US embassy cable - 04PRETORIA5040

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