CHEESE AGREEMENT BETWEEN SOUTH AFRICA AND THE EUROPEAN UNION Presentation Before the Select Committee on Trade and International Relations Presented by MR. VICTOR MASHABELA CHIEF DIRECTOR: BILATERAL TRADE RELATIONS INTERNATIONAL TRADE & ECONOMIC DEVELOPMENT DIVISION (ITED) E-mail: VMashabela@thedti.gov.za 20 February 2013

Outline of the presentation Purpose Introduction Background on the issue Challenges Implementation Benefits Financial implications Stakeholder consultations Global Governance Committee Global Governance Committee

Purpose To seek Parliament’s approval for the ratification of the cheese agreement and also To notify on the negotiated outcome of Annex IV of the SA-EU TDCA.

Introduction The TDCA (Trade Development and Cooperation Agreement) governs trade relation btw SA and the EU. It was signed on 11 October 1999 & entered into force on 1 May 2004. The Agreement provides for the establishment of a Free Trade Area (FTA) between the Parties over a transitional period of 12 years. Upon entry into force of the TDCA, both parties agreed to a so-called “build-in agenda” to improve market access conditions and effect technical changes to the TDCA. Thus negotiations on the cheese agreement constituted one element of the built-in agenda. We should draw a distinction between the SA-EU TDCA of which the Cheese Agreement is a part & SADC-EC EPA negotiations.

Background on the issue Some market access issues have been the subject of dispute since the entry into force of the TDCA: 1.Export subsidies: The Agreement holds that export subsidies from either party not be allowed on products enjoying preferential treatment under the agreement. In contravention of this provisions of the Agreement, the EU continued to provide subsidies to the three categories of its cheese exports to SA market [namely: cheddar, gouda and processed cheese] 2. Review of exclusion list: Some cheese lines that are of interest to SA were listed as products excluded from liberalization in the TDCA and SA has since registered concerns with the EU around this issue.

Challenges The challenges encountered over the 12 year period include the actual implementation of some of the agreed provisions within the Agreement: The EC reneged on the “no export support clause” for cheese exports to SA. To protect its industry, SA responded by issuing a Government Gazette notice to impose duties on cheese imports from the EU that were not accompanied by a declaration confirming that the product concerned had not receive any export subsidies. Extensive bilateral engagement on the cheese issue continued and this was addressed through correcting the erroneous listing of some cheeses in the protected list [not eligible for liberalisation] by placing them in the reserved list [open for further negotiation & liberalisation].

Implementation An agreement was endorsed by the SA-EU Joint Cooperation Council (JCC) on 4 November 2008 to effect the technical changes to the TDCA. Accordingly: -The EU made a commitment to cease subsidizing cheese exports to SA -In turn SA undertook to re-open tariff quota for those cheeses. And to remove duties on cheese imported from the EU. The Parties agreed to review certain provisions of the agreement in future negotiations.

Benefits Agreement has cemented SA’s trade relations with the EU by providing certainty to SA economic operators: 1. Improved market access provisions are laid out in the Agreement: 2. The removal of export subsidies for EU cheeses destined to SA market. 3. The agreement has a defined scope for the review of products/offers in the future negotiations.

Financial implications The Cheese Agreement was implemented on 1 April 2010 and a notice issued in the Government Gazette to that effect. All operators that paid normal customs duties between November 2009 and April 2010 were not reimbursed for the higher duties paid as the agreement does not apply retrospectively. Implementation of the cheese quota resulted in a reduced revenue collection in the case of customs duties. Since the Agreement have an impact on revenue, the legal opinions received advised that ratification by Parliament is necessary in keeping with Section 231(2) of the SA constitution.

Consultations The dti consulted with all key stakeholders, namely: 1. DAFF – Department of Agriculture, Forestry and Fisheries 2. DOJ – Department of Justice 3. DIRCO – Department of International Relations and Cooperation 4. NT - National Treasury 5. SARS – South African Revenue Services 6. GGC - Global Governance Committee 7. ICTS cluster – International Cooperation, Trade and Security cluster

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