US pulls the plug on Sacu deal

Business Day | 3 June 2009

US pulls the plug on Sacu deal

SISEKO NJOBENI

The collapse of the negotiations will hurt Sacu members especially the so-called BLNS countries - Botswana, Lesotho, Namibia and Swaziland.

THERE has long been talk that the US was preparing to walk away from talks on the proposed agreement, and the speculation finally ended last month when the US government announced that it would not revive negotiations. While on a visit to SA, US Trade Representative Ron Kirk said the Barack Obama administration would instead focus on implementing separate agreements with Southern African Customs Union (Sacu) member countries. The US is SA’s biggest export market and the third-largest source of imported goods and services, according to the Trade and Industry Department.

Mmatlou Kalaba, a top economist at research body Trade and Industrial Policy Strategies, says the collapse of the talks will hurt Sacu members, especially the so-called BLNS nations - Botswana, Lesotho, Namibia and Swaziland. When first mooted, one of the main selling points of the proposed deal was that it would have stimulated the BLNS countries’ economic development. SA remains a dominant economic player in the region.

“For the BLNS countries, this is a lost opportunity to get into the largest market,” Kalaba says. The collapse of the talks means that the Sacu members will be at a disadvantage when they have to compete with those countries that have free trade agreements with the US. SA, for instance, will have to compete with Chile on agroprocessing exports to the US. Chile has a free trade agreement with the US that will give it an edge.

Kalaba says BLNS countries are vulnerable to strong-arm tactics that could divide Sacu. “It happened with the Economic Partnership Agreement (EPA) with the EU,” he says. Sacu was split in 2007 when the BLNS countries broke ranks with SA and signed an interim EPA with the EU. “This was due to pressure from the EU. We may see those divisive tactics again,” he says.

Since their start in June 2003, the talks have been anything but smooth sailing. The talks ground to a halt in 2004 . Notwithstanding the noble intention of heralding a new era of trade relations between the countries and the US, the talks hardly got out of first gear and the process was suspended in 2006 amid disagreement over the scope of the agreement and alleged US reluctance to make concessions.

The free trade negotiations would have culminated in reciprocal offers to phase out tariffs on a range of products. For Sacu members, the pact would have created market access for exports and attracted investment into southern Africa. It would have brought stability and predictability to trade with the US. This is something that the current preferential pacts with the US, including the African Growth and Opportunity Act (Agoa), do not provide.

That the duty-free offers under Agoa could be withdrawn at any time to protect US companies, bothers Sacu members. In addition to that, Agoa has an expiry date. It was signed into law by the US Congress nine years ago and expires in 2015. Kalaba says negotiations for a possible extension should commence in two years’ time.

On the other hand, the free trade pact would have put the US on an equal footing with its EU counterparts, who have an agreement with the Sacu countries. Major US exports to southern Africa include machinery, vehicles, aircraft, medical instruments, plastics, chemicals, cereals, pharmaceuticals, and wood and paper products.

Peter Draper, research fellow at the South African Institute of International Affairs, says the decision by the US was expected, given the greatly polarised positions of the two parties. The gap was just too big, he says.

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source: Business Day