51995IE1456

Opinion on relations between the European Union and South Africa

(96/C 82/10)

On 30 March 1995 the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on relations between the European Union and South Africa.

The Section for External Relations, Trade and Development Policy, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 10 November 1995. The Rapporteur was Mr Schunk.

At its 331st Plenary Session on 20 and 21 December 1995 (meeting of 20 December 1995), the Economic and Social Committee unanimously adopted the following Opinion.

1. Introduction

1.1. Cooperation between the European Union and the Republic of South Africa is currently based on an interim agreement concluded in October 1994. At the same time South Africa was brought into the revised Generalized Scheme of Preferences (GSP). After the official end of apartheid in South Africa and the lifting of all sanctions the European Union decided to develop future relations with South Africa on the basis of a new type of treaty. An agreement of this kind should contribute to the regional integration of South Africa, to the securing of peace and to confidence building in southern Africa as a whole.

Since the first free general election was held in South Africa in April 1994 some Member States have shown increased commitment to development cooperation. In view of the difficult task facing the new South African government, their contributions are essential.

1.2. This Committee Opinion supports the rapid negotiation of a protocol to the Lomé Convention and a bilateral trade and cooperation agreement.

The European Union must stand by South Africa to help it overcome the consequences of decades of discrimination. The Committee recommends that the customary clause on democracy and human rights be incorporated into the future agreement. The Committee considers it important that, as in the new text of Article 5 of the Lomé Convention, the concept of 'good governance' be added to this clause. Democratic South Africa should from the outset ensure that the institutional and legislative conditions for transparent and sound financial management are guaranteed. The EU could provide assistance here. The EU's credibility would be considerably enhanced if it were to work for the dismantling of rules and practices in the Member States tending to tolerate or encourage corruption.

An urgent task facing the South African government is to restore fully the competitiveness of the economy and at the same time to boost the capacity for consensus in a society spanning the divide between the first and third worlds. This initiative must embrace all the basic questions of coexistence and address the central issues concerning the future policy of the new South Africa.

1.3. The Committee aims for intensive and comprehensive political dialogue with its counterpart Nedlac (National Economic Development and Labour Council) in support of the South African government's efforts to achieve development, security and peace at home and throughout southern Africa.

Europe and South Africa are bound by reciprocal cultural and historical ties. They share a common commitment to combatting racism and discrimination against women and minorities. Europe, with its social and ecological development model, can contribute to the development of a multicultural society based on a shared identity, democracy and tolerance. A joint commitment to ecological and social clauses would constitute a bold joint expression of confidence in the future of South Africa and southern Africa as a whole, and would rebut the damaging theory that Africa is a 'lost continent'.

2. History of relations between the EU and South Africa(in addition to bilateral relations with individual Member States)

2.1. Period to April 1994

For decades EU policy towards South Africa consisted of vigorous sanctions against the apartheid regime. In 1977, as a measure against racial discrimination, the EC introduced a code of conduct for Member State firms operating in South Africa. The EC also supported the Southern African front-line states in their efforts to reduce their economic dependence on South Africa. Accordingly, the South African Development Community (SADC) was founded in 1980.

When a state of emergency was imposed in South Africa in 1985 the EC foreign ministers reacted with a twin-track policy of restrictive and positive measures.

2.1.1. The South Africa leadership was placed under economic, diplomatic and moral pressure. All military, cultural, sporting and scientific cooperation was halted. In 1986 an investment ban was imposed and the import of iron and steel products and gold coins prohibited. These measures were lifted in spring 1992 in recognition of the political reforms.

2.1.2. At the same time the EU reached agreement with South African church leaders on a special programme for the victims of apartheid, giving assistance in the fields of education and training, humanitarian and social support and legal aid.

This special programme was the largest development initiative ever adopted by the EC for a single country. It was unique mainly in that all aid was administered by NGOs. Between 1986 and October 1991 the EC made ECU 130,7 million available for 402 projects. The money was targeted and channelled through the Kagiso Trust, the churches and the trade unions.

During the process of political and economic change in South Africa, the programme was adapted to the new developments. Thus, the European Union opened a coordination office in Pretoria in order to make cooperation with its traditional partners more effective and to extend the initiatives.

2.2. Since April 1994

The official end of apartheid in South Africa opened up the way for putting future relations with South Africa on a treaty basis. Exploratory discussions had already taken place during the transitional phase which lasted from 1990 until the elections in 1994.

