What changed

EXPLANATORY STATEMENT - SUMMARY OF FACTS AND FINDINGS

P9_TA(2024)0121

Since the signature of the EU-SADC EPA, the INTA Committee and European Parliament has undertaken the following activities:

Implementation of the EU-Southern African Development Community (SADC) Economic Partnership Agreement (EPA)

- five Monitoring Group Meetings,

Committee on International Trade

- INTA has carried out two missions to monitor the implementation of the EU-SADC EPA, both to South Africa.

PE749.066

On 29-31 October 2018, a delegation of seven INTA Members travelled to Pretoria to participate in the EU-South Africa Joint Parliamentary Meeting, but also visited Johannesburg and Cape Town to better assess the implementation of the EU-SADC EPA and bilateral EU-South Africa trade and investment relations.

European Parliament resolution of 29 February 2024 on the implementation of the EU-Southern African Development Community (SADC) Economic Partnership Agreement (EPA) (2023/2065(INI))

During the second mission to South Africa on 3-7 April 2023, seven INTA members visited Pretoria, Johannesburg and Cape Town to discuss the implementation of the EU-SADC EPA.

Since the signature of the EU-SADC EPA, the delegation for relations with South Africa has held a total of 26 inter-parliamentary meetings, covering exchanges on the implementation of the EU-SADC EPA.

Overview of the EU-SADC EPA

The EU-Southern African Development Community (SADC) Economic Partnership Agreement (EPA) was concluded on June 10, 2016, between the EU and six South African countries. These countries include Botswana, Lesotho, Mozambique, Namibia, South Africa, and Eswatini. It has been provisionally applied since October 10, 2016, as not all EU Member States have ratified the EPA. Mozambique provisionally applied it from February 4, 2018. Angola, a member of SADC region, also participated in the negotiations on the EU-SADC EPA. However, the country did not sign the agreement in 2015. Instead, the parties agreed to include a specific clause on Angola’s accession to the EPA.

This agreement holds significance as the first EPA between the EU and an African region. It also stands as the first fully operational regional EPA in Africa, with all partners implementing the tariff cuts outlined in the agreement.

The SADC EPA group of countries does not consist of the entire SADC bloc, but rather members of the Southern African Customs Union (SACU) and Mozambique, with an option for Angola to join in the future. The SADC Regional Economic Community includes 16 member states, with a primary focus on achieving economic development, peace, security, poverty alleviation, and an improved standard of living for the people of Southern Africa through regional integration. These objectives are underpinned by democratic principles and sustainable development, as laid out in the SADC Treaty signed in 1992. Six other SADC members negotiated EPAs with the EU as part of different regional groups in Africa.

Negotiations on the EPA started in 2004 and were accompanied by criticism, raising concerns that establishing a free trade framework for goods among nations with varying levels of development and negotiation power could disrupt local production systems, diminish government revenues, and contradict the goal of regional integration.

The EU-SADC EPA is built upon the principles of the Cotonou Agreement and aims to reduce poverty through a trade partnership, promote regional integration, economic cooperation, and good governance. It includes rules on trade in goods, with asymmetric access favouring SADC EPA States. Sensitive products can be exempted from full liberalization, and safeguards can be applied to protect domestic production and infant industries. The Southern African Customs Union (SACU) provides duty-free and quota-free treatment to a significant portion of EU exports to the region, covering 84.9% of these products. An additional 12.9% of EU exports enjoy partial liberalization, involving reduced tariffs or tariff rate quotas.

The EU offers immediate duty-free and quota-free access to goods from Botswana, Lesotho, Mozambique, Namibia, and Eswatini, along with preferential access for 98.7% of goods from South Africa. In return, the SADC EPA States have agreed to gradual tariff liberalization over a period of up to 10 years. Special safeguards and measures were established to protect sensitive products from full liberalization. The SADC EPA States have the authority to increase duties or impose quotas on imports from the EU, particularly in cases where these imports disrupt or pose a significant threat to a particular economic sector or domestic industry.

This agreement primarily focuses on trade in goods and does not address trade in services, investment, or other issues such as intellectual property rights, competition, and public procurement. However, there is a provision for negotiating agreements on these matters in the future. The EU-SADC EPA also features a chapter on trade and sustainable development (TSD) covering social, economic, and environmental aspects. Additionally, it includes a chapter on areas of cooperation, defining priorities such as competitiveness enhancement and addressing supply-side constraints.

