COSATU: Free trade pact is full of dangers

By Neva Makgetla, an economist for the Congress of SA Trade Unions.This article originally appeared in Business Day, July 11, 2003.

The real question about the proposed free-trade agreement between the US and the trading partners of the Southern African Customs Union (Sacu) is whether it can benefit SA more than the existing African Growth and Opportunitiy Act (Agoa). After all, Agoa already gave SA easier access to US markets for most goods, and the US wants to include a lot of non-trade issues in the free-trade agreement that could limit government’s ability to drive economic development. Through Agoa, the US provided unilateral tariff cuts that brought real benefits. SA manufacturing is a big winner, with exports to the US booming, even if now threatened by the overvalued rand. As a unilateral development measure, Agoa did not require SA to cut tariffs. It does require African countries to meet broad political benchmarks in order to benefit. But the US government has not interpreted those requirements particularly narrowly or oppressively. So why should SA agree to replace this congenial arrangement with a trade treaty? US trade negotiators suggest three reasons. First, at least in theory, the US congress could simply repeal Agoa. In contrast, the free-trade agreement would be a bilateral agreement, and harder to get out of. Second, the proposed agreement will include goods that Agoa excludes. And finally, the US wants the freetrade agreement to cover a range of new issues beyond trade in goods, such as procurement, patent rights, phytosanitary measures and investment. How do these proposed benefits hold up to analysis? US unions tell us that there is no chance that the US congress would terminate Agoa. Moreover, congress has invariably extended and expanded trade concessions to other developing regions over the years. The argument that it could end Agoa seems to be a negotiating ploy. Second, it is true that lower US tariffs for more SA exports could make the freetrade agreement worthwhile, if the price were not too high in other areas. But government hasn’t shown us a detailed analysis of SA exports excluded from Agoa benefits. Cursory inspection suggests few substantial industries are affected. On the other hand, we probably don’t have to worry that opening our markets to US exporters will cause much trouble. The only real threat seems to concern food, with US exports spurred by production subsidies. But competition from Asia is a more serious danger to local producers for domestic markets. From a developmental standpoint, the US push to include “new” issues for trade is cause for concern, not enthusiasm. In his (published) mandate from the US senate, US trade negotiator Robert Zoellick included demands that reach far beyond the traditional focus of trade negotiations. They include:

Opening up government procurement to US firms. It is not clear how this would affect preferences for black empowerment or the Proudly SA campaign.
Stronger patent protection for US goods. This might block local production of generic medicines.
Increased trade in services. That could add to the pressure to privatise basic infrastructure and social services in the name of allowing foreign (private) investors to participate.

US proposals on settling disputes are worrying. Other countries have signed free-trade agreements that let US companies sue governments directly, but it is usual for only states to lodge trade disputes. Company-to-state disputes can contradict development policies. The proposals rule out one free-trade measure that would benefit SA: a reform of antidumping rules to ensure they can’t be used as a protectionist measure. In short, the proposed free-trade agreement harbours a host of risks, but promises few tangible benefits beyond what Agoa already provides. In the past decade, rushing into radical changes in our trade regime in hopes of huge benefits cost hundreds of thousands of jobs. We can ill afford more such mistakes.