SCENESETTER FOR SACU FTA MEETING IN WALVIS BAY

C O N F I D E N T I A L SECTION 01 OF 02 PRETORIA 005238 SIPDIS DEPT PLEASE PASS TO USTR AMB ZOELLICK FROM AMB FRAZER E.O. 12958: DECL: 12/02/14 TAGS: ETRD PREL SF SUBJECT: SCENESETTER FOR SACU FTA MEETING IN WALVIS BAY REF: A. PRETORIA 4042 ¶B. PRETORIA 4689 ¶C. PRETORIA 5218 Classified By: AMB. JENDAYI E. FRAZER FOR REASONS 1.4 (B) AND (D). ¶1. (SBU) We welcome USTR Ambassador Robert Zoellick's upcoming visit to southern Africa. The U.S.-SACU FTA negotiations are at a crossroads. Ambassador Zoellick's initiative to meet with SACU trade ministers on December 10 in Walvis Bay is critical to any hope for re-establishing momentum for a successful FTA. Over the last four months, we have achieved buy-in from South Africa's senior political leadership to move forward. This was evident in President Bush's phone call with President Mbeki, in Ambassador Frazer's meeting with new Trade and Industry Minister Mandisi Mpahlwa in October (Reftel B),and just last week at the Amcham Thanksgiving dinner, where former Trade Minister and current Public Enterprises Minister Alec Erwin stated SACU's interest in making the AGOA benefits permanent through an FTA (reftel C). It is important for ultimate success that a good relationship is established between Amb. Zoellick and South Africa's new Trade Minister Mandisi Mpahlwa. ¶2. (C) South Africa remains the biggest stumbling block to progress. It is a corollary that South Africa is also the key to getting an FTA done. South Africa sees the FTA as symbolic. They do not believe they or the United States really need it. But prestige is important for South Africa and, given the extension of AGOA, at this point South Africa wants an FTA for the prestige it bestows on the country as a global player rather than for the economic benefits. The United States similarly has important geopolitical reasons for advancing an FTA with South Africa in addition to the trade advantages. ¶3. (C) When Ambassador Frazer met new Minister of Trade and Industry Mandisi Mpahlwa in late October (reftel B),he admitted there were capacity issues as well as chemistry problems between the negotiators. Still, he acknowledged the need to raise the FTA politically in order to give fresh political direction on areas where we agree in the FTA. He regretted that he had not been able to meet with Ambassador Zoellick before. Mpahlwa feels he has been turned down twice in requests to meet with USTR Zoellick, in Brazil during the June UNCTAD XI meetings and in Mauritius during the July ACP meetings. ¶4. (C) Walvis Bay presents an opportunity to grant Mpahlwa's meeting request and thereby improve the bilateral trade relationship and prospects for ultimate success negotiating the U.S.-SACU FTA. We strongly recommend that Ambassador Zoellick meet with Minister Mpahlwa, perhaps as a pull aside in addition to the SACU ministers meeting, or during a flight layover in Johannesburg or Cape Town. This would allow both Ministers to develop the relationship that will be needed to achieve a successful FTA. It is important that the USTR have the Trade Minister's ear, particularly to provide needed balance to the broken record "can't do" soundtrack of his chief negotiator. Two key objectives in a meeting with Minister Mpahlwa would be to: (1) get South Africa to commit to a more ambitious FTA and (2) get clarity on the exceptions desired in market access most important to South Africa. ¶5. (C) In the past the stumbling block presented by South Africa's lead negotiator, Xavier Carim, at the rhetorical level is getting an FTA that in his view is "balanced" and accommodates South Africa's demands for asymmetry and special and differential treatment. He wants an agreement that falls far short of the "template" FTAs that the United States has reached with other trading partners. Achieving this goal will burnish South Africa's credentials as a G20 leader of developing countries. It will also further the strategy to liberalize as little as possible beyond what the WTO requires. The existing FTA with the EU covers only 90% of trade. South Africa's vision to negotiate trade agreements with other developing countries, as well as with EFTA, is marked by modesty rather than boldness. ¶6. (C) On a practical level, this overall low level of ambition translates into demands for partial liberalization and exclusions regarding market access in goods and services in a U.S.-SACU FTA. South Africa has given no indication of the depth or breadth of these exceptions. On agriculture, however, the negotiator specifically wants to deny benefits to any U.S. goods that benefit from subsidies. Besides securing access to the U.S. market, he would also like special treatment from U.S. trade remedies, such as countervailing duties and anti-dumping. South Africa sees the United States as the demandeur on all the other issues: investment, dispute settlement, labor, environment, IPR, procurement, e-commerce. South Africa believes an FTA covering these subjects would require SACU to make substantial changes in its laws and policies while providing marginal, if any, additional access to the U.S. market and little, if any, requirements on the United States to change its laws and policies. Lastly, South Africa has argued that because SACU does not have any common policies on these issues it is premature to negotiate on them. FRAZER