International trade agreements, Southern African Customs Union, trade protection & policy: Trade Law Centre, International Trade Administration Commission, Textile industry, Automotive industry & Department's briefings

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Trade and Industry

24 August 2009
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee was briefed by the Trade Law Centre for South Africa (Tralac) and the International Trade Administration Commission of South Africa (ITAC).The first presentation dealt with what South Africa’s role needed to be in order to compete in international markets, and described the concepts behind trade negotiations and trade agreements. The presentation by ITAC dealt with its functions in ensuring tariff regulation and the procedures behind this. The Committee asked questions about the notion of competitiveness, South Africa’s role in the Southern African Customs Union, the need to co-opt business into trade negotiations and the impact of the African Growth and Opportunity Act (AGOA) on South Africa. Members also enquired why South Africa could not be more flexible in regards to World Trade Organisation regulations and what could be done in situations where other countries broke these rules.

Concerns were also raised around the interim Economic Policy Agreements (EPAs) that had been signed by some members of SACU, and whether it was preferable to go the route of importing cheap goods or to concentrate on creating jobs. Members also questioned whether it was possible to achieve equality between developed and developing countries, and noted that there was always a slant that seemed to favour the stronger. Members also sought further clarity on the situation of the countries in the customs unions, and the relationship between the International Trade Administration Commission and the South African Revenue Service. Some other questions were noted, but would be covered during later presentations.

A professor of Economics briefed the Committee on the South African Automotive Industry, reporting upon how South Africa had performed against other competitors in the market, and what measures needed to be taken to ensure its continued success against a backdrop of global economic crisis. The Committee asked questions about the future of the industry, the lessons that could be learned from this sector, and how the service side of the industry was incorporated into the whole and. Other questions were asked about investing in high-tech component manufacture and how South Africa could be competitive against other countries such as China.

The Committee was then briefed on what constituted a customs union and the uniqueness of the South African Customs Union (SACU). The focus was on the difficulties that had emerged in reorganising SACU to be a collective organisation, and how it had been functioning up until the present time. Members asked about the introduction of Value Added Tax in SACU member countries, the implications of Economic Partnership Agreements (EPA) for South Africa and how the common monetary area had aided in bringing countries closer together.

A professor of commerce highlighted the main concerns and problems of the Clothing and Textile industry, focusing on lack of productivity in recent years and its decline as a global and domestic competitor. He attributed the industry's decay to the fluctuation of currency and the damage done by protectionist actions. The Committee asked about the benefits of currency fluctuation, whether the retraining of workers was viable and how many workers' jobs were threatened. Concerns were raised around the removal of protection and the industry's competitiveness against countries such as China.

The Department of Trade and Industry highlighted the documentation which was to be produced by the Department of Trade and Industry (dti), and which gave an overview of South Africa's trade policy since 1994. He outlined, and the Committee discussed, the various recommendations that were to be made. This included a variety of recommendations which the document made, and which were discussed at length. Members sought clarity on the Economic Partnership Agreements, the role that SACU played, and the need to have a greater coordination between the Department and Parliament on issues of trade agreements. The Department finally addressed a number of concerns that were raised during the day’s presentations.

Meeting report

Trade Law Centre for Southern Africa (Tralac) briefing
Ms Trudi Hartzenberg, Executive Director, Trade Law Centre for Southern Africa, briefed the Committee on the benefits of competing in international markets and the importance of trade agreements.

Ms Hartzenberg said that at an international level, trade in service was as important as trade in goods, and that this included such services as education, through for example, the University of South Africa (UNISA). The private sector was responsible for the bulk of trade, but government still played an active role under ‘government procurement’. The rules of trade were discussed, and it was noted that government played a critical role here as it negotiated the rules to which the private sector must adhere, and the notion of ‘competitiveness' was also important in this area.

She noted that both the auto and textile industries had become more competitive, and that these were located primarily in developing countries.

The notion of ‘production fragmentation’ was discussed in fuller detail, which highlighted the importance of services. She said it was important to ensure that both manufacturing and services were considered when talking about competitiveness.

The Trade Agenda was discussed in full detail, and it was noted that the World Trade Organisation (WTO) was currently negotiating in the DOHA round. She said that there were two type of agreements, Regional Trade Agreements (RTAs), and Free Trade Agreements (FTAs) which applied to Customs Unions, and these were discussed in greater detail (see attached document)

The facilitation of exports was also discussed, including issues of tariffs, customs procedures and quotas at borders and beyond borders. Issues around rules of origin and service inputs were discussed.

The aspects that comprised the trade agenda were then outlined as including the trade in services, trade in goods, investment, competition and Government Procurement. The process of dispute resolution was also discussed in full detail.

The issue of how South Africa could effectively facilitate and promote its export markets was discussed. This included the issue of competitiveness in terms of tariffs and accessing quality goods. She felt that it was important to note that South Africa was a member of the Southern African Customs Union (SACU), and that this required the negotiation of RTAs with third parties.

The importance of co-opting the business sector was discussed, the primary reason being that this sector was fully aware of where the best opportunities for trade were.

The role of Parliament was then discussed in fuller detail, specifically in terms of what occurred after trade agreements had been concluded.

International Trade Administration Commission of South Africa (ITAC) presentation
Mr Siyabulela Tsengiwe, Chief Commissioner, International Trade Administration Commission of South Africa, briefed the Committee on ITAC's role in trade negotiations and tariff investigations.

A brief history of the establishment of ITAC was given. This was followed by a description of the legal environments in which it functioned, which included domestic law, regional integration and bilateral agreements.

Mr Tsengiwe then described the purpose and procedure of tariff investigations. The purpose of these was to promote domestic production, the retention and creation of jobs, and so that the country could be competitive in international markets. The procedure of an investigation was discussed in full detail, from the receipt of an application, to the preliminary investigation, to a recommendation made to the Minister of Trade and Industry, and finally to the implementation by the South African Revenue Service (SARS).

Trade remedies were then discussed. He explained the anti-dumping measures, countervailing measures, safeguards and litigations. Primarily, only anti-dumping remedies had been done, and it was noted that ITAC could not undertake a proactive investigation. The procedure when taking these measures was also discussed in full detail, and this was similar to that of the tariff investigation procedure.

Mr Tsengiwe noted that import and export controls were imposed primarily for environmental, health, safety and technical standards, but were also used to sustain domestic production and retain jobs. According to regulations, a list of products under control was required and the importing and exporting of these could only be done with a permit obtained through ITAC. Under Import Control, 276 tariff lines were listed, and under Export Control, 177 tariff lines were listed.

Mr Tsengiwe said that in response to the economic crisis, ITAC had undertaken a number of measures, which included the shortening of time taken to complete its investigations, which were specifically aimed at the vulnerable sectors.

