The South African Institute of International Affairs “South Africa’s window on the world” Prospects for the SACU – US FTA Peter Draper Development through Trade Project

The South African Institute of International Affairs “South Africa’s window on the world” OVERVIEW A.Original Motivations for the SACU-US FTA B.Negotiating Issues C.Fruitless Search for a “Contract Zone” D.Drivers of Change: The US E.Broader Puzzles: Southern African integration F.Drivers of Change: SA

The South African Institute of International Affairs “South Africa’s window on the world” A. Original Motivations for the SACU-US FTA  US  Commercial diplomacy  EU-SA TDCA  “Lock-in” reforms in key developing countries  Replace preferences  Strengthen SACU institutions  SA/SACU  “AGOA +”  Lock-in market access  Address non-tariff barriers (ROO; AD)  Insurance in case Doha Round fails  Continue liberalisation process?

The South African Institute of International Affairs “South Africa’s window on the world” B. Negotiating Issues  Tariffs: industrial goods  SACU enjoys 95% duty free access into US market  Negotiators logic: no incentive to liberalise  Clothing and textiles: quota expiration and rules of origin  Yet trade structures mostly complementary  Agriculture  Problems of subsidies, domestic support, tariff peaks  À la carte combination of tariffs and quotas likely solution  Showstoppers? Plenty of candidates…  Sanitary and phyto-sanitary standards critical  Could be addressed in a TICA?

The South African Institute of International Affairs “South Africa’s window on the world” US Farm Subsidies (approx. US$20 bn) Source: The Economist

The South African Institute of International Affairs “South Africa’s window on the world” Negotiating Issues  Services  Positive v negative list approach  Sensitive sectors  Negotiators logic: one-sided benefits favour US  Yet (unilateral) services liberalisation is in SA’s interests  Lack of self-understanding in SA government and business communities unhelpful  Intellectual property rights  SACU: harmonisation and enforcement  Health: a perennial bugbear  US “WTO +” approach  SA business interests?

The South African Institute of International Affairs “South Africa’s window on the world” Negotiating Issues  Investment  Investor protections and dispute settlement  Black Economic Empowerment (BEE) and policy space  Government procurement  BEE  Trade remedies  Requires WTO solution  Labour standards  The Swazi problem  Robust SA legislation (ahead of US?)  Environment  Transparency and enforcement

The South African Institute of International Affairs “South Africa’s window on the world” Negotiating Issues  Special and differential treatment (EU vs US approaches)  Negotiating capacities  SACU institutions  Embryonic and need space to develop  Reconciling different interests and achieving consensus  Could an agreement deliver employment growth and poverty relief for SA?  Growth and export effects v:  Entrenched capital-intensive growth path?  Adjustment costs (albeit short-term)

The South African Institute of International Affairs “South Africa’s window on the world” C. Fruitless search for a “contract zone”  Negotiating dynamic: was there a balance of interests?  Core market access agenda  Limited scope for trade-offs  Inhibited by notion of one-sided gains for US

The South African Institute of International Affairs “South Africa’s window on the world” Fruitless search for a “contract zone”  Regulatory issues:  SA caught in-between US and southern African partners (some flexibility seems possible)  Difficulty of reconciling differing approaches between very different economies  Small “contract zone”  Negotiations now on “life support”

The South African Institute of International Affairs “South Africa’s window on the world” D. Drivers of change: The US 1.Geopolitical framework a.“War against terror” b.UN Security Council c.“Anchor states” and/or sub-regional leaders  “hub and spoke” approach  Locking in key bilateral relations  Influence over trade negotiations? 2.Competitors: a.EU: Economic Partnership Agreements; TDCA b.China

The South African Institute of International Affairs “South Africa’s window on the world” Source: The Economist

The South African Institute of International Affairs “South Africa’s window on the world” Drivers of change: The US 3.GSP and AGOA?  Congressional review  Will GSP be extended on time?  What about “graduation”?  Will AGOA’s LDCs textiles provisions be extended?  Are China, India, and Pakistan challenging these provisions, and if so with what consequences?

The South African Institute of International Affairs “South Africa’s window on the world” Drivers of change: The US 4.FTA negotiating strategy a.Inconclusive FTAs?  Mercosur  Thailand  Malaysia  No uptake (yet) in Africa owing to “gold standard approach” b.EU-India FTA? c.Doha failure? 5.Trade, investment and cooperation agreements  Building-block approach to FTAs?

