The Department of Trade and Industry (DTI) said trade policy was an instrument of industrial policy and should support industrial development and upgrading, employment growth and increased value-added exports. South Africa had a relatively open economy, protected only moderately by tariffs, where 56% of duties were set at 0%. In the 1986 Uruguay Round of multinational trade negotiations, SA had negotiated as a developed country and the country had taken on commitments on a par with those of the United States of America (USA), Canada, the European Community and Japan. The Minister had since labelled these negotiations an ‘injustice,’ and through negotiations the country had at least been able to reclaim the lost policy space.
There had been extensive tariff liberalisation since 1994, but while South African exports had increased significantly, the basket of export goods, with some notable exceptions, remained largely unchanged. SA’s exports continued to be dominated by commodities, except in African markets. There was a bias towards capital and high skill-intensive growth and the National Development Plan (NDP), the New Growth Path (NGP) and the Industrial Policy Action Plan (IPAP) called for “developmental trade policies” to encourage and upgrade value-added, labour-absorbing industrial production.
SA’s trade agreements included the SACU, whose membership consisted of SA, Botswana, Lesotho, Namibia and Swaziland. SACU’s work programme focused on the promotion of regional industrial development, trade facilitation, the review of revenue sharing arrangements, the establishment of common institutions and a unified engagement in trade negotiations with third parties. The SADC free trade area (FTA) had been established in 2008 and implemented by 2012. Its priority was to consolidate the FTA based on the recommendations of the Ministerial Task Force, as a prerequisite to further consideration of the SADC Customs Union.
The SADC-Eastern African Community (EAC)-Common Market for Eastern and Southern Africa (COMESA) tripartite FTA was the most promising initiative and in effect, SACU would negotiate tariff concessions with non-SADC members of the tripartite FTA , notably the EAC and Egypt. The SACU-India Preferential Trade Agreement (PTA) posed some challenges because of the Indian non-tariff barriers, and the trade ministers had agreed in January 2013 to a reduced level of tariff exchange. The SADC-EU Economic Partnership Agreement (EPA) had improved the Trade, Development and Cooperation Agreement (TDCA) market access for SA agricultural exports, notably wine, ethanol and sugar. The EU had agreed to eliminate all agricultural export subsidies on goods destined to SACU. There was an agreement on Geographical Indicators (GIs), which included protection of “Rooibos”, “Honeybush” and “Karoo Lamb” in the European market. The African Growth and Opportunity Act (AGOA) had assisted in growing trade between SA, Sub-Saharan Africa (SSA) and the USA, and SSA had called for a 15-year extension of AGOA beyond its expiry in September 2015.
Prior to the WTO’s Bali Ministerial Conference, the Doha Round had been at an impasse since July 2008. The recent Trade Facilitation Agreement was a major positive development, as well as agreements that had a positive outcome on food security for India.
Members discussed South Africa’s “open economy”, the benefits of tariff protection and the benefits of Foreign Direct Investments (FDIs). Concern was raised that South Africa was opening its market too much and not protecting the economy sufficiently. Developed countries had historically been known to want to be able to access the markets of emerging economies, but were not prepared to do the same in return. There was also discussion on what South Africa and other African countries could do to move from primarily commodity exports, to exporting finished manufactured goods. The different trade agreements gave some insight as to how countries would move from primarily commodity exports, to adding value to products and thus creating more jobs. The aim was to create a regional value chain in Africa, where trade policy could be an instrument of industrial policy, contributed to employment growth, and supported industrial development.
The Committee also discussed South Africa’s role as a major role player among developing countries, and possible initiatives to be undertaken to assist other developing countries. The responsibility of South Africa was discussed in terms of the negotiations around the agreements entered into, partnerships with neighbouring countries and the view developed countries had of South Africa. The challenge was that many of the developed countries considered South Africa to be more developed than the average African country, and was often reluctant to afford the country the same allowances as its African counterparts.
South Africa’s Trade Policy and Strategy Framework
Dr Brendan Vickers, DTI Chief Director: Head of Research and Policy in the International Trade and Economic Development (ITED) division, said the South African government’s broad national development strategy aimed to accelerate growth along a path that generated sustainable, decent jobs to address apartheid legacies. Trade policy was an instrument of industrial policy and should support industrial development and upgrading, employment growth and increased value-added exports.
South Africa (SA) was a relatively open economy, protected only moderately by tariffs, where 56% of duties were set at 0%. In the 1986 Uruguay Round of multinational trade negotiations, SA negotiated as a developed country and the country had taken on commitments on a par with those of the United States of America (USA), Canada, the European Community and Japan. The Minister had since labelled these negotiations as an ‘injustice,’ and through negotiations the country had at least been able to reclaim the lost policy space.
SA’s World Trade Organisation (WTO) services commitments were on par with the Organisation for Economic Cooperation and Development (OECD) countries. SA ranked among the most open jurisdictions for Foreign Direct Investments (FDIs) in the world and provided strong protection to investors, in line with high international standards. There had been extensive tariff liberalisation since 1994, but while South African exports had increased significantly, the basket of export goods -- with some notable exceptions -- had remained largely unchanged. SA’s exports continued to be dominated by commodities, except in African markets. There was a bias towards capital and high skill-intensive growth and the National Development Plan (NDP), the New Growth Path (NGP) and the Industrial Policy Action Plan (IPAP) called for “developmental trade policies” to encourage and upgrade value-added, labour-absorbing industrial production. An evidence-based, case-by-case assessment would inform tariff changes in South Africa and it meant a vital role for the International Trade and Administration Commission (ITAC) of SA.
