1991 provided a blueprint towards regional integration in Africa. The Treaty envisages the establishment of an African Economic Community in six successive stages over a transitional period not exceeding 34 years. This translates into the creation of the Community by 2025. The steps towards the African Economic Community include, amongst others, the strengthening of existing regional economic communities (RECs); establishing economic communities in regions where they do not exist; establishment of a Free Trade Area (FTA) in each REC; coordination and harmonization of tariff and non-tariff systems among the various RECs with a view to establishing a customs union at the continental level by means of adopting a common external tariff; harmonization of monetary, financial and fiscal policies; and application of the principle of free movement of persons. Table 2 below shows the RECs representing the different regions in Africa as well as the status of their FTAs or custom unions (the third stage of the Abuja Treaty). The eight RECs in Africa are the Arab Maghreb Union (AMU), Economic Community of Central African States (ECCAS), Economic Community of West African States (ECOWAS), Common Market for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC), East African Community (EAC), Community of Sahel-Saharan States (CEN-SAD), and Intergovernmental Authority on Development (IGAD). Whilst Eastern, Southern, and Western Africa have already launched their FTAs, North Africa is still lagging behind. Table 2: Status of Efforts to Establish FTAs and Customs Union in the Eight RECs AMU CEN-SAD ECOWAS ECCAS COMESA EAC IGAD SADC FTA No progress In progress Established Created and in force Established Established In progress Established Customs Union No progress No progress In progress Proposed for 2010 Launched In full force No progress Proposed for 2010 Source: United Nations Economic Commission for Africa (ECA), 2010 As a way of moving towards Stage Four of the Abuja Treaty 1, the Heads of State and Government of COMESA, EAC and SADC met in Kampala in October 2008. They discussed and 1 Coordination and harmonization of tariff and non-tariff systems among the various regional economic communities with a view to establishing a Customs Union at the continental level by means of adopting a common external tariff 5
agreed on the formation of a Tripartite FTA (TFTA) for the Southern and Eastern Africa region. The new trade arrangement should be WTO-compatible and be better suited to the challenges in Africa. Consequently, this paper will focus on these three RECs as well as the Southern Africa Customs Union (SACU), which forms an integral part of SADC. The 26 countries of Southern and Eastern Africa belong to one or more of the Regional Economic Communities (RECs) in the region. Table 3 below shows the different membership for each country and depicts the overlapping membership challenges that the TFTA has to address. Table 3: Membership to Regional Economic Communities COMESA EAC SADC SACU Angola Botswana Burundi Comoros DRC Djibouti Egypt Eritrea Ethiopia Kenya Lesotho Libya Madagascar Malawi Mauritius Mozambique Namibia Rwanda Seychelles South Africa Sudan 6
Swaziland Uganda Tanzania Zambia Zimbabwe Source: SADC, COMESA, EAC, SACU Websites The four RECs will be analysed based on their membership, notification to the WTO, and their general functioning in what follows. 1.1. Southern African Customs Union (SACU) 1.1.1. Notification to the WTO SACU, established in 1910, is the oldest customs union in the world. The customs union is comprised of five member states, namely Botswana, Lesotho, Namibia, Swaziland, and South Africa. Swaziland is also a member of COMESA. SACU has one least developed country (Lesotho), and three small and vulnerable economies (Botswana, Namibia and Swaziland). SACU applies a common external tariff (CET) on all goods imported into the Union from non-members. SACU was notified to the WTO under GATT Article XXIV as a custom union. There is free movement of products within the customs union, without any duties or quantitative restrictions. The revenue accumulated from customs and excise taxes by the union is distributed according to a revenue-sharing formula. The Abuja Treaty did not accord SACU the status of an REC but instead opted for SADC as a regional integration body. 1.1.2. General Functioning of SACU Article 7 of the 2002 SACU Agreement established the following institutions in the customs union: Secretariat, Council of Ministers, Customs Union Commission, Technical Liaison Committees, SACU Tribunal, and SACU Tariff Board (SACU, 2002). In addition, the SACU Heads of State and Government Summit on 25 March, 2011, decided to formalize the Summit as another SACU institution (SACU, 2011). All SACU institutions have been established and are operating well, with the exception of the SACU Tribunal and Tariff Board. Unlike the European Union or the EAC, the SACU Secretariat has not been empowered to negotiate on behalf of the custom union. Article 31 of the 2002 SACU Agreement established a 7