2.2.1. On 19 April 1994 the European Union declared its willingness to cooperate with the Republic of South Africa. The first joint conference of the foreign ministers of the European Union and southern African states on 6 and 7 September 1994 gave the green light for a comprehensive dialogue and intensified economic cooperation following South Africa's accession to the SADC. At the same time a joint working party was set up.

2.2.2. In October 1994 both parties signed an interim agreement containing a statement of their intent to strengthen their relations with a view to the region's harmonious, balanced and sustainable economic and social development.

Until August 1994 South African trade with the EU was subject to the most favoured nation (MFN) clause. Only a very small proportion of South African exports benefited from this. Even after the entry into force of the new GSP, areas of particular importance to South Africa such as agricultural products continued to be subject to restrictions or import duties. South Africa cites this as proof of de facto discrimination against its key exports by comparison with those of a number of ACP countries with a higher human development index.

On 5 July 1995 the EU decided to grant South Africa certain preferences in the agricultural area - the most sensitive sector in the coming negotiations (GSP for 66 % of agricultural products, though it did not grant customs-free access). Only 25 % of agricultural products were included. On 23 October 1995 the Council decided to increase this to 59 %.

2.2.3. In October 1994 the ACP/EU Joint Assembly advocated at plenary level that South Africa be brought into the Lomé Convention and granted access on favourable terms to the markets of the European Union.

2.2.4. In future the EU intends to coordinate the planning of regional development programmes and projects in southern Africa. Domestic and foreign investment in the productive sectors of the region's economy, particularly manufacturing and processing, are to be promoted and closer long-term economic cooperation sought, particularly with small and medium-sized businesses.

The support formerly provided for the South African NGOs under the positive measures is to be continued and brought into the ambit of bilateral relations with the South African government. The EU intends further to strengthen cooperation with NGOs and to involve them in every programme financed by the European reconstruction and development programme. The EU should reserve the right in principle to make project funds directly available to established NGOs.

The Commission intends to provide direct aid through its new European programme for reconstruction and development (EPRD). This special fund is to provide an annual aid of ECU 125 million over the period 1995 to 1999. The focus is on education, training, health care and support for democratic institutions at local level. A large proportion of the 1995 projects have already been approved. They concentrate on urgent basic needs and promotion of the SME sector.

2.2.5. In order to offer South Africa financial support going beyond the scope of the EPRD, on 1 June 1995 the Council adopted a two year Community guarantee of ECU 300 million. for European Investment Bank (EIB) loans.

3. The European Commission's mandate

Since the election of Nelson Mandela as South Africa's State President, EU support for the new government of national unity (see chapter 2) has been rather fragmentary. At the end of March 1995 the European Commission submitted the draft of a joint treaty framework for long-term cooperation with South Africa. The mandate of the Council of Ministers, presided over by France, was issued on 19 June 1995. Negotiations began officially on 30 June 1995, after the South African Vice-President, Mbeki, had agreed to the twin-track approach as formulated by the European Commission.

3.1. General objectives

The twin-track approach envisaged by the Commission takes account of the specific nature of recent developments in South Africa. On the one hand, possible qualified accession to Lomé IV Convention will be negotiated.

The Commission confirms its intention of supporting South Africa during the current process of transition by contributing to the promotion of economic and social consolidation. First and foremost, poverty is to be combatted and the process of democratization consolidated. This will be based on recognition of democratic principles and respect for human rights in line with the United Nations' Universal Declaration of Human Rights.

On the other hand, there will be negotiations on a bilateral trade and cooperation agreement, the aim being to create a free trade zone through progressive liberalization of trade. The Commission opposes non-reciprocal trade with South Africa (of the kind practised with other African states).

The EU would, inter alia, also like to open up the South African market further to its own exports. South Africa is already an attractive trading partner for industrial and consumer goods from Europe. (In 1994 South Africa's bilateral trade deficit in industrial goods excluding exports of gold amounted to approximately ECU 3 billion.)

Cooperation is to be simultaneously developed within southern Africa. South Africa's new status should promote economic and social development in this region of tensions.

3.2. Timescale and structure of mandate

The 'twin-track' approach is unique in the history of the EU's partnerships with third countries. Two other options were considered and rejected: reciprocal status would not have changed the South African status quo. The GSP, which is already being applied, if only partially, does not match the expectations of both sides.

