SA International Trade and Industrial Policy & the World Trade Organisation: COSATU Briefing

Meeting report

The implications of South African International Trade and Industrial policy and the impact on South African Labour: Congress of South African Trade Unions (COSATU) briefing
Mr Tony Ehrenreich, Provincial Secretary, COSATU, began by noting that trade and its relationship to industrial policy was integral to meeting the challenges of unemployment and poverty, and that South Africa was embedded in a globalised system, operating under conditions outside its control.

Although much progress had been made since 1994, South Africa still faced immense obstacles. Unemployment was still at around 25% to 30% percent and employment creation policies had been chronically impaired. More disturbing had been a deepening in levels of inequality, which was tearing at the social fabric of society, and was demonstrated by Reserve Bank figures showing that the lowest 60% of the population had less of the national income than they did in 1996. These issues should receive attention when South Africa developed and extended its international relations.

He further noted that although the South African economy had grown, the character of this growth had not yielded greater employment opportunities and prosperity had not been extended to the South African populace in a balanced or equitable way.  In future, policy choices should aim to undo the unintended consequences of those policy decisions already made. However, he did note a radical shift already.  The South African economy had largely been dependant on commodity exports, exporting low value-added raw materials and importing high value-added products. This had not only distorted South Africa’s balance of payments but had failed to significantly contribute to employment creation. The consequences of a flawed industrial strategy, coupled with the unfavourable trade agreements made to date, had largely been job decimation in the metropolitan areas and de-industrialisation in the rural areas. In addition to job shedding, there had been a serious reduction in the critical mass of industry, further constraining future policy choices and compromising stability.
He said that South Africa must take the current opportunity to redress these models in both industrial policy and in the character of its bilateral and multilateral commitments. The mandate for this further emanated from the 2007 Polokwane resolutions, which clearly stated that opportunities arising out of trade and industrial policy must be measured in relation to their ability create decent work.

Mr Ehrenreich said that this would entail a shift of concentration from promoting large-scale exports to creating domestic economic opportunities, and a renewed focus on light industry. All trade agreements must be subject to a detailed and rigorous job evaluation and impact assessment, and must be critically measured as to their ability to fulfil the State’s developmental objectives, including promotion of local procurement and promotion of local content. COSATU would also support calls for the implementation of export taxes on raw materials to incentivise mining houses’ adoption of beneficiation programmes, in the interest of creating employment opportunities.

South Africa should also insist on safeguards when entering global agreements to defend its short-term interests. Although Government had now decided to adopt defined and customised sector programmes for eleven most strategic sectors, the realisation of the plans formulated between business, labour and government was dependent on not narrowing the policy space afforded to the State. Development finance institutions must also be harmonised with these strategic objectives.

He said the biggest challenges lay within the realm of the multi-lateral agreements. Attempts to restart negotiations in the World Trade Organisation (WTO) had largely remained stunted, and while there were some opportunities for securing greater market access, trade agreements must not compromise national policy space. This was particularly pertinent for Non-Agricultural Market Access under the Swiss formula, which tried to reduce industrial tariffs across the globe. The burden carried by South African industry, as a result of it being unfairly classified as a developed country during the 1989 Uruguay Round, must be addressed. Although there was some flexibility for some tariff lines, this was not sufficient to address the historical problems nor to meet South Africa’s ambitions for industrial development.

He said a serious consequence of trade liberalisation on South Africa and other developing countries, barring perhaps India and China, had been the severe restriction of policy space and mechanisms historically adopted by developed countries. The use of tariffs as a measure of protection for developing industries, food security, and key national objectives had been systematically undermined as options for newly developing countries. South Africa must preserve this to meet its national objectives. South Africa must be particularly cautious in relation to manufacturing, for itself, and in regard to Southern African Customs Union (SACU) and the broader Southern African region.

He said that while agriculture, at the WTO, did present opportunities for some developing countries, it was not the primary offensive objective for South Africa. Nonetheless, the lack of symmetry in the treatment of agriculture and its subsidies highlighted broader inequities across the system, and its direct impact on developing countries.

