IRIN SA-Europe trade deal briefing

South Africa this week signed a trade, development and cooperation agreement with the 15-nation European Union (EU) following four years of tough negotiations. South Africa, represented by its trade and industry minister Alec Erwin, hopes the deal will result in the growth of its economy, while the EU’s development commissioner, Poul Nielson, called it a vibrant symbol of the commitment of the world’s biggest trading bloc to a post-apartheid South Africa. What does the free trade agreement mean? It is the first comprehensive trade and cooperation agreement the two sides have signed. Under the terms, which will establish a free trade area between the parties over the next 12 years, the EU will grant duty-free status to 95 percent of imports from South Africa, while South Africa will cut its tariffs on 86 percent of its European imports. The EU will implement its tariff reductions faster, with most EU liberalisation being completed by 2002. South Africa’s tariff cuts, on the other hand, will concentrate on the second half of the 12-year transition period between 2006 and 2012. Which sectors are excluded from the trade agreement? South Africa has reportedly identified several sectors as “sensitive”, which means these will remain protected for a number of years. These include motor vehicles, textiles and clothing, red meat, sugar, winter grains and dairy products. Also, about 27 percent of South Africa’s agricultural products were completely excluded from the trade agreement. This, according to reports, was because of the EU’s policy that protects Europe’s farming sector through subsidies. What are the other elements of the pact? There are two other elements to the agreement. One is an agreement on cooperation in science and technology, fisheries and wines and spirits. The other element relates to South Africa’s partial accession to the Lome Convention, which is a cooperation agreement between the EU and 71 African, Caribbean and Pacific (ACP) countries. According to an EU statement, the science and technology agreement took effect in 1997, while an agreement on wines and spirits is still being negotiated by the two parties and a separate fisheries deal will be finalised in the coming months. Why is it such a big deal? Both the EU and South Africa have expressed optimism about the results that will accrue from the agreement. “The agreement is proof of our unique partnership and our commitment to working together into the next century,” said Nielson after a signing ceremony on Monday in the South African capital, Pretoria. An EU statement added: “The agreement will give South Africa preferential access to the world’s largest market, opening up important opportunities for South African companies in sectors such as textiles and clothing, chemicals, food and vegetables.” South Africa’s president, Thabo Mbeki, was quoted after the signing ceremony as saying: “The impact of this agreement will be growth in South Africa’s economic relations with the EU, which will result in the further growth of our economy.” Are there any doubts about the agreement? Certainly. There were tensions right up until the signing of the agreement because of last-minute demands by France, Spain, Portugal, Greece and Italy for concessions on wine and spirits. They sought to phase out South Africa’s use of the terms “port” and “sherry” and even protect their “traditional” descriptions of these drinks such as “tawny, ruby, and grand cru”. This led a South African commentator to ask whether the EU was not only accommodating the demands of its farmers, but whether it was in fact trying to set the agenda for the forthcoming World Trade Organisation negotiations. Was it a celebration? No. This issue prompted Mbeki to attack what he called the obstructive, vested interests of the EU, and instead of joining Mbeki at the signing ceremony in Pretoria, Martti Ahtisaari, whose country, Finland, currently holds the six-month rotating presidency of the EU’s executive Commission did not come. What now? It remains to be seen how each side will interpret clauses in the agreement, like the wines and spirits issue, left vague to meet the signing deadline. Both sides, however, have agreed to leave what grievances they may have in the future to a joint dispute settlement commission. What about the impact on South Africa’s poorer neighbours? South Africa’s neighbours, Botswana, Lesotho, Namibia and Swaziland, which are members of a local customs union with South Africa, have all raised concern about a likely drop in fiscal revenues as South African tariffs on European imports drop. They have demanded that the EU address these concerns as soon as possible. Brussels has already made an offer to help Swaziland. If the new deal is the best an African economic giant like South Africa can achieve, what will characterise the kind of agreements countries without South Africa’s leverage can expect? According to Brussels-based ACP diplomats, the new agreement with South Africa is viewed as a model of the type of accord Europe wants as it seeks to curtail the system of non-reciprocal trade preferences granted under the current Lome Convention.