SACU/Mercosur Trade Agreement and Zimbabwe Bilateral Investment Treaty & Committee Report on Trade Policy Strategic Framework (TPSF)

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Trade and Industry

13 April 2010
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry (DTI) referred to previous discussions of The South African Customs Union (SACU) and Common Market of the South (Mercosur) trade agreement. The agreement was with eight other countries, and would be submitted to Parliament for ratification, and other parliaments would then also ratify it.

A DA member asked if protective measures were in place. A trade agreement could not yet provide protection. An ANC member asked if the South African Revenue Service (SARS) would assist. The DTI replied that a task team between The DTI and SARS had been established. Certificates would be required at borders to check if goods were from Mercosur countries.

The Committee unanimously accepted the agreement, with acknowledgement of the challenges that the SARS would have to be capacitated, and that there would be engagement with Committees of other parliaments.

The Zimbabwe Bilateral Investment Treaty was put to the vote. The DA did not support the treaty, on account of Clause 11. A Committee majority was in favour, and it was adopted with the undertaking to note the DA objection in further debate.

The Committee draft report on Trade Policy and Strategic Framework, (TPSF) was read out by the Chairperson, with responses and contributions from members. It was noted that the Committee had similar goals for trade. The TPSF had to be viewed against the background of globalisation and global recession. Current trade debates were around protectionism versus free trade and liberalisation. The Accelerated and Shared Growth Initiative for South Africa (ASGISA) had submitted that trade liberalisation had failed to transform South African productive capacity. The Trade Strategy Group (TSG) had submitted that state intervention was necessary. The TSG and Cosatu were in favour of import substitution. Regarding agriculture, the Committee doubted the statement by the DTI that agriculture was resilient and competitive. The impact of transport and costs and problems on agriculture had to receive more attention.

Regarding African relations, it was noted that the New Partnership for African Development (NEPAD) had been considered in submissions, but the African Union (AU) had not. A DA member asked if the Committee subscribed to the Southern African Development Community (SADC) and the AU. Business Unity South Africa (BUSA) and the Trade and Industry Protection Strategy (TIPS), had supported expanding into African markets, but had cautioned against business enthusiasm for trade liberalisation. A DA member asked about the position of SACU and Mercosur in a policy and strategy framework. The Chairperson pointed out that BUSA and Cosatu had supported regional integration. An ANC member asked if Parliament was in step with other parliaments on matters of policy and strategy.

The Committee Strategic Plan was discussed. It was noted that the Strategic Plan had been revised, and that the DA had accepted that. The Committee mission was defined as the promotion of economic growth through oversight over trade policy. The DTI had introduced the Industrial Policy Action Plan (IPAP 2) as a rolling plan. The DTI mandate had changed with the establishment of the Economic Development Department (EDD). An international study tour of Brazil, India, Korea, China, Thailand and Vietnam was planned. Rural development and legislation programmes would receive attention. The European Union (EU) would visit the country on 26 May. The Chairperson asked if the revised Strategic Plan could be adopted in principle.


Meeting report

Ms Fubbs apologised on behalf of Mr X Mabaso (ANC), who was in hospital. She insisted that a quorum be assembled to vote on adoptions later on. It was essential that there be agreement, the Committee could not merely rubber-stamp decisions.

She announced that the Companies and Intellectual Properties Registrations Office (CIPRO) would not appear before the Committee. She had postponed the matter, for two reasons. Firstly, questions that had been sent for response, had not been received. Secondly, the Committee had been told three weeks before that CIPRO would appear before the Standing Committee on Public Accounts (Scopa), and that there would be an Auditor-General report. The report was not yet ready, and CIPRO had not appeared before Scopa yet. That matter showed up flaws in communication which had resulted in breakdown.

SACU/Mercosur Trade Agreement; Zimbabwe Bilateral Investment Treaty
Mr Xavier Carim, DTI Deputy Director General, referred to a previous discussion of the Southern African Customs Union (SACU), consisting of Botswana, Lesotho, Namibia, South Africa and Swaziland, and the Preferential Trade Agreement (PTA) with the Common Market of the South (Mercosur), consisting of Argentina, Brazil, Paraguay and Uruguay. The agreement had been signed with nine countries and was being submitted to Parliament for ratification. Once that had been done, the parliaments of eight other countries had to proceed to ratification.