Mr Ehrenreich referred to the Economic Partnership Agreement (EPA) between the European Union (EU) and SACU countries, and urged caution and recognition that these bi-lateral arrangements were part of a greater European strategy to pursue greater market access for their multi-national corporations. The EPAs would entail deeper commitments than those taken at the WTO. COSATU supported the notion of a multi-lateral rules-based system like the WTO, insofar as it provided a site for fair international collaboration and lessening of dominance of trade relations by the rich and powerful. The proliferation of progressive trade blocs indicated that some progress had been made. It was in this context that bi-lateral arrangements must be understood.  South Africa must be aware that there were possible short-term gains, but also long-term detrimental effects, of these arrangements. They must not be permitted to undermine either South Africa’s developmental objectives or the encouragement of greater cooperation at the South-South level.

An EPA with the EU would unduly circumscribe South African policy space in a number of areas. It included clauses that would restrict export taxes and would severely limit beneficiation. It undermined tariffs to support infant industries, could lead to the swamping of South African markets with products which would undermine important value chains, and did not effectively reciprocally restrict European subsidisation. He said that the agreements also had to be examined in terms of South Africa’s obligation to foster regional integration and noted that progress in this regard was closely tied to whether Southern Africa and the continent more broadly would be able to establish an effective and coherent bloc. The EPAs advocated the reduction of tariffs. These constituted a great percentage of the Gross Domestic Product (GDP) of many developing African countries, and so ratifying these agreements without setting up alternative means of long-term income generation could undermine their objectives.

He said similarly that the question of aid was also crucial. Although many African countries were reliant on predictable aid flows, these had hindered their ability to structure agreements in a way designed to meet national challenges.

He said it was imperative that the initial promises made at the Doha Development Round of the WTO, to fundamentally and fairly shift patterns of world trade, must be upheld. Up to now the type of discussions and the space afforded to developing countries had not been consistent with this goal, and had not substantially addressed the challenges faced by developing countries, or the support required by their infant industries. He added that South Africa must be mindful of bi-lateral agreements with partners such as China, India, Brazil and others at similar levels of development to South Africa who might use less then honourable means to promote their own domestic manufacturing capacity. Instances of undermining our trade regime had included dumping, violation of tariff payments, and flooding the domestic market with goods, all of which had contributed to undoing South Africa’s productive capacity.

He said he was pleased that a discussion on how to link international relations to trade policy was under way. This would help to support and reinforce the industrial base and meet key needs in South Africa, consistent with the statements made in the State of the Nation address. There was now an opportunity to ensure that many embassies were aligned with the broad policy objectives of the Department of Trade and Industry and to resolve the conflict between attempting to put free trade above all other considerations, and the national priorities and promises made to the South African people. There must be a change in the opportunities that embassies sought to secure overseas, and also an obligation to bring coherence to their strategies. Often provinces sent messages that were contradictory to the national developmental agenda, and the obligations of all institutions should be the same. In addition, relations should be in keeping with the national values. There had been an unfortunate tendency to retain unduly strong relations with nations who were ethically and morally unscrupulous in their opposition to South African democratisation.

Discussion
The Chairperson asked whether the mentioned imperative of protecting its own industries put South Africa at odds with the dominant philosophy of liberalisation and would run the risk of potential reprisal and punishment. He requested comment on the contradiction between the calls by the United States of America (US) and EU for further liberalisation and their own policies of protection, particularly in agriculture.