The protocol ('first track') would be an integral part of Lomé IV Convention, subject to its period of validity and conditions.

This ten-year association agreement with 70 states in Africa, the Pacific and the Caribbean (ACP) runs from 1 March 1990 to 29 February 2000. It grants these states free access to the European market for all industrial products and a large proportion of agricultural products.

The bilateral agreement ('second track') will run for five years and can be negotiated every year. However, the EU has signalled its intention to commit itself for 10-15 years.

The negotiating directives are structured as follows:

3.2.1. Protocol to Lomé IV

The protocol sets out the conditions under which South Africa can be admitted to Lomé IV. The outcome of the negotiations depends in particular on consultations with the ACP countries, i.e. the decision of the EU-ACP Council of Ministers.

The South African economy is in some major respects similar to those of the ACP countries. However, the Commission, pointing to the South African economy's strengths and potential, intends not to apply certain chapters and articles during the second stage of the current Lomé Convention:

- The chapter on general trade arrangements (Articles 167-185);

- The chapter on Stabex (Articles 186-212);

- The chapter on Sysmin (Articles 214-219);

- The Articles on structural adjustment support (Articles 239-250);

- Protocol 5 (bananas);

- Protocol 6 (rum);

- Protocol (beef and veal);

- Protocol 8 (sugar);

- Protocol 9 (EC coal and steel products).

With the exception of the trade arrangements, this is in line with South African expectations. In addition, a general clause guarantees that any financial aid will come directly from the EU budget and not from the ACP states' development fund. The only exception is assistance to refugees (Articles 255-257). South Africa ruled out any claim to ACP funding for itself and above all pressed for application of the trade arrangements.

A separate article on South Africa's qualified accession to the Lomé Convention has been incorporated into the text (as of June 1995). If any new EU-ACP agreements are discussed, South Africa's new situation will be taken into account.

3.2.2. Bilateral trade and cooperation agreement

3.2.2.1. The bilateral agreement regulates aspects of EU-South Africa relations not covered by the protocol. The Commission is aiming for a reciprocal asymmetric free trade agreement: in the first phase Pretoria will be given easier access to EU markets.

3.2.2.2. A regular political dialogue, at ministerial or other levels, is to bring the two parties closer together. In order to ensure long-term stability and peace in southern Africa, the dialogue will include all the SADC countries. The dialogue will cover:

- support for democracy and the rule of law;

- respect for human rights and promotion of social justice;

- the establishment of the conditions for the elimination of poverty and racial, political, religious and cultural discrimination.

The following are at the forefront of the discussions on trade and cooperation issues:

- clarification of trade and economic cooperation issues;

- cooperation on industrial and service activities;

- investment (protection and promotion); and

- development cooperation.

A committee will monitor implementation of the agreement. Other priorities for discussion are:

- science and research;

- development of communication and information structures and data networks (information society);

- increased commitment in the fields of education, training and health;

- special concern for environmental issues;

- institutional agreements.

In a similar way to other trade agreements between the EU and non-EU countries, the following fields of activity are listed without further specification:

Origin, customs, competition policy, joint ventures, job creation, business counselling, regional development, cooperation and integration, telecommunications, energy, transport, tourism, agriculture, fisheries, financial services, intellectual, industrial and commercial property, science and research, cultural contacts and combatting of money laundering and drug trafficking.

The mandate is to be spelt out in individual directives only when the negotiations have started.

3.2.2.3. On 23 October the Commission adopted a draft supplementary directive for a trade and cooperation agreement, spelling out the Council's plan for a progressive and reciprocal liberalization of trade. It covers proposed rules on origin, trade in services and free capital movements.

The EU feels that the draft is based on WTO rules and consideration for sensitive issues and products.

Although the South African Government initially did not wish to consider a free trade agreement, it changed its mind after the bilateral negotiations of September 1995. It declared its willingness to negotiate on a free trade agreement from the outset, with the proviso that 'nothing is agreed until everything is agreed'. It also expected a Commission proposal taking account of the steps towards trade liberalization and economic restructuring already undertaken, and compatibility with the current restructuring of SACU and regional integration in southern Africa.

WTO rules provide that at least 90 % of total trade by volume must be covered after a ten-year transitional period. Only where there are particularly good reasons may the process take up to twelve years.