common negotiating mechanism, in which no Member State shall negotiate and enter into new preferential trade agreements with third parties or amend existing agreements without the consent of other Member States. However, Botswana, Lesotho and Swaziland (BLS) signed the interim economic partnership agreement (IEPA) without the consent of Namibia and South Africa. This will challenge the integrity of the custom union if BLS were to implement the IEPA. The SACU Tariff Board was supposed to be an independent institution responsible for making recommendations to the SACU Council on the level and changes of customs, anti-dumping, countervailing, and safeguard duties on goods imported from outside the Common Customs Area, as well as rebates, refunds, or duty drawbacks based on the directives given to it by the Council. The Board requires that Member States create National Bodies to carry out preliminary investigations and recommend any tariff changes necessary to the Tariff Board. However, member states have not yet created their national bodies and still rely on the South African International Trade Administration Commission (ITAC) to serve the interests of SACU. Similarly, the Tribunal would adjudicate on any issue concerning the application or interpretation of the 2002 SACU Agreement or any dispute arising at the request of the Council. Its determinations will be final and binding. According to the SACU Summit Communiqué on 25 March, 2011, the process towards the establishment of the Tribunal and Tariff Board is ongoing. In the 2002 SACU Agreement, Articles 38-40, Member States agreed to develop common policies and strategies with respect to industrial development and to cooperate on agricultural policies and the enforcement of competition laws and regulations. As yet, common policies have not been developed in SACU, which hinders the custom union in engaging effectively in trade negotiations. The SACU Summit in March 2011 re-emphasised only the importance of regional industrial development policy. It is not clear whether cooperation in agricultural policies and competition law would be prioritised in the long-term. The 2002 SACU Agreement covers solely trade in goods, in line with GATT 1947. It does not address trade in services and new generation issues. Consequently, this constrains the coverage of trade agreements negotiated by SACU. The collapsed SACU-USA FTA and the EPA negotiations are examples of instances in which the SACU Agreement constrains member states efforts to effectively participate in trade negotiations. However, the liberalisation of trade in services involves reform of national legislations in line with the GATS. To this end, SACU does not necessarily require an agreed common external position on trade in services prior to engaging in trade negotiations. The current practice on liberalisation of trade in goods is that prior to each negotiation, SACU would develop both the offensive and defensive list. The same can be applied to liberalisation of trade in services as part of efforts to harmonise its position. 8
In April 2010, the SACU Heads of State and Government adopted a new Vision for SACU: To be an economic community with equitable and sustainable development, dedicated to the welfare of its people for a common future (SACU, 2010). An Economic Community or Union comprises of a common market (customs union plus free movement of the factors of production), with unified monetary and fiscal policies, including a common currency. Of the five SACU member states, four countries (the exception being Botswana) have their currencies pegged to the South African Rand, which is also accepted as the legal tender in Lesotho, Namibia, and Swaziland. This implies that, by default, these countries have accepted the South African monetary policy. 2 Nevertheless, the 2002 SACU Agreement does not cater for or provide steps towards an economic community, although this may be a long-term goal for the custom union. In addition, if SACU was to become an economic community, would the name then change to Southern African Economic Community (SAEC)? 1.2. Southern African Development Community (SADC) 1.2.1. Notification to the WTO SADC comprises of 15 member states within Southern Africa 3. Of these, eight countries are also members of COMESA and one is a member of the EAC. All SACU Member States are members of SADC. Of the SADC member states, eight countries are least development countries (LDCs) and five countries are known as small and vulnerable economies (SVEs) 4. However, SVEs are not recognised as a subcategory in the WTO. In order to achieve regional integration in the REC, SADC, through the Regional Indicative Strategic Development Plan (RISDP), adopted milestones to facilitate the attainment of the SADC Free Trade Area (FTA) by 2008, the Customs Union by 2010, the Common Market by 2015, Monetary Union by 2016, and the Single Currency by 2018. The SADC FTA was launched in August 2008. Of the 15 Member States in SADC, nine fully participate in the FTA, three are not party to the FTA 5, and another three have applied for derogation on sensitive sectors 6. Member states began implementing the Trade Protocol in 2001 with the aim to gradually liberalise 85% of 2 This is managed under the Common Monetary Agreement (CMA). Botswana was initially part of the CMA but withdrew. 