Bloc to Bloc: SADC’s modest EPA gains

Bloc to Bloc: SADC’s modest EPA gains
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Provisionally in effect since October 2016, the recently signed Economic Partnership Agreement (EPA) between the EU and the so-called ‘SADC EPA Group’ is a symbolic intensifying of trade ties. The more substantial impacts of the EPA, however, are likely to be felt outside the EU-SADC relationship. Part 2 of a mini-series on African trade agreements.

Background of the EPA

Following negotiations lasting more than a decade, the ‘EPA Group’ of the Southern African Development Community (SADC), which comprises Botswana, Lesotho, Mozambique, Namibia and South Africa, signed an EPA with the EU on 10th June 2016. While there is scope for Angola to join the ranks later on, the nine remaining members of SADC are either exempt or in discussions over other regional EPAs.

The bedrock of the free trade agreement is the asymmetric liberalisation of barriers to trade between the two blocs: EU reports indicate it is the most asymmetric agreement of all those to which the EU has signed up. SADC members, aside from South Africa, have gained quota and tariff-free access to the EU market in return for more moderate and gradual access to the SADC market over 15 – 20 years.

Expected impact on trade

SADC’s gains from the EPA will be both modest and various. While some member states (for example Mozambique or Botswana) already had privileged access to the EU market in general or for specific goods, others (such as South Africa) have faced stricter trade conditions.

Botswana, Namibia and Swaziland can look forward to uninhibited access to the EU market, offering 74.1% full access and 12.1% partial access to their own markets in exchange. Although a step up in terms of legally-binding and increased market access, the three states already had unilateral access as of 2008. As middle-income states, and stakeholders in a potential EPA, the EU had provided them with Market Access Regulations – essentially temporary free trade agreements.

As low-income countries, Mozambique and Lesotho were privileged in the same way under the Anything But Arms initiative, allowing them to trade freely in all goods except for munitions and military equipment. Mozambique and South Africa have received a different deal to other players in the mix. Mozambique, as a large, low-income state, is granted free EU access while only being required to lift 74% of its own trade barriers. Mozambique, however, has yet to fully ratify the agreement despite its signature.

South Africa, the local giant among SADC economies, has been offered a distinct package given its relative competitiveness and advanced economy. The EU has granted South Africa 96.2% full access to its market, alongside 2.5% partial access, while South Africa offers the same as Botswana et al. That said, South Africa too maintains an existing agreement with the EU: the Trade, Development and Cooperation Agreement Between the EU and South Africa which was established in 2000 with an aim to liberalise 90% of all EU-South Africa trade.

All in all, the deal is not expected to yield enormous trade benefits for either bloc. All SADC states already have some sort of agreement in place, which is in some cases unilateral, offering states free access free of charge. That said, the legally binding EPA offers security on otherwise arbitrary trade deals.

In the same vein, the EU already has relatively low barriers for most goods with the exception of agricultural and finished products. The EPA is expected to benefit exporters of the former the most (especially sugar and red meat producers). Interestingly, it is also the first agreement that requires the EU to forfeit any export subsidies for its own agricultural exports. On the other hand, it is worth noting that the agreement concentrates solely on goods, avoiding opening the much more controversial discussion over trade in services. Given that services represent more than 62% of GDP for South Africa, Namibia and Botswana, the free movement of services is a more contentious issue.

Trade between the EU and SADC has not come a long way in recent years, having hovered around $32 billion worth of exports for both sides. The latest numbers put SADC exports at $31.7 billion and EU exports at $32 billion. This represents around 1.8% of the EU’s total trade; SADC’s exports are only expected to rise by around 1%. As such, gains to the SADC business community is noteworthy, but less than rhetoric might suggest. With protective measures in place for SADC’s sensitive industries (e.g. textiles), it is not clear European entrepreneurs and consumers stand to gain substantially more.

Beyond the European Union

By contrast, the impact on SACU and SADC’s own affairs could be more interesting. In the context of SACU, and in the absence of a specific regional body, South Africa’s International Trade Administration Commission has thus far determined all common external tariffs (CETs) on behalf of the customs union. States have complained that the Commission has overlooked regional needs, prioritising South Africa’s own industrial agenda. The EPA has given a forum for SACU members to defend their own developmental agendas, putting in place sector-specific ‘safety valves’, and reaching a legally binding CET agreement with a foreign body, taking this aspect of power from South Africa.

The EPA also contains a ‘most favoured nation’ clause, compelling SADC members to offer one another a deal as good as that received by the EU in every instance. It is hoped this will facilitate stronger, legally bound integration in the bloc, backed up by its largest trading partner.

A final ramification is the potential EPA-copycat, which South Africa appears to be looking to establish with a post-Brexit UK. The potential deal is thought to mimic the EPA, with greater provisions for South African agricultural exports.

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