Discussion

Mr S Marais (DA) asked what the dangers of EPAs were to SACU. He noted the difference in tariffs between the United States of America (US) agreements with Lesotho as opposed to South Africa, and asked what effect the EPAs would have on this, what the dangers were in this area and how these could be resolved.

Ms Hartzenberg made a general comment that not all the questions would be answered at this point as some would be covered during later presentations. She agreed that the issue of tariff revenue was critical, as this, in some developing countries, formed an important part of government revenue. For instance, in a country like Lesotho, up to half of government revenue could come from the SACU revenue pool. She said that this was important in terms of a trade liberalisation agenda in a customs union, because the smaller countries, who were dependant on that revenue, may be reluctant to motivate for lower tariffs. Import tariffs in South Africa were not an instrument in government revenue generation, but were rather an instrument for industrial policy in protecting specific industries. She said that this difference was important in the context of a customs union, and it did pose a challenge. However, it was important to take into account the interests of all members of the customs union.

Ms Hartzenberg said that she would defer the issue of EPAs to her colleague, but added that she was aware that some members of the customs union had signed initial EPAs, and were now looking at implementation issues.

Mr Marais asked what ITAC's role was in promoting local industrial development. He asked how ITAC determined tariffs, and noted that major threats were posed if tariffs were removed. He asked how long the ITAC procedure took from initial investigation to final implementation, and what would happen if circumstances changed drastically during this period.

Mr Tsengiwe said that there were two types of tariff investigation, either around the reduction of tariffs, or the increase of tariffs. In the first case, he said that examples were given in regards to investigation that arose out of the industrial policy process. He said that these tariff reviews were made on intermediate inputs. He cited the examples of chemicals and selected textiles. He said that duties could be reduced where these specific products were not manufactured, as it did not make any industrial policy sense to keep duties on those products. He said that this was the case for the rebates that were created for textiles. This gave clothing manufacturers a huge advantage in reducing costs and therefore they became a more viable option for retailers.

Mr Tsengiwe noted that in regard to chemicals, the reduced duties were placed on solvents and polymers, which were manufactured domestically. The plastics industry would therefore benefit drastically from this reduction.

He said that in the case of increasing tariffs, there was an adjudication procedure, which was spoken about in the presentation. If an analysis of all the economic sectors was done, this would show that imports over time had been increasing, that profitability was going down and jobs were being lost. He said that there was a huge price disadvantage when comparing domestic prices and the prices of imports. He said that this was an indication that ITAC should make a recommendation to the Minister to increase tariffs, but noted that there were limitations to this in the form of WTO boundaries.

Prof B Turok (ANC) said that it was important to distinguish competitiveness in a domestic market and externally. He noted that the Committee needed to decide on the desirability of competitiveness both on an international level and expanding the domestic market. Both could not happen at the same time, and this decision would need to be made in the context of issues such as job creation. 

Ms Hartzenberg said that competitiveness was a relative concept, as a product could be competitive in one market but not another. She said that this needed to be reviewed in terms of efficiency, the cost of inputs and timelines of production, and added that competitiveness meant improving on what the country did at this level, and ensuring that South Africa was competing in those areas where it felt that it was desirable to do so. She added that the trade agenda could not solve all the issues of competitiveness.

Prof. Turok wondered how the Committee should respond to the breaking of rules by other countries like the United States or Europe, and asked what the Committee could legally do in this situation. It seemed that other countries reacted negatively to protectionism, whilst themselves being protectionist, and he asked what could be done about this.

Mr Tsengiwe said that he understood the question as seeking the opportunity to be flexible within the rules outlined by the WTO. He said that ITAC provided protection services to domestic manufacturers where there was sufficient evidence to do so. He said ITAC subscribed to the multilateral rules-based trading system, and agreed that there were inequalities within it, but this was being addressed at the DOHA round.

In terms of protectionism, Mr Tsengiwe said that South Africa was one of the countries in the G20 that decided not to resort to protectionism in these times, as it could worsen an already bad situation. However, he added that, where there was evidence of it, and on a case by case basis, ITAC would not hesitate to recommend tariff increases to the Minister. He added that this was a standard mechanism within ITAC. He added that South Africa was one of two countries that had not resorted to protectionist measures.

Prof Turok noted that production sharing happened frequently with multi national corporations, and asked why Africa in general could not have production sharing agreements with, for example, Europe, as this would promote industrialisation.

Ms Hartzenberg agreed that multi nationals did engage in this practice for tax and transfer pricing issues, but that it was also a search for competitiveness, efficiency and lower costs, which was why production moved around regions. She said that it was in place in other countries, but was definitely a feature of multi-nationals.
 
Prof Turok noted that the trading of services was fine, but that opening this could be dangerous, since in many countries services were undermined by penetration, where other countries would set up competitor service providers. He asked if the delegates could comment on this.

Prof Turok said that many documents talked about ‘tradeables’ and ‘non-tradeables’ and noted that this terminology was absent in the Tralac presentation. He asked where these issues would fit in.

Ms Hartzenberg said that when talking about the international trade agenda, Tralac was indeed referring to ‘tradeables’, and often the focus would be on exports. She added that equally important was the import side, and so when negotiating trade agreements, it was a question of the countries to whom preferential access to South African markets would be given. She added that some of these imports were imports into production, which would affect South Africa’s competitiveness, and therefore needed to be of suitable quality.

Prof Turok asked for ITAC's opinion on whether the country would rather have cheap goods or jobs, saying that this was often the choice that had to be made. He added that he would think that jobs were far more desirable. He also asked for more details to be given on luxury goods, and to what extent this was a burden to the balance of payments. He expressed his opinion that South Africa imported far too many unnecessary products.

Mr Tsengiwe said that ITAC was finalising an investigation on increasing tariffs on clothing. He said that at face value, cheap imports appeared beneficial to low income earners and the poor, but the negative side of this was the erosion of the domestic market. It was for this reason that import control restrictions were in place.

Mr Z Ntuli (ANC) asked if clarity could be given on the case of Toyota, in terms of the trading of services with Japan, and the proposed trade agreements with other African countries that were involved with this.

Ms Hartzenberg said that unfortunately she did not know about the Toyota case study.

Ms D Tsotetsi (ANC) noted that Ms Hartzenberg had said that there would be a need to rely on business to assist Government in the negotiation of trade agreements, but was concerned about the reliability of the business sector, as their objectives differed to those of government. She asked what safeguards were in place to ensure the co-operation of this sector, and to ensure that it would not take advantage of the situation.

Ms Hartzenberg said that business was concerned with producing goods and services, and trading. Government, on the other hand, played a crucial role in determining with whom South Africa should negotiate. Although it did consult with business and civil society, Government had the final decision in this matter. She added that Government would also decide, through its Minister of Trade and Industry, what the trade agenda would be. Input from business was important in this aspect, because at the end of the day, it was this sector who would be aware of where both the opportunities and challenges were in the domestic market.

