Lesotho actively participates in the activities of regional organisations, including the Southern African Customs Union (SACU), the Common Monetary Area (CMA) and the Southern African Development Community (SADC), which work to address common issues through regional integration, cooperation and coordination.
Lesotho is a signatory to the Cotonou Agreement, which is being renegotiated with the aim of creating Free Trade Agreements between the Africa Caribbean Pacific (ACP) region and the EU. Known as Economic Partnership Agreements (EPAs), these new arrangements are essential for reciprocal free trade arrangements and are compatible with the multilateral trade rules of the WTO.
Three members of the Southern African Development Community (SADC) - Lesotho, Swaziland, and Botswana - signed an interim economic partnership agreement, or EPA, with the European Union on 4 June 2009. The deal will give the SADC countries access to EU markets while the parties negotiate a permanent EPA. The revised rules of origin in the EPA's improve the terms on which Lesotho can trade important exports like textiles to Europe. Lesotho producers also benefit from selling products duty and quota free to the United States of America under AGOA (African Growth and Opportunity Act) an American initiative that has created preferential terms of trade on a range of products manufactured in Africa for the US market.
European Union (EU) Economic Partnership Agreement (EPA) with the Southern African Development Community (SADC) to Increase Trade between the Two Regions from 2016
Introduction to SADC EPA Group:
1. The European Union (EU) concluded negotiations for an Economic Partnership Agreement (EPA) with a group of Six States of the Southern African Development Community (SADC EPA Group) in July 2014, after 10 years of negotiations.
- The Southern African Development Community (SADC) was established in 1992 and has 15 member states. The EPA with the EU currently only includes Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland. Angola has an option to join the EPA on a later date.
- The other six members of the SADC region – the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe – are negotiating an EPA with the EU as part of other regional groups.
- Of the 6 SADC EPA States:
- All are members of the World Trade Organisation (WTO)
- Botswana, Lesotho, Namibia, South Africa and Swaziland are members of the Southern African Customs Union (SACU)
- The EU already had the Trade, Development and Cooperation Agreement (TDCA) with South Africa, whose terms – by extension – applied to the other SACU members.
- An interim EPA had been signed with the SADC states in June 2009, and will be replaced by the final one once ascended legally in 2016.
- While the other 5 SADC EPA members are consider middle income countries, Lesotho and Mozambique are Least Developed Countries (LDCs).
- South Africa, Lesotho, Namibia, and Swaziland also form a Common Monetary Area (CMA) where the currencies of the other states are pegged to the South African Rand (ZAR) i.e. they are on a 1:1 exchange with the ZAR.
- In 2013, EU exports to the SADC EPA region were valued at €33 billion; imports of the EU from the region were €31 billion.
Key elements of the EU SADC EPA Agreement are the following:
1) Duty-Free and quota-free access will be granted to the EU markets for imports from the SADC EPA (except South Africa);
- South Africa will have market access better than the TDCA; Up to 32 agricultural productsThe EU member states will get new access to the SACU markets for agricultural products including products of wheat, barley, meat, milk, etc.
- The EPA has a Development Support Component in which:
- The SADC EPA countries will not have to reciprocate the 100% tariff free access (95% for South Africa) offered by the EU for the products imported into their countries.
- Provision will be made for funding up to €32 million to address issues related to the implementation of the EPA in the SADC EPA countries.
- The EU will provide aid for trade related areas require development in the LDCs.
- The EPA will be made to be compatible with the SACU operations, and will provide assistance to harmonise the import trade regime in the region.
- The EPA will not be time limited, and will be legally binding once ratified by the member states.
- The EPA provides opportunities not just in goods and commodities but also in the service sector.
- The Rules of Origin are relaxed under the EPA to include ‘Cumulation Origin’ to include good where only the final value-addition is made in the exporting country.
What Opportunities does the EPA provide for European Businesses into Lesotho
- The EPA is meant to open up opportunities for increased trade between EU member states and SADC EPA member states such as Lesotho.
- The experience from a similar trade concession made by the United States Government called the Africa Growth and Opportunities Act (AGOA) dating back 15 years, is one that match and even surpass the benefits both sides of the agreement.
- The AGOA provided opportunities for the location of third country investors in Lesotho, to manufacture apparel (clothing, textures, leather works etc) in Lesotho and provide jobs to up to 50,000 people and contributing about 15% to the country’s GDP. US retailers are able to access hand-stitched, custom-made clothing at a much lower cost.
- It has been the wish of the government of Lesotho to diversify the manufacturing sector and provide opportunity for service sector investment such as telecommunications, renewable energy, financial services and education. This is the opportunity that remains to be fully exploited.
 E.g. wine, sugar, ethanol; flowers, dairy, fruit and fruit products.