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Cablegate: Regional Integration in Southern Africa - A

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 PRETORIA 005040

SIPDIS

DEPT FOR AF/S; AF/EPS; EB/TPP/MTA
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
COMMERCE ALSO FOR HVINEYARD
TREASURY FOR BRESNICK
DEPT PASS USTR FOR PCOLEMAN

E.O. 12958: N/A
TAGS: KTEX ETRD ECON SF USTR
SUBJECT: REGIONAL INTEGRATION IN SOUTHERN AFRICA - A
SPAGHETTI BOWL


1. Summary: The reality in southern Africa is that except
for SACU, regional integration has predominantly not
progressed much further than attempts to create free trade
areas amongst some states and talks about possible customs
unions. Within Southern Africa there are a number of
regional integration agreements and bilateral agreements,
which resulted in countries belonging to more than one
regional bloc simultaneously, creating an overlapping
membership problem. Given that five out of eleven SADC
members are already members of SACU, and every other SADC
member (with the exception of Tanzania) is also a member of
COMESA, it is difficult to see how SADC and COMESA are going
to implement a customs union. A country can only belong to
one customs union, because within a customs union each
member must adopt the group's common external tariff and
apply this rate to all third parties. Legally it would also
be difficult for the different regional blocs to form their
own customs union because the current agreements as they
stand will be in contradiction to one another's treaties. A
possible solution would be to synchronize the common
external tariff of each group so that in the end they would
all form one large trading bloc, but such a long-term
regional plan does not appear to be in place.
The European Union aims to use the Economic Partnership
Agreements (EPAs) to boost regional integration in Southern
Africa, but it does not seem to be very effective. The
answer to the current regional integration problem might lie
in a political as well as a technical or administrative
solution. End Summary.

2. On November 4 and 5, 2004 Embassy's economic specialist
attended a conference jointly organized by the South African
Institute of International Affairs with the European Centre
for Development Policy Management, International Lawyers and
Economist Against Poverty. Speakers explored the impact of
the Trade, Development and Co-operation Agreement (TDCA),
signed by South Africa and the European Union in 1999.
Others examined the changed circumstance under which the
agreement is now being implemented and the problems and
conflicts associated with regional integration in southern
Africa. This cable reports on the conference, especially
regional integration as that was the topic receiving the
most attention.

3. The World Bank has estimated that between 40% and 60% of
world trade occurs within regional trading blocs. According
to a study by the Harvard Institute for International
Development, Africa's appetite for integration outstrips
that of any other continent, with many African countries
belonging to more than one regional entity simultaneously,
referred to as a "spaghetti bowl" by the World Bank. Within
southern Africa there are a number of regional integration
agreements and bilateral agreements taking place within the
context of the worldwide multi-lateral trading system. These
include:
--- South African Customs Union (SACU)
--- Southern African Development Community (SADC)
--- Common Market for Eastern and southern Africa (COMESA)
--- East African Community (EAC)
--- Indian Ocean Commission (IOC)
--- Economic Community of Central African States (ECCAS)

The various regional structures and agreements highlight the
potential problems of overlapping membership as well as
overlapping trade policies. Overlapping membership between
the groupings has the potential to result in conflicting
programs in trade and trade-related issues, imposing greater
transaction costs on the business communities, financial
costs of multiple memberships on governments, and a possible
waste of resources through duplication of effort.

4. The conference pointed out that the forming of customs
unions would be the biggest problem arising from overlapping
membership, causing the current regional integration
agreements not to be sustainable. No country can belong to
two customs unions simultaneously because within a customs
union each member must adopt the group's common external
tariff and apply this rate to all third parties. One
country cannot apply two different external tariffs. Given
that five out of eleven SADC members are already members of
SACU, and every other SADC member (with the exception of
Tanzania) is also a member of COMESA, it is difficult to see
how SADC is going to implement a customs union. SADC
launched the free trade area in 2000 and its objective is to
be a customs union by 2010 and a common market by 2015.
Peter Draper, research fellow at the South African Institute
of International Affairs, feels that if COMESA goes ahead
with its planed customs union it could cause regional
realignments and create confusion over implementation of the
SADC free trade agreement in a new customs union.

5. The lawyers at the conference pointed out that it would
be difficult legally for the above blocs to form their own
customs union because the current agreements as they stand
will be in contradiction of one another's treaties. For
example, Article XXXI paragraph 3 of the new SACU agreement
prohibits members from entering into new agreements with
third parties without the consent of the remaining member
states. Moreover, according to Article XXVII paragraph 2 of
the SADC protocol on trade, member states cannot enter into
a preferential trade agreement with third countries that may
"impede or frustrate the objectives of the protocol" and
that any advantage, concession, privilege or power granted
to a third country under such agreements is extended to
other member states. Lastly, Article 56 of the COMESA
states that member states are free to enter into bilateral
or multilateral agreements provided that such agreements are
not in conflict with the COMESA Free Trade Agreement and
Customs Union.

6. The European Union is using its new Economic Partnership
Agreements (EPAs) as a driver for regional integration in
southern Africa. The EPAs negotiations flow from the Cotonou
Agreement that was signed in 2000 between
the EU and its 77 developing country partners in Africa, the
Caribbean and the Pacific - or the so-called ACP states.
According to Talitha Bertelsmann-Scott from the South
African Institute of International Affairs, the European
Union is negotiating the EPAs as regional agreements and the
negotiations could have a defining impact on regional
integration and the shaping of regional organizations in
southern Africa. Southern African states, however, have
decided not to negotiate as existing regional groupings, but
have formed two new groups that will be negotiating with the
EU. COMESA extended an invitation to all the states in
eastern and southern Africa to form the ESA (Eastern and
Southern Africa) trade-negotiating unit, and launched talks
with the EU on February 7, 2004. A number of SADC states,
now called the SADC-minus group, which includes the BLNS,
Tanzania, Angola and Mozambique, however, decided not to
join the ESA group. This only complicates and frustrates
the current regional integration situation, which casts a
shadow over the effectiveness of the EPAs in promoting
regional integration.

7. The problems caused by the overlapping multiple
agreements could be reduced if there were overall plans to
synchronize the common external tariff of each group so that
in the end they would all form one large trading bloc.
According to Richard Hess, managing director of Imani
Development, such a long-term regional plan does not appear
to be in place, however, except for the goal of establishing
the African Economic Community by 2025. He felt that it was
time for the political leaders to make some hard choices,
based on an economic as well as political rationale to make
progress with regional integration. Mark Pearson, regional
integration adviser at the COMESA secretariat, felt that the
way forward and a resolution of the "Spaghetti Bowl" lies as
much in a political resolution as it does in a technical or
administrative solution.

FRAZER

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