The Failed SACU-USA Free Trade Agreement in Hindsight: A Lost Opportunity or Disaster Averted?

• Author: Palollo Michael Lehloenya
• Position: University of South Africa, P O Box 392, UNISA, 0003 lehlopm@unisa.ac.za
• Pages: 117-127

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1. Introduction

The conclusion in 1999 of a free trade agreement (FTA) between the Republic of South Africa and the EU, better known as the Trade, Development and Co-operation Agreement (TDCA), generated a lot of interest from a host of other countries and regional bodies, not least from the United States.¹ This was primarily because the TDCA had the effect of limiting access to the South African market for non-EU firms relative to their EU counterparts. With a view to levelling the trade concessions plane field, some of the third parties were thus determined to negotiate similar pacts in the Southern Africa region, mostly with the Southern African Customs Union (SACU), a regional body comprising Botswana, Lesotho, Namibia, South Africa and Swaziland. This explains the origins of the negotiations for an FTA between SACU and the US.

On the part of South Africa and its SACU partners, commonly referred to as the BLNS countries, the proposed SACU-USA FTA was but part of a broader project to conclude trade agreements with a number of trading blocs in various parts of the world. This regional trading strategic policy was announced at a press conference held after the first WTO trade policy review of SACU in Geneva by the then Namibian Minister of Trade and Industry, Jesaya Myamu. He remarked on behalf of SACU as follows: "In order to position ourselves in the global economy, we are in the process of negotiating a SACU-USA Free Trade Area (FTA). At the same time, exploratory work for an FTA with Mercosur, European Free Trade Area (EFTA), India, China and Nigeria is underway."²

The US too was, while pursuing an FTA with SACU, also engaged in parallel negotiations with various other countries and regional trading blocs. According to Carim and Mashabela, by 2004, the country was actively negotiating FTAs with about 34 developing countries, among them, the Free Trade Area of the Americas (FTAA), the Central American Free Trade Area (CAFTA), Morocco, and Australia. Similar agreements with Chile and Singapore had already been finalized.³

However, only shortly after the negotiations on the proposed SACU-USA FTA commenced, opposition against it started brewing. The main concern among the agreement's critics was that certain elements proposed by the US for inclusion in it would be detrimental to the developmental aspirations of the SACU countries, while also putting public health, food security and service delivery in the region at risk.⁴ The criticism emanated from the US' insistence on an all-encompassing agreement modelled on its existing agreements in other parts of the world,5 an approach SACU considered to ignore.

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On the other hand, proponents of the agreement maintained that it held some advantages for both the US and SACU countries. They cited benefits such as rationalisation of SACU's production and services into a viable regional economy, integration of SACU into the global economy, SACU's increased attractiveness to investors due to its access to the world's largest economy, development through "trade not aid" for BLNS countries, and promotion of growth in an untapped market for US investors.⁶ Eventually, the negotiators failed to reach a consensus on many of the contested issues, leading to the collapse of the talks and elimination of any hope that an agreement would finally be concluded.

In this paper, an assessment of the likely impact of the SACU-USA FTA had it materialised, is made. The paper is divided into five sections besides the introduction. Section 1 surveys some of the existing regional trade regimes in Southern Africa, namely the SACU Agreement, the SADC Treaty, the TDCA and the AGOA Act. The purpose of this section is to explain the broad trade law framework within which the SACU-USA FTA would have operated. Section 2 looks at the aftermath of the TDCA nearly ten years into its signing. The section aims to draw on the experiences of SACU under the TDCA, which is also an agreement between developing and developed countries. Section 3 examines several FTAs the US concluded with a number of other countries prior to commencing negotiations with SACU. This section further seeks to piece together how the SACU-USA agreement might have turned out based on the striking similarities of these other agreements. Section 4 explores the implications of SACU's refusal to back down in the face of pressure from the US concerning what shape the agreement should take. The final section is the summary and conclusions.

2. Survey of the Trade Law Regime in Existence within SACU during the SACUUSA FTA Negotiations

The negotiations towards an FTA between SACU and the US took place in the context of a welter of both treaty- based and domestic statutory trade law commitments. These have already been alluded to in the introductory section, but they are further discussed below for purposes of completion.

2. 1 The Southern African Customs Union (SACU)

The origins of SACU can be traced back to the 1889 Customs Union Convention between the British Colony of Cape of Good Hope and the Orange Free State Boer Republic, making it the oldest customs union in the world today. In 1910 the agreement was extended to cover the Union of South Africa and the British High Commission Territories of Bechuanaland, Basutoland and Swaziland, now respectively known as Botswana, Lesotho and Swaziland (BLS). Namibia only became an official SACU member after attaining independence in 1990, having previously been a de facto member by virtue of its status as a South African administered territory since 1915.

Important features of the 1910 agreement included a common external tariff in respect of all goods coming into SACU, a common pool of customs and excise duties, complete freedom of movement for goods manufactured inside the union; and an agreed formula for sharing the revenue collected. Another notable aspect of the customs union has been its complete domination by South Africa.⁷ This domination was perhaps most glaring in South Africa's control of the common revenue pool to the total exclusion of the other SACU members.

Dissatisfied with the power wielded by South Africa under the 1910 agreement, the BLS countries sought to democratize the union by pressing for new governing and administrative structures. This led to the 1969 amendments that introduced, among other things, a revised revenue sharing formula that resulted in a 42 per cent increase in BLS share of the revenue.⁸ Further amendments followed in 1976 and later in 2002 after the other SACU members, including Namibia,⁹ expressed renewed discontent concerning the revenue sharing formula and South Africa's continuing decision-making monopoly in the formulation of customs and excise policies.

While South Africa is still by far SACU's most influential member, today the SACU agreement incorporates several clauses providing for a number of independent structures charged with overseeing the administration of the union.¹⁰ Most importantly, these structures are made up of representatives from the union's various members, giving each one a more equitable say in how it is run. The agreement also incorporates a newPage 119 revenue sharing formula in terms of which South Africa participates in the allocation of revenue on the same terms as the BLNS countries.

2. 2 The Southern African Development Community (SADC)

The SADC¹¹ has its origins in the Southern African Development Co-ordinating Conference (SADCC), a loose coalition of Southern African states established in 1980.¹² The latter's primary objective was to establish an economic and political bloc aimed at reducing the members' dependence on apartheid South Africa. It also sought to promote economic co-operation by attracting external donor financial resources to finance what were deemed to be important infrastructural projects with regional economic significance. It is this organisation that evolved into the SADC when it became clear that the political situation in South Africa would undergo radical changes for the better. South Africa subsequently joined SADC, whose aim now includes the promotion of economic integration and development within the Southern African region. Later amendments to the SADC treaty sought to strengthen the organisation's institutional capacity by establishing structures such as a summit of Heads of State, the Council of Ministers and a dispute settlement tribunal, among others. It is of interest that the SADC treaty has very few, if any, regional trade law provisions apart from the emphasis on the broad goal of integrating the economies of the various Southern African states.

This, however, changed in 1996 when SADC adopted a Protocol on regional trade.¹³ Its aims include gradually transforming SADC into a free trade area through tariff reductions and removal of quotas and other trade restrictions; promoting efficient production in the region, taking into account the comparative advantages of the member states; promoting the in-flow of foreign investment; and enhancing...