After five years a study is to be carried out of sensitive products and products excluded when the agreement on exemption from customs duties entered into force.

The time scales are asymmetric and allow for breathing spaces for restructuring on both sides.

Only volume percentages are laid down for the various stages, no product specifications. Vague reference is made only to those sensitive areas which at present seem likely to continue to be excluded from full customs exemption even after the transitional period.

4. Regional compatibility in southern Africa

4.1. The EU feels that South Africa holds a key position not only in southern Africa but also with respect to the whole continent. The democratization of South Africa offers a golden opportunity for growth, stability and security throughout the entire region, e.g. also in Angola and Mozambique. Since the beginning of the negotiations it has been the South African government's declared aim to help promote regional economic integration and to involve the whole of southern Africa in its construction phase.

4.1.1. In August 1994 South Africa joined the SADC which now has 12 Member States. It was decided at the meeting of the SADC Council of Ministers in February 1995 that South Africa would assume responsibility for coordinating the financial and investment sector of the SADC. South Africa is playing a major part in the formulation of an agreement on trade and integration.

4.1.2. South Africa is also lending its support to regional industrial development in the South African Customs Union (SACU) of South Africa, Namibia, Botswana, Lesotho and Swaziland. According to information received from the South African Government, networks are already being set up. A joint industrial policy strategy is currently being developed, into which the SADC is to be brought at a later date.

The EU is willing to grant the trade products of this regional cooperation privileged access to the European market. This will also allay the fears of the SACU Customs Union that if a free trade zone were to be established its own trade advantages might be lost to South Africa.

4.2. The ACP states' special status has been accepted by the WTO. A joint industrial policy strategy is currently being developed, into which the SADC is to be brought at a later date.

In bringing South Africa into the Lomé Convention in a qualified way, the rules of the WTO established on 1 January 1995 are to be observed. No agreements should be concluded which could conflict with WTO agreements, to ensure that individual interests are compatible and reciprocally acceptable. As members of the WTO, South Africa and the EU are pressing for the results of the Uruguay Round to be implemented as soon as possible.

4.3. The Lomé Convention includes provisions which would enable South Africa to stimulate industrial development in southern Africa (e.g. the cumulation provisions). Improved access to the EU market for its industrial and agricultural products should enable South Africa to grant preferential trade conditions to the other southern African states.

4.4. The intensive negotiations being carried out by the South African Government with the EU have from time to time provoked accusations of 'Euro-centricity' in South Africa. In the view of these critics, South Africa should focus on other African countries and the 'south'. Faced with the need to secure a position on the global market, South Africa apparently has to make a fundamental choice: should it conclude trade agreements (wherever possible long-term agreements) with countries in the developed world or should it pay more attention to the rapidly growing markets of Asia and Latin America? South African firms are in fact already exploring these markets.

5. ESC Opinion

5.1. The ESC welcomes (a) the Council decision of 19 June 1995 to lay down a long-term framework for EU-South African relations by twin-track negotiations and (b) South Africa's basic approval of this method of operating.

5.2. The ESC recognizes that an elaborate and a relatively open-ended negotiating brief was necessary in order to be able to adopt a flexible approach to the political and economic decision-making processes in South Africa and the manifold interests within the EU Member States with respect to SACU, SADC and the ACP States, and within the WTO.

5.3. The ESC also supports South Africa's aspirations as:

- the EU has promised to lend its full support to the democratic process, to the safeguarding of human rights, to the knitting of South Africa's economic and social fabric and to the fight against poverty,

- the greater part of South Africa's two-tier society lives as the victims of racial discrimination under developing world conditions,

- the changeover in South Africa is associated with high expectations with respect to better satisfaction of basic needs,

- the socio-economic foundations on which the political 'miracle' rests are not yet secure,

- South Africa will depend in the short- and medium-term, on a swift, far-reaching and straightforward commitment.

5.4. The ESC does not share the widely held view that the different starting points with regard to customs duties and subsidies, South Africa's specific Uruguay Round commitments and restrictions arising from European agricultural policy mean that a free trade agreement would serve only EU interests. A balance of interests must be struck during the transitional phase via suitable asymmetry. Free trade agreements ultimately benefit both parties although absolute equality of opportunity and advantage can never be guaranteed.

