Treatment of Sugar in the Tripartite FTA Incorporating COMESA, EAC

and SADC

ByMike Matsebula (Dr)CHIEF EXECUTIVE OFFICER

SWAZILAND SUGAR ASSOCIATION

Conference on “New Role for the World Sugar Economy in a Changed Political and Economic Environment”; Aswan, Egypt, 10-13 Nov 2012.

INTRODUCTIONObjective: To outline the case for a special

treatment of sugar in the Tripartite Free Trade Area (TFTA) which brings together COMESA, EAC and SADC.

The TFTA is an important milestone in attaining deeper economic integration in Africa as envisaged under the New Partnership for Africa’s Development (NEPAD).

The question is: What role can sugar trade play and what are the conditions necessary for effectively playing that role? This presentation will answer this question.

OUTLINE OF PRESENTATIONNEPAD as Policy Umbrella for Deeper

Economic Integration in Africa.Necessary Conditions for Sugar to Deliver

Integration Under NEPAD.Beginnings of TFTA.Sugar Trade Involving TFTA.Case for Special Sugar Dispensation.Negotiation Modalities for Sugar in TFTA.Negotiation Principles for Sugar in TFTA.Conclusion.

NEPAD AS POLICY UMBRELLAThe New Partnership for Africa’s

Development (NEPAD) is a policy framework for the socio-economic renewal of the continent. It was adopted by Heads of State and Govt on 23 Oct 2001 in Abuja, Nigeria. It provides umbrella for African integration.

NEPAD is itself anchored on the Constitutive Act of the African Union (adopted by Heads of State and Govt on 11 July 2000 in Lome, Togo); some of whose objectives (stated in Article 3) are as follows:

SOME NEPAD OBJECTIVESTo accelerate the political and socio-

economic integration of the continent.To establish the necessary conditions which

enable the continent to play its rightful role in the global economy and in international negotiations.

To promote sustainable development at the economic, social and cultural levels as well as the integration of African economies.

[Note “integration” in all three objectives].

NECESSARY CONDITIONSFor sugar trade to act as a meaningful

vehicle for deepening integration in Africa, certain conditions must be fulfilled.

First, there must be regional diversity in sugar market structures to generate sectoral linkages – especially surplus versus deficit markets at regional and national levels.

Second, there must be complementarities – especially a conducive environment defined by preferential trade arrangements and adequate infrastructure (communications, finance, laws, etc).

SUGAR AND NEPAD CONNECTION1st Support: ISO/Egypt Sugar Conference

held in Luxor in March 2009.2nd Support: FSSP Conference held in

Ezulwini, Swaziland in July 2009.3rd Support: FSSP Conference held in

Mauritius in August 2010.4th Support: Informal Meeting of TFTA

sugar industries held in Nairobi in Mar 2011.5th Support: Nairobi Mar 2012.6th Support: Aswan Conference 2012?

POTENTIAL FOR TRADEFor the NEPAD connection to work, there

should be potential for trade in wholly originating sugar. This potential has two independent dimensions. The 1st is existence of both surplus and deficit areas at regional and national levels. The 2nd is existence of formal and informal cross-border trade.

One aspect of the 1st dimension can be measured by regional net production. The 2nd dimension can be measured by intra-regional trade in Africa.

NET PRODUCTION IN AFRICA 2006-10 (‘000 Tons)

Region Prodn Cons BalanceCOMESA 5 922 6 808 -886EAC 1 115 1 504 -389SADC 4 866 3 350 1 516RoA 1 103 4 912 -3 809TOTAL 13 006 16 574 -3 568

Positive/Negative Balance = Surplus/Deficit Prodn. Thus, there is potential for trade under 1st dimension. Cons gap = Overseas Imports.Sources: ISO Sugar Yearbook 2011, ISO Secretariat, London.

EXPORT PATTERNSAnnual Averages over 2006-10, in Percentages

COMESA EAC SADC RoA EU RoW Total

COMESA 18 9 15 2 46 10 100

EAC 58 16 0 10 11 5 100

SADC 11 7 20 1 35 26 100

RoA 3 0 0 16 7 73 100Each region in TFTA exports to rest of Africa and overseas. There is significant intra-regional flows. This shows 2nd dimension of potential for trade.

