The current trade dispute over chicken between South Africa and the 28-country European Union, in which local business and trade unions say the EU is selling chicken at below cost, threatening local companies and jobs, is in part because of weaknesses in South Africa’s Economic Partnership Agreement (EPA), the agreement, signed last year with the EU.
South Africa and 5 other Southern African Development Community (SADC) members – Botswana, Namibia, Mozambique, Lesotho and Swaziland – in June last year signed the EU-SADC EPA trade deal. The EU is South Africa’s largest trading partner with total trade of R536 Million in 2015.
Although the EPA improves on South Africa’s previous deal with the EU, it still falls far short. The EPA deal replaced South Africa’s bilateral trade agreement with the EU, called the Trade Development and Co-operation Agreement (TDCA) signed in 2000. Under the TDCA, South Africa liberalised its agriculture markets more than the EU did.
South Africa’s is pursuing a “developmental trade” policy, in which trade agreements with other countries and regions must specifically promote growth, employment and the industrial upgrade of the country. A key pillar of South Africa’s EPA trade negotiations with the EU was to improve on the terms of the TDCA.
South Africa, like many developing countries, is finding itself – in most goods it exports – at the low value added part of global value chains as supplier of mostly primary products and commodities.
The intention of South Africa’s “developmental trade” policy is to diversify the country’s economy from its over-reliance on primary, unprocessed products, and move up the global value chains to process manufactured and processed goods – which create more wealth, more jobs and higher growth levels.
According to Trade and Industry Minister Rob Davies most of the improvements in the EPA were in agriculture. South Africa has improved market access for 32 agriculture products.
Under the TDCA, 65% of South Africa’s agriculture products got entry, based on quotas to the EU’s market. Under the new EPA deal there is increased market access for South Africa’s agricultural products, which includes an increase in the quota of bottled wine and canned fruit allowed into the EU tariff-free, and new market access to sugar and ethanol, which were not there before.
The EPA provides for 80% of South Africa’s agricultural products to enter the EU market based on a quota system. The yearly tariff-free quota of 50 million litres of bottled South African wine, under the old deal, would be increased to 110 million litres under the EPA. Now, 150 000 t/y of South African sugar and 80 000 t/y of ethanol, can be exported to the EU duty free.
Under the TDCA, there was a tariff of between 34 and 42 euros per 100 kg of sugar. Under the TDCA, there was a duty of between 10 and 19 euros per hectare litre of ethanol that can enter the EU. There was also an improvement in the market access for South Africa exports of flowers, dairy, fruit and fruit products.
In fisheries, the EPA also allows South African fish – based on quotas – to enter the EU, without South Africa having to concede fishing rights in South African waters to EU companies, which were demanded by the EU under the TDCA.
The EU, under the EPA, will only recognise 100 South African geographic indications, whereby Europeans cannot produce products, within Europe, which are uniquely South African, under their South African names. For example, many European companies have been producing rooibos tea in Europe, under the rooibos name.
Now, Rooibos, Karoo Lamb and Honeybush teas, and other uniquely South African products, are recognised by the EU as geographic indications (GIs), which mean only those producing these products within the geographic areas of South Africa, will be recognised.
The EPAs make provision for South Africa to include another 50 South African products as GIs in the future. In return, South Africa must recognise just over 251 European GIs including a range of cheeses, meats, wines, spirits and edible oils.
The EU for the first time also allows South Africa to impose export duties on 8 mineral products for a period of 12 years, which means that South Africa can impose taxes on raw materials falling into this category exported out of South Africa to Europe, in a bid to compel the adding of value to products being exported. South Africa was restricted by the EU to levy export taxes on minerals under the TDCA deal, even if export taxes were permitted under World Trade Organisation rules. Currently, there is only a levy on unpolished diamonds being exported out of South Africa.
The EU also agreed to eliminate exports subsidies on selected agriculture products from the EU. The EU also agreed to explore introducing better safeguards to prevent highly subsidised EU products flooding South African markets.
The rules of origin, which have punished products produced in South Africa, using parts from third countries, have been made more flexible. In order to build local manufacturing, developing countries like South Africa often need parts from third countries – when the technology does not exist locally – to build new products.
However, the EU and the US have discouraged Africa and developing countries from building their own manufacturing sectors using parts produced in third countries, such as China, Turkey or Brazil. This has undermined the development of manufacturing and processed exports in Africa and developing countries.
The EPA deal allows for inputs sourced from any of the EPA countries as well as from African, Caribbean and Pacific countries that have concluded EPAs with the EU, to be designated as coming from within the borders of South Africa. This means that South Africa can at least source material from the rest of Africa or from other developing countries – which have EPAs with the EU, to build South Africa’s manufacturing sector.
The EPAs are weak on tackling non-trade barriers for South Africa’s products, which is often a way of blocking imports from South Africa.
The EU concluded different EPAs with different African regional trade blocs. However, these African “trade blocs” the EU was negotiated with were different to Africa’s own regional trade blocs, undermining African’s own efforts to integrate their economies.
The EU’s trade deals with the African “regions” have “different phase down commitments, both in terms of products and time frames, different exclusions lists, different rules of origins, and all this will complicate intra-regional trade as new controls will be required”. Different legal provisions, for example export taxes or the MFN clause, in the different EPAs will “complicate processes to forge common policy positions” among African countries.
South Africa specifically joined the SADC EPA in 2004, rather than negotiating a separate trade agreement with the EU, like the TDCA, because it did not want to undermine the regional integration process in the more than 100-year-old Southern African Customs Union (Botswana, Lesotho, Namibia, Swaziland and South Africa), SADC and within Africa.
The EU in the EPA deal has promised to tackle incidents when EU products flood South Africa’s markets.
The ink is hardly dry on South Africa’s EPA trade agreement and South African poultry producers, trade unions and civil society say that highly subsidised EU chicken imports are flooding the South African market. How the EU reacts to this poultry dispute will be a sign whether it is really committed to equitable trade with South Africa.
By William Gumede
William Gumede is chairman of the Democracy Works Foundation. His latest book is Restless Nation: Making Sense of Troubled Times
First published in African Independent on 08 July 2017