Discussion
Mr S Marais (DA) said points of entry presented a gatekeeping challenge. There had to be proper gatekeeping in terms of products. Struggling industries like textiles and fuel, had to be protected. Free trade agreements could not prevent all problems. Asia could still stage industry takeovers. The future of small business was at stake. Proper control was needed to protect our regions. A document and an agreement were in itself not enough. He asked if protective measures were in place.

Mr A Van Der Westhuizen (DA) said there was bound to be delays in signing and ratification. What could be done when agreements were signed, industry and government would be ready from the start? He asked if capacity was being checked, and if there was effective communication between the DTI and officials. Training and capacity building were needed, so that benefits could be reaped quickly.

Mr G Radebe (ANC) foresaw that SACU would be extended under the new agreement. The question was whether the South African Revenue Services (SARS) would help at ports of entry and borders with other countries. Products from Asia could still gain entry, to the detriment of the agreement. What could parliament do to expedite the signing of the agreement by other parliaments.

Mr Carim said a task team between the DTI and SARS had been established, to enhance the capacity of customs authorities to manage imports into SACU. Work had to be done to strengthen the integrity of borders. There were clothing and textile imports from Asia. The value of imported goods was not declared properly. Fraud, smuggling and under-invoicing had occurred. Customs had to effectively monitor borders.

He said the agreement with the Mercosur countries would place pressure on Cape Town customs. There had to be strengthened capacity. The SARS had to strengthen customs control. Infrastructure had to be built, and human capacity. The SARS had to collaborate with Mercosur, and with other revenue services. The SARS could raise questions as to whether goods were from Mercosur. The SARS had to work across SACU, Botswana, Lesotho, Swaziland and Namibia had to work together. Parliament could expedite the ratification process by getting portfolio Committees of different countries in touch with each other.

Mr Marais appealed to the DTI to return and report that there were measures in place. Not only local borders, but also those of the Mercosur countries were in need of protection. Influx had to be prevented at other borders also. There had to be preventative action. It was not enough to say that there was a capacity problem.

Mr Carim said there were measures in place. Any trading partner had to produce certificates at the border, to specify that products were made in the Mercosur countries. The issue was whether the SARS had the capacity to check such certificates. Fraud and under-invoicing could be prevented if there was the capacity to enforce the agreement through checking of certificates, item for item, if need be. Mercosur products from SACU countries had to be checked.

The Chairperson noted that a quorum was present, and that the Committee could proceed with adoption. She read out the relevant paragraph to the effect that the Committee had considered the request for approval of the Preferential Trade Agreement. She announced that the Committee would take challenges into account, those being that the matter would be taken up with portfolio committees of other parliaments, and that the SARS would have to be capacitated.

Mr Radebe proposed for adoption, and Mr Van Der Westhuizen seconded.

The Chairperson then told the Committee that there had not yet been a quorum to pass the Bilateral Trade Agreement for Promotion and Reciprocal Protection of Investments, with Zimbabwe.

Mr Marais stated that the DA could not support the agreement, on account of
Clause 11. The Southern African Developmental Community (SADC) tribunal statement had not been considered. In SACU the outcome of the hearing had to be taken into account. The DA believed that the issue had not been properly dealt with.

The Chairperson consulted with the Committee Secretary. She announced that there was a quorum and that the Committee could proceed. She predicted that support for the agreement would outvote the objection, and that the agreement would be adopted by virtue of a Portfolio Committee majority. However, the DA objection would be noted. As predicted, a majority of the Committee voted their support.

Mr Marais asked if the DA objection would be noted in further debate.

Mr Van Der Westhuizen added that the position of the DA was more specific. It was felt that the government had missed an opportunity to protect citizen’s rights, in accepting Clause 11.

The Chairperson assured the DA that it could rely on the integrity of that table to note their objection.                                                                                                                  

Committee draft report: Trade Policy and Strategic Framework
The Chairperson said the first draft report by the Committee represented a raw summary of public hearings. A content specialist had worked over what was said by the Committee, and submissions. It would be handed over to a smaller team for analysis.