Within the TSD chapter, both parties reaffirm their commitment to promoting international trade in a manner that contributes to the goal of sustainable development (with its pillars economic development, social development, and environmental protection). Furthermore, this chapter includes provisions addressing multilateral environmental and labour standards and agreements. Importantly, the provisions pertaining to international labour and environmental obligations do not fall under any dispute settlement mechanism. Instead, they are only subject to consultations conducted through the Trade and Development Committee (TDC), which was established under the EPA and consists of senior officials from both sides.

Angola’s accession

Angola, currently classified as a least developed country (LDC) and a participant in the EU Generalised Scheme of Preferences (GSP), benefits from preferential treatment. It falls under the ‘Everything but Arms’ (EBA) scheme, which eliminates tariffs and quotas for all imports of goods from LDCs entering the EU. However, as Angola is set to graduate from its LDC status in February 2024, it will lose its preferential access to the EU market under the EBA scheme. To maintain its unrestricted access to the EU market, Angola submitted an official application to join the EU-SADC EPA in February 2020. Subsequently, in July 2022, the Joint Council approved Angola’s request to initiate accession negotiations.

Joint monitoring report and EPA review process

The EU and SADC are currently preparing a joint monitoring report on the EU-SADC EPA.

The process started after the final list of monitoring indicators was jointly agreed at the 7th TDC in February 2021. Subsequently, a questionnaire based on these indicators was circulated among all focal points of the SADC EPA States to guide their data collection efforts for the monitoring indicators. However, despite various internal deadlines set by the SADC Secretariat and discussions on the matter at its technical meetings, the SADC EPA States did not provide any input.

In response, the 8th TDC appointed monitoring coordinators representing both the Commission and the EPA Unit of the SADC Secretariat to work on a draft joint report using EU and international data sources. This was done in parallel with the expected input of national data from the SADC EPA States. It wasn’t until October 2022 that the SADC Secretariat received limited data collection input from Namibia, with no input from any other SADC EPA State.

Subsequently, the Monitoring Coordinators proposed to the 9th TDC that a draft joint report, compiled mainly from EU and international data sources, be circulated to all Parties for comments. This was done in early December 2022 and the SADC EPA States were expected to provide their comments by the end of February 2023.

The European Commission has launched a comprehensive ex-post evaluation of the EU-SADC EPA, in line with its obligation under the revision clause. It published a draft inception report for this evaluation on 15 May 2023 and a final inception report on 21 June 2023, outlining its objectives, scope and methodological approach. The Commission has contracted a consortium led by BKP Economic Advisors GmbH/SQ Consult B.V to prepare an external evaluation study. The external evaluation study will support the European Commission’s own evaluation of the agreement, and also inform the joint review of the EPA by the Parties. It is planned to finalise the evaluation study by April 2024. The objective of the ex-post evaluation is to assess whether the EPA has delivered the expected results and whether there is scope for improvement in EPA’s functioning that could form the basis for policy recommendations. The evaluation will cover the whole implementation period of the agreement since the start of provisional application in 2016, respectively 2018 (for Mozambique) up to now, also comparing, where appropriate with a pre-Agreement period of five years (i.e. starting in 2011). The Commission points out that in terms of geographic scope the evaluation will primarily cover the parties to the agreement, ‘although some global effects (e.g. climate change) will also be covered’.

The joint participation of non-state actors in monitoring the EPA is opposed by SADC EPA States. The EU proposed organising a joint conference between with SADC on the five-year anniversary of the EPA, but the offer was not taken up by the SADC side. Instead, a trade conference with the participation of business representatives was foreseen.

Changing geopolitical context

Several geopolitical and geo-economic factors shape the context in which the EU-SADC EPA is implemented, including the consequences of the Russia’s war of aggression against Ukraine. The COVID-19 pandemic, an expansion of the BRICS group and Brexit have further highlighted the need for a different approach for relations with the SADC EPA States. At a Civil Society Dialogue meeting on the evaluation of the EU-SADC EPA that took place on 31 May 2023, the Commission’s DG Trade underscored that strategic challenges such as the war in Ukraine, China’s increasing role in Africa or the EU’s need for access to critical raw materials call for continued close trade relations between the EU and Southern Africa.

