Topics publications: Trade law and regulation
Trade Reports
The SACU Tariff Board: Original Design and Implications of Subsequent Developments
With the signing of a new Southern African Customs Union (SACU) Agreement in 2002, the Member States agreed to a new design for conducting the operations of this Organization. This would have meant a radical departure from SACU’s previous modus operandi and the dominant role of South Africa in administering the Common External Tariff (CET) and determining tariff policy; including the use of the tariff as an industrial development instrument.
The proposed Tariff Board and National Bodies would have allowed for joint decision-making and common policies on the administration of SACU’s CET. The Agreement contained provisions to this effect and a plan for subsequent follow-up action to adopt a common industrial development policy and an annex on the functioning of the Tariff Board. The Agreement also provided for an ad hoc SACU Tribunal.
The contract on these particular aspects was never implemented. This paper discusses the implications of the subsequent developments for the functioning of SACU and for the BLNS States. What could these countries now do in order to deal with their domestic trade governance needs; such as new legislation and new institutions? What considerations should guide their decisions? What should new national legislation provide for and how will future SACU CET operations be conducted?
SACU seems to be in need of a new understanding among the Members on the future of this longstanding CU; which has contributed directly to the existence of a well-integrated regional market for trade in goods and commerce between the Members. SACU is also an excise union and four of the Members belong to the Common Monetary Area. Great care should be taken not to unravel this arrangement and undermine the benefits which all Members enjoy.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
Consignment Based Conformity Assessment (CBCA) and Pre-Export Verification of Conformity to Standards (PVoC) programmes in SADC countries
The significant increase in imported consumer goods into SADC countries over the last decade has caused several SADC Governments to implement or to consider implementing Consignment Based Conformity Assessment (CBCA) or Pre-Export Verification of Conformity (PVoC) programmes. CBCA/PVoC programmes are generally described as having the following objectives:
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To protect consumers from dangerous, substandard or counterfeit products.
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To protect the environment.
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To protect domestic industry from unfair competition from non-compliant goods.
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To facilitate trade through the avoidance of consignment testing upon arrival or multiple testing requirements.
CBCA/PVoC programmes could indeed achieve all of these objectives, but they pose challenges to governments in terms of design and execution in order to avoid them being in breach of the provisions of the General Agreement on Trade and Tariffs (GATT), other applicable WTO agreements and certain aspects of regional trade arrangements.
This Trade Brief will look at CBCA/PVoC programmes in the SADC region and will discuss them in a GATT, WTO and SADC context.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Investment Protection Agreements: The Implications of South African Policy and Legislative Changes
International agreements on the promotion and protection of foreign investment do not guarantee investments; nor the right kind. They do, however, play an important role as part of the considerations which govern decisions by foreign investors. Uncertainty about the rights of investors may result in investment decisions in favour of alternative destinations; or efforts to carve out special dispensations. The latter usually comes at a price; such as a lack of transparency.
The recent decision by the South African government to withdraw from certain Bilateral Investment Treaties (BITs) and to propose, in the place thereof, national legislation in the form of the Promotion and Protection of Investment Bill, has triggered a wide-ranging debate and some strong criticism. The government does not dispute the need for legal certainty for investors; but has opted for a new approach as to how and where protection will be available. This has become necessary in order to regain the policy space which it maintains is necessary in order to regulate investments in the public interest.
This paper discusses the investment protection debate and related developments within a broader international trade, development and regional context. The additional aim is to clarify some of the technical aspects of the proposed legislation.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
What future Scenarios for the Southern African Customs Union?
The Southern African Customs Union (SACU) is in an impasse; and has been so for some time now. The Council of Ministers, which is SACU’s “supreme decision making authority”, is not meeting; no common policies are discussed; and no decisions on how to deepen integration among the Member States are taken.
This state of affairs casts a shadow over the future of the region and causes uncertainty. It has, for example, been stated in reports to Portfolio Committee meetings of the South African Parliament that the South African Government wants to re-negotiate the SACU revenue sharing formula, and wishes to alter aspects of the 2002 SACU Agreement which provide for a Tariff Board and an ad hoc Tribunal. How exactly this is envisaged to happen has not been clarified or shared.
We believe this state of affairs merits urgent attention. However, we are not aware of any official initiative to discuss the future of SACU and to address the present challenges. It has been said that SACU’s problems can only be discussed at Heads-of-State level; but exactly how and when this will happen remains unclear. The SACU structures do not provide for such a mechanism. It seems as if SACU is in an impasse about its impasse.
It is against this background that the present paper has been written and is disseminated for comments and responses. It discusses a number of possible scenarios for SACU’s future; which were debated at a recent tralac workshop attended by participants from the SACU Member States.
