BRICS / IBSA / EU trade relations: overview by DTI

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Trade and Industry

19 April 2011
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry briefed Members on South Africa's trade relations with the European Union and the  India, Brazil, South Africa (IBSA) and the Brazil, Russia, India, China, and South Africa (BRICS) trading groups.  While trade was increasing with Brazil and India, China was now South Africa's major trading partners.  More trade was still conducted with the European Union as a group, but it was anticipated that trade with Europe would decline in the future due to social changes.  There were still some areas needing to be negotiated.

Members asked for clarity on the reason for South Africa being invited to join the BRICS group.  South Africa was often seen as the gateway to Africa.  There was concern about the harmful effects of cheap imports and dumping on the local economy.  There was also some concern over one-sided arrangements, particularly regarding skills transfers.

Meeting report

Department of Trade and Industry presentation
Mr Xavier Carim, Deputy Director-General: International Trade, the dti, said that there had been a recent meeting of the BRICS (Brazil, Russia, India, China and South Africa) trading group and there would be a meeting of the IBSA (India, Brazil, South Africa) group in October 2011.  He provided a context.  Key elements in South Africa's trade strategy were expansion of trade and investment links in eastern and southern Africa, consolidation of links with northern nations, building industrial complementarities with dynamic growing economies in the south and working to rebalance global trade rules in favour of developing countries.

Mr Carim said that there had been changes to the global environment.  There had been structural shifts in global economic power.  Emerging economies were sources of global growth, trade and investment.  The share of developing countries to world trade would double over the following forty years, reaching 69% by 2050.  The global crisis of 2009-2010 had accelerated the shifts, reflecting the change in the ranking of South Africa's partners.  China had become the country's foremost partner in 2010.  India had moved up to eighth position and trade with Brazil was growing rapidly from a small base.

Mr Carim said that IBSA and BRICS were giving expression to the shift.  South Africa shared many perspectives with emerging economies.  These economies were seeking a greater voice in global governance and the reform of global trading rules.  Stronger links with these economies would create new opportunities for South Africa.  Traditional partners were still important.

Mr Carim said that the United States of America (USA) remained a very rich country and used vast amounts of natural resources.  However, China's economy was growing rapidly.  It was expected that China would be the second largest economy by 2050 while the per capita wealth of Americans would still be three times that of the Chinese.  India would also continue to grow.

Mr Carim said that the European Union (EU) as a collective would continue to be the largest trading partner for South Africa.  The EU provided significant development finance.  There was steady growth in trade, increasing from R143 billion in 2000 to R327 billion in 2010, an average growth rate of 14.9%.  The major exports were minerals and low value added products except for motor vehicle components.  Agricultural products, especially wine, were also major exports.  There was a gradual decline in South Africa's trade with the EU, from 36% in 2005 to 28% in 2010.

Mr Carim said that EU investment had increased from R425 billion in 2005 to R669 billion in 2009, some 80% of foreign direct investment (FDI).  The United Kingdom was the single biggest partner. 

Mr Carim said that trade negotiations with the EU had been going on for several years.  There had been unacceptable proposals from the EU.  There had been some progress but stumbling blocks were the tariffs being offered, most favoured nation status, export taxes, agricultural safeguards and special customs administration.  A new approach was needed to deal with new generation issues such as intellectual property rights and geographic indicators.  Trade diversification would continue.

Mr Carim said that the total intra-IBSA trade grew from US$3.7 billion in 2004 to US$16.2 billion in 2010.  India contributed 44%, Brazil 31% and South Africa 25%.  South Africa's exports were dominated by commodities.  Targets had been set as a result of ongoing discussions.  The target of US$10 billion in 2007 was upgraded to US$15 billion by 2010 and US$25 billion by 2015.  Preferred Trade Agreements (PTAs) made it easier to establish a legal basis for trade relations.  There were agreements with some Indian companies involving the Southern African Customs Union (SACU).  Delegations had visited Brazil and India.  Work was being done to develop cooperative agreements with small, medium and micro-enterprises (SMMEs).

Mr Carim said that the share of trade with BRIC members was 10% in 2005 of South Africa's total trade relations, and had increased to 17.4% in 2010.  The most was with China, amounting to R142.6 billion in 2010.  The figures for the other partners were India – R42.9 billion, Brazil – R 15.2 billion and Russia – R2.9 billion.  New trade was opening up.  The rate of increase was the most with Russia.

