Additional Protocol to SA/EU Trade Development and Cooperation Agreement (TDCA)

1. PRESENTATION TO THE SELECT COMMITTEE ON ECONOMIC AND FOREIGN AFFAIRS ADDITIONAL PROTOCOL TO SA/EU TRADE DEVELOPMENT AND COOPERATION AGREEMENT (TDCA) INTERNATIONAL TRADE & ECONOMIC DIVISION (ITED) 11 June 2008

2. HISTORY OF THE TDCA • TDCA was signed on 11 October 1999. • Applied on a provisional basis from 1 January 2000. • Ratified by Parliament in November 1999. • Fully entered into force on 1 May 2004. • Full implementation coincided with biggest enlargement on 1 May 2004. • TDCA governs trade relations between South Africa (SA) and the European Union (EU). • TDCA provides for the establishment of a Free Trade Area (FTA) between SA and the EU overa transitional period of 12 years.

3. Key Features of the TDCA • Phasing out of customs duties on certain products: - EU will liberalise 95% of imports from SA (10yrs). - SA will liberalise 86% of imports from EU (12 yrs). • The EU has granted tariff quotas for certain agricultural products – cut flowers, canned fruit, fruit juices, dairy & wine. • Agricultural safeguard clause – gives SA right to challenge EU if proof can be found that increased imports of products are causing harm or threatening to cause harm to SA’s domestic industry. • Rules of Origin – prevent trade deflection. • World Trade Organization (WTO) compatibility – on average (95% + 86%) more than 90% of all trade between SA and the EU will be free of customs duties. (WTO requires that 90% of all trade between countries be liberalized). • Protection for sensitive sectors – through reserve list. • Integration of SA into global economy.

4. Objectives of the TDCA • Agreement cements SA’s trade relationship with the EU providing certainty to SA operators. • Improve market access for exporters on both sides. • Encourage SA’s drive to open up to the global economy. • Promote SA’s development.

5. Scope of the TDCA • The scope of the Agreement is about 90% of current trade between SA & the EU. • Agreement covers a wide field of cooperation, which includes: • Provision for a FTA. • Financial assistance & development cooperation. • Trade related issues: For Instance, competition policy, intellectual property, safeguard measures etcetera. • Economic cooperation: facilitating the restructuring & modernization of SA industry etcetera. • Social & cultural cooperation: poverty alleviation, unemployment, public health, protection of the environment etcetera. • Political dialogue: respect for human rights, support for democracy etcetera.

6. Nature of the TDCA • Open ended – no time frame for application. • Comprehensive – covers more than just trade aspects. • Agreement is differentiated in coverage & asymmetrical in timing – EU opens its markets up more and within a shorter time frame than SA. • Tariff-phase group – both SA & the EU have placed products in tariff phase-down groups based on the sensitivity of the product or industry to tariff liberalization. • Reserve List – sensitive products, for which no tariff reductions are envisaged. These products are reviewed periodically with a view to possible tariff reductions at a later stage.

7. TDCA Implementation • Agreement was provisionally implemented on 1 January 2000. • Agreement was fully implemented on 1 May 2004. • South African Revenue Service (SARS) (Customs & Excise Division) implements tariff cuts as set out in SA’s trade offer. • Dept of Agriculture implements & administers quotas granted by the EU • EU implements & administers quotas granted by SA.

8. EU Enlargements • The EU was created in 1958 by six founding member states, namely: Belgium, France, Germany, Italy, Luxembourg and the Netherlands. • The exercise of economic integration has seen six enlargements, with the largest occurring on 1 May 2004, when ten eastern European countries joined the EU.

9. EU Enlargements cont… • Six EU enlargements: * 1973 * 1981 * 1986 * 1995 * 2004 * 2007

10. EU Enlargements cont… • The current EU Treaty (Treaty of Nice) does not provide for the expansion of the EU beyond the present 27 states. • The primary purpose of the Treaty of Nice is to reform the institutional structure to withstand the enlargement of the EU. • The Treaty does not provide for the voting arrangements to be adopted for more than the present 27 member states. Although the proposed European Constitution does provide for such a mechanism, the ratification of this Treaty is currently on hold. The Treaty of Lisbon provides this mechanism, but has yet to be ratified. • The EU will have to revisit its enlargement mechanism before any further expansion can take place.

11. Original EU-15 Members EU-15 • Austria (1995) Italy (1957) • Belgium (1957) Luxembourg (1957) • Denmark (1973) Netherlands (1957) • Finland (1995) Portugal (1986) • France (1957) Spain (1986) • Germany (1957) Sweden (1995) • Greece (1981) UK (1973) • Ireland (1973)

12. 2004 Enlargement • Ten Central and Eastern European Countries (CEECs) joined the EU on 1 May 2004: • Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.

13. 2007 Enlargement • Two states joined the EU on 1January 2007, Bulgaria and Romania. • Presidential approval was obtained on 25 July 2007 for Minister Mandisi Mpahlwa to sign the Enlargement Protocol. • The Enlargement Protocol was signed on 10 October 2007, at the SA-EU Ministerial Troika held in Pretoria. • The Enlargement Protocol was presented before the International Relations, Peace and Security (IRPS) Cluster on 6 March 2008. • It was approved by Cabinet on 19 March and tabled in Parliament on 25 March 2008.

