Exclusive: EU to offer South Africa end to block on sugar exports

(Reuters) – The European Union on Monday will propose lifting its block on South African sugar and allow more duty-free access for wine in return for help with Europe’s stalled trade deals with sub-Saharan Africa, people familiar with the matter said.

EU trade chief Karel De Gucht will make the offer to South African officials in Johannesburg, two people close to the talks told Reuters, on his first stop in a week-long tour of Africa that is seen as a last big push to salvage trade deals across the continent.

The EU, the world’s biggest sugar importer, launched talks with more than 70 African, Caribbean and Pacific countries 11 years ago, offering access to Europe’s 500 million consumers.

South Africa already has a free-trade deal with Europe but has been critical of the EU’s efforts and has refrained from backing them. It is worried it will be worse off if its neighbors have better EU access.

“This offer is part of the EU’s strategy. South African support for free trade between Africa and Europe could generate a ripple effect across much of the continent,” said one of the people familiar with the issue.

De Gucht, who handles trade for the EU’s 28 member countries, will propose broadening South Africa’s free-trade deal that dates from 1999 by agreeing to a long-held South African demand and offering a duty-free quota for its sugar.

However, Brussels’ offer will fall short of South Africa’s demands for a 320,000-tonne-a-year sugar quota.

Nevertheless, it constitutes a concession by the EU which has effectively blocked access to South African sugar through high tariffs since the country’s apartheid era of racial discrimination.

The EU, South Africa’s biggest wine export market, will also propose expanding South Africa’s duty-free quota of around 95 million liters a year.

South African wine exports rose to almost 410 million liters last year, around 65 percent of which goes to Europe, according to industry body Wines of South Africa.

It is not immediately clear when South Africa would start enjoying increased access to the European Union, but De Gucht is believed to want to conclude negotiations early next year. His term as Europe’s trade commissioner ends in late 2014.

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The EU has set itself a deadline of October 2014 to wrap up a string of free-trade deals with African, Caribbean and Pacific countries.

So far, only 15 Caribbean nations have agreed accords because sub-Saharan economies are wary of opening up their markets to EU goods, fearing lost tariff revenues and new competition at a time of growing Chinese imports.

China’s trade with Africa has jumped over the past four years to an expected $200 billion in 2013 from $91 billion in 2009. Europeans have traditionally been dominant in Africa, as colonists from the 19th century and aid-givers since African independence in the 1960s and 1970s.

Countries such as Kenya enjoy preferential access to EU markets for their cucumbers and cut flowers, without having to liberalize their markets.

Other developing nations say such an arrangement is unfair under World Trade Organization rules. So Brussels is requiring sub-Saharan Africa to liberalize about 80 percent of its markets.

That presents Africa with a dilemma, because if countries do not forge deals, all but the poorest nations – who get special treatment – will face high tariffs on exports to Europe. That could badly weaken industries such as Kenya’s cut flowers, for example.

But Africans worry that if they do deals, their industries will suffer the fate of local shoe and textile industries that have unable to compete with Chinese imports after they opened up in turn for investment.

“What is missing is the political will to do this. Both sides need to keep in mind the strategic dimension of the EU-Africa relationship,” said San Bilal, a trade economist at the European Centre for Development Policy Management in Brussels.