EU-SADC trade compared to other key trading partners

The EU is the largest trade partner of the SADC EPA region among China, the US, the UK, India, Brazil and Russia, with an increasing trend since the signing of the EPA. Only China has managed to follow this trend, but remains in second place from 2016-2022. The United States and India follow at lower levels. The EU manages to be the most important partner in terms of trade in goods (among the partners mentioned above) for the three largest economies of the SADC EPA States - South Africa, which is by far the largest economy, followed by Mozambique and Namibia. SADC’s main exports to the EU, with the exception of South Africa, are unprocessed agricultural goods and raw materials. It should also be noted, that apart from South Africa, all other SADC EPA States primarily trade with South Africa and other states on the African continent, which emphasises the objective of regional integration.

In 2021, the EU was South Africa’s top trading partner, representing 22% of its total trade. South Africa’s exports to the EU were diverse, including agri-food, vehicles, chemicals, and machinery, making up 54% of its exports to the EU. The EU market has been especially beneficial for the agricultural sector. Capital and higher value-added goods account for a larger share of South Africa’s exports to the EU when compared to the rest of the world.

EU-27 also holds the top spot among selected partners in trade in goods with Mozambique. Nevertheless, Mozambique trade in goods with China has more than tripled since 2016 -- from € 0.5 billion to € 1.6 billion in 2022. Equally, trade in goods between Mozambique and India has more than doubled, increasing from € 0.9 billion in 2016 to € 2.2 billion in 2022. In comparison, the increase in EU-Mozambique trade in goods has not been as impressive, up from € 1.7 billion (2016) to € 2.6 billion (2022).

Namibia’s trade activity reached €16 billion in 2022, growing by a third since the EPA signing in 2016. Its trade with the EU nearly doubled from €1.1 billion to €2 billion. Remarkably, Namibia’s trade with China grew almost ninefold, from €0.3 billion to €2.6 billion, surpassing EU-Namibia trade. In contrast, the United States and India lag far behind, each at €0.6 billion and €0.4 billion.

EU-Botswana trade remained stable despite a minor disruption in 2020 due to the pandemic, rebounding in 2022. Unlike other SADC EPA States, China struggled to establish a strong presence in Botswana. Nonetheless, China-Botswana trade quadrupled from €0.1 to €0.4 billion between 2016 and 2022, while EU-Botswana trade fell from €2.6 to €1.8 billion from 2021 to 2022.

Among SADC EPA partners, Eswatini and Lesotho have relatively small trading capacities. Eswatini’s trade reached €4.3 billion in 2022 (up from €2.9 billion in 2016), with China being its major trading partner at €0.3 billion in 2022. EU-Eswatini trade has fluctuated between €0.1 and €0.2 billion since 2016. Lesotho’s trade with the EU rose significantly, reaching €0.3 billion in 2022, while its trade with China remained at €0.1 billion. Trade with other partners like the US, Brazil, Russia, and the UK was minimal. India’s trade with Lesotho reached €0.1 billion only in 2020.

ANNEX: ENTITIES OR PERSONS FROM WHOM THE RAPPORTEUR HAS RECEIVED INPUT

Pursuant to Article 8 of Annex I to the Rules of Procedure, the rapporteur declares that he has received input from the following entities or persons in the preparation of the report, until the adoption thereof in committee:

The list above is drawn up under the exclusive responsibility of the rapporteur.

MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION

on the implementation of the EU-Southern African Development Community (SADC) Economic Partnership Agreement (EPA)

(2023/2065(INI))

The European Parliament,

G. whereas special and differentiated treatment is a founding principle of the World Trade Organization (WTO) and the Policy Coherence for Development principle should guide EU trade relations with developing countries;

H. whereas gender inequality costs sub-Saharan Africa on average 6 % of the region’s yearly GDP, jeopardising the continent’s efforts for inclusive human development and economic growth; whereas a one percent increase in gender inequality reduces a country’s human development index by 0.750,75 %;

I. whereas the SADC EPA States are facing challenges such as deep inequalities and a heavy dependence on exports of unprocessed raw materials and agricultural products;

L. whereas the SADC Industrialisation Strategy and Roadmap 2015-2063 identifies three preferred growth paths for resource-based industrialisation in the region: agricultural commodity processing, mineral processing, and industrial and service-based value chains;

M. whereas developing countries face a gap of USD 2.52,5 trillion in annual financing to achieve the Sustainable Development Goals (SDGs) by 2030; whereas foreign direct investment (FDI) is an instrument for financing the 2030 Agenda for Sustainable Development and the corresponding SDGs; whereas such capital can support job creation and social and environmental improvements, as set out in the SDGs; whereas the aim of attracting investment should go hand in hand with the acknowledgement, in the context of international investment agreements (IIAs), that the parties to these agreements should seek to improve their levels of environmental or labour protection, and not weaken or reduce them;

N. whereas the objective of the SADC Industrialisation Strategy and Roadmap 2015–2063 is to develop and participate in regional and global value chains;

60. Instructs its President to forward this resolution to the Council, the Commission and the governments and parliaments of the Southern African Development Community Economic Partnership Agreement States.