Ms Tsotetsi noted the unfairness of certain trade agreements, and asked what measures ITAC had in place to be proactive in this area and ensure that no damage would be done

Dr P Rabie (DA) noted that some members of the Customs Union, namely Botswana, were not complying with all the requirements set out. He asked how these differences of opinion could be addressed. He also asked for further clarity on the issue of domestic regulatory reform.

Ms C Kotsi (COPE) asked what ITAC's role was in service trading, specifically the movement of people into South Africa. She noted that the textile industry was still in its infancy and asked what could be done to move past this stage.

Mr Tsengiwe said that an investigation of the fabric side of the textile industry would show that the applied rates were 22%, and the boundary on this was 25%, so there was no space to have an effective increase of fabric tariffs. He said that this industry had, over a significant period of time, faced serious supply constraints in terms of equipment and access to credit. He said that the Department of Trade and Industry was implementing the competitiveness programme for this sector, even though it had taken a long time. He said another problem relating to the textile industry was the competition with China, whose their labour costs, economies of scale and access to raw materials had played to the latter's advantage, and in turn had resulted in a number of local textile firms closing because they could not compete.

Ms Kotsi said that a firm stance was needed on agricultural subsidies, and trading of agricultural products should occur more frequently between African countries.

Ms E Coleman (ANC) noted that most developing countries could not compete at the same level as developed countries. She asked for comment on this in the context of support and empowerment. She asked whether the Africa Growth and Opportunity Act (AGOA) had been successful at all, or whether it was merely being used as a mechanism for exploitation of African countries. Although she understood that AGOA was not an agreement, she said that it had an important role in shaping Africa’s development.

Ms Hartzenberg said that AGOA was a piece of US legislation, in terms of which preferential market access was provided to qualifying African countries. This was based on a previous form of preferential arrangements. She said that AGOA offered duty-free market access, provided a number of conditions were met, some specifically around the rules of origin. She said that the US had categorised countries differently to the United Nations (UN) regarding their status as developed or developing countries, and so the rules of origin for South Africa and Lesotho, for example, were different. In terms of clothing manufacture, Lesotho could source fabric from third countries and still qualify for duty free access, while South Africa could not, which meant that South Africa had less access into the US market in this sector.

Ms Hartzenberg said that this was important because as tariffs came down in the last three decades, they had become less of a barrier for entry into a market for some products. She added that this was not so for all products, For example, she said that tariff escalation applied when value addition took place to certain raw materials, which then resulted in tariffs being charged on the higher added-value of the product.

Ms Hartzenberg added that AGOA was not an agreement, and was still a rules based regime. She said that these regimes were important, because if exporters did not comply with the rules, they would not get market access. She added that the WTO was important, and that, because South Africa was a member, it must adhere to its rules.

Ms Hartzenberg reiterated that the issues around AGOA were not about tariffs, but rather about rules of origin. The impact of AGOA on South Africa was interesting. South Africa was one of the few countries whose export profile was very diversified, ranging from garments to catalytic converters and canned food, and so South Africa benefited across an enormous range. She added that there were some lessons to be learnt from AGOA. She cited an example of trade involving canned pears, which caused such discontent amongst some US producers that the US unilaterally changed the rules in this specific case. This was possible because of the fact that AGOA was not an agreement.

The Chairperson was concerned that the issue of standards was not covered effectively when it came to the participation of developing countries. She noted that the DOHA round of trade negotiations was supposed to take the concerns of the developing world into account. However, there was the difficulty in negotiations that the rules of the WTO encouraged flexibility on the part of developed countries, yet hindered flexibility for developing countries. She noted that the concept of ‘consensus’ was difficult to grasp when the developed world was in a much better position, and effectively had the developing world in its “back pocket”, and that such a context meant that it was hard to see any positive outcomes. She asked what the relationship between ITAC and SARS was in terms of sharing responsibilities, and to what extent information was shared.

Mr Tsengiwe said that there was a division of responsibility between ITAC and SARS, where ITAC made recommendations on amendments that would be made to the Customs and Excise Act in terms of tariffs and trade remedies, and the actual implementation of this was done by SARS. He said that there was a lot of interaction and a close co-operation between ITAC and SARS.

The first part of the meeting was adjourned.

South Africa's Automotive Industry: Briefing
Prof Anthony Black, School of Economics, University of Cape Town, briefed the Committee on South Africa's automotive industry and the role it played at both a regional and global level. He noted that at a global level, South Africa was a small player in terms of production, with a share of less than 1% on global production. He defined regional and national automotive space, and noted that all firms in South Africa were foreign owned.
He demonstrated that in terms of tariff levels, South Africa was seen as average compared to a number of countries. He gave a brief history of South Africa's automotive policy, showing that the industry had a history of high protection until 1989 in the form of duties of up to 115% and local content requirements introduced in 1961.

Prof Black said that in 1995 the Motor Industry Development Programme (MIDP) was introduced and this had resulted in the abolition of local content requirements, and the gradual reduction of tariffs, from 65% in 1995 to 37% in 2007. He then highlighted the objectives of the MIDP, which included the lowering of vehicle prices, and improving the general economic contribution. He then explained the purpose of the auto policy trying to achieve high levels of scale and volume.

The importance of exports had been heightened, where the industry had gone from being highly protective to almost too export orientated. He tabled graphs showing the increase of exports and the increase in import projections, which illustrated the state of the auto industry up until its review. He also detailed the arguments for and against support.

The Automotive Production Development Programme, due to be introduced in 2012, was discussed and its strategic objectives outlined. These included the establishment of a more neutral incentive structure, a gradual phasing in of changes and curbing support for peripheral component exporters. The elements of the policy proposals were discussed.

The MIDP and APDP tariffs were discussed, and these would not be changed from 2012 to 2020. It was noted that it was the dti aimed to produce 1.2 million units by 2020.

The impact of the global depression on the industry was discussed. The US industry had been in decline for a number of years. In South Africa, vehicle exports had declined by 36%, and the graph illustrating the projected recovery of the industry was optimistic. Globally, protectionism was on the rise, but this was taking a different form, that being the support in the form of subsidies, special procurement provision and import bans. He noted that in the developed world, tariffs had not been used, but this differed in some developing countries. He added that the figure for actual proposed subsidies was out of date, and due to a number of developments it was closer to $100 billion. He said that this highlighted the global environment of the auto industry.