The South African Institute of International Affairs “South Africa’s window on the world” E. Broader Puzzles: Southern African integration 1.Sustaining access to US markets may prove increasingly challenging 2.Reciprocity increasingly in focus 3.Can Southern Africa remain on the agenda?  Geopolitical nature of US FTAs  Expiration of trade promotion authority

The South African Institute of International Affairs “South Africa’s window on the world” Broader Puzzles: Southern African integration 4.Current US comprehensive approach will require:  domestic/regional harmonization  Deep “behind the border” commitments  Serious negotiating capacity 5.This implies pre-existing coherent, deep integration projects in the region  Otherwise harmonization to US standards  Whilst this is not necessarily a bad thing…  It nonetheless seems fanciful

The South African Institute of International Affairs “South Africa’s window on the world” Ghana Nigeria AMU ECOWAS WAEMU São Tomé & Príncipe Egypt Burundi * Rwanda * DR Congo Malawi * Zambia * Zimbabwe * Comoros * Mauritius * Seychelles Madagascar* ECCAS COMESA SADC SACU CEMAC Mano River Union IGAD Mozambique IOC Tanzania 1 * Kenya * Uganda * EAC Ethiopia Eritrea Sudan Somalia South Africa Botswana Lesotho Namibia * Swaziland * Liberia Sierra Leone Cameroon Central African Rep. Gabon Equat. Guinea Rep. Congo Chad Cape Verde Gambia Guinea-Bissau Benin Togo Côte d’Ivoire Niger Burkina Faso Mali Senegal Conseil de l’Entente Guinea CILSS Angola Nile Basin Initiative RIFF* Algeria Libya Morocco Tunisia Mauritania MAIN AFRICAN REGIONAL AND SUB-REGIONAL ECONOMIC INTEGRATION ARRANGEMENTS ACRONYMS AMU:Arab Maghreb Union CEMAC:Economic and Monetary Community of Central Africa CILSS:Permanent Interstate Committee on Drought Control in the Sahel COMESA:Common Market for Eastern and Southern Africa EAC:East African Community ECCAS:Economic Community of Central African States ECOWAS:Economic Community of Western African States IGAD:Inter-Governmental Authority for Development IOC:Indian Ocean Commission RIFF:Regional Integration Facilitation Forum SACU:Southern African Customs Union SADC:Southern African Development Community WAEMU:West African Economic and Monetary Union Reunion Djibouti 1/ Tanzania is also a member of the Nile Basin Initiative

The South African Institute of International Affairs “South Africa’s window on the world” Broader Puzzles: Southern African integration 6.This would reinforce what Economic Partnership Agreements have set in motion 7.But will prove very challenging to deliver 8.Unless (with due deference to other SACU partners) SA comes on board

The South African Institute of International Affairs “South Africa’s window on the world” F. Drivers of Change: SA 1.Collapse of Doha Round? 2.Future of SA FTA negotiating strategy? 3.And trade liberalization trajectory?

The South African Institute of International Affairs “South Africa’s window on the world” SA Inc: Under Siege? EU USA India China SA

The South African Institute of International Affairs “South Africa’s window on the world”

The South African Institute of International Affairs “South Africa’s window on the world” FTAs: What’s the Point? Whilst multilateralism stalls, FTAS are on the rise Source: The Economist

The South African Institute of International Affairs “South Africa’s window on the world” Issues with FTAs Potential for trade diversion “Spaghetti Bowl” of institutional requirements “Building blocks” of multilateralism or “stumbling blocks”? Hence economists prefer multilateral route But if the WTO isn’t working then FTAs are inevitable

The South African Institute of International Affairs “South Africa’s window on the world” Economic considerations  Domestic economic liberalization  Deepening: leveraging globalization  Lock-in: committing future governments  Disciplining: international competition  Access markets abroad  But you have to give in order to get!

The South African Institute of International Affairs “South Africa’s window on the world” SA is equally far from major markets! Source: The Economist

The South African Institute of International Affairs “South Africa’s window on the world” Key drivers of global trade But global trade is vulnerable to shocks; hence trade facilitation increasingly important Source: The Economist Source: The Financial Times Trade volumes driving world trade growth

The South African Institute of International Affairs “South Africa’s window on the world” It’s not just about goods… Source: The Economist Knowledge is a key driver

The South African Institute of International Affairs “South Africa’s window on the world” It’s not just about goods… Source: The WTO Services exports and FDI are booming

The South African Institute of International Affairs “South Africa’s window on the world” Don’t get hung up on sector strategies Potential costs (Government failure approach) State capture Inefficiencies in promoted sectors Anti-export bias Higher consumer prices Raising the domestic cost structure Loss of international competitiveness SACU partners? Potential benefits (Market failure approach) Industrial upgrading More focused interventions Better use of limited resources Employment generation? Rapid development? SACU partners?

The South African Institute of International Affairs “South Africa’s window on the world” Get the basics right

The South African Institute of International Affairs “South Africa’s window on the world” Broaden the focus Source: The WTO SA services exports and FDI are growing strongly

The South African Institute of International Affairs “South Africa’s window on the world” What kind of design?  Timing and sequencing matter, but direction is crucial  Imports are good too  Regulatory agenda matters  Comprehensive approach required  Test case required: Singapore?  Extend economic reform process

The South African Institute of International Affairs “South Africa’s window on the world” Prospects for a SACU-US Deal? Let’s discuss it!