Jubie Matlou previews issues to be tabled before the SADC Economic Summit next week
If Southern African Development Community (SADC) countries were to go to war, it would be over a piece of a fabric. Belligerents would consist of South Africa and its Southern African Customs Union (SACU) partners of Botswana, Lesotho, Namibia and Swaziland on the one hand, and the remaining SADC countries of Zimbabwe, Zambia, Mozambique, Malawi, Tanzania, the Democratic Republic of Congo, Mauritius and Seychelles, on the other.
Disagreements among the member states arise out of the production, manufacture and retailing of fabrics and how these ought to be traded across political borders, and the originality of fabrics and what quantity should be imported.
Many of the region’s countries produce different fabrics of different textures. Tanzania, Malawi, Zimbabwe and South Africa all produce cotton in varying quantities and qualities.
Hand-picked cotton, in particular, is in great demand – tempting many African cotton- growing countries to seek foreign currency by supplying Europe and the Americas with raw cotton material.
Sifiso Ngwenya, chief director of the Department of Trade and Industry for the SADC region, explains that competition in the clothing and textile industry is very high in Southern Africa, and each country seeks to ensure that its interests are protected in the terms of the free-trade agreement.
South Africa prefers a subcontinental trade agreement that would forbid member states from importing fabric and requires that yarn be acquired in the region, woven into a fabric and finally made into a clothing article.
Ngwenya said such an approach would help develop the region’s textile industry, particularly utilising the cotton production from Zimbabwe, Malawi and Tanzania, and would yield economic spin- offs, such as job creation, for the entire subcontinent.
“By encouraging the development of a value chain, from yarn to a clothing article, the whole textile industry in Southern Africa stands to benefit. There are ancillary activities related to the textile industry and these include the dyeing and printing of fabric. Many small business entities would thus stand to accrue income from the one-stop shop value chain,” Ngwenya said.
On the other hand, non-SACU SADC countries prefer to buy fabric from Asia which comes cheaper because it is produced in high quantities. Smaller producers of fabric in the region sell their produce at a slightly higher price, thereby alienating potential domestic clients.
Claudia Mutschler of the South African Institute of International Affairs questions the rationale of confining trade within SADC countries. Why do a relatively small number of extraordinarily poor people trade with each other when the world economy is larger, more prosperous and faster growing?
The textile war, as it is known, stands in the way of the signing of a free-trade agreement for the whole of Southern Africa.
To date, the three-year old SADC protocol on trade has been signed by 11 member states. Angola is one of the countries outstanding. It provides for the establishment of a free-trade agreement between member states within eight years from the entry into force of the protocol.
This would entail the gradual elimination of barriers to inter-regional trade and the promotion of trade and investment in the region.
In terms of the protocol, South Africa’s free-trade offer to non-SACU SADC countries is structured into three categories:
l Immediate liberalisation. These are products that attract less than 17% import duty. They include copper, iron products and steel, wood and articles made of wood, machinery and appliances, paper and paperboard and printed materials, hides, skins and leather.
l Gradual liberalisation. These are products that attract between 18% and 25% of import duties, and would be removed in the first three years of implementation. They include furniture and bedding, selected chemicals, paper products, machinery and appliances.
Products that attract duties above 25% would be duty free within the first five years of the free-trade agreement implementation. Products in this category include articles of leather, rubber, selected textiles, vehicles, parts and commodities, selected footwear, cutlery, ceramic kitchen and tableware.
l Sensitive list. These are largely textiles, clothing and footwear products that are the subject of disagreement and outstanding negotiations among the SADC member states. These products constitute 0,78% of tariff lines and represent 3,04% of SADC imports.
The SADC protocol is arranged along the lines of the European Union/South African Free Trade Agreement, governed by principles of asymmetry which require the weaker economic partner to have more time to implement onerous obligations of the agreement than the stronger.
According to Abraham Pallangyo, SADC industry and trade adviser, the SADC free- trade agreement would be structured in such a way that the “South Africa-SACU states will frontload, Mauritius and Zimbabwe will midload, and the rest of the member states will backload in terms of time frame, pace of tariff reduction and the coverage of the SADC free trade”.
However, South Africa has bilateral trade agreements with a number of non-SACU countries. The SA/Malawi bilateral allows the latter to export everything to South Africa duty free on condition that 25% of goods originate from Malawi. The SA/Zimbabwe bilateral allows the latter to export certain products to South Africa at half the most favoured nations rates, whereas with Mozambique 35% of the goods should have originality value.
The SADC protocol on trade should not be viewed in isolation, rather in the context of the EU/SA Free Trade Agreement, particularly with regard to how it affects the other SACU members.
SACU is a liberalised sub-regional arrangement between South Africa and Botswana, Lesotho, Namibia and Swaziland, whereby cross-border trade is organised in such a way that tariff and duty proceeds are collected into a common pool and distributed among the five member states according to a formula weighted in favour of the four smaller economies.
Dr Rob Davies, chair of the portfolio committee on trade and industry, argues that the adjustment costs of the EU/SA Free Trade Agreement will, moreover, be felt not just in South Africa, but in the SACU states as well.
“Other SACU states will be confronted by increased competition from EU goods, in both their domestic market and in the South African market. This will also impact negatively on the revenue these countries currently earn from customs duties, particularly for Lesotho and Swaziland in which customs revenue constitutes a vital income for these countries’ revenue,” said Davies.
Ngwenya views the proposed free-trade agreement as a stepping stone towards economic development and industrialisation for the sub-continent – to move from exporting primary goods towards manufactured goods.
As the SADC Economic Summit gets down to business next week, it may well take heed of the report submitted to the EU Parliament that warned on the downside of free trade: “The commission’s proposal to negotiate regional free-trade economic partnership agreements may be premature, impractical and lead to increased poverty and social tension in the African, Caribbean and Pacific Group of States [imposing] large adjustment costs for non- industrialised countries.”