He described the situation of developing countries being 'swing suppliers', where they were the first to suffer cut-backs during times of economic slump, and South Africa fell into this category. He added that this had not happened to a great extent, but South Africa was still hurt. The options for South Africa included the support of firms which faced cyclical rather than structural problems, economic stimulation for the industry, both globally and domestically, the expansion of macro policy and ensuring the smooth flow of credit. He added that employment in the service side of the industry was much greater than on the manufacturing side, and policy makers needed to remember this.

South African Trade Policy and the Southern African Customs Union (SACU) presentation
Mr Colin McCarthy, Associate Member of Tralac, briefed the Committee on the characteristics of custom unions in general, the management of common external tariffs, and SACU as a unique customs union of economically unequal partners, as well as outlining the key challenges that it faced in managing the customs union and relating this to South African trade policy.

Mr McCarthy said that the key characteristics of what constituted a customs union included a linear progression towards regional integration and a single external tariff that covered all participants in a region, which often created challenges in managing a customs union. This needed to be managed as a collective effort.

Guidelines were needed in managing these tariff decisions, which were based on certain policy objectives. He said that this was a delicate issue within SACU, as it was a customs union of developing countries. SACU was not only a customs union, but also an excise union. He said that revenue needed to be collected and distributed amongst members who may have differing views on the importance of revenue. The guidelines for managing a common external tariff depended on the functions of that tariff. The tariff served as a means of protection and collected revenue as a non-transparent tax on consumers. He said that often there was a trade off between these two.

He said that SACU could serve as a nucleus for an expanding customs union within the context of the Southern African Development Community (SADC). SADC was to move in a linear progression to a customs union (although this process had been delayed), through to a monetary union with a common currency. He said that SACU could serve as the nucleus for expansion.

He said that the point of SACU being a union of economically unequal partners was extremely important because managing a union with huge economic disparities caused further problems. For instance, if the members of the Union were wanting to implement a common external tariff based on industrial development, the question was whose industrial development was of prime importance. SACU had a unique history, and this could not be replicated as the common external tariff had been developed over time by South Africa to serve its own interests. Botswana, Lesotho, Namibia and Swaziland (BLNS countries) had by and large accepted revenue in their favour as a compensation for leaving the management of SACU to South Africa. Having SACU as a core component of SADC would be a very difficult issue to manage, because of the complexity of the SACU tariff. He said bringing in new members would take time and effort. He added SACU should be seen in the context of the common monetary area.
 
The challenges facing SACU also needed to be seen in the context of a union of unequals. BLNS imported approximately 85% of their imports from South Africa and exported comparatively little. One of the major problems was to make an effective change over from the 1969 SACU agreement to the 2002 agreement, and to establish the SACU institutions. A customs union needed to operate collectively, and SACU did not currently do this. Fundamental institutions to enable this were still not in place, such as the Tariff Board, which would assume duties that ITAC currently undertook. One important feature of the Tariff Board was a requirement that all decisions be undertaken on the basis of consensus, and this could prove to be extremely problematic as member countries had extremely different economies.
 
Further challenges included the trade policy being subservient to industrial policy and the need of reconciling this with other member states. A need for member countries to become less dependent on the common revenue pool was also needed. He said that Lesotho had implemented a Value Added Tax (VAT) equal to that of South Africa, but that, when looking at the country, there was little upon which to impose the tax.

He concluded by saying that Article 38 of the 2002 SACU Agreement committed South Africa to pursue common industrial policies with member countries, a situation that he thought would be difficult due to the difference in what these countries would want.

Clothing and Textile Industry presentation
Prof Don Ross, Faculty of Commerce, University of Cape Town, briefed the Committee on the state of the clothing and textiles industry in South Africa, giving a background of the industry’s problems, its current situation, and what could be done in the future. He said this was a very vulnerable industry, and in this case, trade policy may not be the best approach for it.

He gave a brief historical background to the industry, noting that from 1995 tariff reduction was reduced and the industry was able to seek export markets. He said that the only period of productivity improvement experienced in the industry was between 1994 and 2000. He said that this was the most protected industry in the country.
After tariff liberalisation ceased in 2000, the industry remained profitable in a number of markets. This he attributed primarily to rand weakness, as this was the time when productivity begun declining. At this time the Multifibre agreement (MFA) still governed international trade, but this had ended in 2005, which meant that there were new terms of trading for the industry. From 2002 the industry started to experience more problems. This began with the strengthening of the rand, followed later by the end of the MFA, and a massive surge in production from China and other Asian countries. These contributed to driving South Africa's industry out of most of its export markets. There was a massive surge also in imports from China, but Prof Ross stressed that this was a symptom of the industry's difficulties and not its cause. The main cause was attributed to currency fluctuation. At this time there were also high tariffs on some of the intermediate textile industries, which in turn hindered their competitiveness.

Prof Ross said that the industry’s strategy during this period was 'to try to stay afloat', and this was done primarily through cost reduction, where aspects of production were outsourced to small informal or semi-formal plants. This slowed the decline in profits, but reduced the industry’s presence in the higher value added part of the market, and reduced its capacity to innovate up the value added chain.

From 2006 government took action in the form of introducing quotas on a range of Chinese imports, but these were ineffective as alternatives were found.

At this time the decline of the industry slowed in pace. Prof Ross noted that the South African Clothing and Textiles Workers Union (SACTWU), amongst others, had attributed this to the success quotas, but he believed that this was not the case, but that the renewed weakness of the rand had been the main contributor. The quotas showed that South Africa was not competitive enough to compete, even in its own market, and that the majority of the industry had become 'starkly globally uncompetitive'. The only way for the industry to continue as it was, was to make South Africans pay higher prices for inferior quality clothing. The basic policy choice was therefore whether or not to increase production. SACTWU had lobbied for increased tariffs, up to the WTO bound rate of 45% for most products. The discussion into introducing new safeguard measures was also under way. At the same time, the industry was lobbying for reduced tariffs on intermediary imports, which had met with some success.

Prof Ross said that increased protection would not help as it would further slow the rate of modernisation, and would more importantly push the industry lower down the value added chain, which was where its competitors’ produce lay, and would ultimately result in 'the death of the industry'. He said that the estimated cost to the economy of clothing tariffs was in the 40-45% range, and the cost of each clothing and textile job saved was approximately R3.5 million, due to tariffs being at peak, and the burden being borne by the poor. He said the estimated cost of replacing each worker’s cost of employment was approximately R70 000 per year. In the long run, therefore, he thought that protection should be reduced rather than increased. However, he stressed that effective measures would need to be in place to assist those affected in the industry, before protection was removed. He said that if protection was removed, some small sectors of the industry would respond by moving up the value added chain, but many of the larger firms would more likely collapse. Prof Ross said that public assistance would be needed in the restructuring of the industry, but added that this was not sound economic policy because public funds should not be used for an industry that was not salvageable and that could not become more competitive.
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Address by Department of Trade and Industry (dti) on the state of the Trade Policy of South Africa
Mr Xavier Carim, Deputy Director, Department of Trade and Industry, said that the Department had thought it would be useful to foreshadow the presentation of the document that was currently being prepared, and which gave an overview of South Africa's trade policy since 1994, and attempted to set out a list of recommendations on how South Africa should move forward. The Minister still needed to sign it off, and that was the reason that no written document was available. He added that a formal presentation of the document would be made to Parliament around 23 September. At this stage he would merely give a broad overview of some of the recommendations that arose out of the document.