The Committee had committed itself to debate the report before May, it would have to be done during April, for the subsequent perusal of Cabinet. The report had to be taken forward in debate.

The Chairperson thanked Ms Hurling, Committee Researcher, for her work on the report. She then took the Committee through the report, with the understanding that members could comment whilst the report was being read.

Mr Radebe bade the Committee to bear in mind that the report was destined to become public, and that the Minister had to have Committee members’ opinions before the end of April.

Mr Marais objected that it was unproductive to merely have the report read through. It would be better if members could have studied it in advance.

The Chairperson reminded him that legislation was studied line by line. It was a first draft, and staff had to know if the Committee was on the right track.

She said the Committee had similar goals for trade. The report had to be read against the background of globalisation.  Current trade debates were around protectionism versus free trade, or liberalisation.  Regarding the policy context, the development of a Trade Policy Strategic Framework had to be viewed against the background of global recession.

In South Africa the developmental framework was broad, with poverty, unemployment and inequality needing attention. The Accelerated and Shared Growth Initiative for South Africa (ASGISA) had submitted that trade liberalisation had not succeeded in supporting transformation of South African productive capacity. There had to be a move away from commodity based exports. Trade could not dictate what was done in industry. It had to be the other way round.

A key objective of the TPSF would have to be alignment with other policies. How was ASGISA aligned with the TPSF, for instance? Speaking of tariffs, the Chairperson remarked that trade liberalisation had failed to distribute income. The TPSF had to recognise a failure to provide industrial support in conjunction with tariff reduction. The basket of exports had not changed. It was still limited to primary products. Selective trade liberalisation was called for, supportive of the broader industrial programme. By adhering to that principle, Brazil had overtaken South Africa, for instance.

There had to be a developmental approach to tariff reforms. The Trade Strategy Group (TSG) had submitted that state intervention was necessary. The kind of intervention suggested, was not according to the capitalist/socialist dichotomy, but across the board. Export driven policies had failed elsewhere. The TSG and Cosatu had suggested import substitution, though not to the point of negating the use of tariffs. Business Unity South Africa (BUSA) had concurred by advising against exclusive reliance on tariffs. Cosatu endorsed the TPSF focus on tariffs, but insisted on research and development besides, as well as on strategies like anti-dumping safeguards. Dumping in that context referred to the dumping of goods below cost price.

The Chairperson turned to a consideration of agriculture as an industry.

Mr Marais protested that agriculture was not recognised as an industry.

The Chairperson opined that the right approach to that had not yet been developed. The DTI view was that agriculture was resilient and competitive. However, she noted that agricultural production tended to be centred on the metropolitan areas of Gauteng, and Durban. It was not adequate to simply provide rural people with farms. There had to be value adding. It was no longer a political issue. She took the view that agricultural industry was part of industry.

Ms P Lebenya (IFP) remarked that rural farmers had to be viewed within the context of the economy as a whole.

The Chairperson asked if industrial policy and strategy included agriculture. The DTI saw agriculture as resilient and competitive, and yet chickens were being imported from France. She was not convinced that wine production was not an essential part of agriculture. It was rather a niche industry.

Mr Radebe interjected that China was already more successful than South Africa with wine, on account of subsidisation.

The Chairperson said there was no mention of the impact of transport or input costs on agriculture.

Mr Marais commented that the cost of transport was breaking agriculture in rural areas.

The Chairperson said that inputs from across the board had to be gleaned regarding infrastructure and the cost of roads. With regard to tariffs, it was necessary to be specific. What was meant by labour-intensive industry, had to be made precise. Was it merely opposed to capital-intensive? Concerning agriculture, more was needed on transport challenges, not clarification about competitiveness.

Concerning African relations, it was noted that the New Partnership for African Development (NEPAD) was referred to, but not the African Union (AU).

Mr Marais asked if the Committee subscribed to SADC and the AU. The DA view on the treaty with Zimbabwe, was that it had been registered in South African courts, and that had not been recognised.

The Chairperson replied that it would be raised for discussion in a second draft. She continued that Business Unity South Africa (BUSA) and the Trade and Industry Protection Strategy (TIPS) supported the expanse of South African business into African markets, but cautioned against business enthusiasm with regard to market liberalisation. There were negative implications attached to that.