IMPORT PATTERNS OVER 2006-10, (%)COMESA EAC SADC

RoACOMESA 12 26 19

1EAC 3 4 0

0SADC 10 31 34 1RoA 0 0 0

1Brazil 35 7 34 80EU 7 1 1

9India 5 7 2

2Thailand 3 6 3

0RoW 26 19 8

6Total 100 100 100

100Imports from other regions show 2nd dimension of potential for trade. There is also room for overseas imports (see Rows 6-9).

BEGINNINGS OF TFTAIt was agreed by Heads of State & Gov at a

Summit held in Kampala, Uganda on 22 Oct 2008. Its objective is to establish a single CU.

Negotiations towards this objective were launched on 12 June 2011 in Johannesburg.

So far, a number of meetings have been held to agree on rules of procedure, terms of reference & negotiation schedule; to exchange information so as to identify offensive and defensive interests; and to elaborate the negotiation principles as well as negotiation modalities.

TFTA MEMBERSHIPThe total number of countries in the TFTA is

26. But due to overlapping membership, COMESA has 19, EAC 5 and SADC 15.

Two-thirds belong to either 2 or all 3 regions.Membership overlaps introduce

inefficiencies in trading arrangements which end up distorting cross-border flows of products. The result is a sub-optimal pattern of trade. Removing the overlaps will create a platform for deepening integration. Thus, the potential for improved welfare is there.

SUGAR TRADE INVOLVING TFTASugar trade in TFTA can be enhanced under

a special dispensation negotiated separately from all other products. For exporters, net price within TFTA will rise relative to overseas markets. For importers, net price within Africa will fall relative to overseas markets. The overall result will be improved welfare for the TFTA.

Increased sugar trade within TFTA will not cut out trade with rest of Africa and overseas countries because of many factors. Next slide shows ample room for extra-TFTA trade.

SUGAR EXPORT AND IMPORT LEVELSBY AFRICAN REGION

Annual Averages over 2006-10 in ‘000 Tons COMESA EAC SADC RoA EU RoW Total

COMESA 339 172 297 30 898 199 1 934

EAC 83 24 0 14 16 7 144 SADC 297 203 536 30 959 706 2

731RoA 10 1 1 54 23 239

327Brazil 1 004 44 541 4 402EU 189 7 9 506 NOTE:India 146 47 24 95 Read exportsThailand 100 40 50 16 along rows andRoW 740 124 130 328 imports downTot 2 909 660 1 588 5 474 columns.SOURCE: Yearbook 2011, International Sugar Organization, London.

SPECIAL DISPENSATIONTFTA sugar industries recognised the need

to collectively consider an appropriate arrangement for the treatment of sugar. This was initiated on the side-lines of a sugar conference in Nairobi, Kenya, on 24 March 2011 where reps from Kenya, Swaziland, Tanzania and Uganda (the only sugar producers present) met to exchange ideas.

The output of this exchange was reflected in a draft paper on a proposed treatment of sugar in the TFTA.

SPECIAL DISPENSATION (Cont’d)The paper proposes that sugar be treated in

a special dispensation negotiated separately from all other commodities. The paper was shared with all TFTA sugar industries, incl those who were not represented in Nairobi.

The sugar industries are expected to use the paper to sell the case for special dispensation to their respective national governments who will be involved in the TFTA negotiations.

The case for special dispensation is based on arguments summarized in the next 4 slides.

1. DISTORTIONS: TARIFF AND NTBsThese include production subsidies, price

support systems, export rebates, import quotas and prohibitive import duties.

The result is a world sugar market whose behaviour is not reflective of global supply and demand conditions. In particular, the world market price for sugar has historically not reflected average global prodn costs.

Allowing for free trade in sugar within the TFTA under such a second-best environment would not be an optimal strategy.

2. HETEROGENEITYTFTA sugar industries are operating under

different regulatory and market frameworks which reflect differences in challenges, opportunities, market structures and policy responses to global market conditions.

There are deficit and surplus producers as well as cross-border trade among countries.

An optimal framework is required for trade in such an environment so that no sugar industry is driven to extinction given its strategic and multifunctional role.