Mr Carim said this was a trade policy and strategy framework document, and so it gave an indication of the principles and key areas of the negotiating approach and engagements at multilateral, regional and bilateral levels. It had been a huge undertaking, and one of the difficulties had been in actually finalising the document. He added that it had reached the point where it was realised that the document would be a work in progress, where there would be a need to develop and elaborate on certain aspects of it.

The key objectives for the project were to clarify the role of trade policy within the government’s overall development strategy, particularly in reference to Accelerated Shared Growth Initiative for South Africa (ASGISA), and to clarify, for the public, the links between trade and industrial policy, and the strategic approach to international engagements.

Mr Carim said that the last section in the document set out a number of key areas where further work was needed on the trade policy arena. The core arguments would be a recommendation for a strategic trade policy for South Africa, and an approach of strategic integration on South Africa's international engagements. Trade policy must be designed to support industrial policy, industrial upgrading, and to preserve and create employment. Within that framework, tariffs were an important aspect of industrial policy. This perspective would then illustrate the benefit or cost of maintaining high or low tariffs, and tariff setting would be determined on a case-by-case basis, based on clear evidence. ITACs role was particularly important in this area. He added that when raising tariffs, international obligations needed to be taken into account, such as the bound rates set by the WTO.

The framework began by outlining the main objectives and strategies of ASGISA, and the national industrial policy. It set out to highlight how trade policy and strategy could support these objectives of diversifying and upgrading the economic base in a manner that generated employment and led a production in exports of higher value-added sophisticated products. This then led into the assessment of recent experiences of economic development around the world, taking into account the changing nature of global competition. He said the document tried to distil, from three examples, what were seen as the key trade and industrial policy ingredients for success in an increasingly competitive global economy.

International experience had shown that many developing countries who had embarked on rapid structural reform or unilateral tariff liberalisation had tended to re-orient the industrial sector along static comparative advantage lines, except for those industries which were already mature and globally competitive. This international experience resonated with South Africa's own experience since 1994.  South Africa had undertaken significant tariff cuts, and whilst exports in most sectors had grown, manufactured exports had continued to be dominated by resource base products. This illustrated that the tariff reduction had not induced the necessary structural change in economy to significantly alter the 'export basket' beyond that range of products that reflected South Africa's static comparative advantage. Where South Africa had performed well, in more sophisticated products, these were in sectors or in products where there was a stronger industrial policy, either in the past or in the current environment.

Another observation made in the document was that the trade liberalisation period in South Africa since 1994 had tended to reinforce a capital intensive and labour intensive production in the economy. He said that the growth area had not evolved in a way to be able to effectively absorb labour. This was one of the core aspects of the overall government strategy, and from a trade policy perspective, it was necessary to find ways of giving support to this.

The document further outlined the changing tariff regime in South Africa since 1994. He said that this section was mainly factual, setting out average tariffs in the early 1990s (23%) as compared to current tariffs (8.2%).  He said the proportion of zero-rated tariff lines was now at 54% of all tariffs.  There had been a considerable simplification of the tariff regime, and tariff schedules had dropped from 13 000 lines in 1990 to 6 420  currently.
Import controls had largely been removed. The South African Free Trade Agreement (FTA) with the EU, the SADC trade protocol, and the SACU tariff agreement had further reduced the overall instances of tariff protection in South Africa. South Africa was now “moderately” protected by tariffs.

Tariffs were seen as an instrument of industrial policy. They had implications for capital accumulation, technology change, productivity growth and employment and so changes to the tariff regime needed to be carefully calibrated to the specificities of each sector and its production and upgrading possibilities. He said that it was in this context that the Framework had recommended the strategic tariff policy approach.

Mr Carim said that the National Industrial Policy Framework (NIPF), which was adopted by Government in 2007, was quite explicit. It stated that tariff policy should be decided primarily on a sector by sector basis, dictated by the needs and imperatives of sector strategies. In the process, the customized sector programme must consider the production lines making up the sector. Generally, tariffs on mature, upstream input industries could be reduced or removed to lower the input costs downstream, creating more opportunities for increased labour. Downstream industries may in this way be sustained or raised to ensure long term sustainability or job creation.

This was important because South Africa had received a number of recommendations from the Harvard Group, and the Organisation for Economic Cooperation and Development (OECD), for a rapid tariff liberalization, and some quite radical propositions about reducing the number of bans of tariffs to a low percentage. There were continual complaints about the complexity of the SACU tariff regime. Against this background, it was important for dti to explain its approach to tariff liberalisation.

The second part of the document addressed the trade strategy and the manner in which to pursue South Africa's integration into the global economy. There was a need to be more conscious about making sure that South Africa's engagement internationally was more explicitly supportive of the national development objectives. Therefore, the document called for strategic integration aiming to preserve the policy space to pursue national objectives, while leveraging the benefits of more integrated regional and global markets. The document argued that a global trading system supportive of the objectives of developing countries would broadly favour South Africa's own aspirations. The precise terms of South Africa's engagements with developing countries would vary depending on context which countries were engaged in.

The document also outlined the principles and key areas of focus in South Africa's engagement on the African continent. Some time was spent on focusing on the integration into SADC and SACU. The SACU agreement, created an enabling framework for deeper integration. It set out a revenue sharing arrangement weighted in favour of the smaller economies in the region. However, the main issue was that South Africa had been unable to shift the debate in SACU away from revenue considerations toward a broader developmental approach to integration. This had lead to a policy impasse, which had played out particularly in regards to the EPA negotiations. Over the past year, South Africa had taken the position in SACU that it was at a crossroads, where SACU had the possibility of moving beyond a customs union to a common market, and over time to a monetary union. However, to do so, common understanding of industrial policy across the region was needed. This portion of the debate in SACU had not evolved very much, since some members of SACU had elements of industrial policy, but others did not, and this led to difficulties.

Another area of SACU concerned the need to develop some common perspective on the direction of future trade relations, which had come up particularly strongly with the EPAs. South Africa would need to strengthen relations with the economies of countries like India, Brazil and China rather than the US and EU. It was also necessary to consider what would constitute the content of these negotiations. The EPAs had shown the divergences between SACU members as to what types of provisions each would be prepared to accept in an agreement.

