Minister of Trade & Industry on 2010 State of the Nation Address, recent WTO discussions, SACU review; Doha Round negotiations, SADC Economic Partnership Agreements (EPAs)

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Trade and Industry

15 February 2010
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Minister of Trade and Industry briefed the Committee on the highlights of the State of the Nation Address. He said his Department was focused on creating decent work. Everything was done in the context of the global recession, recovery from this and the realities on the ground. The level of unemployment was a structural problem and had therefore never dropped below 23%. At present, the Industrial Policy Action Plan was being passed in Parliament. The first step was to focus on easy-to-do things like the industrial development infrastructure programme. One of the key objectives was to forward proposals with regard to restructuring procurement arrangements. This means introducing Fleet Procurement – a long-term procurement contract which would be given to an individual who would complete it in various phases.

He spoke about the approach of South Africa to multilateralism and World Trade Organisation (WTO) developments and prospects for Doha Round, WTO trade policy review of the South African Customs Union (SACU) and lastly gave an update on the Economic Partnership Agreement (EPA). With regard to the WTO Trade Policy Review of SACU, the Minister said there was regular monitoring of trade policies of Member States. Intergovernmental debate on member states trade issues was promoted and voluntary compliance and conformity to WTO rules was encouraged. The Trade Policy Review Body held periodic reviews for the SACU. These are held every six years. Reports produced included the WTO Secretariat Report for SACU and Individual SACU Members and an Individual Government Report. The WTO Secretariat Report was distributed to WTO members.

Members commented there should be debate about what Doha is and its role in the country's economy. They wondered whether the European Union was not manipulating the rest of Africa and also asked what trading measures were being taken to protect and develop the textile industry as South African was experiencing the harshest treatment on tariff cuts.

Meeting report

Minister of Trade and Industry on 2010 State of the Nation Address
Dr Davies briefed the Committee on what President Jacob Zuma's State of The Nation address meant for his department. Efforts were focused on creating decent work. Everything was being done in the context of the global recession, its recovery, and the realities on the ground. The level of unemployment was a structural problem and had therefore never dropped below 23%.
At present, the Industrial Policy Action Plan was being passed through Parliament. The first step was to focus on easy-to-do things like the industrial development infrastructure programme. One of the key objectives was to forward proposals to restructure procurement arrangements. This means introducing Fleet Procurement – a long-term procurement contract which would be given to an individual to complete in various phases.

Significant changes would also be introduced to industrial financing, off budget, through institutions like the Industrial Development Corporation. This was a worldwide trend. This meant creating an increase in the volume of concessional financing for industrial financing of our country.

Another area his Department would expend its energies was on enterprise development. Also, a major focus would be re-looking the cooperative support programme which would be introduced mid-year. A number of proposals have been forwarded and it appeared they would yield positive results. The Broad Based Black Economic Empowerment (BBBEE) Advisory Council has been introduced.

There needs to be a profound debate in the country about BEE. The impact has not been as broad as it should have been and there were a number of undesirable practices around BEE such as fronting, where a white company would make black junior employees directors of the company. Another bad practice was that of "tenderpreneurs" where a black-owned business tenders for work that is not in line with its core business. The BBBEE Advisory Council would do further research and come up with guidelines that would regulate these issues.

On monitoring and evaluation, he said there would be outcome targets and not outputs. These outcome targets would hold everyone accountable. Outcome would be measured in terms of economic growth, increased labour absorption, quality and many other matters.

WTO issues
South Africa was a proponent of multilateralism in order to address globalisation, marginalisation and deepening interdependence of economies and societies. WTO rules were important but impediments arose from imbalances and inequities in rules from previous rounds that prejudiced interests of developing countries. However, the main objective of South Africa was to ensure that the trading system was strengthened, transparent, inclusive and focused on promoting the developmental interests of developing countries.

With regard to developments and prospects in Doha, there was erosion of the development mandate as well as the threat of growing imbalance. There was also a steady unwillingness to remove distortions in international agricultural trade by developed countries. South Africa had little or no new market access and deep and had suffered wide industrial tariff cuts, more than any other WTO member and this had had a harsh impact.

South Africa, however, offered strong resistance. The Director-General of the WTO argued that Doha should be concluded by mid-2010 but that modalities needed to be concluded earlier. A general assessment that had been done concluded there was little prospect for progress. A key issue was that the United States had no clear WTO mandate as it had other priorities. It insisted on bilateral engagements and there was no personnel in key positions. It was felt South Africa should continue to raise its concerns and build alliances on the overall imbalance in Doha and the need to preserve the development mandate of Doha.

