Rob Davies discusses the implications of a free trade agreement for South Africa’s neighbours with Lynda Loxton
As the South African government continues to finalise its mandate for negotiations with the European Union on a free trade agreement (FTA), the ramifications of such a deal are becoming more complicated.
African National Congress MP and trade expert Rob Davies told the Mail & Guardian this week that more evidence was emerging of how much South African Customs Union (Sacu) states could be affected if the FTA, as presently envisaged, went ahead.
He said the Namibian Economic Policy Research Unit, for example, was “gravely concerned about the impact of the FTA on revenue in Namibia” after doing an impact study.
“They found that a reduction of a substantial part of tariffs to zero, as distinct from a reduction in tariffs, would be bound to affect the overall revenue pool of customs duties and that Namibia could lose anything up to 15 to 20% of total government revenue if this is not addressed,” he said.
The EU had indicated it was not prepared to provide Namibia or other Sacu states with any compensation for this, but had suggested South Africa should find another way to fill the gap.
“They say that we need to understand that a customs union based on revenue derived from protectionism may not be sustainable in a globalising world,” Davies said.
“Perhaps what should happen is that the customs union should base itself on some revenue source other than customs duties.”
Just what that alternative could be has been left vague, but value-added tax has been mentioned, which is bound to create an outcry.
“What’s true for Namibia is obviously true for the other countries,” Davies said.
“Swaziland is now being urged to cut its budget deficit, and for Lesotho the size of the customs revenue is larger than for any other country. This is a highly significant and important issue.”
He welcomed the fact that some neighbouring countries had started to identify their own interests, especially since they were all members of the Lome Convention and there was speculation that the FTA was increasingly being seen as a possible model for relations with developing countries when the current Lome agreement expired.
Apart from the loss of customs duty revenue, an FTA- type of arrangement would limit the access of Sacu states to the EU, while at the same time exposing them to competition from highly subsidised EU exports.
Despite growing impatience by the EU, South Africa is insisting on drawing up its negotiating mandate and having it approved by all interested parties, including parliament, before it starts negotiations with the EU. Davies said Trade and Industry Minister Alec Erwin had indicated that negotiations could possibly start in September or October.
`The EU has been complaining that we are taking our time, but I think that for us to go into negotiations without an anchored mandate could be a huge mistake,” Davies said.
“They have got an anchored mandate, which has gone through processes and been approved, and points to a clear position for member countries.”
Already, some observers have hinted that the EU mandate was the product of a very tight set of compromises in Europe, and South Africa should not imagine it could shift the agreement very far.
“The whole history of EU negotiations is that 90% of the negotiations take place in Europe and only a fraction takes place with the other parties,” Davies said.
As a sweetener, EU officials were saying that by anchoring itself to Europe, South Africa would be making its liberalisation programme credible and attractive to investors, no matter what the consequences.
“The extent of the liberalisation that we want to make credible should surely be our choice rather than somebody else’s. The point that also needs to be raised is, investment to serve what market?”
The investments could serve the domestic, regional or European markets. An FTA of the kind envisaged by the EU would impose huge adjustments on companies presently serving the domestic and regional markets and this, in turn, would inhibit investors from entering South Africa. Any comparative advantage that South African firms had would be wiped out.