AGOA III and the proposed Free Trade Agreement between SACU and the USA : implications of a Free Trade Agreement with an industrialised country for SACU

Odendaal, Daniel Jacobus (Stellenbosch : Stellenbosch University, 2007-12)

Thesis (MBA)--Stellenbosch University, 2007.


The SACU bloc, which accounts for one-half of the subcontinent's GDP, is the largest market for the US exports in SSA (Langton, January 2005). Wide differences exist among the economies of SACU - while SA has developed a significant manufacturing and industrial capacity, the other countries remain dependent on agriculture and mineral extraction. The grouping is dominated by SA, which accounts for 87% of the population, and 93% of the GDP of the customs area. SACU member states had a combined real GDP of $201bn in 2003. Services made up 65% of SA Trade in 2003 and had become a major player. In 2003, SACU was the 32nd largest trading partner of the US with two-way trade equivalent \ $7.3bn. Merchandise imports from SACU totaled $5.6bn in 2003, a 17.3% increase from 2002 and a 126% increase from 1996. They were composed of minerals such as platinum, diamonds, and titanium, textiles and apparel, vehicles, and automotive parts. Major US exports to the region include aircraft, vehicles, computers, and construction and agricultural equipment. Services trade between the US and SA has increased dramatically for both countries, with US exports increasing 154% and service imports from SA increasing by 383% respectively since 1992. The stock of US FDI in SA totaled $3.9bn in 2003 and was centered around manufacturing chemicals and services. The main economic objective of FTAs is to reduce trade barriers between member countries and liberalize trade and investment rules (Kanoute, November 2005). This improves market access which is the key to foreign export earnings and investment. But market access is a door that swings both ways, opening local markets to a flood of imports. This can undermine domestic production and employment, and thus exacerbate poverty. Some US civil society organizations have expressed concern that a SACU FTA could have negative consequences for poor Southern Africans, citing potential adjustment costs for import-competing farmers, poor enforcement of labour rights, privatization of utilities, and increased restrictions on importing generic drugs to treat HIV/AIDS (Langton, January 2005). The proposed FTA is ambitious, especially given the tight deadline and the broad range of topics on the negotiating table (Zunckel, Tralac). These include not only tariffs on goods, as is traditional in trade talks, but the wider global economic panoply of agriculture, rules of origin intellectual property, trade in services, investment, government procurement, trade remedies, labour, environmental standards and trade dispute settlement. The US gains reciprocity by gaining improved access to the SACU market than it currently enjoys under AGOA. The IP and "TRIPS plus" provisions are of particular concern to consumers ( Ongoing developments at the multilateral level bode against the advisability of entering into binding bilateral agreements with less favourable provisions on essential medicines. Foreign investment could lead to greater industrialization within SACU and competition within local industry, boosting efficiency. But safeguards and industrial policy must be utilized effectively to protect the region's developmental goals. Reliance on domestic courts as the forum of first instance (and state-to-state dispute settlements should those fail) is preferable, as it allows greater possibilities of defending the public interest of SACU citizens over investors' interests (Langton, January 2005). Reaching consensus on negotiating strategy in SACU is no easy feat. Formal negotiations began in June 2003, but talks have made little progress over the past years. The interests of the five different countries, at differing stages of development, have to be reconciled (Draper. 2004). No doubt SA, with its diverse array of interests relative to its BLNS partners in the customs union, will drive this. SACU negotiators, in common with those in many developing countries, have great difficulty in understanding, let alone mobilizing, their services sectors. Hence they have adopted a defensive posture, favouring liberalization only in those (few) sub-sectors that are well understood. SACU has formally accepted an offer made by the US to progress a so-called trade and investment cooperation agreement (TICA). Prior negotiation will be needed among SACU countries, who clearly have an interest in coordinating its negotiation with other US bilateral negotiating partners (Whalley & Leith, December 2003).

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