EU aid row threatens to sink South Africa's trade hopes

Andrew Marshall, in the first of a series, reports on the EU's role in helping Africa by strengthening economic links with Pretoria

A plan for free trade between Europe and South Africa could be delayed by disputes between EU member states, diplomats and officials in Brussels say.

Joao de Deus Pinheiro, European Commissioner for Development, who recently returned from South Africa,underlined the priority he puts on the agreement.

"South Africa is, I think, the great hope of Africa," he said. Reconstructing its economy is vital to underpinning democracy, but also to assisting the whole region, where peace has returned to Mozambique and the outlook in Angola is better. "For the first time, there is a real prospect of improvement in Southern Africa," he added.

Relations with the new government in Pretoria are shaping up as a key test of EU relations with Africa and strategy towards developing countries in general.

The European Commission has proposed a deal that would eventually allow free trade between South Africa and the EU. Europe would drop its trade barriers first, allowing South African industry to adjust. After four or five years, South Africa would follow, creating free trade in 10 or 12 years' time.

The idea initially caused controversy because South Africa thought it should be allowed access to the EU's preferential trade scheme reserved for developing countries. The Lome Convention covers trade and aid relations with 70 developing countries in Africa, the Caribbean and the Pacific (ACP). Because parts of the South African economy are far more developed than the rest of Africa's, the Commission rejected that, though a "two- track" policy gives the country some links to Lome.

On his visit, Mr Pinheiro resolved most South African doubts. But he has still to win the agreement of the 15 EU member states. Some continue to disagree about the free trade idea, fearing it may undermine their own producers - particularly in sensitive agricultural sectors such as fruit.

But Commission sources and diplomats say that a larger problem may be emerging. The agreement of EU governments to the mandate under which European officials would negotiate with South Africa may be held hostage to a deal to increase the aid available under the European Development Fund (EDF), a scheme for assisting the 70 ACP states.

Britain and Germany are opposing plans for a substantial increase in the EDF, but they are the two principal supporters of free trade with South Africa. France, president of the EU, has put more cash for the EDF at the top of its priorities. It could use the South African deal as leverage. It had been hoped the negotiating mandate could be agreed today, but it may take several more weeks, officials say.

The trade agreement is pivotal for both the Commission and South Africa. Mr Pinheiro, a former Portuguese foreign minister, thinks the EU can and should play an important role in South Africa because of its economic involvement - it is South Africa's leading trade partner. The EU is also offering 125m ecus (pounds 100m) of aid a year for five years to South Africa's reconstruction and development programme.

But the Commission also hopes the deal with Pretoria can serve as the nucleus of a strategy for Southern Africa, and this was one of the major themes of discussion between Mr Pinheiro and Thabo Mbeki, First Deputy President.

"Because we think South Africa will be decisive in the region, we intend to be generous," said Mr Pinheiro. The Commission is offering new support for regional integration through the Southern African Development Community.

Analysts hope the changes in South Africa will refocus European attention on the continent. With Eastern Europe, Latin America and the Mediterranean all absorbing much time and money in Brussels, Africa has started to slide off the agenda. And the former colonial powers now look to Asia for economic opportunities. Foreign investment has collapsed. A study by the institute of development studies at Sussex University shows rapid disinvestment by British firms in the early 1990s.