Mr Ehrenreich said the dominant contradiction had been that free trade had been exposed as not being the panacea that it was originally presented to be. Many prominent scholars, economists and commentators, such as Joseph Stiglitz, had criticised the architecture of the global economy and the notion that a single formula could be appropriately and globally applied. There was now an unprecedented opportunity for South Africa to act much more pragmatically in response to the needs of its people.  As the world addressed the global crises caused by obvious market failure, inherent and pronounced systemic inequities had been further exposed. He cited the example of General Motors who, although bailed out by billions of American taxpayer dollars, had not closed their factories in the US proportionately to closures in the rest of the world. This was an obvious form of protectionism. If the lowest cost producer should survive, this would have been the factories in China, Poland and elsewhere. Furthermore players such as China, who had not “played by the rules”, had not bee punished. China still received more American investment than the total sum of investment going into all other developing countries. This further revealed that ultimately business interests, not adherence to rules, had been the dominant operational considerations, that developed countries might preach one thing but not commit to it, and that national interest preceded all other considerations in times of difficulty. This was the premise from which South Africa should begin to operate, and it must recognise that the current system’s lack of credibility offered an opportunity to redefine the rules of the multi-lateral system in the interest of fairness. South Africa must be a central player.

The Chairperson then asked for more examples of lack of coherence in any provinces, in order that the Committee might work to ensure coherence.

Mr Ehrenreich said there was a problematic lack of coherence between the actions of provinces, national government and their interrelationship with global partners. Of particular concern was the competition between provinces and metropolitan areas and the tendency of this behaviour to compromise long-term sustainability. For instance, competition between two harbour cities for the same type of function would lead to wasteful infrastructure, as one would succeed and the other lag. This had prompted the Ministry of Economic Development to specify a national spatial development programme so that different sections of the country were aware of their geographical comparative advantages, and how this fitted within the broader national agenda.

He further noted that competition between provinces for investment from Southern countries had compromised labour relations, such as women chained and endangered in factories. There must therefore be a renewed effort for cohesion and South Africa should seek out another way of doing business.

The Chairperson then asked whether COSATU was involved through National Economic Development and Labour Council (NEDLAC) and other social partners in preparatory discussions for the WTO.

Mr Ehrenreich said that this was so. Within NEDLAC there was a Technical Sectoral Liaison Committee (Teselico), which dealt specifically with trade and industrial policy and their interrelation. Teselico had established a framework against which trade agreements could be evaluated, and this had been instrumental and instructive in bringing together the social partners to agree on what South Africa should seek to achieve in its bilateral and multi-lateral agreements. It had also helped to shift focus from a blind strategy of achieving market access through trade liberalisation, to a more coherent agenda for the industrial policy framework, shaped by the Polokwane and Government statements, which granted a mandate for the State to player a greater role.

Mr K Mubu (DA) said that the presentation suggested that SACU countries should not rely on aid from developed countries, but should instead forge greater regional linkages and augment productive capacity. However there was a great disparity in the relative resources of SACU countries. Since the South African economy dominated the sub-region, it seemed an unrealistic proposition.

Mr Ehrenreich said that whilst South Africa was a prime economic player on the continent, this should be an advantage, and South Africa should utilise its expertise to foster relations and clearly define links and synergies. Up to now, South Africa had tended to simply dominate other economies, instead of helping to develop manufacturing capacities. Now there were detailed steps in place, set up through two regional integration workshops between role players in South Africa and the President’s recent visit to Angola. It must be a matter of priority to trade intra-continentally before pursuing overseas trading relations, but this would require a solid commitment.

Mr Ehrenreich said that some neighbouring states had found it difficult to establish a developmental agenda based on a social consensus and did not have an advanced institutional framework such as NEDLAC. These mechanisms should be established. This was directly related to the problems around use of aid in ways that were not beneficial to their country, and certainly not honourable. It was a question of building reciprocally supportive economic relations.

Mr Mubu, with reference to the sustained industrial action by various unions, asked COSATU’s opinion whether, in the context of recession, it was realistic to expect higher wages, particularly in light of the President’s avowed commitment to creating half a million jobs.

