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

EXPLANATORY STATEMENT - SUMMARY OF FACTS AND FINDINGS

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

- five Monitoring Group Meetings,

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

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.

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.

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,

– having regard to the Economic Partnership Agreement between the European Union and its Member States, of the one part, and the SADC EPA States, of the other part,

– having regard to its resolution of 14 September 2016 on the draft Council decision on the conclusion, on behalf of the European Union, of the Economic Partnership Agreement between the European Union and its Member States, of the one part, and the SADC EPA States, of the other part,

– having regard to its resolution of 6 October 2022 on the outcome of the Commission’s review of the 15-point action plan on trade and sustainable development,

– having regard to its resolution of 23 June 2022 on the future of EU-Africa trade relations,

– having regard to its resolution of 25 March 2021 on a new EU-Africa Strategy – a partnership for sustainable and inclusive development,

– having regard to the Commission communication of 18 February 2021 entitled ‘Trade Policy Review – An Open, Sustainable and Assertive Trade Policy’ (COM(2021)0066),

– having regard to the Commission communication of 11 December 2019 entitled ‘The European Green Deal’ (COM(2019)0640),

– having regard to the Commission staff working document entitled ‘Individual information sheets on implementation of EU Trade Agreements’ (SWD(2022)0730),

– having regard to the Commission position paper on the Sustainability Impact Assessment in support of trade negotiations with Angola for EU-SADC EPA accession,

– having regard to the UN Framework Convention on Climate Change, including the Paris Agreement of 2015,

– having regard to the United Nations 2030 Agenda for Sustainable Development,

– having regard to the Agreement Establishing the African Continental Free Trade Area,

– having regard to the Joint Statement of the 26th EU-South Africa Inter-Parliamentary Meeting, which took place on 31 October and 1 November 2018,

– having regard to the SADC Vision 2050,

– having regard to the SADC Industrialisation Strategy and Roadmap (2015-2063),

– having regard to the European Economic and Social Committee’s own-initiative opinion entitled ‘Next Generation Trade and Sustainable Development – Reviewing the 15-point action plan’,

– having regard to the Ex-post evaluation of the EU-SADC Economic Partnership Agreement – Inception Report of 21 June 2023,

– having regard to the meetings of the EU-SADC EPA Trade and Development Committee, in particular its sixth to ninth meetings,

– having regard to the 2021 Global Report on Food Crises,

– having regard to the study of the European Parliament’s Directorate-General for Parliamentary Research Services of ... 2023 entitled ‘EU-Southern African Development Community agreement at year six – a geo-economic perspective’,

– having regard to Rule 54 of its Rules of Procedure, as well as Article 1(1)(e) of, and Annex 3 to, the decision of the Conference of Presidents of 12 December 2002 on the procedure for granting authorisation to draw up own-initiative reports,

– having regard to the opinion of the Committee on Development,

– having regard to the report of the Committee on International Trade (A90000/2023),

A. whereas geopolitical changes have led to the countries of the Global South having a more self-determined role on the world stage;

B. whereas the association of important countries of the Global South in the BRICS (Brazil, Russia, India, China and South Africa) alliance, which is to be expanded by six more countries from 2024 following the decision of the BRICS summit in August 2023, underscores the importance of maintaining cooperation with Global South nations on equal and equitable terms;

C. whereas South Africa plays a prominent role as a bridge-builder between the European Union and the African continent and as a partner in addressing global challenges;

D. whereas the full participation of civil society in implementing and monitoring the EU-SADC EPA is essential for the timely identification of challenges, opportunities and priorities and for monitoring the respective agreed actions;

E. whereas the SADC Vision 2050 is based on three pillars: industrial development and market integration, infrastructure development in support of regional integration, and social and human capital development;

F. 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;

G. whereas the COVID-19 pandemic has significantly widened the investment gaps in the SADC EPA States and limited their fiscal space;

H. whereas the low level of local production of health products keeps the region dependent on international production for the procurement of vital health products, including essential vaccines against COVID-19;

EPA monitoring and review process

1. Welcomes the first review process launched in November 2021 after the EPA had been provisionally applied since 2016 and expects it to be able to demonstrate the link between the EPA and sustainable development;