3. CONSUMPTION GROWTHSugar consumption in Africa is projected to

grow faster than anywhere else in the world in the next 10-20 years. This growth will require increased production, diversion of sugar initially destined for overseas markets and increased intra-regional trade.

These results can be promoted through a special dispensation which provides for: (a) orderly trade and (b) enhanced productivity as well as competitiveness through technical cooperation (research, training, technology transfer and joint investment efforts).

4. STRATEGIC ROLESugar industries play strategic and

multifunctional roles in their respective economies. This is because the sugar industry is one of the most promising agri-business sectors for future expansion, rural infrastructural investment, income generation and human development.

Accordingly, sugar industries and their markets within TFTA must be nurtured and not destabilised in the light of global distortions. They must be given time to become strong and globally competitive.

RECENT TFTA MEETINGOn 2 Oct 2012, TFTA sugar industries met in

Dar Es Salaam, Tanzania to receive feedback from consultations with national government on special dispensation and to propose negotiation modalities. Those who attended are Malawi, Mauritius, Kenya, Mozambique, South Africa, Swaziland, Tanzania, Uganda and Zimbabwe.

It was noted that some governments are in support of the special dispensation. Others had not expressed a view yet because consultations are still on-going.

NEGOTIATION MODALITIESThe proposal is that sugar be excluded from

the standard modalities for liberalization of trade in goods. The approach is to seek liberalization of trade in sugar under a structured and disciplined special arrangement which safeguards the acquis of all parties. The liberalization modalities would be an outcome of negotiations.

The arrangement should be transparent and support trade flows in sugar without causing disruption for other sugar producers in the TFTA region.

NEGOTIATION PRINCIPLESThe arrangement would cover all types of

sugar under tariff code HS 1701.A stand-alone instrument (Protocol,

Regulation, etc) would be needed to implement this arrangement.

The arrangement should not destabilise any or all of the region’s producers. Unregulated trade can negate the benefit of any preferences secured and even destroy the value of sugar markets in the region.

The arrangement should promote regional integration.

PRINCIPLES (Cont’d)The arrangement should provide that

policies pursued in any of the TFTA territories (countries or regions or sub-regions) are in line with the objectives of the arrangement, i.e. development and sustainability of the TFTA sugar industries.

The arrangement must seek to promote and facilitate technical cooperation between the region’s sugar producers.

Preferences already established within the TFTA through other trade arrangements should be respected.

PRINCIPLES (Cont’d)The arrangement should promote

efficiencies and long-term sustainability of TFTA sugar industries, taking into account the existence of surplus and deficit regions.

The arrangement should minimise exposure of the TFTA sugar industries to the vagaries of a distorted world sugar market as well as provide for a review on the basis of changing world sugar market conditions and circumstances (e.g. removal of distortions).

PRINCIPLES (Cont’d)The arrangement must address non-tariff

and technical barriers to trade in sugar so that they do not undermine the achievement of its objectives.

The arrangement should be supported by stringent Rules of Origin. Only sugar originating in the TFTA should qualify for preferential trade.

The arrangement must be transparent to allow for clarity to investors and traders.

NEGOTIATION PROCESSSugar industries would engage each other

first to agree on the main elements of the proposed framework and to exchange information based on a template.

The standard negotiation permutations as indicated in the general TFTA modalities document will be used as a guide, with the flexibility of pursuing variations which can achieve a win-win outcome without violating the agreed negotiation principles. These elements would be circulated to all sugar industries and used for briefing govts.

NEGOTIATION PROCESS (Cont’d)Thereafter, the proposed framework would

be submitted to a TFTA forum of sugar industries and governments (i.e., Working Group or Committee on Sugar). The forum would then recommend the framework to the appropriate body in the TFTA institutional structure for endorsement and finalization.

The TFTA sugar industries have agreed to continue meeting through the current informal forum (called the “TFTA Sugar Industries Consultative Forum”), even if the proposal for a special dispensation fails.

CONCLUSIONThe TFTA is a tremendous milestone in the

push for deeper integration in Africa. It has now given life to the CFTA initiative.

These two steps are very much in line with the NEPAD concept. But to make this a reality requires, inter alia, the following: Preferential access within Africa under a special

dispensation for sugar. Improved cross-border infrastructure.

Since Africa will remain a net importer for a while, deepening integration does not mean cutting off extra-continental imports.