SOUTH AFRICANS LOOK BACK ON THE FTA AND WONDER

UNCLAS SECTION 01 OF 02 PRETORIA 004553

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT PASS TO USTR P. COLEMAN

E.O. 12958: N/A
TAGS: ETRD PREL SF
SUBJECT: SOUTH AFRICANS LOOK BACK ON THE FTA AND WONDER
ABOUT THE FUTURE


PRETORIA 00004553 001.2 OF 002



1. (U) Summary. A recent conference organized by South
Africa's leading business group produced a variety of views
on what caused the collapse of free trade talks with the U.S.
earlier this year. Some speakers blamed a failure of vision
in the South African government. Others blamed an inflexible
U.S. negotiating position that did not heed South African
concerns. The FTA was not a top priority for South African
business and the business community's failure to embrace the
FTA deprived it of crucial political support. The private
sector supports the idea of resuming a trade dialogue with
the U.S. through the vehicle of a Trade and Investment
Cooperation Agreement, but there is little if any sense of
what this dialogue should include. End Summary.

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Looking Back on the FTA
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2. (U) Talks to establish a U.S./SACU free trade agreement
(FTA) failed earlier this year because of short-sightedness
in Pretoria, inflexbility in Washington, and the indifference
of the South African business community, according to South
African trade experts and private sector reps. Their
comments were made at an October 30-31 conference at the Wits
Business School organized to analyze what went wrong with the
FTA and to mobilize business support for a renewed trade
dialogue with the U.S. The conference was organized by
Business Unity South Africa (BUSA, the country's premier
business chamber) and the South African Institute for
International Affairs (SAIIA, the country's leading
international affairs think-tank),with a financial
contribution from the American Chamber of Commerce, and the
support of post's Public Affairs section (which paid for U.S.
trade expert Jeffrey Schott to address the gathering). Some
30-40 private sector reps, researchers, and SAG officials
attended the event, which was opened by AngloGoldAshanti CEO
(and BUSA Chairman) Bobby Godsell.

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Who Killed the FTA? Two Views
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3. (U) According to SAIIA trade expert Peter Draper, the SAG
never saw the FTA as anything more than a market access deal,
and this cramped vision defeated any chance of negotiating
the kind of comprehensive deal desired by the U.S.
Pretoria's negotiators, he said, knew that 95 percent of
South African goods already entered the U.S. duty-free, and
they did not believe that South Africa would ever be a major
services exporter to the U.S. With market access already in
hand, they saw little reason to negotiate "new issues" such
as IPR or investment, or to trade away protection in sectors
such as autos. The results were fatal for the talks -- the
space for trade-offs became small and the perception
developed within the SAG that an FTA would be a "one-sided"
deal for the U.S. Draper was sharply critical of Pretoria's
cautious approach to trade, which he derided as "sectoral"
rather than visionary. In his view, the FTA should have been
conceived -- and sold to the public -- as a means to lock in
and deepen economic reform, heighten investor confidence,
integrate South Africa into global production networks, and
subject local firms to competition. As he put it, "Once you
get bogged down in sector specificity, you go nowhere. You
have to look at the entire economy, not just exporting 100
BMW's to the U.S."


4. (U) In contrast, several speakers said the FTA was killed
by an "inflexible" U.S. insistence on a pact that reached far
beyond market access and did not deviate from the core terms
and structures of previous FTAs. According to these critics,
Washington's attempt to force a "template" on South Africa
gave the impression that the FTA was being presented on a
take-it-or-leave-it basis irrespective of South African
concerns. The evidence cited for this conclusion included
Washington's "refusal" to discuss anti-dumping issues, its
"failure" to appreciate that government procurement
disciplines could undermine Black Economic Empowerment, and
its "deafness" to public sensitivity that investor-state
dispute resolution mechanisms would take investment disputes
out of the South African court system. Whatever the merits
or accuracy of these complaints, it was clear that the U.S.
approach struck some South Africans as high-handed and still
rankled. As one steel industry rep said, "This country
exists because of negotiation. Negotiation is never a
one-way street. But the U.S. never budged from its original
position. It just wanted us to sign on the dotted line."

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Business Ambivalence
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5. (U) Some speakers also pointed a finger at the South
African business community for not embracing a comprehensive
FTA or giving it crucial political support. Reg Rumney of
BusinessMap discussed the results of a recent survey of CEOs
that revealed deep ambivalence about an FTA. While most CEOs
paid "lip service" to the idea of an FTA, Rumney reported
that only a handful were well-versed in trade issues or
regarded an FTA as a top priority for their firms. Mining
companies, in particular, could not see how they would be
affected by an FTA. Rumney also found open opposition to an
FTA in heavily protected industries such as autos and in
heavily regulated sectors such as fuels, where an FTA could
limit firms' ability to set prices high enough to offset
regulatory costs.


6. (U) In response, one auto industry rep claimed that
tariff talks in the auto sector were impossible because of
the huge disparity between U.S. and South African auto
tariffs (2 percent and 32 percent, respectively). "The
starting positions were just too far apart," he said, adding,
"U.S. negotiators wanted a zero for zero tariff deal in the
long run. This would have posed huge challenges for South
Africa. Our industrial sectors would be severely undermined
by a true FTA with the U.S." The fears of the auto rep were
echoed by his steel industry counterpart, who told the group,
"The comprehensive U.S. approach was unacceptable. South
African business doesn't want an FTA under just any
circumstances."

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TICA: The Way Forward
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7. (U) All participants agreed that South Africa needs
friendly trade relations with the U.S.; the ongoing GSP
review, the collapse of the Doha Round, potential conflicts
in the UNSC, and the possibility of a new protectionist
Congress were all cited as reasons to resume dialogue with
Washington. Although a full-blown FTA was rejected as
unrealistic for now, there was a near consensus that the
proposed Trade and Investment Cooperation Agreement (TICA)
could be a useful vehicle for addressing bilateral trade
issues. As one speaker put it, the TICA could "fill in the
potholes" left over from the FTA negotiations. At the same
time, no one had a TICA agenda to propose and several
speakers noted that South Africa had to do some serious
homework before it could negotiate a TICA. Business input
was seen as essential -- but business, too, was seen as
poorly informed about the impact of trade deals.

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Comment
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8. (SBU) The conference produced many views on the FTA but
almost no ideas about what to do next. In hindsight, it
seems clear that corporate South Africa's ambivalence about a
comprehensive trade pact left the FTA bereft of support from
a key domestic constituency and wide open to attacks from
unions and other groups. Once orphaned, the FTA was doomed.
Fortunately, there are signs that South African business may
now regret the non-role it played during the FTA talks. In a
recent meeting with post, a senior BUSA officer admitted that
BUSA had done a poor job of supporting the FTA; she pledged
to do a better job of coordinating business support for TICA.
It was encouraging to hear that BUSA, having missed the main
event, does want to be more engaged in the future. A
suitably modest TICA might draw support in South Africa and
serve as a platform for bigger trade deals in the future.
BOST