Mr Ehrenreich responded that South Africa was still faced with the difficulty of being one of the most unequal countries in the world, which restrained growth by repressing demand. More equitable countries had been better placed to confront the recession. One way in which redistribution was still meaningfully effected was through wage bargaining. South Africa had a labour relations environment that appreciated that workers’ rights were important human rights, and which respected industrial action as a valid dispute resolution mechanism integral to both the social compact and economic architecture, as well as being a functional mode of redistribution. He said that COSATU was fully supportive of the President’s aim to create half a million jobs. However the reality must be recognised, that the financial crisis had permeated into the real economy, seeing a loss of jobs and closing of factories due to shrinking demand. It was moreover urgent that the State now stepped in to ameliorate these obvious market failures.

Mr Mubu further asked what COSATU’s position was on the proposed nationalisation of the mining sector.

Mr Ehrenreich said the question of the nationalisation of the mines was a debate that would continue to unfold in the country. Part of the problem in South Africa was the separation of the political transition from an economic transition, and this still needed to be addressed to achieve social transformation. Current patterns of concentrated wealth did not occur naturally, but through accumulative strategies embedded in the apartheid system. The point was not simply to punish the “thieves of the past”, but to respond to the needs of South African people in the future, whether through nationalisation or through other agreements that assured that the wealth of South African land would enrich the nation as a whole.

Dr G Koornhof (ANC) noted that a briefing from Department of Trade and Industry had indicated that the proposed EPAs would weaken SACU, because of the complexity of the different trade regimes they entailed. He asked how Southern African Development Community (SADC) trade could be promoted without threatening South Africa’s relations within SACU.

Mr Ehrenreich said that the potential for the EPAs to weaken SACU, and relations within SADC, posed a serious challenge. The South African government had urged a different approach. Despite the signing of initial agreements by some countries, there was still time and room to remedy these difficulties. He believed that there should be moves towards an integration of the South African and SADC economies, to set a common and codified relationship with external trading partners. Without this, leaders were likely to take actions determined by factors that did not prioritise the development of their countries or the SADC region. He believed that these factors should be the prescriptive benchmark by which actions must be judged.

Mr S Mokgalapa (DA) asked what COSATU’s view was on South Africa’s relationship with China and the latter’s growing continental presence. He noted that China seemed to be not playing by the rules, and that whilst the proportion of Chinese imports entering South Africa had risen, there had been no substantial increase in South African exports to China.

Mr Ehrenreich agreed that China had not been playing by the rules. He said this illustrated the point that adherence to the rules did not seem to be regarded as a priority in the international community, and that South Africa therefore did not have to abide by a set of rules that had not benefited it. China had operated in its national interest, sometimes unscrupulously, but had also substantially altered global relations and undermined the dominance of the US and EU. As a consequence new blocs had been formed, which challenged the hegemony of the views espoused by multi-national corporations. The imperative now was to find a way to regulate the global economy in a more coherent way, which could merge the soft issues of the International Labour Organisation (ILO) and UN, and which reflected South Africa’s publicly stated values, with the hard prescriptions of the International Monetary Fund (IMF) and World Bank, enforced by the potential for sanctions from the WTO. He said that while economics was a powerful persuasive force, the benefits of rules-based system was that it carried the potential to establish a system that was based not simply on power politics.

Mr Mokgalapa then asked for Mr Ehrenreich’s opinion on the new world order of economic, rather than social and political, diplomacy.

Mr Ehrenreich said that while there was no argument against the reality that the African economy needed to be integrated in a much better way, the prevailing question was how this should be done. While many countries had difficulties in diversification, by way of access to market opportunities and raw materials, countries like Japan had been constrained by such factors yet had still built thriving economies. This had not occurred in Africa, partially because of the destabilising tactics employed by the apartheid State, but also due to constraints to collaboration from colonial and other interests. The point was building relationships and linkages which were mutually reinforcing.

The Chairperson expressed the view that it would be important to reconcile the contradiction between the West’s huge investments in China on the one hand, and their criticism of Chinese-African relations on the other.