Mr Carim said that China had invested R5.2 billion in FDI while South Africa had invested R4.2 billion in China.  Russian FDI was negligible while SA had invested R418 million in Russia in 2007.  India was the sixth highest investor in South Africa over the period 2003 – 2007, but was no longer in the top ten in 2009.  The figures regarding FDI by and in Brazil were small as was South African FDI in India.

Mr Carim said that there were eighteen committees working on the IBSA and BRIC relationship.  Meetings would focus on global governance issues.  There was wide-ranging economic cooperation.  The first BRIC summit was only held in 2009.  It was a less formal relationship than IBSA, focussing on political dialogue and international developments.  Finance issues and energy security were major topics.  The second BRIC summit was held in 2010 in Brazil.  South Africa had formally joined the organisation at the recent meeting in China.  The agenda had covered developments in the Middle East and North Africa, issues affecting the global economy such as currency systems, trade protectionism and rapidly increasing commodity prices.  Climate change and sustainable development had also been discussed.  There was support for South Africa hosting the COP-17 climate change conference and Brazil hosting the Conference on Sustainable Development.  More time was spent on strengthening intra-BRIC cooperation.  This would build on exiting multilateral forums.

Mr Carim said that BRICS offered an opportunity to develop new economic relationships.  The partners should look to be compatible and avoid competition amongst themselves.  Cooperative agreements were discussed.  China proposed that trade be dealt with in national currencies.  China had a new import consumption policy, given its huge trade surplus.  The model should shift to building domestic demand and capacity.  South African companies should be at the front of the queue when these opportunities arose.  South African exporters would be taken to China to display their wares.  The trade ministers of Brazil, India, China and South Africa had met to assess the Doha Round.  This process was at a critical stage.  It was proving difficult to come to a conclusion.  All were still committed to complete the round on a development mandate, not to meet new demands of developed countries. 

Mr Carim said that South Africa was now at the table.  It was important to be invited to join BRIC. The development process could now be influenced by South Africa. The Department of International Relations and Cooperation would play a driving role with the support of the dti.

Mr Mabaso had the sense that South Africa was disjointed from the rest of Africa.  Down the line South Africa might have to pull the rest of the continent with it.  He asked if there was a strategy to boost small business.  People from all over the world could contribute to the development of skills in South Africa.  He asked how countries exporting to South Africa could be prevented from dumping their goods on the local market.

Mr Carim said that there were specific rules to control dumping of products and surges of products.  Safeguards were in place.  Should it happen, the industry involved would have to approach government through the International Trade Administration Commission of South Africa (ITAC) for protection.  The industry would have to prove that it was being affected.  There were also World Trade Organisation (WTO) rules in this regard.  The rules also applied to unfairly subsidised goods.  Such a contention would also have to be proved.  ITAC could apply a countervailing. It was not an easy thing to determine. 

Mr Oriani-Ambrosini said that in the 19th century the great powers were dictating trade.  The new order was reversing this paradigm.  He understood the position of China but asked what kind of trade could be undertaken with it.  He supported BRICS.  It could help to lower import costs.  He asked if there was tension between the Brazilian type of protectionism and the principles of BRICS.

Ms Van der Merwe found the presentation interesting.  She agreed that it was important not to neglect traditional markets, but those countries were still very rich.  The per capita income was in excess of that in the BRICS countries.  The population in Europe was ageing.  The middle class in India was now as numerous as that in the USA, and this could change consumer patterns in these countries.  She asked why the other partners wanted South Africa in the bloc.  One reason was obviously that this step brought in Africa.  Africa had a young population.  She asked how South Africa was seen as a gateway to the rest of the continent, and how this could be used to the country's advantage.

Mr Carim said that there were a number of reasons for South Africa being invited to join BRICS.  Representivity was one of the reasons.  While South Africa might not be in the same league in terms of economy size, it was huge compared to the rest of Africa.   It was important to have an African market.  South Africa also provided leadership in international forums such as the WTO.

Mr Harris was also interested in South Africa's role as a gateway.  He had travelled extensively in Africa, but there were very few consumer products from South Africa to be seen on the continent.  China had invested heavily, on the other hand.  He asked what relationship Brazil had with other former Portuguese colonies such as Angola and Mozambique.  He presumed there were already bilateral trade agreements between those countries.  He asked what the most significant trade surpluses were.  He asked how the share of commodities exported by South Africa compared to the other partners.  He asked about integration into the economic partnership agreement (EPA).  He understood a preferential trade agreement (PTA) was being considered with IBSA.  He asked if this would also be considered with BRICS as China favoured cheap labour intensive projects.  He asked if the Doha process was being stalled by developed countries or if it was the result of developing countries concluding PTAs.  He could not see how international trade could be conducted using national currencies.  The American dollar was still the international currency of choice.

