SADC Rules of Origin and regional trade issues Niel Joubert tralac researcher

1. SADC Rules of Origin and regional trade issuesNiel Jouberttralac researcher Clothing and Textiles Workshop 8 October 2004

2. Introduction • What are Rules of Origin? • Origin of a product (economic nationality) • Globalisation, manufacturing processes • Why are RoO important? • Discriminating policies e.g. • Quotas • Preferential tariffs • Trade remedies • Statistics

3. RoO in PTAs • Ensures that only members to a PTA benefit from preferences • Authentication function • Prevents trade deflection / transhipment • Protective function (intended or unintended) • Stricter authentication normally leads to higher protection

4. SADC Trade Protocol • SADC: Angola, Lesotho, Malawi, Mozambique, Tanzania, Zambia, Botswana, Mauritius, Namibia, South Africa, Swaziland, Zimbabwe, DRC, (Madagascar) • Trade Protocol entered into force 1st of Jan 2000 • Amendment Trade Protocol • Being implemented by 12 of the 14 SADC members • Objective to liberalise intra-regional trade in goods and services and to establish a Free Trade Area (FTA) for the SADC region • FTA by 2008, Customs Union by 2010 • Asymmetry in tariff phase down schedules of Member States: • SACU (front-loaded) v rest of SADC (back-loaded) • Special access to SACU for MMTZ

5. SADC RoO • Annex 1 to the Protocol as replaced by Amendment Protocol on Trade • Originally agreed RoO very simple; similar to COMESA • Lengthy process of negotiating highly sector- and product specific RoO • Varies widely across chapters, headings and subheadings • More restrictive: CTH replaced with multiple transformation rules and/or descriptions of required production processes • VA requirements increased, import content decreased • Similar to SA-EU (TDCA) and EU-ACP agreements

6. SADC RoO – Textiles and Clothing • Textiles and clothing of particular interest for SADC • Significant production in number of member states • Took roughly 2 years to agree on RoO for textiles and clothing • For some other sensitive products like wheat flour RoO are still outstanding – means no preferential trade • double transformation requirement • E.g. garment must be made from regionally produced textiles; fabrics must be made from regionally produced yarns • yarn – fabric + fabric - clothing • Only few exceptions e.g. yarn • MMTZ Agreement aims to mitigate this requirement for LDC member states

7. MMTZ Agreement • Waiver of double transformation rule for 4 poorest member states • Malawi, Mozambique, Tanzania, Zambia (MMTZ) • Subject to small quotas, expires July 2006 • new quotas levels were suggested during review in first quarter of 2003 • Dependent on MMTZ giving SACU certain preferences • Agreement on changes still outstanding • Currently being reassessed as part of mid-term review of the Trade Protocol

8. MMTZ Preferences

9. Mid-term Review of Trade Protocol • Includes review of RoO • official justification for product specific RoO is that they encourage regional producers to make use of regional raw materials and improve backward and forward linkages in the various production chains in the region • SADC industries however cannot be globally competitive if they are constrained by restrictive rules of origin from sourcing inputs from the most competitive source • Most regional producers, including SA cannot meet the current RoO

10. Mid-term Review of Trade Protocol • Vertical regional integration did not realise • Movement towards more simple and unrestrictive RoO • General suggestions are that goods should qualify for SADC preferences if they: • Are wholly produced in the region • Undergo a CTH (some exception) • Contain 35% VA • Goods that have not undergone sufficient processing are disqualified (screwdriver operations) • Effectively means a single-stage transformation for clothing and textiles

11. SACU–US FTA talks • Lock in unilateral AGOA preferences • US AGOA covered imports from SACU 2002 – $1,7 billion • Talks currently deadlocked – differences on issues for negotiation • SACU wants to continue talks on market access, but wants to exclude Investment, Government Procurement, IP and Labour • September meeting cancelled

12. RoO in other US FTAs • US-Aus CTH • US-Morocco VA (35%) and CTH • Textile and Apparel – both CTH with specific rules • Special safeguard mechanism • Yarn-forward rule • Fibre and yarn from parties to the FTA • 7% de minimus

13. RoO in other US FTAs • Morocco has limited 3rd country allowance • 30 million sq meters for first 4 years, eliminated after 10 year period • < 1% of total US imports • Allowance: use of cotton fibres from LDC SSA countries • Both US and Moroccan producers • NAFTA, Singapore, Chile • Limited allowances; NAFTA not time bound • Israel, Jordan allowed unlimited 3rd country yarn and fabric inputs

14. RoO in other US FTAs • Market access for textiles and apparel – US-Morocco • Fully reciprocal and symmetric • Tariffs for most textile products eliminated over 6 years • Duty-free treatment for designated quantities of products • "…The increase in total U.S. textile and apparel imports from the world is likely to be very small [under this FTA] and the impact on U.S. production and employment in the textile and apparel sector is likely to be negligible. Any increase in shipments from Morocco as a result of the FTA is likely to displace imports from other high-cost exporting countries…" -U.S. International Trade Commission • www.ustr.gov Office of the United States Trade Representative

15. Future impact of SADC FTA • simpler RoO will help promote regional trade and international competitiveness of member states • EU-ACP EPAs negotiations • Traditional high cost producers producing for the tariff protected domestic markets stand to lose • RoO should be used to authenticate imports and not for protection