South Africa had been preparing for a strategic session at the next SACU Council meeting in September where the perspective would be put forward, and, if there was understanding, then SACU could move ahead and address other issues. On the other hand, if there was no understanding, then it was likely that SACU would be bypassed by developments beyond its control.

Mr Carim said that in 2008 South Africa had met the WTO threshold for a free trade agreement where more than 80% of trade in region was carried out duty free. The next step was to move toward a customs union by 2010. South Africa had resisted this, since trade patterns in the SADC region showed that not much had changed, and the region had not responded to a more open market, which was a result of production structures in the region remaining undeveloped. South Africa's trade balance within the region remained at approximately seven to one, in South Africa's favour. He said that greater focus needed to be made on developing production structures in the SADC region, and South Africa would focus on this rather than move to a customs union. It was also important to improve trade facilitation in the region, and developing regional standards. This had been an ongoing debate for some time. A Ministerial Task Team meeting last week had reached agreement to focus on consolidating the FTA in SADC. The discussion on postponing the customs union had fallen away.

Mr Carim then outlined the Department’s views on the trade aspects of the global economic crisis. Both the G20 meetings held last year and this year, had issued declarations calling for G20 countries to avoid resorting to protectionism. They also called for an early conclusion of the DOHA round. However, evidence of economic nationalism amongst all G20 countries and others had emerged. The scale of the support had been massive, and that this had an impact on trade and investment flows. Many of the stimulant packages had a defensive industrial policy dimension, which needed to be taken into account. South Africa had agreed to avoid the resort to protectionism, but to recognise that it was happening, and felt that developed countries needed to play a leadership role in this regard. He said that developing countries should be allowed to use their tariffs and other measures to support their industries in the context of the economic downturn.

Discussion
Prof Turok noted that some economists were saying that even while focusing on job creation in the short term, there was a need to have a long term view and see the benefits of investing in the manufacture and supply of high-tech equipment such as engines.
 
Prof Black said that South Africa did have a Ford engine plant located in Port Elizabeth, but added that this was the only one. He added that engine investments were very capital intensive, and thought it very unlikely that any significant establishment of new plants in the country would happen.

Prof Turok noted that protectionist measures arose numerous times and asked how this related to the rule-based system at the WTO. He said that the essence of the discussion should be centred on how the value chain operated, as that was where job and skill creation came in. He said that he was astonished that the local content requirements had decreased as this was where those capabilities could have been built.

Prof Black said that the local content regulations were not legal in terms of the WTO, but that there were also good reasons to move away from that type of regulation and towards a tariff type system, which had been done and had reduced the cost of component imports.

Prof Turok asked what broad lessons there were in the auto industry that could be applied to other industries.

Prof Black noted that there had been some discussion about using the MIDP structure in other sectors. He said that he would not recommend this, firstly because it was questionable under WTO rules. He noted that there was discussion about using this kind of policy in the white goods sector, but said that this would have problems. He said that there was a lesson about the use of incentives and how firms responded to these, that would be useful. There was room for innovative thinking with regard to the issue of unemployment, as economic incentives could encourage firms to act in certain ways.

Dr Rabie noted that all motor manufacturers in the country were foreign owned and therefore vulnerable, and he wondered how the drastic increase in household debt would affect the long-term viability of South African motor manufacturers. Some people claimed that the motor industry had out-performed any other sector in the manufacturing industry, and he asked if some comparative figures could be given to illustrate this.

Prof Black said that household debt would exercise a continual drag on the industry, but added that with much lower interest rates, those debt positions could be quite quickly reversed. He said that he would expect a significant recovery from the current depressed levels. He added that in the longer term, with the growing middle class, there would be a very rapid expansion in vehicle sales, at a much faster rate than the economic growth rate.

Prof Black said that he did not have comparative data on the auto industry’s performance, but said that from 1995 up until about 2005 the industry had tended to out-perform any other sector.

Mr Marais noted that Japan did not feature on the graphs used, and asked how it compared with South Africa or the US. He asked how to ensure that the correct calculations were done in terms of the import/export complement and rebates, so as South Africa would not lose out on revenue, and so that the manufacturers befitted.

Prof Black said Japan was not on the slides he had used, but added that obviously it was a major producer. He noted that SARS looked at the issue of the import/export complement system quite carefully, as there was scope for dubious pricing practices by large firms. This was why he suggested it would not be a good idea to transpose this system on to other industries. The programme was quite well policed, and SARS was regarded as being effective in this area.

Mr Marais asked if the service side of the motor industry would be much affected if no support was given to the to the production side of the industry.

Ms Coleman asked what exactly comprised the auto industries products, and whether for example, ambulances were included, and if so, how long did it take for these vehicles to be delivered. She added that a clearer categorisation of what constituted light vehicles and so forth was needed.

Prof Black admitted that he did focus on the light vehicle sector, but that the medium and heavy vehicle sector was important. He said that government wanted to pay more attention to this sector and review it.

Ms Coleman asked if the service sector of the industry related to skills production.

Prof Black said that the service sector comprised activities such as vehicle repair and sales, and even provision of fuel, and thus employed a vast number of people. He said that the skill levels were low, and the wages were also low, although these varied quite drastically due to the number of activities the service side covered.

Ms Coleman asked what the main factors that contributed to 'good performance' in the auto industry were. She added that there seemed to be focus on private vehicle production, and noted that increasing concern about this was arising from environmentalists. She noted that Sweden was investing in green technology and wondered if any moves had been made to do this in South Africa. She said that a greater focus needed to be made on providing public transport.

Prof Black said that a careful distinction needed to be made between the production of vehicle and transport policy. He said that he would advocate large subsidies for public transport, as it was a huge problem in the country. He said that as the economy recovered, road congestion would be far worse because of a predicted boom in vehicle sales.

Prof Black added that there was a Cape Town firm investing in an electric car, but said that he did not know the details of this. He said that investments in environmentally friendly cars were mostly being undertaken by the large firms, whose investments in this area were huge. He said that South Africa would need to be extremely cautious when considering investing.

Ms Coleman asked if the projections for 1995 to 2010 South African passenger and light commercial vehicle imports could be compared to figures in the first quarterly report for 2009, to see if they were realistic, and whether the response plan would address the issue.

Mr M Oriani-Ambrosini (IFP) noted the view that the global depression was not cyclical, but rather inherently structural. He thus asked what South Africa's 'auto space' would be in the future. He asked if it was possible to skip the high-tech side of production and move on to the car of the future, such as the electric car. He added that this would be advantageous as it did not fall directly within the scope of the WTO subsidy negotiations. He asked if the auto industry was viable in the future, in its present state.