3 The Membership of Madagascar is currently suspended 4 The characteristics mentioned by SVEs include: physical isolation, geographical dispersal and distance from the main markets; insignificant participation in the multilateral trading system and a minimal share of total world trade; small, fragmented. These countries include Botswana, Mauritius, Seychelles, Swaziland, and Zimbabwe. 5 Seychelles, DRC, Angola. But Seychelles is currently finalizing its offer and it should be signed soon. 6 Zimbabwe, Tanzania and Malawi have applied for the derogation. Zimbabwe has applied for derogation on sensitive products and Tanzania on specific tariff lines in sugar and paper sectors. Malawi has fallen behind in implementation of its schedules. 9
intra-regional trade in goods by 2008 and the remaining 15% for sensitive products to be gradually reduced to zero percent by 2012. The current level of implementation of the FTA is 92.5%, which satisfies the substantially all trade requirement for an FTA in the WTO. The SADC FTA was notified to the WTO under GATT Article XXVI. SACU member states have implemented their obligation in SADC as a bloc. It is not clear why SADC notified its FTA under GATT Article XXIV as opposed to the Enabling Clause, but it can be assumed that classification of South Africa as a developed country might have influenced that decision. SADC missed the 2010 deadline to launch a customs union. In the meantime, SADC has carried out studies on the model for a custom union and also on the revenue sharing formula. Currently, SADC is reviewing these studies to determine the best way to proceed forward. However, the issue of overlapping membership in SADC complicates the custom union process regarding which common external tariff (CET) would apply. SADC is pursuing a linear model of regional integration, such that a step in the integration process has to be completed prior to the next step being implemented. Consequently, pending implementation of a custom union, the work on the common market, monetary union, and single currency would not be executed. Meanwhile, SADC is currently working towards liberalising trade in services within the REC. 1.2.2. General Functioning of SADC According to the ECA (2010), the institutional development and level of development and functionality of SADC is relatively low. Most of the institutions identified to manage the functioning of SADC are still not up and running. The SADC Treaty established eight institutions, namely the Summit of Heads of State and Government; SADC Tribunal; Council of Ministers; Organ on Politics, Defence and Security Cooperation; Sectoral/Cluster Ministerial Committees; SADC Secretariat; Standing Committee of Senior Officials; and SADC National Committees. 7 The administrative and political institutions of SADC have been operating smoothly with regular meetings. However, the SADC Heads of States Summit decided, in its meeting in August 2010, to suspend the SADC Tribunal pending a six-month review of its role, functions and terms of reference. Another challenge pertains to the issue of overlapping membership which complicates efforts towards a custom union. In addition, the SADC Secretariat, like SACU, is driven by its member states, which hampers progress as it is usually difficult to achieve consensus with 15 member states. 7 SADC Website: http://www.sadc.int/ 10
1.3. East African Community (EAC) 1.3.1. Notification to the WTO The EAC comprises of five countries, namely Kenya, Tanzania, Uganda, Burundi, and Rwanda. Of the five member states, three are classified as LDCs and two are classified as developing countries. The EAC is notified to the WTO under the Enabling Clause and covers trade in goods. The Treaty for the Establishment of the East African Community 8 envisages a linear integration process, starting with the establishment of an East African Customs Union (2010) and a Common Market (2010) as transitional stages and integral parts of the Community, subsequently a Monetary Union (2012), and ultimately a Political Federation (EAC, 2007). The EAC customs union was launched on 1 January, 2005. 1.3.2. General Functioning of the EAC The EAC Treaty established organs and institutions including the Summit, the Council, the Coordination Committee, Sectoral Committees, the East African Court of Justice, the East African Legislative Assembly, and the Secretariat. Similar to the European Union, the EAC Executive Secretary has been empowered to represent the Community in any official meetings as well as to sign any agreements. Given the fact that the EAC has been recently revived 9, most of the institutions are still in the process of being developed. However, the East African Court of Justice and the East African Legislative Assembly have already been developed. 