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SA to modify GATS commitments?

Today Business Day reported that the Minister of Police reportedly stated on Thursday that South Africa will withdraw from its commitments to the World Trade Organization's (WTO) General Agreement on Trade in Services (GATS).

The Minister of Police made this statement as the Private Security Industry Regulation Amendment Bill requires that 51% of all private security entities is to be owned and controlled by South African citizens. Should President Zuma sign the bill in its current format into law, apart from the potential violation of South Africa's Constitution, it will also be a violation of South Africa's international obligations under the GATS. This is due to the fact that South Africa committed under GATS that no trade restrictions will be implemented in the private security industry. As a consequence South Africa is bound by these commitments and cannot unilaterally impose a local ownership and control requirement.

However it seems that South Africa will in fact consider its international obligations under GATS as the Minister of Police stated that South Africa will utilise article 21 of the GATS which allows South Africa to modify its international commitments. Interestingly it seems that South Africa does not want to rely on article 14, which allows for general exceptions to a member's commitments, or article 14 bis, which allows for the possibility to take any action which is necessary for the protection of South Africa's security interests. , Indeed article 21 of the GATS does provide for a procedure to be followed in order to modify a member of the WTO's commitments under the GATS. However, this procedure is by no means a mere procedural formality. , It requires, amongst others, a formal notification to the WTO's Council for Trade in Services where any affected WTO member may claim compensation for the loss to be suffered if South Africa modifies its GATS commitments. This involves negotiations between South Africa and any such WTO members that may have claimed compensation. If any agreement is reached, such compensation will not only be afforded to the member states that negotiated with South Africa, but South Africa will have to extend the compensation to all other WTO members. , It could potentially take a very long time to negotiate and has only ever been successfully done once by the US and twice by the EU which in each instance took many years to conclude.

In reaching any agreement under article 21 of the GATS, the problem faced by South Africa is that its services sectors are already exceptionally open to free trade. As such, South Africa does not have a lot of leeway in opening up more sectors in trying to offer compensation.

South Africa's private security industry is estimated to be worth around R50bn a year. However thus far no estimation can be given for the potential cost of the compensation to be granted to all WTO members under article 21 of the GATS. Furthermore, South Africa's trade relations do not operate in silos. Currently South Africa is lobbying the US government for its continued inclusion under the African Growth and Opportunity Act (AGOA). According to South Africa's Department of Trade and Industry, South Africa's exports under AGOA was worth $3.6bn in 2014. It has been reported that there are members of the US Congress opposed to including South Africa under AGOA if it proceeds with any modification of its GATS commitments. Thus not only will South Africa pay an as-yet-unknown-price in respect of its services sectors for all WTO member states, but it could very well lose out on roughly the value of the entire private security industry (whether 100% locally owned and controlled or not) in exports of goods under AGOA.

It remains to be seen what South Africa will do and indeed what the relevant Ministers in charge of South Africa's international trade relations' reactions to the Minister of Police's statements may be. Indeed the Minister of Police's statements not only negatively affects foreign investors' perception of South Africa, but also brings about great uncertainty for South African companies.

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