Trade Policy and Strategy Framework

Meeting report

Trade Policy and Strategy Framework: Department of Trade and Industry (dti) Presentation
Dr Mzukisi Qobo, Chief Director: Trade Policy Development, Department of Trade and Industry, informed the Committee that the Trade Policy Review process had been ongoing for two years. There was a call for South Africa to review its trade policy. The structural challenges were: widespread poverty; severe inequalities; high levels of unemployment and stunted growth. The tariff policy had to be decided on a sector-by-sector basis and dictated by the needs of sector strategies. The Department had adopted a strategic trade policy that was more calibrated and sequenced, which assumed a more developmental approach to tariff reform.

The nature of global competition had significantly changed in the past two decades. A comparative advantage no longer determined success in international trade. A combination of factors, including strategic collaborations between businesses and the government, purposeful interventions in the economy, human capital developmental support of Research and Development (R&D) innovation, as well as building appropriate support in the economy, drove comparativeness. As a group, developing countries’ exports were faster than the world average and Asian countries had by and large predominated. Most countries that had developed and sustained high growth rates achieved this through strategic trade policies that drove structural change from medium to high technology. Some had argued that South Africa’s tariffs were complicated and highly protectionist. The Department was of the view that this argument was not evidence based. However the pattern of trade had not changed significantly. Manufacturing exports in capital and high skilled intensive sectors and products had expanded through trade; labour intensive production contracted in the face of import penetration, especially in leather, footwear and textiles. Trade liberalisation and unemployment were negatively connected. The Department had to take a step back and better manage trade reforms with strategic intent. Further tariff liberalisation that was not guided by purposeful intervention would accentuate South Africa’s comparative advantage.

He said that South Africa’s exports constituted 0.5% of the world merchandise exports. It lagged behind China, Brazil and India. It was ranked twenty-fourth among developing countries and forty-seventh overall in terms of its presence in exports of dynamic products. Commodity products dominated South Africa’s exports. Precious metals, base metals and other mineral products were dominant. During the Uruguay Round, South Africa undertook tariff commitments as a developed country rather than a developing country. The Department had chosen a development path aimed at achieving accelerated and inclusive growth to address poverty and inequality. The role of tariff policy would be to support a growth path oriented towards labour-intensive industrialisation. Tariffs were a tool to promote sectoral growth, employment creation, investment attraction, growth, food security and rural development. A balance between the profitability of farmers, including addressing supply-side constraints and competition; consumer prices, especially given the price raising effects of tariffs for the vulnerable, would be struck.

There were other areas that prioritised South Africa’s trade policy and strategy framework. These included the African agenda, which mainly focused on building trade and investment relations across the continent, building effective regional markets, enhancing production capacities, sustaining regional integration and cross-border infrastructural development through spatial development initiatives. The Southern African Customs Union (SACU) and European Free Trade Association (EFTA) agreement was concluded last year. Tariffs were losing some of their importance as tools for trade policies. The Department would like to have deepened integration with SACU.

South Africa had encountered serious challenges regarding the Economic Partnership Agreements (EPAs), which were likely to pose greater challenges for SACU and would not have suited South Africa in the long term. South Africa had to have separate trade arrangements with the EU in the form of the Trade, Development and Co-operation Agreement (TDCA). South Africa was involved in the EPA negotiations due to its role in Southern African Development Community (SADC) and SACU. The most challenging clause in the EPAs was the most favoured nation clause which stipulated that concessions had to be automatically extended to a particular EU country if any trade between SACU and a non EU country, that accounted for one percent of world trade, took place. Under the EPAs, SADC had five separate trade relations and regimes with the EU, but all were different. South Africa was in violation of Article 31 as it had not signed the EPA agreements whilst other countries had. Article 31 stipulated that any trade agreements between a SACU member and third parties had to be done in consultation with other SACU members, whose consent had to be obtained. Botswana, Lesotho, Swaziland and Mozambique had signed the EPA agreements. This had created a conundrum for SACU and had complicated regional integration and in the Department’s view this would not lead to sustained economic development.

Opportunities for South Africa meant that there had to be enhanced trade and investment linkages between South-South states. The center of gravity was shifting towards the emerging powers of the South. South-South trade was increasing annually at a rate of eleven percent. South Africa’s relations with key countries in the North remained vital. South Africa remained a strong proponent of multilateralism as an appropriate institutional response to manage globalisation. Its support for the Doha Round was premised on overcoming the imbalances and securing a developmental outcome for developing countries.

Mr Jan van Vollenhoven, Chief Director: European Relations, Department of International Relations and Cooperation, added that Africa would be faced with up to eight different trade relations with the EU due to the EPAs. The EPAs posed a contradiction in terms of what the EU wanted to achieve in its relations with the African Union (AU).