Prof Black said that in regards to the 'auto space', the question was where the cars for Africa were going to be built. There were 50 different countries with different markets, and it made more sense for individual countries to import used vehicles from Japan. This was one of the main problems for South Africa as one of a small number of African producers. There were possibilities for South Africa's 'auto space' to expand, but this would require free trade within Africa, and a small or moderate common external tariff. He added that there were predictions that the regional market would expand. Prof Black also thought that government needed to be very cautious in the notion of supporting the 'car of the future', but he said that the Industrial Development Corporation (IDC) had given some support to the electric car initiative.

Mr S Huang (ANC) noted that some of the figures given in the presentation only went up to 2005. He thought China was currently the top auto producer. He asked how local competition in the auto industry could be effective when China supplied significantly cheaper vehicles, at 40% less for public transport vehicles, and asked why government should give a subsidy of R48 billion to the industry.

Prof Black said China's exports were fairly limited, and usually the bulk of production was undertaken by joint ventures between multinational firms and Chinese companies, who would not export too much, but rather that the exports came from Chinese firms alone. The prices were low, although the industry still had some way to go.  He added that there may be initial worries about quality, but that these would change quickly. China and India would play major roles in global markets. South Africa could compete with the help of on-going protection. He emphasised that he did not advocate a move to zero protection for the industry.

Mr Ntuli noted that most jobs existed in the service side of the auto industry, and asked if this meant that more jobs were created by exporting a ready-made car. He asked whether the service side incorporated component manufacturing.

Prof Black said that the service side of the industry was larger, and this side would benefit more from any form of liberalisation that reduced vehicle prices, because the more cars owned by people in South Africa, the greater the positive effect on the service side, in repair or fuel provision.

Mr Marais asked what the implications were from the interim EPAs which had already been signed, in terms of further agreements being made between countries, including Asian countries.

Mr McCarthy said that the issue around EPAs was very delicate, and asked Mr Carim to address it. EPAs were only in place between the EU and Africa/Caribbean/Pacific (ACP) countries, and so Asian countries could not be included in these negotiations.

Mr Marais said that he was referring to this as a precedent that could be set for agreements between the ACP countries and Asian countries, and the impact that this could have on domestic markets.

Mr McCarthy said that the EPAs were supposed to replace a non-reciprocal trade relationship with a reciprocal one, to meet the WTO requirements. He added that the South African position was to have a common stance when negotiating with other areas.

The Chairperson asked if Lesotho was the only country implementing VAT.  She asked if this was collected by SARS or whether another agency existed. She asked for clarity as to whether the common monetary area had aided in bringing the countries closer together, or if there were counterpoints to this as well.

Mr McCarthy said that the VAT was collected by the Lesotho Revenue Authority, a similar entity to SARS. He said that this was not excise tax and was not paid into the customs union revenue pool.

Ms Hartzenberg added that both Namibia and Swaziland had VAT as well.

Mr McCarthy said that the degree of inter-regional trade between South Africa and Lesotho, Namibia and Swaziland was substantially larger than for example between South Africa and Botswana. He said that this could be explained by the rand serving as legal tender in all four countries, and the currencies of the other countries being pegged to the Rand on par. This resulted in significant reduction in the transaction costs of trade. This could be used as a reason for the larger degree of trade between South Africa and these countries, excluding Botswana.

Mr L M Mphahlele (PAC) asked if free trade was a reality or a myth. He asked if the country would benefit if the rand was weak. He asked how protection related to the slowing down of the rate of modernisation.

Prof Ross said that free trade was not a reality, adding that the WTO was a cartel of governments that existed in part to reduce the costs of having un-harmonised trade relations. He added that they had not made significant progress in this area.

Prof Ross said that if the rand was too strong, it could be costly to the country, but the same applied if the rand was too weak or if it fell too quickly. He said that in some industries currency fluctuations caused immense problems. Many of the trends could be predicted solely by looking at fluctuations. He was not saying that a currency response was required, but rather that the problems could not be attributed to industry or policy problems.

Prof Ross added that highly protected industries did not generally do well by modernising. This meant that there was less incentive in the industry to change products, and so they would not be in a position to effectively modernise. The usual reason for modernisation was to stay competitive  and ensure that other parties did not get ahead. In South Africa, the clothing and textiles industry had been protected for a long time and had resulted in it being antiquated.

Mr Huang asked what percentage of clothing in the country was imported from China and Asia generally. He noted that AGOA had not been mentioned. He also said that Government had prioritised retraining, and asked how this would apply in the textile industry, where skilled labour was extremely important. He added that South Africa could not compete with China in this industry if it did not have these skilled workers.

Prof Ross said that South Africa did in fact have competitive producers, but that these were in niche sectors. He said that these were high value added products, but that the quality was high and that was where their competitive edge lay. When moving up the value added chain, the price-elasticity of consumers would become smaller, meaning that the rich would be more willing to pay for something they wanted. South Africa’s labour costs were not necessarily high, and should not be compared to other African countries or even Asian competitors in this industry. South Africa's export profile was more similar to that of Brazil or Argentina, than of for example Tanzania or Zanzibar and some Asian countries, and South African labour costs were not significantly higher than Brazil. However, Brazil and Argentina were not competitors in the textile industry, and China and Bangladesh were.

Prof Ross said that neither he nor anyone else claimed to be able to know what proportion of workers in the textile industry could be retrained to fit into another economic sector of the economy. He added that where retraining would be guaranteed as actually assisting those in the industry, then this process should be followed, but where doubts existed as to the effectiveness of retraining, then other options would need to be discovered. For those nearing retirement age, the best solution may be to just give them money.

Mr Oriani-Ambrosini said that supporting the textile industry seemed like a pointless endeavour. He said that the problem in the political process was that there was a difficulty in having no countries to deal with opportunity costs. Half the problem lay in trying to be economically viable as a global competitor. He felt that the subsidies should be removed over time and the industry allowed to die, as had happened with the Italian textile industry, which then reformed itself. He asked how this could be translated into political thinking and how to identify a bridge that would allow those employed in the sector to be brought to a more viable sector of the economy.

Prof Ross said that this was a question of political philosophy, and said that many of the economic principles were already well understood by many actors in the political process. Large parts of the policy regime had already put them into effect, as trade had been significantly liberalised over the past decade. One reason relating to the difficulties in renewal of the DOHA round was that the gaps between South Africa’s bound rates and applied rates was smaller when compared to those of its competitors. This was not because South Africa had been ineffectual in implementing policies, and rather that it was at times 'too principled'.

Mr Marais noted that economic policies could not always be faulted, but added that if protection was removed, the outcome indicated by Prof Ross would not necessarily be generated. He noted that, particularly in comparison with China, the playing field was uneven, and he asked, in this context, to what extent the economic principle of removing protection should be adhered to.