Mr Ehrenreich said that the contours of Southern Africa’s relationship to China were very important. Although it was clear that investment would have to be attracted, the character of this investment needed to be delineated according to the values underpinning Africa’s development programme. These protocols should be clearly defined at the SADC level. If a clear governance structure was established at the SADC level, this would also help to resolve governance issues. Although there was no easy way to resolve conflicts between nations, there needed to be constant and diligent engagement to provide an opportunity to develop a platform by which to define acceptable standards of governance.

Ms F Hajaig (ANC) noted the highly skewed trade relationships at the WTO. The EU was arguing that the EPAs were a WTO prerogative. There was persistence of American and European agricultural subsidies. In light of this, she asked how it was possible to reconcile these asymmetrical relationships between developed and developing nations, and assure that such changes were reflected in the final vote.

Mr Ehrenreich agreed that the current multi-lateral trading regime was not fairly structured, but added that this was precisely what the current contest was about. The rules-based system was much preferable to bi-lateral arrangements, where power-politics were the biggest determinant of outcomes. While South Africa perhaps had sufficient negotiating strength to significantly mitigate this reality, its neighbours did not. South Africa was probably the only country in the region with detailed statistics on tariff ratings and tariff lines on which to base its defence. He added that while negotiating partners might claim to agree philosophically on a more developmental trade regime, they would argue that their domestic constituencies would not assent to such a programme. African constituencies had tended to be more detached from negotiations. An attempt was made, three weeks ago, to mitigate this, as it was made clear to WTO Director Pascal Lamy that South African domestic mandates would also limit the scope and depth of its commitments, and that these would be contingent on major concessions from the developed world.

He said that the strength of a multi-lateral rather than bi-lateral system was that the former presented the opportunity to shore-up negotiating power through the establishment of progressive blocs. There was always the possibility that members would withdraw from a bloc after securing their own interests, but in theory no agreement could be finalised without the agreement of all members.

Ms Hajaig then asked for COSATU’s views on the possibility of disbanding SACU in favour of strengthening a potential SADC customs union.

Mr Ehrenreich said that in reality Southern African integration was occurring already, but had not yet managed to do so in a form that used resources and capacity fully for the benefit of all. South Africa may be an island of prosperity in an ocean of poverty, but was being overwhelmed by the sheer mass of immigrants seeking opportunities, so its national future and security was intimately tied to the rest of the continent. It was thus essential that South Africa should be able to influence its neighbours’ policies and build reciprocally accountable linkages and relationships.

He said that South Africa should strengthen the relationships within SADC. Its protocols must be shaped to make integration a continental reality. South Africa must take an active role in responding and shaping continent-wide engagements with non-continental actors like Europe and China, to ensure that no imperial overseas relations were built.

Ms Hajaig then said that while New Partnership for Africa’s Development (NEPAD) supposedly carried a mandate to build infrastructure to straddle all of Africa, this had not been forthcoming. She asked how serious this programme was, and how likely it was to fulfil its stated objectives.

Mr Ehrenreich said he was not currently prepared to deal with NEPAD in any detail and would prefer not to comment on it, although there was an imperative to develop a national programme for the continent.

Ms Hajaig said that she was not convinced that there was enough political will behind the initiative to implement a successful raw material beneficiation programme, and asked for COSATU’s opinion on the prospects and difficulties in training the unemployed.

Mr Ehrenreich said beneficiation of raw materials could be assisted by taxes on exports to force local companies to look inward. It was very possible for a company like Anglo-American to ensure that some stages of value-adding production were made to raw steel before export, but government regulation must be put in place for this to be effective. While there may be slight downward pressure on Anglo profits, this would likely be much less then what had already been required to meet Black Economic Empowerment (BEE) prescriptions. Beneficiation was not simply about regulation of companies, but was also about working towards the creation of a coherent value-adding industrial programme. The question was thus one of coordination across government.  South Africa had the capacity, the people and resources but restraining issues had revolved largely around coherent design and implementation.