It should however be borne in mind that, even after both sides' Uruguay Round commitments have been fulfilled, the relative weight of agricultural products subject to customs duty in EU imports from South Africa is nearly as great as that of non-agricultural products subject to customs duty (1999 without free trade agreement: 83 % customs-free; 8 % agricultural products subject to duty; 9 % non-agricultural products subject to duty).

The Committee is confident that the Commission will end as soon as possible the rather fragmentary support granted recently during the transitional process. Historically grounded trade policy disadvantages which comparable third countries do not have to contend with should be eliminated as quickly as possible.

Future cooperation must take sufficient account of the short to medium-term moral and political responsibilities towards South Africa as well as the medium to long-term reciprocal interests of equal partners.

5.5. The ESC is glad that on the occasion of the mid-term review of the Lomé Convention a special clause was adopted on South African accession to the Convention in accordance with the mandate, thus preventing a lengthy ratification process. The ESC also welcomes the application of the Lomé Convention's cumulation provisions to South Africa on an ad hoc basis, but calls for the ad hoc proviso to be dropped as rapidly as possible. It welcomes the entitlement of South African firms to tender for contracts funded by the EU. The same arrangements should apply to ACP firms in South Africa.

5.6. The ESC urges the Commission to play its part in ensuring that the negotiations proceed without delay. Any outstanding (specific) directives should be adopted as quickly as possible, and concessions granted with regard to the access of South African products to the market should continue to be implemented before an overall agreement is ratified.

5.7. The debate on full South African trade policy access to Lomé IV should be terminated. South Africa must put its potential for building investors' confidence in the foreground.

5.8. The South African government has made a convincing start, going further than its GATT commitments, on returning to a rapidly changing and competitive world economy which makes no special allowances for the burdens of national history.

5.9. Long-term economic cooperation with the EU could provide South Africa with social and ecological guidance, smoothing its path to the world economy. The ESC urges that all South African agricultural products be incorporated as soon as possible and comprehensively into the GSP, as an important step towards the urgently needed promotion of South African exports, as these already have partial access, and industrial products have unrestricted access.

The Committee supports the planned free trade agreement, to be asymmetric during the transitional phase. The CAP should be borne in mind in dealing with agricultural products. The difficulties associated with trade in agricultural products should ease as the reductions in farm support negotiated in the Uruguay Round are implemented. There is a commitment to reduce support further in the next negotiating Round.

5.10. The modernization of South Africa's economic and foreign trade structure, and in particular the conversion of manufacturing industry to more efficient and productive processes, will require lengthy transitional phases in some sectors as customs duties are scaled down in preparation for a free trade agreement. The EU must make the first move if trade is to gradually take shape in both directions. This will ensure that the wish for harmonious, balanced and sustainable social and economic development, as expressed by both parties in the interim agreement, becomes reality.

5.11. South Africa's high short and medium-term requirements for imports of capital goods could result in balance-of-payments disequilibria, unless equilibrium is re-established by means of a compensating increase in exports, and in the short-term import substitution. The extreme dependence of South African exports to the EU on minerals must therefore be reduced by progressive diversification towards additional exports of agricultural and labour-intensive products. Assuming that the interests of the EU Member States in sensitive sectors are considered, the ESC is in favour of granting South Africa improved access in the short term to the agriculture, food manufacturing, meat processing, wood-working and clothing sectors, inter alia.

5.12. The Committee notes the South African studies and arguments to the effect that

- many agricultural products will not affect European interests as they are not produced in Europe,

- the number of products in respect of which South Africa would compete to a significant degree with EU products traded between Member States is very much smaller than was hitherto assumed,

- the impact on individual Member States is more even than expected,

and calls for these figures to be compared with thorough EU analyses of products and countries, taking account of dynamic considerations (intra-European trade potential).

5.13. Contrary to hollow myth, South Africa has considerable development and growth potential. In the age of globalization this potential can be realized via cautious and coherent opening up of the market, which will give domestic and foreign investors a new orientation. Foreign direct investment could contribute to stable conditions for sustained growth on a scale which would permit a substantial reduction of unemployment. This could compensate in part for the shortcomings of the domestic capital market (low savings rate). The framework for this must be established by means of confidence-building political and economic measures and local rules to promote and safeguard investment.

The Committee shares the view that the conclusion of a long-term trade and cooperation agreement with the EU in the form of an asymmetric free trade agreement would contribute further to the establishment of guidelines, clarity and confidence for domestic and foreign investors and worldwide business partners.