1.4. Common Market for Eastern and Southern Africa (COMESA) 1.4.1. Notification to the WTO COMESA comprises of 19 member states, nine of which are classified as LDCs, and six classified as developing countries. COMESA is pursuing a linear integration model, starting with an FTA, customs union, and then monetary union. Of the 19 member states, 14 countries are participating in the FTA with the remaining five countries 10 still working towards joining the FTA. Swaziland, which applies the SACU CET, has applied for derogations. The COMESA FTA is notified to the WTO under the Enabling Clause and covers trade in goods. 8 As amended on 14 December, 2006 and 20 August, 2007. 9 The Treaty for East African Cooperation establishing the East African Community was officially dissolved in 1977. The New Treaty was signed in 1999. 10 DRC, Eritrea, Ethiopia, Swaziland and Uganda 11
COMESA launched its customs union in June 2009, which allows the application of a single tariff (CET) in all COMESA States for an interim of three years (ECA, 2010). A programme for eliminating non-tariff barriers has been implemented through organisational structures at the national and regional levels. By 2025, COMESA expects to remove all tariff barriers. Implementing a customs union in the COMESA region will not be an easy task due to a number of factors, including accession of all member states to the COMESA FTA before launching the COMESA customs union; and overlapping memberships. In addition, COMESA is experiencing challenges with establishing a COMESA Monetary Institute to make the necessary preparations for a COMESA Monetary Union (ECA, 2010). 1.4.2. General Functioning of COMESA The Treaty for COMESA established organs and institutions including the Authority (Summit of Heads of State or Government), the Council of Ministers, the Court of Justice, the Committee of Governors of Central Banks, the Intergovernmental Committee, the Technical Committees, the Secretariat, and the Consultative Committee. All organs and institutions have been established and are functioning well. 2. Policy Decisions on the RECs This section addresses the question of whether to retain the RECs in the Eastern and Southern Africa region in their current format or whether to replace or change them in light of the decision of the Heads of State and Government to conclude a SADC-COMESA-EAC Tripartite FTA, which will ultimately lead to a Tripartite Customs Union. In order to respond to this question, it is important to establish important elements needed to conclude an FTA or customs union. For an FTA, important elements include the issues of elimination of tariffs and non-tariff barriers, scope of the agreement (either trade in goods or trade in services or both, and whether to include new generation issues), rules of origin, trade remedies, and a dispute settlement mechanism. For a customs union, important elements include application of a common external tariff and adoption of a common commercial policy (thereby surrendering the policy space to conduct individual trade policy). 2.1. SACU SACU is a customs union which implements a common external tariff on imports from nonmembers. The scope of the 2002 SACU Agreement covers solely trade in goods. Consequently, the customs union cannot engage in negotiations on trade in services or any new generation 12
issues such as competition and investment. In addition, as a customs union, member states cannot use trade remedies against each other; however, in Article 25 of the SACU Agreement, Member States recognize the right of each Member State to prohibit or restrict the importation into or exportation from its area of any goods for economic, social, cultural or other reasons as may be agreed upon by the Council. This Article violates the WTO rules on general exceptions and safeguards. SACU participates in the SADC FTA as a bloc and has fully implemented its obligation in terms of the tariff phase-down. Of the nine SADC member states implementing the SADC FTA, five countries are SACU member states, making the customs union an integral part of SADC. Since SACU was not designated REC-status in the Abuja Treaty, the customs union would participate in the Tripartite FTA as a member of the SADC FTA. All SACU member states are members of SADC, while Swaziland is also a member of COMESA, resulting in overlapping membership. Currently, Swaziland has applied for derogations in COMESA and only applies the SACU CET. Therefore, Swaziland, at some point, would need to choose whether to negotiate a Tripartite FTA as part of SADC or COMESA; however, due to the CET, it will be bound by SACU obligations in SADC. In summary, the SACU Agreement covers only trade in goods. Therefore, any desire to expand the scope of the Tripartite FTA to cover trade in services would require amending the SACU Agreement and first agreeing on modalities in the customs union. However, SACU member states individually liberalise trade in services through reform of national legislation. The takeover of Massmart in South Africa by Wal-Mart is an example of individual liberalisation of trade in services. Since SACU is not an REC, it would have to negotiate the Tripartite FTA as part of SADC. However, Swaziland is also a member of COMESA, which may complicate matters for Swaziland, but not the customs union per se. In the long-term, Swaziland would have to choose to negotiate as a member of either SACU or COMESA. Currently, Swaziland enjoys benefits from both blocs. 