AMBASSADOR MEETS DTI MINISTER ON FTA AND BEE

UNCLAS SECTION 01 OF 03 PRETORIA 004689

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SENSITIVE BUT UNCLASSIFIED

E.O. 12958: N/A
TAGS: ETRD EFIN EAID ECON PREL XA SF
SUBJECT: AMBASSADOR MEETS DTI MINISTER ON FTA AND BEE

REF: (A) STATE 223549, (B) PRETORIA 4532

(U) This cable is sensitive but unclassified. Not for
Internet Distribution.


1. (SBU) Summary. Ambassador Frazer discussed the Free
Trade Agreement (FTA) negotiations and raised U.S. concerns
about Black Economic Empowerment (BEE) in her meeting with
Department of Trade and Industry (DTI) Minister Mpaphlwa on
October 19. She underscored U.S. goals for a comprehensive
FTA that covers all issues. She explained an "early
harvest" would not work. The Minister was receptive to the
Ambassador's call for senior leadership, and suggested we
"cascade up to the political level and give some fresh
political direction on what we agree." Drawing on demarche
points in reftel A, the Ambassador noted support for BEE but
raised continuing concerns about clarity in compliance with
charters and equity transfer issues. The Minister
acknowledged that the government would have to address these
issues, and referred to Amcham's memo expressing concerns
about equity. He hopes to issue the BEE Codes of Good
Practice and appoint the members to the Advisory Council on
BEE to the President before the end of the year. End
Summary.

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U.S.-SACU FTA
--------------


2. (SBU) Ambassador Frazer met with DTI Minister Mandisi
Mpahlwa at his office on October 21. She underscored the
U.S. perspective on the FTA as a comprehensive agreement
that would expand trade and investment, and make AGOA
benefits permanent for the Southern African Customs Union
(SACU). It would have to include all Phase 1 and Phase 2
(e.g., procurement, intellectual property) issues. An
"early harvest" would not work with our Congress, private
sector, or legislation. There was room for flexibility, for
example in the phasing in of the provisions of the FTA. She
noted that after 18 months of negotiations there is still no
agreement on even a single line of text. She called for
senior leadership by the Minister working with USTR
Ambassador Zoellick as a way to move the process forward.
She also noted that one problem has been that publicly the
U.S. side has been making statements that are positive,
while the SACU side has been saying things that are
negative, adding, "It doesn't help."


3. (SBU) Minister Mpahlwa was cordial throughout the 45-
minute meeting. He referred positively to the contacts
between DTI Director General Alistair Ruiters and Deputy
USTR Josette Shiner. He noted the DG had mentioned to him
the problem about statements made publicly by South
Africans, including one in New York and some things that
Iqbal (Sharma) has said. "I take your point very well." As
for the status of the negotiations, the Minister got the
sense that at some stage it became too difficult in the
negotiations because of simply bad chemistry between our
negotiators or because the U.S. and SACU perspectives on the
FTA were not the same.


4. (SBU) At the same time, the Minister noted SACU's lack of
capacity compared to the United States and the "intensity"
of the WTO negotiations as other factors. He lamented that
he had not been able to meet with Ambassador Zoellick to
have a bilateral on the FTA during the multilateral meetings
in Mauritius (ACP) and Brazil (UNCTAD) where the focus was
on other issues. Having lost time, he echoed the Ambassador
by suggesting the need "to cascade up to the political level
and give some fresh political direction on what we agree."


5. (SBU) Victor Mashabela of the Americas desk added that
both sides were far apart on perspective and philosophy. He
referred to the difficulties in negotiating the terms of
reference, particularly on such issues as SACU's insistence
on asymmetry and not going beyond the WTO. Thus, it was not
too surprising that it became difficult. (Comment: the
Minister himself did not comment on the substance of the
SACU perspective.)