With regard to the WTO Trade Policy Review of SACU, there was regular monitoring of trade policies of Member States. Intergovernmental debate on member states trade issues was promoted and voluntary compliance and conformity with WTO rules was encouraged. The Trade Policy Review Body held periodic reviews. For SACU they are held every six years.  Reports produced included The WTO Secretariat Report for SACU and Individual SACU Members and the Individual Government Report. The WTO Secretariat Report was distributed to WTO members.

Challenges
SACU members were at different levels of economic development and they shared common challenges of unemployment, income inequalities, poverty and HIV/AIDS. There was a call for deeper economic integration and this meant the harmonization of policies and common development objectives. Another challenge was that SACU has difficulties in meeting WTO notification obligations especially in agriculture and that it had a narrow export base, with the exception of South Africa whose economy was relatively diversified.

Economic Partnership Agreement
The final matter the minister addressed was the EPA.  He said the involvement of South Africa in the EPA was not legally required but that the country sought to align the Trade Development and Cooperation Agreement (TDCA) to the EPA in order to consolidate the region and strengthen trade relations between the region and European Union. Difficulties lay in negotiating processes that created divisions in SACU and SADC. This consequently limited development policy space, constrained trade diversification efforts and undermined regional integration.

During the 2008/09 period, South Africa had raised specific problems with the EPA particularly the lack of alignment between the EPA and TDCA Tariffs and Rules of Origin (RoO). Unless these were addressed South Africa would require new customs and controls in SACU. However, there remained unresolved negotiation issues around national treatment, definition of parties, customs procedures, standards, safeguards etc. Some issues on export taxes, quantitative restrictions, infant industry protection, food security and free circulation were resolved in Swakopmund in March 2009 but there was nothing legally binding.

The key issue now was whether all unresolved negotiating issues could be resolved and tariffs and RoO aligned before ratification. If issues were to be resolved prior to ratification, damage to SACU would be limited. But if not, SACU would be seriously undermined.

Discussion
Mr S Njikelana (ANC) commented that through South Africa it was needed to strengthen South-South Alliance to ensure Doha had a meaningful outcome. South Africa should do its best to ensure debate was happening around Doha and what its role was in our economy. He also called for renewed ties between the South African Parliament and the European Parliament because it appeared as if the relationship was not effective.

He added that what was needed was a thorough debate on regional integration and that the issue to focus on should be industrial development. Common cross-border projects on industrial development were needed and these could be done through the SADC Customs Union. Industrial development was critical and achievable if value added activities could be defined.

Mr B Radebe (ANC), in tackling the matter of structural unemployment, asked how the DTI was going to influence or encourage other departments to ensure the country produced more engineers. Every year South Africa produced insufficient engineers. On the issue of industrial participation he said when engineering students finish their studies they have to undergo experiential training, something which was voluntary to most companies and there was no law that obliged them to do so. He suggested companies that landed government tenders for over R2m should be forced to have a certain number of interns.

The Minister concurred adding that skills development was a massive issue. The Department of Higher Education was studying the Industrial Policy Action Plan so that it could use it as a basis for coming up with plans on skills training. His department had also deployed an official to all provinces to investigate how SMMEs, especially in rural areas, were working and the challenges they faced. The best service to be given to small businesses was through incubation where they would come together and get help. He acknowledged that incubation was skill-intensive.

Mr N Gcwabaza (ANC) stated that South Africans must accept that political freedom has been achieved but economic freedom was still far away.  He was not satisfied with the criteria employed by tertiary institutions in accepting engineering students. He felt some were barred from entering this field so that it remained the preserve of the few. He enquired if it was possible that the European Union manipulated the rest of Africa as it has done with SADC.

The Minister explained that within the WTO different developing countries were treated differently because of the nature of the agreements and mandates reached. The interests were different and no single region in Africa has signed the EPA except for the Eastern African community. They have good working relations with both India and Brazil because these were growing economies. As a result, there were trade projects in the pipeline that would be conducted with these countries, especially Brazil.

The Chairperson wanted to know if the car and textile sectors were, seeing that SA was experiencing the harshest treatment on tariff cuts, vulnerable from the EPA and what trading measures were taken to protect and develop them.

The Minister replied that a skilled consultant did some work on this issue and that areas of focus by South Africa had been identified. There were possibilities that it could position itself on fast fashion, sportswear and camping equipment. But for it to survive and grow employment, this sector would need to try to improve productivity and investment. Already government was cracking down on illegal imports.

The meeting was adjourned.

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