2.2. SADC There are a number of challenges facing the SADC FTA today as it enters the Tripartite FTA negotiations. The main challenges pertain to issues of the scope of the FTA, the level of implementation of the obligations in the FTA by member states, and overlapping membership. These challenges would influence how SADC engages in the FTA negotiations. In terms of scope, the SADC FTA covers solely trade in goods, although member states are currently busy with work on services. This implies that the ambition or scope of the Tripartite FTA might have to be limited to only trade in goods unless the parties wait for SADC to conclude its work on 13
services, which might be a long time. In addition, not all SADC countries are party to the SADC FTA. Even some countries that are party to the FTA have applied for derogation in some sectors. This then leads to the following question: Will SADC countries or countries that are party to the SADC FTA negotiate the tripartite FTA? On the issue of overlapping membership, some SADC countries belong to all three RECs SADC, COMESA, and the EAC. The question is, then, which tariff book these countries would apply. The issue of overlapping membership has delayed the process of establishing customs unions in both SADC and COMESA. However, one of the objectives of the Tripartite FTA is to address the issue of overlapping membership, although it might not be enough to establish a tripartite customs union. In light of the above, while there are some challenges, it would be better to leave SADC unchanged. The ambition to conclude a tripartite FTA might be realised, but not a tripartite customs union. The issue of overlapping membership will not be resolved in the short-to-medium term unless members decide on a single REC. 2.3. EAC The EAC is generally functioning well and should be retained in its current format. All EAC member states are participating in the custom union. The only challenge is the issue of overlapping membership, with some EAC member states being members of SADC and COMESA. According to Disenyana (2009), the structure of the EAC and COMESA customs unions is similar, as both have adopted a CET with three bands structured as follows: 0% for raw materials and capital goods; 10% for intermediate goods; and 25% on finished goods. Furthermore, the COMESA and EAC rules of origin are identical, and so are documentation and customs procedures related to intra regional trade. Consequently, this might make the two regions effectively one customs union and hence there might be no need for member states to choose between the two RECs. However, Tanzania is not a member of COMESA but rather is a member of SADC. The question is, then, should Tanzania completely relinquish its SADC membership as was the case in the economic partnership agreement (EPA) negotiations 11? Tanzania has already applied for derogations in the SADC FTA, hence leaving SADC might seem like a logical step to advance regional integration. Politically, however, this might not hold as SADC s objectives are not only about achieving an FTA. 11 Tanzania was initially part of the SADC EPA Group but then decided to negotiate the EPA as part of the EAC EPA Group. 14
The EAC is a common market covering both trade in goods and trade in services (trade in services since July 2010 but not yet notified to the CRTA as required by the WTO Transparency Mechanism). Consequently, the EAC is in a better position to negotiate trade in services as part of the Tripartite FTA. Bilaterally, the EAC has agreed to negotiate trade in services with the European Union under the EPAs. Institutionally, the EAC is well established with a strong Secretariat. In the EAC, the Secretariat can negotiate and sign trade agreements on behalf of member states, which is lacking in other RECs. However, it was agreed in the Tripartite FTA process that the negotiations would be driven by member states. What exactly this means remains to be seen. 2.4. COMESA COMESA has managed to establish most of the organisations responsible for advancing the objectives of the REC. In addition, COMESA has a strong Secretariat that is able to drive its agenda. COMESA should therefore be retained in its current format. Like the other RECs, the only challenge is the issue of overlapping