Discussion
The Chairperson referred to the violation of Article 31 and asked how South Africa was dealing with this matter. He asked if South Africa had allies sharing the same position or whether each country spoke for itself. He also asked how South Africa would become classified as a developed country as opposed to a developing one.

Mr K Mubu (DA) wanted to know how the government protected producers of goods against goods that were imported and subsidised, particularly from Europe. He asked what risks South Africa faced as an exporter of steel due to the recent price-fixing scandal. He also enquired about the impact of strikes on South Africa’s competitiveness and ability to attract foreign investors.
 
Mr T Magama (ANC) asked what the way forward was for SACU.
 
Ms T Sunduza (ANC) said that she did not understand the reduction of tariffs by South Africa in relation to other SADC countries, and asked if this meant that the EU would find other channels.

Mr S Ngonyama (COPE) asked if the countries in violation of Article 31 had signed an interim or permanent agreement. He wanted to know if South Africans were aware of the benefits regarding Intergovernmental Trade and Economic Committee (ITEC) and whether there was a programme to inform the public of this.

Mr Qobo responded by saying that South Africa would provide a paper concerning the challenges facing SADC as well as solutions at a ministerial gathering. SACU could be transformed into a free trade area. South Africa was of the view that SACU should operate as an accelerating element in the broader SACU framework. Currently, the EPAs were interim. They would become permanent once ratified. South Africa participated fully in the G-20; it also played a leading role in the NAMA eleven. The importation of subsidised products partly contributed to the problems that South Africa had with the EU. It was evident of the distortions of global trade in regard to agricultural products. South Africa was keen to see the successful conclusion of the Doha Round especially regarding the issue of agriculture as it was a livelihood issue for a lot of developing countries.
 
Ms R Magau, (ANC) wanted to know if the AU was assisting in the EPA negotiations and what were the implications for those countries that had not yet signed the EPA agreements.

Dr G Koornhof (ANC) wanted to know if the agreement that South Africa signed in 1999 was done after consultation with other SACU members, since it affected the revenues of other countries. He asked what would be the long term implications of not securing the agreements.

Mr S Mokgalapa (DA) asked what the Department of Trade and Industry was doing to ensure two-way trade relations, as South Africa accounted for 0.5% of world trade. He asked what the Department, together with government was doing, to ensure that South Africa benefited from its exports into the Asian market. He also enquired what the impact of the EPAs would be on South Africa’s trade with the EU.

Mr S Ngonyama (COPE) asked if South Africa should not cast its net wider beyond the borders of SADC and the EU, especially with the WTO. He asked if there was a time frame regarding the non-tariff barriers.

Mr B Skosana (IFP) asked what the correlation was between the political pronouncements regarding South Africa’s trade policy and what the Department was doing.

Dr Qobo said that the AU wanted to negotiate as a block, and the EU refused as it wanted to deal with regions separately. Countries that were not part of EPAs would simply not benefit from them. They would also lose their existing preferences. South Africa wanted to find appropriate support mechanisms for those countries that would suffer from exclusion. The EPAs would be challenged at the WTO as the EPAs had not yet been fully ratified. Regarding the 1999 agreement with the EU-TDCA, South Africa went ahead with little consultation with SADC countries, but their consent was sought. South-South cooperation was where South Africa was setting its sights. This did not mean that North-South co-operation would be ruptured.

Mr van Vollenhoven added that the EU understood the problems surrounding EPAs. South Africa was trying to postpone their implementation. If South Africa could find a tariff alignment then there would be less pressure on it. The current EPAs could be replaced by new ones.

The Chairperson asked if the issue of services, education and health would top the agenda at the WTO meeting. He also enquired what were the areas of disagreement between SACU and the United States of America.

Mr Ngonyama asked if the issue of drugs would also be on the table at the WTO meeting.

Mr Magama asked about what the outcome would be of the Ministerial meeting.

Dr Qobo responded by saying that the WTO agenda was immense and broad based to persuade all countries to agree to the Round. The SACU and USA negotiations did not go far, however good relations were retained with the USA. The region was waiting for President Obama’s trade policy speech. The negotiations broke down around the fact that the USA had a very rigid template. South Africa became classified as a developed country at the 1993 Uruguay Round due to the insistence of the old apartheid regime. The new ANC-led government tried to reverse this but the USA refused. At the recent Doha round the status of South Africa was changed to a developing country.

Mr Ngonyama, on behalf of Mr Skosana, requested a special discussion on the EPAs as the issue was becoming more and more contentious.

The Chairperson agreed and concluded that all local, continental and international platforms would be utilised to pursue the matter of the EPAs further.

The meeting was adjourned