Mr Marais asked what such negative implications might mean.

The Chairperson replied that according to the Trade and Industry Protection Strategy (TIPS) the South African export share in the African market had increased, relative to other countries. It was essential to expand the market in Africa. Institutional support was necessary for that. Within the context, institutional support meant government support.

Ms Lebenya objected to the constant use of acronyms.

The Chairperson replied that she had problems of her own with it. TIPS reminded her of a brand of tea. She saw it as a habit that had blown over from the US.


Mr Marais asked how SACU and Mercosur fitted into the policy and strategic framework picture.

The Chairperson said BUSA and Cosatu supported regional integration. Reduction of import tariffs was not enough, productive capacity had to be enhanced to remove constraints.

The Chairperson wondered why it was necessary to compete with African countries. South Africa had the capacity to value-add. Where could Mercosur take South Africa? The question was whether South Africa could support its neighbours and benefit from it.

A Committee researcher drew attention to trade creation versus trade diversification. As far as tariff changes were concerned, the EU had created different regions to its own benefit.

Mr Radebe asked concerning regional integration, if Parliament was in synch with other parliaments. BUSA had supported the expansion of a trade agreement to East Africa.

The Chairperson concluded  that Africa had to receive priority. Clear consensus was needed about that. She invited members to submit comments, accompanied by name and party membership.

Committee Strategic Plan
The Chairperson noted that the DA had had no problem with the revision of the strategic plan. The emphasis was on effective implementation of industrial policy to drive trade policy imperatives. The Committee mission was to ensure that the economy grew through oversight over trade policy. There had to be engagement with relevant parliamentary counterparts on matters pertaining to trade relations and/or regional integration.

Challenges were related to the liberalising of trade and integration at the regional level. Liberalising had to be balanced against protection.

Mr Marais said trade agreements were exactly that. But it was not to happen at the expense of South Africa.

The Chairperson remarked that it would have been better to start off with structural unemployment. The Department had introduced the Industrial Policy Action Plan (IPAP 2) as rolling plan. The DTI mandate had changed. The establishment of the Economic Development Department (EDD) had affected the DTI mandate. The Committee had to reduce the number of issues that it would deal with, and had to focus on industrial policy, along the lines of the IPAP 2.

With regard to trade agreements, SACU had to be examined, and SACU parliamentary counterparts had to be engaged with. The Committee had to undertake an international study tour of Brazil, India, Korea, China, Thailand and Vietnam. The Department and stakeholders had to be engaged with about new generation issues. A Broad Based Black Economic Empowerment (BBBEE) programme had to be pursued. Tenderpreneurs had to be investigated. Rural development needed attention. Legislation programmes had to be launched. The EU would be visiting the country on 26 May. The emphasis would fall on international and regional trade relations. There had to be clarity about the IDC in the oversight plan. She asked if the revised strategic plan could be adopted in principle.

Mr Radebe asked about the issue of combating crime.

The Chairperson replied that an examination of tenderpreneuring amounted to that.

A member asked if it was possible to generalise about illegality.

The Chairperson said the crime context that led to tenderpreneuring, had to be investigated. The Committee had not prioritised, in terms of a programme, where everything fitted. Regarding the budget, she noted that the Secretary had needed the strategic plan for the budget, but that had currently become possible. Members had to indicate if there was a need for an external visit. She asked when the IPAP debate would take place.

Mr Radebe replied that it would be at the end of May or the beginning of June.

Mr Van Der Westhuizen said that he was upset that CIPRO had not appeared before the Committee. He requested that the appearance be rescheduled. Problems with CIPRO were far reaching. There were managerial and other problems. Why had investigations been delayed for so long? When the public wanted to engage with CIPRO, their access was blocked.

The Chairperson said she had delayed CIPRO for reasons given earlier. However, she did agree that the situation with regard to CIPRO was serious. The Minister and the DTI Director General had to be there.

The Chairperson suggested that on Wednesday the following week or even earlier, the Committee look at the budget and all but pass it. Company law fell under the Committee.

The meeting was adjourned.

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