membership, with some COMESA member states also belonging to the EAC and SADC, and even SACU. 3. Implications for South Africa South Africa was classified as a developed country on accession to the WTO; however, the country is currently negotiating the Doha Round as a developing country, evidenced by its request for flexibility. The World Bank classifies South Africa as an upper-middle income economy due to its gross national income being between US$3 946 and US$12 195. This implies that South Africa can reclaim its status as a developing country in the WTO. The South African economy is well-diversified and its industrial policy promotes sectors such automotive metal fabrication; capital equipment and transport equipment; green and energysaving industries; agro-processing; automotives, components and medium and heavy commercial vehicles; downstream minerals beneficiation; plastics; pharmaceuticals and chemicals; clothing, textiles, leather and footwear; biofuels; forestry; paper and pulp; and furniture, as well as cultural industries including crafts and film, tourism, business process services, and advanced manufacturing (Department of Trade and Industry [DTI], 2010). In addition, South Africa has a developed services sector which, amongst other things, includes telecommunications, information and communication technology, and retail and wholesale trade. South Africa derives its trade policy from the industrial policy to open markets in sectors of export interest. In terms of trade policy, South Africa has been at the forefront on regional integration in 15
Africa through its participation in regional economic blocs such as SACU and SADC, and politically through the New Partnership for Africa s Development (NEPAD) and the Africa Union. In addition, Heads of State of SADC, COMESA, and the EAC have decided to pursue a tripartite FTA, which is a huge step towards the African Economic Community. Multilaterally, South Africa is an active member of the WTO. For its part, South Africa does not have overlapping memberships in the EAC and COMESA. Consequently, South Africa will participate in the Tripartite FTA negotiations as part of SACU in the SADC Group. In order to promote and implement its industrial policy, South Africa would favour liberalisation in trade in goods and trade in services. An analysis of statistics indicates that South Africa exports more value-added products to African countries than elsewhere in the world. In addition, South African services companies have established themselves in Africa, and the Tripartite FTA would lock-in benefits and ensure predictability and certainty. 4. Conclusion Africa has adopted a linear model of regional integration towards the attainment of an African Economic Community. The first step was to establish the RECs, and the third, conclusion of FTAs in each REC. All the RECs have been established and FTAs launched in most RECs. The fourth step, involving convergence of FTAs, is about to be realised through the negotiations for a Tripartite FTA in Eastern and Southern Africa. In order to ensure that the Tripartite FTA conforms to multilateral rules of the WTO, this two-part series analysed the basic legal principles of the WTO such as the GATT, GATS, Enabling Clause, and Transparency Mechanism for RTAs. The finding was that SACU, SADC, the EAC and COMESA are compatible with the WTO s multilateral rules and have, accordingly, been notified to the WTO. However, these RECs have currently notified only liberalisation in trade in goods. Since July 2010, the EAC has liberalised its trade in services, but is yet to notify this to the WTO. Other RECs have also begun working on liberalising trade in services. Consequently, the Tripartite FTA would cover both trade in goods and trade in services. However, the Tripartite FTA will not resolve the issue of overlapping membership, and currently, there is no political will to address it. For South Africa, the Tripartite FTA would assist in advancing its industrial policy by locking-in benefits and ensuring predictability and certainty. The African market is an important one for South Africa as the country exports more value-added products within Africa than elsewhere in the world. 16
References Department of Trade and Industry. 2010. 2010/11 2012/13 Industrial Policy Action Plan. Pretoria: DTI. Disenyana, T. 2009. Towards an EAC, COMESA and SADC Free Trade Area: Issues and Challenges. South African Institute of International Affairs. Economic Commission for Africa. 2010. Assessing Regional Integration in Africa IV: Enhancing Intra-African Trade. UNECA. Southern African Customs Union. 2010. Communiqué of the Heads of State and Government meeting of the Member States of the Southern African Customs Union (SACU). Retrieved 18 March, 2011, from http://www.sacu.int/docs/pr/2010/pr0716.pdf Southern Africa Development Community. 2004. Regional Indicative Strategic Development Plan. Retrieved 21 April, 2011, from http://www.sadc.int/index/browse/page/104 17