Mr Carim replied that the Southern African Customs Union (SACU) was involved with the Mercator agreement with Brazil.  This had also happened with some Indian deals.  At the BRIC summit South Africa's interventions included articulating the African agenda.  South Africa was looking for support from BRICS partners for building infrastructure in Africa.  Parts of the proposed railway line from Zambia to South Africa were being developed.  A number of projects had been put in place.  Many were constrained by a lack of funding.  Countries like Brazil and India could see the possibilities of investment.  There was scope for collaboration.  This work would continue into the future.  BRICS partners already had established relations with African countries and did not need to use South Africa as a gateway.  The McKinsey report indicated the changing demographics of Africa.  South Africa had the legal structure to advance investment in Africa.  South Africa was the top investor in Africa over the previous five years.  China was increasing its investment levels. 

Mr Carim said that the only region where South Africa had a trade surplus was Africa.  South Africa exported value added products rather than commodities.  Africa as a whole had overtaken Europe as an export destination.  The figures were pretty comparable with EU at present.

The Chairperson asked what the composition of commodities to other goods was over the years.  On the issue of Africa, South Africa a branch of SASOL had been sent to China to transfer skills.  She asked what strategic skills China was transferring to South Africa.  Investment was one thing, but South Africa needed jobs and technology.

Mr Carim said that each country had its own skills development programme to promote skills.  In IBSA there had been an ongoing programme to link up players in the small and medium enterprise (SMME) field with their SA counterparts.  There had been some success.

Mr Carim said that the decision by SASOL to invest in China was a company one and not a decision of Government.  There were some skills development programmes in place.

Mr Carim did not have a list of exports to China.  There had been an exercise some three years previously.  Some 467 products had been identified.  South Africa had asked China for trade preference.  The Chinese national and provincial governments procured goods on a large scale.  There had been similar exercises with Brazil and India.  Requests had been made.
Mr Oriani-Ambrosini said that ITAC looked to protect South African industries. The BRICS relationship would of necessity open up the South African market to Chinese imports in particular.   He could give Mr Carim a list of over a thousand products that China could sell to South Africans.  The information was available on the internet.  The WTO regulations addressed the case where products were sold below cost.  Products could be sold at cost in terms of the regulations to develop a market.  It was difficult to identify a cost structure.  South Africa was opening up for political reasons to a potential economic coloniser.

Mr Mabaso understood Mr Oriani-Ambrosini's comments to indicate an opposition to trade with China.

The Chairperson said that Mr Mabaso's comments were not relevant to the meeting.

Mr Carim said there was no conflict in the procurement policy.  There were no rules.  South African industries faced competition and could only be protected by the commitments with the WTO.  The environment did not allow South Africa to act freely.  There was some scope to raise tariffs.  This had been done in some instances to prevent dumping, in other cases tariffs had been reduced to reduce the impact of import costs on local manufacturers.  South Africa wanted to put trade relations with India, Brazil and China on a sound footing.  There would be some protection.  He would provide trade figures with China.  The figures were dominated by commodities such as iron ore and coal. 

Mr Carim said that projections could change.  Dynamic growth in the South African economy would not come from the developed world.  The trade was important but was unlikely to grow.  This could happen with the emerging markets. 

Mr Carim said that there were similarities and differences in the export of the BRICS countries.  Brazil was diversified but dominated by sugar and other commodities.  There was a large domestic base.  China was the main manufacturer in the world, covering a wide range of products.  India was a relatively small trader, with less than 10% of their gross domestic product (GDP) coming from trade.  Their major exports were services and agricultural products.  Russia's exports were almost all based on energy.  There was a lot of industrial expertise but the industries needed to be upgraded.

Mr Carim said that EPA would undermine regional cooperation where there were a range of distortions.  All countries in the region had duty and quota free access to the EU.  South Africa had to pay a tariff to enter these markets.  26 countries were able to produce across the EU and then sell to any of its trading partners as an EU product.  In southern Africa, the same communal approach could not be used.  He quoted the example of a Swazi company exporting canned fruit to the EU.  The use of cans manufactured in South Africa would prevent the further export of their goods under the rules of origin.  If individual African countries did negotiate deals with EU countries there would be different commitments.  This would cause confusion.  South Africa was trying to address these issues with the EU.  There were still some problem areas.

Mr Carim said that there was a long debate over the effects of FTAs on the WTO.  In reality these operated in parallel with other agreements.  This debate would not be settled easily.

