US embassy cable - 04PRETORIA4689

UNCLAS SECTION 01 OF 03 PRETORIA 004689 
 
SIPDIS 
 
DEPT FOR AF/S TCRAIG; AF/EPS 
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
COMMERCE ALSO FOR HVINEYARD 
TREASURY FOR BRESNICK 
DEPT PASS USTR FOR FLISER AND PCOLEMAN 
 
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. 
 
------------- 
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. 
 
-------------------------------- 
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