5.14. South Africa's uncertainties with regard to its own geo-economic orientation and to the sectoral consequences and competitive opportunities, above all for high-value consumer goods, arising from a phased opening of the market in the direction of free trade should be jointly overcome. The Committee recommends that in the course of the negotiations the Commission offer to finance sectoral scenarios and analyses.

5.15. Cooperation between the institutions responsible for the administrative, financial and transport aspects of trade and investment is in hand. Discussions are taking place on the compatibility of standards and certificates. In addition, the government of South Africa should be asked for clarification as to whether and how it intends to develop further the existing safeguards for suppliers, investors and intellectual property, and as to the details and timing of the removal of controls on capital movements, already announced. The Committee considers that both would improve the calculability of risks for potential investors.

5.16. Opening up to the world market, with great strides towards improved international competitiveness, confidence-building maintenance of macroeconomic (monetary, fiscal) stability standards to woo foreign creditors and investors and the special character of the political compromise in South Africa (limits of redistribution) impose short-term constraints on the development of mass purchasing power and leave little scope for a rapid stimulus to growth and employment.

Employment effects should be one of the factors considered when the EU adopts measures to facilitate South African exports and for the financial promotion of projects and investment in South Africa. The ESC welcomes many European firms' commitment to redevelopment programmes (RDPs). Collaboration with small and medium-sized businesses (including the informal sector and emerging businesses) will, with government support, open up simple and rapid job creation opportunities and will contribute to the development of a (black) small business sector.

Growth impulses for the domestic economy should come mainly from exploitation of the potential of the SME sector, i.e. particularly from the further development of the informal sector and emerging business, and should not place any burden on the balance of payments.

5.17. Financing conditions for SMEs must be improved. The numerous possibilities should be carefully studied by the EU and promoted. Non-government organizations (NGOs) which satisfy various requirements in terms of management, financial viability, creditworthiness and monitoring by their financiers, can, inter alia as intermediaries between commercial banks and small and medium-sized enterprises (informal sector, emerging businesses), make a contribution to the development of the latter. Commercial banks must be introduced step by step to the new risks, so that the highly developed financial infrastructure can benefit this new entrepreneurial culture as well.

5.18. Without the NGOs as serious and competent intermediaries, enjoying long-established confidence, it will be impossible to implement government projects (RDPs) in the localities. New local authorities would have to build up this experience painfully. On the one hand, the ESC supports the Commission's urging for an ordered procedure, transparency and accounting systems in South Africa. But at the same time the Committee recommends that NGOs which meet these criteria continue to be treated as independent operators. The South African government can be expected to contribute to positive screening in the form of track records and state audits. The importance of NGOs for the development of civil society in South Africa is undisputed.

5.19. The ESC welcomes the most recent joint initiative by important South African social operators against corruption, fraud, crime, including drug-related crime, and violence and sees in it lasting moral support for a joint campaign against corruption, which should permit closer cooperation between the responsible bodies. The ESC notes with concern the worldwide spread of corruption. No-one has the right to point the finger. Rather, all must work together to contain its spread. The EU must work energetically to eliminate rules and practices in the Member States which tend to tolerate or encourage corruption.

The ESC recommends that the EU reach agreement in good time with the South African government on institutional and legislative preconditions to guarantee the efficient, transparent and responsible administration of public and development aid funds, particularly where the award of project and public purchasing contracts at all levels are concerned. The consistent joint combatting of corruption in bilateral economic relations will promote economic efficiency and thus growth in South Africa. As the first step, an intensive, reciprocal exchange of experience should be agreed between the responsible administrations.

5.20. In addition to development policy cooperation, the European Commission's mandate covers cooperation in economic areas in which South Africa is strong. In these areas in particular large companies have, together with their social partners, developed respected and high-quality vocational qualifications. The ESC believes however that an effective system of vocational qualifications must give equal weight to breadth and depth of knowledge. The Committee is glad to note therefore that the Commission has identified this area as a priority for cooperation. It hopes that the Member States will contribute ideas and experience.

