VZCZCXRO7596
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #4553/01 3061358
ZNR UUUUU ZZH
R 021358Z NOV 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 6690
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHTN/AMCONSUL CAPE TOWN 3578
RUEHDU/AMCONSUL DURBAN 8312
RUEHJO/AMCONSUL JOHANNESBURG 5658

UNCLAS SECTION 01 OF 02 PRETORIA 004553 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT PASS TO USTR P. COLEMAN 
 
E.O. 12958: N/A 
TAGS: ETRD PREL SF
SUBJECT: SOUTH AFRICANS LOOK BACK ON THE FTA AND WONDER 
ABOUT THE FUTURE 
 
 
PRETORIA 00004553  001.2 OF 002 
 
 
¶1.  (U) Summary.  A recent conference organized by South 
Africa's leading business group produced a variety of views 
on what caused the collapse of free trade talks with the U.S. 
earlier this year.  Some speakers blamed a failure of vision 
in the South African government.  Others blamed an inflexible 
U.S. negotiating position that did not heed South African 
concerns.  The FTA was not a top priority for South African 
business and the business community's failure to embrace the 
FTA deprived it of crucial political support.  The private 
sector supports the idea of resuming a trade dialogue with 
the U.S. through the vehicle of a Trade and Investment 
Cooperation Agreement, but there is little if any sense of 
what this dialogue should include.  End Summary. 
 
----------------------- 
Looking Back on the FTA 
----------------------- 
 
¶2.  (U) Talks to establish a U.S./SACU free trade agreement 
(FTA) failed earlier this year because of short-sightedness 
in Pretoria, inflexbility in Washington, and the indifference 
of the South African business community, according to South 
African trade experts and private sector reps.  Their 
comments were made at an October 30-31 conference at the Wits 
Business School organized to analyze what went wrong with the 
FTA and to mobilize business support for a renewed trade 
dialogue with the U.S.  The conference was organized by 
Business Unity South Africa (BUSA, the country's premier 
business chamber) and the South African Institute for 
International Affairs (SAIIA, the country's leading 
international affairs think-tank), with a financial 
contribution from the American Chamber of Commerce, and the 
support of post's Public Affairs section (which paid for U.S. 
trade expert Jeffrey Schott to address the gathering).  Some 
30-40 private sector reps, researchers, and SAG officials 
attended the event, which was opened by AngloGoldAshanti CEO 
(and BUSA Chairman) Bobby Godsell. 
 
------------------------------ 
Who Killed the FTA?  Two Views 
------------------------------ 
 
¶3.  (U) According to SAIIA trade expert Peter Draper, the SAG 
never saw the FTA as anything more than a market access deal, 
and this cramped vision defeated any chance of negotiating 
the kind of comprehensive deal desired by the U.S. 
Pretoria's negotiators, he said, knew that 95 percent of 
South African goods already entered the U.S. duty-free, and 
they did not believe that South Africa would ever be a major 
services exporter to the U.S.  With market access already in 
hand, they saw little reason to negotiate "new issues" such 
as IPR or investment, or to trade away protection in sectors 
such as autos.  The results were fatal for the talks -- the 
space for trade-offs became small and the perception 
developed within the SAG that an FTA would be a "one-sided" 
deal for the U.S.  Draper was sharply critical of Pretoria's 
cautious approach to trade, which he derided as "sectoral" 
rather than visionary.  In his view, the FTA should have been 
conceived -- and sold to the public -- as a means to lock in 
and deepen economic reform, heighten investor confidence, 
integrate South Africa into global production networks, and 
subject local firms to competition.  As he put it, "Once you 
get bogged down in sector specificity, you go nowhere.  You 
have to look at the entire economy, not just exporting 100 
BMW's to the U.S." 
 