2. Acknowledges that the preparation of the joint monitoring report on the EPA is advancing at a pace slower than anticipated; acknowledges the capacity constraints faced by SADC EPA States in this regard;

Trade balances

3. Welcomes the fact that trade relations between the EU and the SADC EPA States have expanded significantly with the SADC EPA States being able to achieve a trade surplus; considers that this demonstrates the EPA’s positive contribution to economic development; notes that, with the exception of South Africa, the bulk of SADC EPA States’ exports to the EU involve unprocessed agricultural products and raw materials;

Technical barriers to trade

4. Notes that regional integration is hampered by long waiting times at border crossings, high border costs and inadequate cross-border connectivity; calls on the Commission and the SADC EPA States to increase cooperation in digital trade and certification;

Rules of origin

5. Notes that no agreement has yet been reached on diagonal cumulation; recalls that the introduction of flexible rules of origin is essential for achieving regional integration objectives; stresses that rules of origin must promote the objectives of the African Continental Free Trade Area;

Trade disputes and market access issues

6. Notes that trade irritants have occurred in relation to sanitary and phytosanitary (SPS) measures, in particular for poultry and citrus fruits; calls on the Commission and the SADC EPA States to use the forums and cooperation mechanisms agreed under the EPA to address changes in regulations and problems related to SPS measures at an early stage and in a cooperative atmosphere so that appropriate action can be taken in a timely manner;

Capacity building

7. Notes that governance and fiscal and institutional capacity remain the greatest challenges for the EPA’s effective implementation;

8. Calls on the Commission and the Member States to step up their efforts in technical assistance; calls on the Commission to significantly expand its communication and cooperation with SADC EPA States and to provide them with timely support in implementing upcoming EU projects and fulfilling other international commitments;

Value chains

9. Concludes that the EPA has not succeeded in deepening regional value chains in and between SADC EPA States to any significant extent; does not consider the EPA to have substantially contributed to the promotion of food sovereignty and poverty reduction in the SADC EPA States;

Climate and food security

10. Stresses that the SADC EPA States are particularly affected by the impacts of climate change; recalls that agriculture in Southern Africa is affected by both floods and droughts; urges the Commission and the SADC EPA States to intensify their cooperation in developing appropriate early warning systems and coordination between the relevant ministries of the SADC EPA States in order to achieve the objectives of the Nationally Determined Contributions;

11. Welcomes the efforts of the SADC EPA States and the Commission to establish closer cooperation on resilient food systems and food sovereignty within the review process;

12. Stresses that there is an urgent need to undertake far-reaching joint efforts towards decarbonisation;

Investment

13. Points out that green finance and investments need to be significantly scaled up in order to achieve the goals of the 2030 Agenda for Sustainable Development and the Paris Agreement and to advance the transition to a low-carbon and climate-resilient economy in the SADC EPA States;

14. Notes that the investment stock of EU Member States in the SADC EPA States remains significantly higher than that of the United States or China;

15. Considers that there is an urgent need to increase sustainable investment in the SADC region and expects investment areas to be identified that appear particularly suitable for investment partnerships between the EU and the SADC EPA States; calls for a better coordinated Team Europe approach in identifying and implementing suitable measures to increase investment;

16. Stresses that a transparent and predictable legal and fiscal framework will help promote regional integration and attract foreign direct investment;

Raw materials

17. Calls on the Commission and the SADC EPA States to strengthen cooperation through formal forums in order to ensure a diversified and sustainable supply of key raw materials for the green and digital transformation, improve recycling of natural resources and promote responsible mining practices; calls for the continuous and broad participation of all relevant stakeholders;

TRIPS waiver

18. Notes that the initial EU policy in connection with the demand by, inter alia, India and South Africa for the removal of patent protection for COVID vaccines has led to considerable disagreement with South Africa; stresses that this form of cooperation does not meet the requirements of an equal partnership; calls for the EU and its Member States to work towards an agreement to extend the waiver to therapeutics and diagnostics;

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19. Instructs its President to forward this resolution to the Council, the Commission and the governments and parliaments of the SADC EPA States.