6. (SBU) The Ambassador reiterated the need to go to a
higher political level in order to find commonality on
principles, given that the negotiations were bogged down in
set positions. She suggested that after the elections the
United States and SACU meet at the political level to find a
way forward. The Minister was uncertain how to proceed but
was receptive to the idea, and agreed to touch base with the
Ambassador after the elections and share expectations. He
noted there would be a SACU meeting on December 9.

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Black Economic Empowerment (BEE)
--------------


7. (SBU) The Ambassador drew on reftel talking points on
Black Economic Empowerment. She explained that U.S.
companies are committed to BEE and noted their successful
efforts in broad based empowerment activities. At the same
time, they need clarity in understanding how to comply with
BEE legislation and charters. The main concern is equity
ownership and uncertainty about requirements, such as how
scorecards and codes of good practice will apply.
A big issue for U.S. companies is to be able to offset
equity requirements with other areas in scorecard. For some
companies, sharing equity would be very difficult because of
corporate law, policy, and shareholders. There were also
questions about having to comply with different charters.
Companies that operate across different sectors wonder
whether they have to deal with multiple charters or just one
and ask to whom do they answer. She was raising these
concerns and questions with the Minister because DTI is the
focal point for implementation of BEE.


8. (SBU) Minister Mpahlwa thanked the Ambassador and
acknowledged that the government would have to address these
issues. He noted that when he spoke at the American Chamber
of Commerce breakfast a few weeks ago (reftel B) that
"clearly equity is a concern." He also referred to a
memorandum on BEE issues that Amcham gave him and their very
deep concerns about equity, especially in the proposed ICT
(information, communications, technology) charter.


9. (SBU) The Minister referred to the President's Advisory
Council on the Information Society, which includes the CEOs
of the biggest companies, such as Hewlett Packard, Oracle,
and Microsoft. He said President Mbeki said he gave them
the commitment "that we will deal with their issues and
concerns." The Minister said it would have to be an
accommodating approach in dealing with these issues. He
underscored that "we are alive to these issues."


10. (SBU) The Minister also elaborated on differences in the
process of developing the ICT Charter compared to the
approach they had in Financial Services Charter. One
disadvantage is that in the Financial Service Charter, there
was a reference group composed of three people representing
the President's Office, DTI, and the National Treasury.
They could interact in the process and help for a smoother
process. Such a group does not exist for the ICT charter.
Moreover, the proposed ICT charter has not yet been brought
to DTI.


11. (SBU) Minister Mpahlwa said there were "many angles"
about BEE that are coming to the government's attention. In
particular, he noted the Italian Ambassador had met him the
day before and raised issues related to a series of existing
bilateral agreements that protect investments and questions
about whether these agreements could be violated by such
things as the Mining Act and charter. He said, "We have to
look at those angles."


12. (SBU) The Minister committed generally on the BEE points
raised by the Ambassador saying, "As the lead, I will see to
it that these issues will be brought to the attention of the
Cabinet, so at least Cabinet can be apprised of what some of
the issues are."


13. (SBU) The Minister also briefly discussed the scorecard
and the Codes of Good Practice, which he said DTI intends to
issue soon in order to provide some common base to evaluate
the empowerment process. The work on the codes is pretty
much done. Those in phase one will come out soon while
those in phase two will come out much later. He underlined
that the government is proposing a broad approach to
empowerment that is not just about equity. He said equity
is only a small part of it, and also important are such
areas as enterprise development and human resource
development.


14. (SBU) The Minister also referred to upcoming
appointments to the Advisory Council on BEE to the
President. While he expects criticism regardless of who is
on the Council, he said they would need solid people who
will inspire confidence in the broad based aspects of
empowerment and can engage on these issues. There will be
four ministers, representing government, as well as private
sector representation, but he said it should not just be big
players from Gauteng province and Johannesburg. There could
also be representatives from academia, the NGO community,
and unions. He hopes to have the appointments done before
the end of the year.

FRAZER