We believe that SACU’s future should be looked at in terms of the bigger regional picture. This Organization serves the interests of all the Member States and their inhabitants in what is a well-integrated and stable region. Even if certain changes could be justified, SACU’s future as the foundation of a stable region should be secure. The present murky picture undermines this certainty.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
An overview of AGOA’s performance, beneficiaries, renewal provisions and the status of South Africa
The African Growth and Opportunity Act (AGOA), a piece of United States legislation, was signed into law by the then President of the United States (US) Bill Clinton on 18 May 2000. AGOA marked a significant and fundamental shift in US policy towards, and engagement with, African countries. Whereas previously US relations with Africa were largely influenced by Cold War and related prerogatives, and support for African countries at the time focused less on trade and economic development but more perhaps on emergency relief, poverty alleviation and other mostly ad-hoc measures, AGOA re-aligned this relationship towards one of greater trade and economic development by offering – unprecedented in terms of scale – preferential market access.
When reflecting on AGOA one can conclude that AGOA’s trade performance and impact merits two perspectives; one of (unfulfilled) potential that consequently views AGOA as a broad failure, and one of unprecedented opportunity that – while clearly under-utilised – has provided beneficiary countries with just short of $50 billion of utilised non-oil duty-free market access over the period 2001-2014, and which has acted as a driver for continued adherence to various governance, human rights and economic standards.
AGOA, while generous in intent and application, also contains many gaps in coverage and one of its few weaknesses from the perspective of some beneficiary countries (when seen in the context of the relatively low utilisation rates) would include the fact that a number of so-called ‘sensitive’ agricultural products remain outside of AGOA coverage or remain subject to tariff rate quotas; these are often high-duty products that might otherwise be of keen interest to African countries.
And while it remains tempting to simply consider this in the context of the non-reciprocal benefits extended through AGOA, the legislation’s “strings attached” (especially around its extended eligibility requirements which some may argue constrain national policy space, or the more implicit political dimension underlying AGOA) means that these preferences are not simply a ‘free’ gift. Also, in reviewing AGOA, the fact that AGOA builds on the US’ own pre-existing GSP preferences, which already gave LDC countries significant access to the US market (again, subject to eligibility criteria), provides some additional perspective.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Trade Remedies as part of the Continental Free Trade Area
This paper discusses the possibilities for including suitable trade remedies provisions as part of the Continental Free Trade Agreement (CFTA), which will be negotiated in order to conclude one of the CFTA pillars, namely a trade in goods agreement. These negotiations have to start in 2016.
The main difficulty with regard to trade remedies as legal disciplines in African Free trade agreements (FTAs) arises from the fact that African Governments (with the exception of two or three) have no experience of implementing WTO compatible trade remedies. They complain that the applicable disciplines are cumbersome and difficult to comply with. They lack the technical capacity and resources to do so and therefore forfeit an import set of mechanisms to protect domestic industries in a rules-based manner.
One of the unfortunate consequences is that some Members take unilateral action which flies in the face of their legal obligations under Regional Economic Community (REC) agreements. Another consequence is that infant industry clauses remain popular. They bring their own complications. The present state of affairs becomes even worse when the absence of binding dispute settlement provisions is considered.
The CFTA should strive to be a proper rules-based trade arrangement. In order to achieve this objective there should be clear rules as to the exceptions allowed and how such measures will be justified. Trade remedies and dispute settlement mechanisms are key to a rules-based trade regime.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
How the CFTA could advance the Framework of the Abuja Treaty
We believe the Continental Free Trade Area (CFTA) negotiations offer a promising opportunity for concluding an agreement to address trade related challenges in Africa; and to do so a meaningful manner. Whether this will happen depends on how these negotiations are conceptualized and undertaken. If the traditional trade in goods agenda is (again) the dominant theme (with the aim to form a continental customs union in terms of the Abuja Treaty, as some commentators are proposing) it will be an opportunity lost.
The aim of the CFTA negotiations is to bring about, as far as the Abuja Treaty is concerned, the following:
Within the broader framework of the Abuja Treaty Establishing the African Economic Community, the objective of launching negotiations for the CFTA is to achieve a comprehensive and mutually beneficial trade agreement among the Member States of the African Union.
What is the “broader framework of the Abuja Treaty”? The AEC Treaty (the Abuja Treaty) came into force in May 1994. Its aims are broader than trade and economic integration and include social and cultural development, cooperation in all aspects of human activity with a view to raising the standard of life of Africa’s people, maintaining economic stability, and establishing a close and peaceful relationship between the Member States.
The implementation of the Abuja Treaty is a process which has to be undertaken in six stages over 34 years, to be completed by 2028. In the meantime the crucial assignment of boosting intra-African trade and forming an inclusive, comprehensive and modern continental trade arrangement has become too urgent to neglect. The CFTA cannot wait till all RECs have become CUs. Some of them (e.g. SADC) have in any case moved that objective to the backburner of their agendas. There are good reasons why they have done so.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
What is the Continental FTA Mandate?
The negotiations to establish the Continental Free Trade Area (CFTA) will start by the middle of 2016. The indicative date for completing the first phase is the end of 2017. These negotiations will be about traditional matters as well as new approaches and challenges. It is important that the African Union (AU) and national officials responsible for the preparatory work grasp the essence of those novel aspects inherent in the CFTA initiative; which could make this arrangement a harbinger of true change. To replicate, once again, the old and trusted trade in goods agenda would be to miss a promising opportunity. The CFTA negotiations call for a bolder vision; it has the mandate to do so.