29.11.2023

OPINION OF THE COMMITTEE ON DEVELOPMENT

for the Committee on International Trade

on the implementation of the EU-Southern African Development Community (SADC) Economic Partnership Agreement (EPA)

(2023/2065(INI))

Rapporteur for opinion: Karsten Lucke

SUGGESTIONS

The Committee on Development calls on the Committee on International Trade, as the committee responsible, to incorporate the following suggestions into its motion for a resolution:

1. Welcomes the first ex post evaluation of the EU-Southern African Development Community (SADC) Economic Partnership Agreement (EPA); stresses that the EPA envisages trade and investment contributing to the goal of sustainable development in its economic, social and environmental dimensions; notes, however, that many challenges remain in SADC partner countries in relation to economic diversification, competitiveness, growth, the rule of law, reducing poverty, labour rights, land grabbing and environmental protection;

2. Highlights the importance of development cooperation and technical and financial assistance as essential factors for achieving the objectives under the EPA and for beneficial cooperation between the Parties;

3. Points out that regional and sub-regional integration features prominently in the EU-SADC EPA, as this represents a powerful instrument for achieving the objectives of the agreement; stresses that the EU-SADC EPA must support regional and sub-regional integration, promote regional value chains in the SADC and in Africa more broadly, and ultimately integrate developing countries into the world economy in a sustainable manner; stresses, furthermore, that the EU’s development finance cooperation with SADC countries must assist their regional economic cooperation and integration efforts in a way that boosts wider intra-African trade;

4. Recognises that SADC partner countries should benefit from the EPA, as it will increase their ability to boost economic diversification and produce value-added manufactured products; points out that the EPA should contribute to diversifying value chains in SADC countries and their economies, which also makes it necessary to have fair and pro-development global trade rules; points out, further, that it should encourage trade and development policies based on the promotion of human rights, the rule of law and democracy, create local jobs and added value and help to fight inequalities and reduce and eventually eradicate hunger and poverty in a sustainable manner;

5. Underlines the financial and technical difficulties that local small and medium-sized enterprises (SMEs) experience in fulfilling the EU regulations and standards that are required before exporting to the EU market, which may exclude most SMEs from the EPA’s benefits; stresses the need to provide adequate assistance to SMEs in order to ensure their compliance with EU requirements and access to EU markets, and to raise awareness about utilising tariff rate quotas;

6. Stresses that the EPA should contribute to enhancing competitiveness and sustainable economic growth in SADC EPA countries thanks to a fair trade and investment system that takes into account disparities in the level of development between the EU and its SADC EPA partners;

7. Stresses that the EU’s request to ban export taxes on raw materials has been a long-standing stumbling block in the negotiation process on EPAs, considering that export taxes and duties are not prohibited under the WTO regime; recalls the right of African countries to regulate raw materials in their public interest; calls, accordingly, for the EU to refrain from adopting a trade policy that prohibits, as a general rule, developing countries from levying export taxes on raw materials, insofar as this is WTO-compatible;

8. Recalls that the SADC EPA countries were impacted by the pandemic due to reduced fiscal revenues driven, for example, by reduced economic activity and fluctuating commodity prices and trade flows; underlines, in this context, the importance of good governance and assistance in building capacity for sustainable development, in particular with regard to establishing sustainable fiscal systems and fighting tax evasion, in order to help unlock fiscal capacity for further economic and social development and to protect the environment; recalls that the EU needs to strongly support the strengthening of institutions and comprehensive capacity-building in the public sector of partner countries;

9. Stresses that the EPA should support a new trade dynamic between the Parties by means of the progressive asymmetrical liberalisation of trade between them; stresses also that it can reinforce, broaden and deepen cooperation in all areas relevant to trade and therefore also enhance the partnership between the SADC countries and the EU; stresses the importance of the principle of asymmetric trade liberalisation as a tool to foster the economic growth and sustainable development of SADC EPA countries;

