Manchester Trade (Washington, DC)
Stephen Lande and Tony Carroll
10 June 2009
document
Washington, DC — The following paper by Stephen Lande and Tony Carroll was delivered as part of a conference on the future of United States-South Africa relations at the Woodrow Wilson Center in Washington, DC on June 10, 2009:
The coincidence of new Administrations both in Pretoria and Washington offers a solid opportunity to advance trade relations between the two countries. This paper suggests a joint approach which should be attractive to both countries.
U.S.-South African trade relations have been strained in the recent past due to the failure of the SACU negotiations and continuing differences in Geneva on the WTO agenda. The failure of SACU was a mutual blame game, with the U.S. accusing South Africa of being excessively obstructionist and South Africa accusing the U.S. of trying to impose a preconceived model agreement on SACU. In Geneva, South Africa argues that the U.S. does not recognize that a development round involves special attention to the needs of all developing countries. The U.S. argues that South Africa supports the Indian position that advanced developing countries should only provide minimal concessions despite their increased competitiveness.
The basis for building a cooperative relationship could be to ignore the past and instead focus on a joint approach to issues impacting Sub-Sahara Africa (SSA) in the trade and development fields. In this area South Africa and the U.S. share common objectives. Only an economically integrated SSA region could offer the small, often landlocked or island based countries the opportunities to participate as competitive players in the twenty-first century world economy. With perhaps two or three exceptions, there is no way that the 48 independent SSA countries can attain economies of scale required to be competitive unless they organize first into functioning regional economic communities (RECs) and then eventually into a European type of African Economic Community (AEC). This is foreseen in the Abuja Treaty- the guiding instrument for economic integration of the region. Coincidentally, this document is currently under review to speed up the time limit originally envisioned to attain the AEC.
Upcoming meetings between South African and U.S. officials could focus on developing this new approach. U.S. and South African officials might have already begun these efforts as recently as last week when trade officials from these countries attended both the World Economic Forum in South Africa and the Cairns Group meeting in Australia. The AGOA Forum in Kenya provides an opportunity not only to discuss these ideas further but to make sure that other SSA countries are involved in the dialogue. The private sector could offer support for this approach during the CCA Business Summit in Washington this fall. Finally, a new approach towards SSA trade issues could be part of the outcome of the next G-20 Summit scheduled for late fall. An agreed approach would also provide a positive impetus to a successful November WTO Ministerial.
The starting point for this cooperation could be for the two entities to work closely together towards a coordinated approach on SSA issues in the WTO. The basis of this cooperation could be an agreement to modify WTO rules and practices so that they no longer inhibit African economic integration but instead promote it. The major impediment is the current WTO rules which divide the SSA region between least developed and non-least developed countries. A literal reading of WTO rules conveys that developed and advanced developing countries cannot provide unilateral duty preferences to the SSA region as a whole. It can only provide such treatment to the LDCs in the region and the other 13 SSA countries are not.
This difference between LDCs and non-LDCs is based on UN definitions. These definitions do not measure trade competitiveness and were not designed with African integration in mind. These definitions predate active African participation in the WTO as well as the current efforts by the SSA to deepen and amalgamate existing RECs.
Economic integration in the region can only be deepened if the trading community treats the region as a single unit. WTO rules and the Doha DFQF (Duty Free/Quota Free) initiative by excluding non-LDCs, SSA countries from LDC preference do just the opposite by dividing the region. The current Doha text on market access creates obstacles to the formation of customs unions. It requires non-LDCs to provide market access commitments while LDC members, of the same RECs, are not required. A better alternative would be to delay requiring SSA market access until RECs are in a position to make concessions as a group. A reasonable deadline - 5 or 10 years - would serve as an inducement to deepen economic integration in the region.
In contrast to the EU approach, the U.S. AGOA program provides preferences for both LDCs and non-LDCs. The U.S. has been able to maintain AGOA due to the absence of any dispute settlement claim being lodged at the WTO and is now expecting a waiver at the next WTO Council meeting. Also, largely due to the efforts of USTR staff in resisting strong Congressional pressure to remove South Africa from AGOA for failing to come to an agreement, the United States did not remove any of the non-LDC members (in addition to South Africa, Botswana, Namibia and Swaziland are non-LDcs). They realized the negative implications for regional integration of differentiating the treatment of SSA countries under US trade law.
The European Union could have followed the U.S. example and provided duty-free treatment for all SSA non-LDC the exception could have been South Africa already which had an FTA with the EU) as beneficiaries of its LDC initiative- Everything but Arms (EBAs.) Instead, it refused to provide these countries preferential access beyond that available under GSP which excluded many products of interest unless the countries entered into an EPA. The decision not to designate any non-LDC SSA country for EBA preferences largely reflected mercantilist concerns. In fact, the threat to deny non-LDC SSA countries preferential access for non-GSP products was the major lever used to force these countries to enter into EPAs with the EU. Additional pressure was applied to all SSA countries by excluding generous origin rules especially for garments and fisheries from the EBA. In addition, pressure was applied by veiled threats that at least some future aid programs would be modeled to fulfill the needs of EPA partners and thus not available to non EPA signatories.
It is difficult, if not impossible, to form a customs union within a REC if some of the members are committed to zero duties for EU imports of goods and services and others prefer to maintain MFN rates. EPAs require the SSA members to provide the EU duty-free access for 50 and 80 percent of its exports of goods and services.
EU efforts to divide RECs continue unabated. It now appears likely that in West Africa, Ghana will join the Ivory Coast in entering into a comprehensive EPA with the EU. This could be a fatal blow towards efforts to create a customs union with ECOWAS and would strain the existing customs union within UEMOA. In southern Africa, efforts at perfecting regional integration are threatened by the agreement of Botswana, Lesotho and Swaziland to enter into a comprehensive EPA while Angola, Namibia and South Africa pose serious objections. The signatures are an EU tactic to pressure recalcitrant countries to agree to the EPA by the end of the month.
The only outcome of this is a no-win situation for economic integration within the SSA region. If other west and southern African countries do not sign, there would be a serious and perhaps fatal strain on the existing SACU-the longest existing customs union in the world and UEMOA's ongoing customs unions will not be signed. If additional countries do sign the overall development of the region, it will be compromised by premature opening of markets, trade diversion from more efficient suppliers, and a return to pre-independence colonial trading systems for former dependencies of Europe.
Proposed Basis for Future Relations
Given the above, we have the following suggestions for an approach to SSA countries on which the U.S. and South Africa could cooperate.
Stephen Lande is president and Tony Carroll is vice-president of Manchester Trade, international business advisors.
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Active Discussions: The Future of U.S.-South African Relations