Reg Rumney
While the government is pressing on with attempts to get South Africa preferential trade access to the European Union (EU) in terms of the Lome Convention, business seems lukewarm.
The Lome Convention gives products from underdeveloped countries access to European markets, and could boost sales in Europe of certain South African products, particularly agricultural products.
South African Foreign Trade Organisation (Safto) general manager Anne Moore says: “What is important is that South Africa gets the best possible deal. It doesn’t have to be Lome.”
Organised business does not seem to be as taken with the idea as it could be — and not only because it might bracket us with the least developed countries in the world.
The South African Chamber of Business (Sacob), for one, has not taken a strong stance. Perhaps this is because it feels left out of the loop.
A Sacob representative says: “It is absolutely necessary for the government to talk to business on a regular basis about issues of trade relations or the result might be unacceptable to business.” What this statement reflects is a feeling that business would like to have been more involved in the negotiations on Lome — and other matters.
The Department of Trade and Industry (DTI), on the other hand, seems determined that access to Lome is the target. While South Africa is not strictly an undeveloped country, and so not eligible for Lome treatment, the South African argument is that it has a per capita income lower than more than 10 of Lome’s member states. Moreover, the United Nations Development Programme (UNDP) human development index, a broader measure of development, ranks South Africa 70th in the world, much further down the development ladder than many developing countries.
Instead of access to European markets in terms of Lome, the EU has offered a free trade agreement (FTA).
According to some economists, trade fuels economic growth for either party, hence the best possible situation is completely free trade, unencumbered on either side by tariffs. >From that point of view, the EU’s offer might seem more than fair. Why would South Africa want more?
FTAs are usually “asymmetrical”. This means the EU opens its markets to South African goods for, say, five years, and after that South Africa has to open its market completely to EU products. Over-protected South African industries would have time to adjust to the cold winds of international competition.
Indeed, EU commissioner Joao de Deus Pinheiro has put forward a 10-year period of grace before South Africa has to reciprocate free access — but this still has to be approved.
On closer examination, the DTI has pointed out that the matter of an FTA is more complex. Such agreements are freer in name than practice, the DTI says. Free trade agreements with Poland, Hungary and the Czechoslovakia excluded sensitive products, such as textiles, clothing, iron and steel, agricultural products, chemicals and footwear. Various “non-tariff” barriers are used to keep imports out of the EU. For example, the EU imposed strict rules of origin — a local content requirement of 60 percent — for Central and Eastern European countries.
The FTA will lock South Africa into the European market, the DTI believes, limiting its scope to seek new markets.
What seems to peturb the DTI most about the FTA is the effect it will have on South Africa’s protected industries. The DTI believes that when the EU does have free entry to South African markets it could exacerbate the painful adjustment costs South African industries are undergoing, particularly the clothing and textile industries. The extension of the stand-off period to 10 years may change the government’s view, however.
Sacob’s view is that Lome was only supposed to last until the end of the century. “Lome is old and dying,” says a spokesman.
What is more important is to see the direction of world trends, which seem to be moving towards freer trade. In that light Lome is counter to the move to a more open and competitive environment.
Sacob agrees with the DTI’s concern about the effect of an FTA rather than access via Lome on the other countries of the region.
The DTI says the preferential access the countries of the South African Customs Union already has in terms of Lome will be jeopardised if South Africa has a free trade agreement with the EU. Also, not having Lome access hurts South Africa’s plan to access a package of Lome Convention measures for regional reconstruction and development.
There are benefits for South Africa, such as potential relocation of industries into South Africa to gain access to reduced barriers to entry into the EU market.
That aside and whatever the eventual outcome of Lome negotiations, Safto’s Moore believes that certain EU products will be protected anyway, particularly agricultural produce, which is an important vote-catcher everywhere.
She also points out that while the agreement is important, firms should not place too much weight on it. “To pin hopes on a free trade agreement or Lome deal is wasting time when firms might be missing opportunities elsewhere.”