European Commissioner for Trade Karel de Gucht has bluntly warned that South Africa’s current and proposed policies on investment agreements and export taxes are proving counterproductive or will not work. Pretoria has unilaterally cancelled bilateral investment treaties with a number of countries, including Belgium and Spain. South Africa is also proposing to impose taxes on its own raw material exports in an attempt to increase local benefi- ciation and industrialisation.

“You have unilaterally put an end to bilateral investment agreements. This is bad policy,” De Gucht told a small group of South African journalists in Pretoria recently. “You need investment. This is not the way to do it. We – [the European Union (EU)] – are the biggest investors in South Africa. Our investment is going down. If you want to replace existing agreements, negotiate new ones. Put in place new ones.”

He highlighted that, in 2012, foreign direct investment (FDI) in South Africa had dropped to the equivalent of just 1% of the country’s gross domestic product (GDP). This represented a historical low and was much lower than the GDP of peer countries such as Chile and Malaysia. “There is a complete contradiction between [South Africa’s aim of] industrialisation and this lack of inward investment.”

Regarding Pretoria’s proposal to use taxes to push local bene- ficiation and industrialisation, De Gucht affirmed: “I don’t believe it’ll work. You simply can’t industrialise on the basis of export taxes. For industriali- sation, you need to plug into supply chains. These have become worldwide.”

Nevertheless, the EU, which has a trade and development cooperation agreement with South Africa, was willing to give some consideration to the issue. “[I]f it’ll unblock negotiations, we’re willing to be flexible. This is because, in part, [the export tax] will not work. It’s not the basis for industrialisation. It doesn’t work. It doesn’t harm the EU. European buyers will simply go to other countries. The EU is only concerned in the case of commodities that affect us – [that can’t be easily obtained elsewhere]. But you’re a sovereign country. You can do want you want.”

He also pointed out that trade between the EU and South Africa had risen from €26-billion to €46-billion over the past seven or eight years. Although South Africa was currently running a deficit in trade with Europe, over the past decade the country had run a trade surplus. “We have an economic crisis in Europe, so there is less demand. This [imbalance] is not structural. It’s a trend over the past two years, but it’s not structural.” De Gucht was in South Africa for the Sixth South Africa/EU summit.

In his opening remarks at the summit, South African President Jacob Zuma noted that trade between the two sides had increased by 8% in 2012. “The EU has maintained its lead as South Africa’s most important regional trading partner.” He added that the bloc was also South Africa’s main source of investment and that the summit’s focus on invest- ment and job creation was appropriate for both sides.

“The EU is South Africa’s main trade partner and main source of foreign direct investment and we are determined to maintain this position,” affirmed European Commission president Jose Manuel Barroso in his opening remarks. He pointed to the Trade and Develop- ment Cooperation Agreement between the two sides as the cement in the bilateral strategic relationship.

Addressing the media at the end of the summit, Zuma reaffirmed the importance of South Africa’s relationship with the EU. “We value this strategic partnership immensely,” he said. He highlighted that 77% of South Africa’s FDI came from the EU.

“To further boost our economic ties, our productive meeting [also] discussed trade and investment.” The course of negotiations between the EU and the Southern African Development Community on the planned new Economic Partnership Agreement was also reviewed. Reviewing South Africa’s still significant socioeconomic problems and challenges, he observed that “[w]e are of the firm view that, given these conditions, the EU should continue its development aid to South Africa”.

Barroso told the media: “The EU and South Africa are natural partners in many ways. Our strategic partnership has reached a mature stage.” He highlighted that FDI from the EU had created 350 000 direct jobs in South Africa. “I believe that trade is a powerful engine to boost our economies. We are expanding cooperation to new areas. Today, we discussed energy.” The media briefing was marked by the signing of an agreement between the South African government and the European Atomic Energy Community for cooperation in the peaceful uses of nuclear energy.