Mr Carim admitted he did not really understand how convertible currencies could be used.  There would have to be agreement between governments and national treasuries.  He had read about an agreement between China and New Zealand.  There was a massive trade deficit with China, but China disputed this.  A lot of trade from South Africa went to China via Hong Kong.  Proper recording was needed.  This problem was not unique to relations with China.

Mr Carim did have some figures on trade growth.  They were voluminous and he would send the information to the Chairperson.

The Chairperson said that some more information was needed.  This could be provided in writing.

Mr Harris requested a summary of trading statistics on trade with South Africa's different partners.

The Chairperson did not want volumes of information.  She asked that a summary be prepared for Members. She asked for a two page summary of the advantages and disadvantages of preferential agreements and the prevailing tariff system.  A third issue was bilateral agreements that were involved and their impact on the Industrial Policy Action Plan (IPAP).

Mr Selau needed an explanation of all the acronyms used in the presentation.

The Chairperson pointed out that there were many new Members on the Committee who did not understand the abbreviations used.  She said that a task team had been established to investigate the Intellectual Property Laws Amendment Bill.  Ms Van der Merwe would lead the team.  Problems in the pharmaceutical industry still had to be isolated.  This had resulted from pharmaceutical trade between South Africa and India.  There were preferential agreements in place.  These agreements allowed Indian companies to have better scores than their South African opposition.  Indian products were therefore made available at a better prices.  However, there were minimal employment opportunities.  The South African operation would only employ a handful of people.  The same situation was coming to the fore regarding Indian motor vehicles exported to South Africa.  There was not even scope for component manufacture in South Africa.  As Members had other commitments, she requested Mr Carim to provide written answers to the last round of questions.  Members would only be meeting again towards the end of May, after the local elections.

Consideration of minutes
The Chairperson asked Members present to consider the minutes of previous meetings.  There was not yet a quorum but more Members were on their way.  The first minutes were for the meeting of 16 March 2011.

Mr T Harris (DA) said that his colleague, Mr J Smalle (DA) had attended, but not Mr Harris himself.

The Chairperson said that the system of using a pool of secretarial staff was not always the best option.  Some staff were efficient but some took the opportunity to catch up with their sleep and did not always ensure that the attendance register was completed correctly.

The next set of minutes were for the meeting of 18 March.

Ms S van der Merwe (ANC) suggested that the venue of the meeting should be included in the minutes, as it might jog the memory.

The Chairperson agreed.  The next set of minutes was for the meeting on 30 March.  In future Members would be encouraged to make a special effort to attend meetings involving the budget and strategic plan of the Department of Trade and Industry (dti).  Discussion on the National Planning Commission suggested that this body had already been established.  This was not the case.

The next set of minutes was the meeting of 22 March. 

The Chairperson apologised to the representative of the dti for the delay.  His input was important enough to be considered by a better representation of Members of the Committee.  She criticised the attitude of Members who were lax in their attendance of Committee meetings, especially when they subsequently made outrageous and uninformed statements in the National Assembly.  If Members did not respect the Committee process she would ask their parties to remove them from the Committee.  She formally congratulated Mr Harris on his recent marriage.

The set of minutes for 10 March had been sent back for correction.  She had asked the Secretary to check against Hansard as the meeting was an important one and the minutes must be correct.  There had been differences of opinion at the meeting.

The correctness of the minutes for 16 March was proposed by Mr M Oriani-Ambrosini (IFP) and seconded by Mr N Gcwabaza (ANC).  The minutes for 18 March were proposed as correct by Mr Oriani-Ambrosini and seconded by Ms van der Merwe.  The minutes for 22 March were proposed as correct by Mr G Selau (ANC) and seconded by Mr Harris.  The minutes for 30 March were proposed as correct by Ms van der Merwe and seconded by Ms F Khumalo (ANC).

The Chairperson guided Members through the minutes of the meeting of 10 March.

Mr X Mabaso (ANC) said that the minutes should reflect that the IPF and the DA had abstained from the proceedings recorded on page 17.

Mr Oriani-Ambrosini said that the proceedings recorded in the minutes were correct but incomplete.  Parties like the IFP were entitled to express a minority views.  The IFP and the DA had expressed such views, and in future minority views should be reported.  Nevertheless, he moved that the minutes be accepted as correct.

The Chairperson agreed with the views of Mr Oriani-Ambrosini.  She recalled that the DA and IFP had differed on the date of implementation.  An opposition Member had welcomed the legislation with reservations.

Mr Gcwabaza seconded the proposal.

The meeting was adjourned.


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