¶4.  (U) In contrast, several speakers said the FTA was killed 
by an "inflexible" U.S. insistence on a pact that reached far 
beyond market access and did not deviate from the core terms 
and structures of previous FTAs.  According to these critics, 
Washington's attempt to force a "template" on South Africa 
gave the impression that the FTA was being presented on a 
take-it-or-leave-it basis irrespective of South African 
concerns.  The evidence cited for this conclusion included 
Washington's "refusal" to discuss anti-dumping issues, its 
"failure" to appreciate that government procurement 
disciplines could undermine Black Economic Empowerment, and 
its "deafness" to public sensitivity that investor-state 
dispute resolution mechanisms would take investment disputes 
out of the South African court system.  Whatever the merits 
or accuracy of these complaints, it was clear that the U.S. 
approach struck some South Africans as high-handed and still 
rankled.  As one steel industry rep said, "This country 
exists because of negotiation.  Negotiation is never a 
one-way street.  But the U.S. never budged from its original 
position.  It just wanted us to sign on the dotted line." 
 
PRETORIA 00004553  002.2 OF 002 
 
 
 
-------------------- 
Business Ambivalence 
-------------------- 
 
¶5.  (U) Some speakers also pointed a finger at the South 
African business community for not embracing a comprehensive 
FTA or giving it crucial political support.  Reg Rumney of 
BusinessMap discussed the results of a recent survey of CEOs 
that revealed deep ambivalence about an FTA.  While most CEOs 
paid "lip service" to the idea of an FTA, Rumney reported 
that only a handful were well-versed in trade issues or 
regarded an FTA as a top priority for their firms.  Mining 
companies, in particular, could not see how they would be 
affected by an FTA.  Rumney also found open opposition to an 
FTA in heavily protected industries such as autos and in 
heavily regulated sectors such as fuels, where an FTA could 
limit firms' ability to set prices high enough to offset 
regulatory costs. 
 
¶6.  (U) In response, one auto industry rep claimed that 
tariff talks in the auto sector were impossible because of 
the huge disparity between U.S. and South African auto 
tariffs (2 percent and 32 percent, respectively).  "The 
starting positions were just too far apart," he said, adding, 
"U.S. negotiators wanted a zero for zero tariff deal in the 
long run.  This would have posed huge challenges for South 
Africa.  Our industrial sectors would be severely undermined 
by a true FTA with the U.S."  The fears of the auto rep were 
echoed by his steel industry counterpart, who told the group, 
"The comprehensive U.S. approach was unacceptable.  South 
African business doesn't want an FTA under just any 
circumstances." 
 
---------------------- 
TICA:  The Way Forward 
---------------------- 
 
¶7.  (U) All participants agreed that South Africa needs 
friendly trade relations with the U.S.; the ongoing GSP 
review, the collapse of the Doha Round, potential conflicts 
in the UNSC, and the possibility of a new protectionist 
Congress were all cited as reasons to resume dialogue with 
Washington.  Although a full-blown FTA was rejected as 
unrealistic for now, there was a near consensus that the 
proposed Trade and Investment Cooperation Agreement (TICA) 
could be a useful vehicle for addressing bilateral trade 
issues.  As one speaker put it, the TICA could "fill in the 
potholes" left over from the FTA negotiations.  At the same 
time, no one had a TICA agenda to propose and several 
speakers noted that South Africa had to do some serious 
homework before it could negotiate a TICA.  Business input 
was seen as essential -- but business, too, was seen as 
poorly informed about the impact of trade deals. 
 
------- 
Comment 
------- 
 
¶8.  (SBU)  The conference produced many views on the FTA but 
almost no ideas about what to do next.  In hindsight, it 
seems clear that corporate South Africa's ambivalence about a 
comprehensive trade pact left the FTA bereft of support from 
a key domestic constituency and wide open to attacks from 
unions and other groups.  Once orphaned, the FTA was doomed. 
Fortunately, there are signs that South African business may 
now regret the non-role it played during the FTA talks.  In a 
recent meeting with post, a senior BUSA officer admitted that 
BUSA had done a poor job of supporting the FTA; she pledged 
to do a better job of coordinating business support for TICA. 
 It was encouraging to hear that BUSA, having missed the main 
event, does want to be more engaged in the future.  A 
suitably modest TICA might draw support in South Africa and 
serve as a platform for bigger trade deals in the future. 
BOST