10. Calls for the EU to ensure that the EPA contributes to establishing an effective, predictable and transparent regional regulatory framework for trade and investment, in full respect of relevant international agreements and guidelines; emphasises that EPAs must positively contribute to the implementation of the African Continental Free Trade Area (AfCFTA) and the attraction of private capital, as well as to the building of resilient and sustainable regional value chains, thereby boosting and diversifying intra-African trade, which is indispensable for fostering sustainable long-term development and achieving the goals of the 2030 Agenda; takes the view that EU support for the AfCFTA should be accompanied by the development of regulatory frameworks, which, in turn, adhere to strict social and environmental standards;

11. Recalls that the EPA’s current trade sustainability development (TSD) chapter has limited scope concerning binding commitments and provisions on dialogue with civil society; believes that EPAs should systematically integrate a mandatory and enforceable sustainable development chapter which reflects the highest labour and environmental standards in order to achieve the goals of the 2030 Agenda, which entails, for example, the inclusion of strong sustainability commitments related to the Paris Climate Agreement, the Kunming-Montreal Global Biodiversity Framework, international core labour standards, and gender equality and women’s empowerment; recalls, in particular, that, to be effective, the TSD chapter should be covered by the dispute settlement mechanism; welcomes the integration of a TSD chapter in the EU’s EPA with Kenya; urges the Commission to build on this and to strive to strengthen the EPA’s TSD chapter in the ongoing review process of the SADC EPA;

12. Recalls the importance of allowing exceptions to the national treatment principle and the obligation to eliminate export taxes in order to promote and protect infant industries that are key to diversifying the economies of partner countries, thereby boosting their development in line with Article XVII:C and Article XXIV of the General Agreement on Tariffs and Trade;

13. Highlights the importance of broadly, systematically and meaningfully involving development partners, local and regional civil society, academia, trade unions and private sector representatives in the EPA’s implementation, monitoring and the ex post evaluations thereof in order to ensure that the EPA meets the needs of the population while guaranteeing the fundamental principles of sustainable development; notes that the scope of the EPA’s provisions on dialogue with civil society are limited when compared with other recent EU trade agreements; stresses the need to enhance the consultative role of civil society; calls for the establishment of a formal mechanism for civil society engagement, while recalling that current platforms, such as the multi-stakeholder national monitoring frameworks of the African Union’s Agenda 2063, can also be leveraged for engagement with civil society in the context of the EPA;

14. Underlines that while EPAs can provide significant advantages for African, Caribbean and Pacific (ACP) countries, they also come with their own set of challenges and drawbacks; insists, therefore, that policymakers carefully consider these factors and work to ensure that EPAs are implemented in a way that maximises benefits for all parties involved;

15. Recalls that all the Parties should always act on the basis of the principles of solidarity and mutual interest in order to enhance a fruitful collaboration, fulfil their commitments and obligations and facilitate the capacity of the SADC EPA countries to continue to implement the Agreement;

16. Recalls that it can be challenging for smaller ACP countries lacking in resources and infrastructure to implement EPAs; calls for the EU and its Member States to assist their developing partner countries so that they can fully take advantage of the opportunities presented by EPAs;

17. Recalls the need to commit to international standards and agreements for efficient international cooperation;

18. Underlines the importance of the EU’s commitment to multilateral co-operation and to securing Europe’s own trade interests while at the same time addressing some of the key interests of ACP countries, particularly with regard to regional integration;

19. Recalls the two-pillar solution for addressing the tax challenges arising from the digitalisation and globalisation of the economy, as agreed by the members of the Organisation for Economic Co-operation and Development/G20 Inclusive Framework on Base Erosion and Profit Shifting;

20. Calls for the EU and its Member States to ensure that the agreed global minimum corporate tax rate of 15 % for multinational enterprises is applied effectively; underlines that this minimum tax rate is estimated to generate around USD 150 billion in additional global tax revenues annually.

ANNEX: entities or persons

from whom the rapporteur for the OPINION has received input

The rapporteur declares under his exclusive responsibility that he did not receive input from any entity or person to be mentioned in this Annex pursuant to Article 8 of Annex I to the Rules of Procedure.

INFORMATION ON ADOPTION IN COMMITTEE ASKED FOR OPINION

FINAL VOTE BY ROLL CALL IN COMMITTEE ASKED FOR OPINION

INFORMATION ON ADOPTION IN COMMITTEE RESPONSIBLE

FINAL VOTE BY ROLL CALL IN COMMITTEE RESPONSIBLE