14. Purpose of the Enlargement Protocol • The Enlargement Protocol creates a legal basis for the extension of the TDCA to Bulgaria and Romania. • It ensures that Bulgaria and Romania benefits from the TDCA, and that SA’s exports gain preferential treatment into the EU.

15. Policy Implications • Romania & Bulgaria have to adapt to EU domestic policy and integrate into the EU, adopting all aspects of the EU’s common commercial policy: - The application of all EU bilateral trade agreements and the common external tariff; - At the WTO and in bilateral free trade negotiations, the EU will speak on behalf of all 27 member states instead of the previous 25 – all states will therefore commit to the EU’s multilateral and bilateral / regional commitments and obligations; - Any commitment and agreement has to be ratified and approved by consensus from all 27 members.

16. TRADE BETWEEN SA & BULGARIA 2000-2006 (R Millions)

17. TRADE BETWEEN SA & BULGARIA 2000-2006 (R Millions) cont… • The trade analysis is for the period 2000 to 2006. During these years SA had a positive trade balance, except for the period 2003-2005 whereby SA had a negative trade balance of -3, -13 and -36 million rand respectively. • Trade between SA and Bulgaria more than doubled during this period. • SA exports increased from R30 million in 2000 to R113 million in 2006 whereas imports increased from R16 million in 2000 to R43 million in 2006. • Main SA exports to Bulgaria are minerals, fruits and nuts, wool and sugar. • SA imports from Bulgaria are nuclear reactors, inorganic chemicals, electrical machinery and chemical products

18. TRADE BETWEEN SA & ROMANIA 2000-2006 (R Millions)

19. TRADE BETWEEN SA & ROMANIA 2000-2006 (R Millions) cont… • The trade analysis is for the period 2000 to 2006. • Total SA exports to Romania have shown tremendous growth over the years 1994 -2004. • SA exports to Romania increased from R 109 million in 2000 to R178 million in 2004. • There was a decrease in the value of SA exports to Romania in 2005 and 2006 and during the same period, SA experienced a negative trade balance of -74 and -51 million rands respectively. • SA imports from Romania increased from R32 million in 2000 to R139 million in 2006. • Main SA exports to Romania are ores, iron and steel, electrical machinery and chemical products. • Main imports are nuclear reactors, electrical machinery, iron and steel and articles of apparel and clothing.

20. Trade Implications • Exports - application of EU’s Common External Tariff to new member states. • Imports - Column for EU in SA Customs & Excise Act to be applicable to imports from new member states. • A reduction in tariff duties will result over time in Government forfeiting revenues colleted from import trade. • The enlargement provides SA with market access to 27 countries compared to the original EU-15. Thus, SA products now have a larger external market than was the case before the enlargement.

21. Trade Implications cont… • Consignments going to the new members must be accompanied by a EUR.1 form (certificate of origin), authorized by the Customs Unit at the SARS. • Consignments originating in the new members must be accompanied by form EUR.1, authorized by Customs in those countries • Although the TDCA has been operational for seven years, it has still not been possible to make a causal link between the TDCA and the growth in trade between SA and EU member states. • The overall assessment of the EU expansion in 2007 is that it is still too early to make any quantitative assessment of its impact in bilateral trade between SA and the EU, except from a theoretical perspective, namely that SA products will face more competition from imports from the new member states due to lower tariffs that they face in SA.

22. Trade Implications cont… • The opening up of these markets provides an opportunity for SA exports to enter these markets at lower costs due to reduced tariffs. • A useful exercise would therefore be to continue monitoring the change in trade flows and patterns over time to make occasional reviews as the expansion takes effect.

23. Opportunities & challenges • The enlargement provides opportunities and challenges for SA economic operators: • Like any market opening exercise, the EU enlargement will lead to a competition challenge for SA economic operators. • At the same time, SA economic operators need to make the most of the improved market access they will enjoy into the EU.

24. Consultations • Prior signing the Protocol, DTI consulted with National Economic Development and Labour Council (NEDLAC) on the accession of Bulgaria and Romania to the EU. • Industry representatives identified no sensitive areas and gave the mandate for signing the Additional Protocol to include Bulgaria and Romania. • DTI also consulted with other stake holders, namely the Departments of Trade and Industry, Foreign Affairs, Justice and Constitutional Development and the South African Revenue Services.

25. Implementation • SARS (Customs & Excise Division) will implement the Enlargement Protocol within its current organizational framework • SARS has prepared legislation that will give effect to the Enlargement Protocol. • SARS will implement the Enlargement Protocol retrospectively from 1 January 2007. • All operators that have had to pay normal customs duties during the period before ratification will be reimbursed. • Exporters have thus been advised to keep copies of all their documents for consignments cleared in the new member states.

26. Conclusion In conclusion • The TDCA is one of the most ambitious cooperation agreements ever concluded with a third country. • The full impact of agreement will only really be felt in 2012 – after complete transitional period.

27. THANK YOU

28. ACRONYMS • CEEC – Central and Eastern European Countries • DTI – Department of Trade and Industry • EU – European Union • FTA – Free Trade Area • IRPS – International Relations, Peace and Security Cluster • NEDLAC – National Economic Development and Labour Council • SARS – South African Revenue Service • SA – South Africa • TDCA – Trade Development and Cooperation Agreement • WTO – World Trade Organization