Trade Negotiation Issues

1. Trade Negotiation Issues Update Briefing By Rob Davies Deputy Minister

2. Purpose of Presentation • To update the Committee on some of the Issues and Challenges in current trade negotiations. • Focus on WTO Doha Round; SADC Regional Integration (FTA and Customs Union programme); SADC-EU EPA negotiation.

3. WTO Doha Round Negotiations • Formal resumption of negotiations earlier this year after suspension in July 2006; • Twin track process involving G4 meetings and multi-lateral Negotiating Groups; • G4 broke down in Potsdam in June 2007: fundamental issue: US and EU agree to lower commitments each would make in agriculture (e.g. US offers cut OTDS to $ 17 bn, compared to $ 22 bn bound and $ 11 bn applied), while insisting on “advanced developing countries” making sharp applied cuts in NAMA (Swiss formula coefficient 18).

4. Doha ctd • DG through TNC then mandates multilateral process to move from chair’s “challenges” papers to drafting of text; • Negotiating texts on Agriculture and NAMA circulated 17 July 2007; • Agriculture draft text broadly accommodates most positions e.g. US OTDS should be “in the teens” – generally accepted as “basis for negotiation” but still leaves outcome uncertain; • US insists on “headroom” above current applied OTDS; EU position on agricultural market access envisages modest average cuts and still wiggle room;

5. Doha ctd • NAMA paper more prescriptive: Recommends Swiss formula with coefficient of 8-9 for developed and 19-23 for developing; • Recommends removing brackets on existing proposals on flexibilities: 5% of lines left out or 10% reduced to half formula cut; • Says aware of requests by SA for additional flexibilities, but unable to offer recommendation without additional mandate

6. Effect of Application of Proposed NAMA formula cuts Tariff coeff 19 23 19 + flex + 23 45 13 15 29 30 40 13 14 26 27 30 12 13 24 24 20 9 10 14 15 10 6 7 8 8

7. Doha ctd • 5 developing country groups (representing 101countries) highly critical of NAMA text referring to “substantial imbalances” and an attempt to “reinterpret the mandate of the Doha round”; • Next step possible revised texts after European summer break, possible Ministerial meeting, but time is running out and current “window of opportunity” may close.

8. SADC Regional Integration • RISDP milestones: FTA by 2008, Customs Union 2010, Common Market 2015, Monetary Union 2016. • 1996 Maseru Protocol asymmetrical and differentiated removal of duties on “substantially all” trade: SACU >95% by 2005, others < 80% by 2008. • 2 countries not signed or made no offer.

9. SADC Regional Integration ctd • 4 countries behind in current commitments; • 5 have heavily backloaded with over 50% tariffs due to be eliminated 2008; • All nevertheless committed to “launch” FTA by time of summit 2008 – substantial coverage achievable; • SA’s focus on work of FTA: want this complemented by work of Protocol on Industrial Policy and Sectoral Cooperation as well as NTBs (trade facilitation, RoO etc);

10. SADC Regional Integration ctd • Consultants’ report on Options for SADC CU presented to Task Force in Lusaka; • Will be subject to national consultations, Task Team to meet again October. • Consultants point out few functioning customs unions in developing world, most only partial and took many years to construct;

11. SADC Regional Integration ctd • Consultants reject idea of “variable geometry” (building on SACU); • Propose a SADC CU with new CET; • Main argument in favour – will “lock in” low tariff regime that will integrate region into world economy (on basis of economic liberalisation yields growth argument)

12. SADC Regional Integration ctd • Acknowledges need to retain customs revenue collection at approx current levels, while suggesting a simpler, cleaner revenue sharing formula than current SACU; • Proposes CET with 0 duties for capital and intermediate goods and 5-10% “flat tariff” on consumer goods.

13. SADC-EU EPA Negotiations • EPAs EU’s “WTO compatible” alternative to current non-reciprocal Cotonou preferences applied to all ACP members (except SA) and EBAs (non-reciprocal, duty free quota free access) available to LDCs; • EPAs a package, including WTO-compatible FTA, aid for trade and other trade-related issues negotiated with separate ACP regions;

14. SADC-EU EPA Negotiations • Not all SADC in same configuration (MMZZ chose to join ESA group, DRC in CEMAC); • SADC configuration SACU plus AM[T]; • EPA negotiations coincided with TDCA review; • In interests of promoting regional integration and harmonised relationship with EU, SA joined SADC EPA process;

15. SADC EU EPA ctd • SADC EPA proposal adopted March 2006; argues reciprocity in place via impact of TDCA on all SACU, AMT are LDCs, therefore no need for further reciprocity; • Negotiation should accordingly focus on BLNS sensitivities, achieving DFQF access to EU market for all in harmonised system and development cooperation; • No binding obligations in new generation issues

16. SADC EU EPA ctd • EU responds March 2007; • Proposes DFQF for all products except sugar, rice and “competitive products” from SA; • Argues LDCs should accept reciprocity (to promote regional coherence, to secure improvement in RoO, and, implicitly, to access any funding made available under EPA);

17. SADC-EU EPA ctd • Argues that EPA process should also include negotiation of agreement on trade in services and “new generation” issues (investment, transparency in gov’t procurement, competition, labour and environmental standards) and IP (geographic indications); • Says all must be completed by December 2007, date of expiry of WTO Cotonou waiver, with implicit threat that if waiver expires with no EPA agreement ACP will trade on worse (GSP) terms with EU;

18. SADC EU EPA ctd • Some progress at technical level on trade in goods: EU offering to improve access for SA (but less than DFQF) and wanting improved access in return; reluctant to see any tariff increases on BLNS sensitive lines; • Huge pressure on AMT (as well as other LDCs in other regions) to reciprocate;

19. SADC EU EPA • Most difficult issues: trade in services and trade related issues; • Although presented as measures to enhance region as investment destination; no common regional positions on these issues and common position only emerged in EU at advanced stage of its integration process;

20. SADC EU EPA • Also aware that these have been identified as critical “beyond the tariff” issues to enhance access for EU firms; • SADC EPA common position – except for services - is that we will agree on cooperation with a view to building capacity in region in these areas, but no binding commitments nor subject to dispute settlement under the EPA;

21. SADC EU EPA • EU wants some firm commitment to negotiate binding commitments in later EPA phase with upfront commitments from SA, particularly services; • End date is looming, but not certain that only option if not completed by December 2007 is ACP to trade on worse terms.