The CFTA negotiations shall cover trade in goods, trade in services, investment, intellectual property rights and competition policy, and shall be conducted in two phases. The first phase shall cover trade in goods and trade in services; for which there shall be two separate legal instruments. The second phase has to produce agreements on the remaining areas.
This is not simply a wish list; and in any case not an exhaustive one. It does recognise that new challenges have to be addressed and that there should be a ‘comprehensive’ new African trade deal. How are these negotiations to be conducted?
This Trade Brief takes a look at what has been agreed as the framework and guidelines for the CFTA negotiations, and unpacks some of the implications. It argues that the opportunity now exists to make a novel and more proper contribution to continental trade, global integration, and economic development plans generally. This requires recognition of the limitations inherent in past practices; which brought only partial results. They are not appropriate as the continental recipe for addressing contemporary needs.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
Private Sector Interests with regard to the Implementation of the SADC Protocol on Trade
This Trade Brief argues that the private sector has a vital stake in the effective and lawful implementation of regional trade agreements such as the SADC Protocol on Trade. It sets out to explain why this is so and what the consequences of non-implementation are. There is a need for more concerted action on their part to advance efforts for proper rules-based trade arrangements, for the concomitant benefits of due process, transparency and respect for the rule of law. Some ideas are offered on how this could be achieved.
Free Trade Agreements (FTAs) are not an end in themselves. They are based on legal instruments which contain rules on how trade between the State Parties will be liberalized, what the timeframes for implementation of specific obligations are, whether certain exceptions are allowed and under what circumstances, how rights will be protected, and what remedies apply. Trade and regional integration are thus to be governed by law.
The difficulty facing private sector traders, investors, and service providers is the fact that trade agreements are concluded between states; although they are not the real traders. The private sector is not a party to these agreements and cannot directly derive any rights from the legal instruments so concluded. They are, however, often directly affected. Individuals or companies cannot invoke international agreements before domestic courts; unless such agreements are made part of the law of the land. This seldom happens in our part of the world.
The private sector will also not enjoy standing before regional courts or tribunals. The new Protocol on the SADC Tribunal has taken this right away. The net result is that private traders have to rely on the preparedness of their States of nationality to act on their behalf when they need assistance with regard to the unlawful behaviour of other governments. However, African states do not litigate against each other when it comes to trade issues.
The question which arises is whether the rule of law can and should apply within the SADC Free Trade Area and elsewhere. Would new African trade arrangements such as the Tripartite Free Trade Area (TFTA) and the Continental Free Trade Area (CFTA) be different? What could be done to change this unfortunate state of affairs?
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
The Australian-Chinese Free Trade Agreement: Implications for South Africa
This paper examines the Free Trade Agreement (FTA) between Australia and China (ChAFTA) that was signed on 17 July 2015. The examination provides an emphasis on the implications for South Africa. It concentrates on an analysis of Australia’s merchandise exports to China, with these exports set in a perspective that enables us to assess access concessions against South Africa’s (and to a lesser extent New Zealand’s) exports. South African imports from China face significantly different access issues than do the comparable Australian imports. Accordingly, we feel that there is little to be gained by dwelling on the tariff concessions that Australia has made to China.
During 2014 China imported goods worth some $44.6 billion from South Africa, a figure just under half of the Australian imports of $98 billion. We warn, however, that the data for these imports from South African does not match the reported exports from South Africa to China. It is made even more complex by the Chinese use of a ‘Special’ import line that is undisclosed and comprises imports from South Africa to about one half of its significant value. Much of this trade may be gold, and as South Africa does not disclose its gold export destinations it is difficult to assess the real values of this trade.
There have been some changes to the investment regimes in both countries, but these seem to be relatively minor. The exceptions are that concessions have been granted with respect to movement of people to support investments and some liberalisation of the services sectors. The usual endeavours to cooperate more comprehensively on the general non-tariff measures (NTMs) are incorporated into the agreement. This is so as the rules of origin (RoO) procedures seem to be standard and the parties have agreed that neither member will introduce or maintain export subsidies on goods destined for the territory of the other.
In the final analysis there are few implications for South Africa from ChAFTA. Australia gains some advantages in the Chinese resources market, but while these are important they are not massive. In general, the tariffs are low and there is limited South Africa-Australia head-to-head competition in most lines. Australia gains some advantages in agriculture, but these are mainly in commodities where South Africa does not compete – except for perhaps wine. There are no changes to the important sugar market, and in other merchandise trade sectors there are few advantages to Australia over South African competitors in China. Crucially, on Chinese imports Australia has negotiated its already low tariffs on clothing to go to zero very quickly. This is something that South Africa could not contemplate under the existing trade regime. Elsewhere in the trade remedies, services, and investment chapters, there appears to be few pointers for South Africa to muse over.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.