Mr Mubu said that there was a great correlation between good-governance and economic development and trade. Within SACU, the greatest proportion of revenue was generated by South Africa. What it contributed to other countries could in one sense be viewed as development aid, yet much of this was squandered on personal extravagances by the elite in neighbouring countries. He therefore asked why South Africa, as the largest revenue contributor, did not set limitations on how this money was spent, and why regimes with poor human rights record and little regard for the rule of law were still considered legitimate recipients. He then asked what COSATU’s view on Accelerated Shared Growth Initiative for South Africa (ASGISA) was, and why it had dropped from public discourse. He noted also that Jeremy Cronin had issued a statement calling for the Cabinet Ministers to return the excessively expensive cars they had purchased, and asked whether COSATU, as part of the tripartite alliance, was going to advocate the establishment of a price-limit for the vehicles bought by ministers.

The Chairperson stated that the first and third questions were not concerned with the subject of today’s meeting, and said that Mr Ehrenreich was not obliged to answer them.

Mr Mubu interjected to insist that his questions were relevant, that they related to good-governance, that good-governance was closely related to trade, and therefore deserved a response.

The Chairperson asked how cars purchased by Cabinet Ministers related to good governance.

Mr Mubu insisted that the issue pertained to use of resources and therefore governance.

The Chairperson said this matter had been raised in the House several times without follow-up, and that he still believed it deviated from the topic of international trade. Mr Ehrenreich was free to comment if he wished, but was not obliged to.

Mr Ehrenreich said that it was important that ASGISA be brought back on the agenda, but it was an area that had received particular attention from the Department of Labour and the Department of Trade and Industry, who would likely provide a more detailed account on how this was unfolding.

Rev K Meshoe (ACDP) said that it was clear that the considerable wealth of the African continent had not benefited the African people. He asked what mistakes had been made by wealthy countries that had resulted in the enrichment of elites to the exclusion of the majority, and how could this be prevented from happening in South Africa.

Mr Ehrenreich said it was a difficult issue as it involved how and whether policies reinforced national objectives. The current policy mix of the governing party and government more broadly was closer to achieving this, but it was intricately linked to a process of transformation. It was noted that South Africa was not completely unique in this regard, and that a similar process occurred in Argentina, where the leaders of the military junta were dispensed with, but wealth remained concentrated amongst elites. Although apartheid had been dismantled, those who ran and propped up the apartheid economy retained the wealth and adopted a programme of assimilating black elites to prevent any fundamental disturbance of economic relations, which continued as before, despite punctuations of five-year national elections. This, however was not enough. The people had demanded thorough transformation. The wealth of the land must be returned to the people along the lines of the kinds of promises made in the Freedom Charter. There were more progressive stances being taken by leaders in government to affirm the values of the liberation movement and people were inspired by this new direction, which must be sustained and extended to the level of international engagement.

Rev Meshoe then said that there had been calls within South Africa to lift sanctions against Robert Mugabe, implying that sanctions had been held against the people of Zimbabwe, but that these calls had not engaged with issues of human rights abuses and disrespect for the rule of law. He asked where COSATU stood on this matter.

The Chairperson reminded the Committee that the topic of this meeting was the impact of South Africa’s international trade policy on South African labour.

Mr Ehrenreich said the question of where the line was drawn in foreign relations was complex and must be dealt with as a nation. Such issues were very delicate. There was no easy answer, though there must be application of a set of values that honoured the desired outcome. He said that he did not want to second-guess diplomats in that environment. Any country had to have a set of values and principles to aspire towards as achievements for all countries.

The Chairperson then noted that in consolidating an African agenda, it was necessary to take NEPAD forward, and it would be prudent in the interests of improvement that the social partners be invited to present their opinions and criticisms.

He noted that inputs from the Business Unity South Africa and two other unions could possibly be accommodated the following week. He noted that South Africa’s delegation to the WTO included representatives from business and labour in addition to government, and it was thus important for this Committee to hear their opinions and concerns. He also believed the Committee should be represented in the delegation.

The meeting was adjourned.