Prof Ross reminded Members that he had not advocated removing all protection from the industry, but had said that it should be done on a case-by-case consideration, including value judgments as to when protection should be increased, reduced, or left as it was. He said that he had argued for reducing protection in the long run in the clothing and textile industry because he believed that the high-level protection had done more harm than good. However, he stressed that no protection should be removed until an assistance plan was in place for the people working in the industry.

Prof Ross said that until recently South Africa also gave rebates for exports, but these were removed because there were hardly any exports left. He said that the rebates were principally being used to reduce the cost of clothing coming into South Africa from places like Lesotho and Swaziland. This amounted to South Africa effectively subsidising the decline of its own industry.

Mr Rabie asked how many workers' jobs were threatened, and what the cost to government would be if these workers were retrained, as he felt that this process should be eased.

Prof Ross said that the cost would depend on how quickly the industry collapsed. He said that a fast collapse was in some ways less costly than a slow collapse. There were hundreds of thousands of people in this industry but added that the cost of 'completely bailing out' these people was significantly less than the cost of the current policy.

Mr Marais asked if South Africa's problems around the EPA would be discussed in the next meeting, as he saw it as being distorting in the SADC region.

Mr Carim said that he would spend a small amount of time on this as the issue had arisen throughout the day. He said that from the South African government’s point of view, unlike other SADC countries, there was no legal requirement for South Africa to enter into the EPA negotiations at the beginning of the process. He said that South Africa had joined the EPA process because it had seen an opportunity to consolidate a regional identity with regard to the EU. South Africa had managed to do this with the FTA countries. It was hoped that SACU’s identity could be strengthened in this negotiation.

Mr Carim said that the EC had a negotiating template, containing non negotiable terms, and this included a number of provisions that South Africa believed would unduly limit the development policy space. He said that there were likely to be at least three issues. EPA agreements limited the development policy space, they eliminated export taxes, or they would shape the way the countries customs authorities were structured. These provisions undermined regional integration, and the main problem here was that the EC was negotiating five separate agreements with countries in the region, and the differences in the regions would be compounded by the EPAs.

He said that there were other provisions, like the 'favoured nation provision' and this would limit the country's ability to negotiate bilateral agreements with all other developed countries, and any country that accounted for more than a certain percentage of world trade, such as China. He said that essentially it would undermine the ability to pursue South-South relations.

Mr Carim said that when the EC put these provisions on the table, many of the ACP countries were able to resist, as they relied heavily on access to the EC market. He said that South Africa was not in this position, but the fact that some members had signed had undermined the possibility of regional trade facilitation. He said that if this agreement went forward, it would be extremely difficult for SACU to negotiate agreements with other trade partners, and new sets of policy divisions would arise in the regions, which would be very difficult to overcome.

Mr Carim said that the importance of services for the economy from a competitive point of view was clear, and it was important to distinguish between building the services sector, and negotiating disciplines with other trading partners. Countries where this would happen would take on obligations to the EU in the new sectors of economic development and growth, and give preferences to EU service providers before the region had a chance to assess whether it could build a regional market in these sectors. This process went completely against the practice of the EU itself, who had provided preferences to service providers within the EU, building up their competitiveness and allowing them access to regional markets as a platform before entering global markets. The EPA would deny such a process to South Africa and this had fragmented the region. South Africa’s fears were not shared by other SACU members.

Mr Oriani-Ambrosini felt that there was a missing element in the proposed document. He said Parliament was the product of a nineteenth century set up, where laws were created and scrutinised, but that the drafting of and the negotiation of the FTA was more important than any law which Committees could adopt and discuss. He said that the role of the Committee should be to strengthen the negotiating aims of the draft, and enable a more direct involvement with international bodies such as the WTO. The same needed to be done with trade and industrial policies, as discussions around these had been under way for a number of months with the Department. He called for greater coordination with Parliament.

Mr Carim said that one of the areas for future work, outlined in the document, was for better institutional coordination in this area. He said that some of these were governed by the Constitution, and specific roles were given to different branches of government. He added that clearly there was a much stronger role for Parliament to play within the trade negotiations. He said that the US Congress was a good example of this kind of coordination.

Mr S Njikelana (ANC) said that he had always felt uneasy about tariff reductions, and that he would feel happier when a strategic approach to tariff reformation was given to the Committee. He had thought SACU would prove to be an effective model for the SADC, but this no longer appeared to be the case. He asked whether, if things had gone according to plan, SACU would have been dissolved or assimilated into a future SADC union. He asked if it would help SACU to put more effort into SADC, and said that the interim EPAs were a manifest of the complications within SACU. He asked where trade facilitation stood, whether it was an issue in itself or if it was an integral part of South Africa's developmental trade policy.

Mr Carim said that the main point that the document was trying to make was a rebuttal to proposals for radical trade reform in South Africa. Over the last four or five years there had been a series of proposals stating that South Africa's tariff regime was particularly complex. Mr Carim disputed this. He said that there were proposals stating that South Africa's tariffs were too high and another process of tariff liberalisation was needed to generate sufficient growth. The Department’s response was that a much more careful and calibrated approach was needed, such as the model established in ITAC.

Mr Carim said that SACU was unique. The revenue sharing formula could not be replicated at a SADC wide level. The kind of difficulties experienced in SACU would be magnified and multiplied on a SADC level, with the larger number of countries. The main difficulty when talking of a Customs union in SADC, was the fundamentally different tariff structures that obtained within SADC member states, which made it unclear how to negotiate a common external tariff. The EU had taken more than a decade to negotiate this very issue. Another difficulty was the role that tariffs played in the different countries. In many, tariffs were seen as generating revenue for government expenditure. South Africa, by comparison, looked at tariffs from an industrial policy and development point of view. A more fruitful undertaking in the SADC area would be to expand the free trade area. A Customs Union was concerned about opening up trade to the rest of the world, but it was much more important to open up and facilitate trade amongst African countries. This was an important point in regards to the EPA negotiations, as South Africa could find itself trading on worse terms than, for example Kenya, and it was important to avoid this situation.

Mr Carim said that there were a number of issues involved with trade facilitation, including customs documentation and procedure, infrastructure, and hardware that would facilitate trade. There were enormous costs involved with this, and the trade facilitation agenda was meant to address this issue, and allow goods to move much more quickly and reduce costs. He said that this was seen as a priority within SADC.

Mr Oriani-Ambrosini asked if the EPA and FTA documents could be brought the next day, so the Committee could have a clearer idea of what they entailed.

Mr Carim said that he was not sure of the protocol in this respect, and although he did not see a problem himself, he would need to check.

Mr Oriani-Ambrosini said that EPAs and FTAs had been discussed for many days, and having the document would be very useful for the Committee. He added that he did not see the point of the documents being confidential to the Committee when they were being viewed by a number of foreign governments and officials.

The Chairperson said that she would take the issue up with the Minister directly.

The meeting was adjourned.

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