5.21. A bilateral cooperation agreement between South Africa and the EU must be compatible with the regional development interests of SACU and SADC, as well as the ACP states and the rules of the WTO. The ESC welcomes the great sensitivity of South African diplomacy and external economic policy with regard to these interests. The improvement of these countries' access to the South African market, the development of joint industrial policy concepts, the restructuring of regional trade in favour of balanced regional development and the intensification of intra-regional trade and investment flows deserve full recognition and encouragement to go further. The Committee supports the view that the countries of the southern African region and the ACP states should be involved in the consultations at all levels, including the political dialogue at ministerial level and expects special commitment from South African partners in this regard.

5.22. The ESC notes that if South Africa succeeds, this will benefit the whole region; the effect of failure, however, would be more destabilizing than if South Africa were temporarily to outdistance its neighbours to some extent in economic terms. The ESC feels that an agreement between South Africa and its by far largest economic partner (the EU) for integrating the country into the world market should not unduly prejudice the interests of other industrialized countries operating on the South African market.

5.23. The wide-ranging political dialogue planned which will be conducted at ministerial level and at the other levels of political responsibility and democratic decision-making, is a major contribution to the further stabilization of democracy and the rule of law, human rights and the promotion of social justice and the combatting of poverty and all forms of discrimination. The Committee welcomes the intention of making institutional arrangements for the dialogue. These should include regular contacts between both parliaments on all questions covered by the cooperation agreements. The Committee urges that the economic and social interest groups and the European social partners be involved.

5.24. South Africa has to reduce a high level of customs duties and subsidies which had developed for political reasons. The commitments entered into in connection with the Uruguay Round, the exemption from customs duty of 27 % of imported motor vehicle components and total customs exemption for clothing and textiles to be phased in (in a linear way) over seven years are, in the light of massive unemployment and marginalization, a huge social challenge.

In addition to this there are the steps to dismantle customs duties provided for in the Commission draft. Because of the different starting positions South Africa would, under these proposals, have to free a further 36 % of its imports from duty during the transitional period, whilst the EU would have to free only about 7 % of its imports from South Africa. At present 78 % of the EU's imports from South Africa are customs-free, whilst the corresponding figure in the other direction is only 44 %. However, that said, the EU should not regard the lack of customs duties on imports of gold and minerals from South Africa, which make up about 50 % of total volume imports, as evidence of trade liberalism.

The growing deficit on trade in non-agricultural products points to a growing need for additional exports of goods and services as well as additional capital imports.

Social stabilization remains a vital precondition for the success of the South African way. The undisputed sensitivities of European agriculture should be seen in the context of losses of jobs and incomes by South African workers. 5-10 people can live off one income. The proposed asymmetry arrangements should take account of this relationship.

The inevitable consequences for jobs, social security, education and vocational and other skills must be countered by a generous commitment by the EU, which is not adequately expressed in the EU programme for development and reconstruction. The EU should make a special effort on counselling, training, cooperation and strengthening of the social operators.

The short-term consequences of an inevitable opening up to the world market, a macroeconomic stability policy and the establishment of a favourable environment for investors can be borne. But at the same time account must be taken of the legitimate expectations of millions of people living below the poverty line. Social dialogue must play a key role in South Africa as an instrument of social pacification.

5.25. Labour relations will increasingly play a key role in calming the overall social climate and improving competitiveness. Nedlac, set up in 1995 and made up of representatives of government, employers' bodies and trade unions in equal numbers, and which to some extent includes other NGOs, is concentrating first and foremost on persuading the social partners to make joint recommendations for legislation.

The ESC notes that the first severe test was passed with the joint support for the new draft of the South African labour law. Agreement was reached on the right to strike, a historically contentious issue, central sectoral wage bargaining and the establishment of works councils. All the parties had to make unpalatable concessions.

South African industry will continue to have to undergo rapid changes and restructuring with all their social consequences. Indeed, the process in South Africa is even more intense than the experiences of European industry in the 1990s. The social operators will continue to be challenged in the future. The ESC therefore recommends that the political dialogue be extended to the ESC/Nedlac level and that this be enshrined in the Cooperation Agreement as follows:

a) a joint advisory committee to be set up to promote dialogue and cooperation,

b) the committee to consist of six members each of the ESC and Nedlac,

c) dialogue and cooperation to cover all economic and social aspects of future relations between the EU and South Africa, with particular attention being paid to the areas defined in the future EU-South Africa agreement,

d) the joint advisory committee to adopt rules of procedure.

Done at Brussels, 20 December 1995.

The President

of the Economic and Social Committee

Carlos FERRER