Mr L Suka (ANC, Eastern Cape) asked for a distinction between an ‘open economy’ and a ‘mixed economy’ to be made.
Dr Vickers said a ‘mixed economy’ was the model, or approach, to how the South African economy was governed, and an ‘open economy’ referred specifically to the level of tariff protection.
Dr Vickers gave an outline of SA’s trade agreements, which were the products of extensive trade reform undertaken over the past 20 years. These agreements included the Southern African Customs Union (SACU), the Southern African Development Community (SADC) Free Trade Area (FTA), the SACU-European Free Trade Association (EFTA) and the SA-European Union (EU) Trade, Development and Cooperation Agreement (TDCA); now revised as part of Economic Partnership Agreement (EPA). Other agreements included the SACU-Mercosur Preferential Trade Agreement (PTA), the SACU-India PTA, the SADC-Eastern African Community (EAC)-Common Market for Eastern and Southern Africa (COMESA) Tripartite-FTA and the African Growth and Opportunity Act (AGOA). South Africa championed “developmental integration” in SACU, SADC, the Tripartite-FTA and the Continental-FTA. This approach to market integration was underlined by infrastructure and policy coordination, especially to build regional value-chains.
The SACU was formed in 1910 and its membership today consisted of South Africa, Botswana, Lesotho, Namibia and Swaziland (BLNS), where Lesotho was the least developed country. SACU’s work programme focused on the promotion of regional industrial development, trade facilitation, review of revenue sharing arrangements, the establishment of common institutions and a unified engagement in trade negotiations with third parties.
The SADC FTA was established in 2008 and was implemented by 2012. Its priority was to consolidate FTA, based on recommendations of the Ministerial Task Force as a prerequisite to further consideration of the SADC Customs Union. The SADC-EAC-COMESA Tripartite-FTA was the most promising initiative and in effect, SACU would negotiate tariff concessions with non-SADC Members of the Tripartite-FTA , notably the EAC and Egypt. The SACU-India PTA posed some challenges because of the Indian non-tariff barriers, and the trade ministers had agreed in January 2013 to a reduced level of tariff exchange.
The SADC-EU EPA improved the TDCA market access for SA agricultural exports, notably wine, ethanol and sugar. The EU had agreed to eliminate all agricultural export subsidies on goods destined to the SACU. There was an agreement on Geographical Indicators (GIs), which included protection of “Rooibos”, “Honeybush” and “Karoo Lamb” in the European market.
AGOA had assisted in growing trade between SA, Sub-Saharan Africa (SSA) and the USA, and SSA called for a 15-year extension of AGOA beyond expiry in September 2015. AGOA should be strengthened to support Africa’s regional integration agenda more directly. The priority was to build a virtuous cycle of trade and investment.
Dr Vickers said prior to the WTO’s Bali Ministerial Conference, the Doha Round had been at an impasse since July 2008. The recent Trade Facilitation agreement was a major positive, as well as agreements that had a positive outcome on food security for India. WTO members should develop a clearly defined work programme by end of 2014 to ensure delivery of the remaining concerns. SA would continue to build alliances with its Southern partners to champion a development outcome to the Doha Round.
The Chairperson asked if countries in the SADC regions were still experiencing different Economic Partnership Agreements to sign, compared to other countries. Mozambique produced nuts, but was not allowed to package or bottle them. He asked how far negotiations with the WTO were on the agreements on adding value to produce.
Dr Vickers said a big challenge was faced with EPAs, because the EU had set a 1 October 2014 signing on deadline for countries like Botswana, Swaziland and Namibia. They would lose their preferential access into the EU if they did not sign in time. Lesotho would be allowed to continue to trade with Europe under a special scheme called “everything but arms”, but Kenya -- which had refused to sign the agreement -- would face punitive tariffs on their flour exports to Europe, which was a major source of revenue. SA had a separate trade agreement with the EU, but was under a lot of pressure to support its partners because they needed this agreement to maintain their market access.
On balance the agreement improved the conditions for trade into the EU for the SADC countries, but also vice versa. It would improve their access into African markets, such as dairy products, pork products and meat fats. It was a win-lose situation, but on balance there was an improvement in the previous trade agreement, and some of the losses had been reclaimed through previously out of reach policy instruments, like the use of export taxes. The use of export taxes would allow ‘value-adding’ processes to the export of the nuts. The policy instrument used in the export of raw produce was called ‘tariff escalation.’ The Ivory Coast, one of the world’s largest producers of cocoa beans, did not sell finished chocolates to the European market. The tariff to export raw cocoa beans was zero, but when value was added through refining the beans to create cocoa powder, and thus creating jobs, the tariff became 10%. If sugar and milk was added, the tariff could go up to 50%. The WTO’s Doha Round was supposed to address tariff escalation and other policy instruments that developed countries used.
Mr B Nthebe (ANC, North West) said tariffs played an important role, but it was clear that they did not deliver on expectations of sustainable, inclusive growth. He asked what the overall contribution of tariffs were to the GDP, how it contributed to the benefits of the FDIs SA wanted to acquire, and what the expectations were on the member states that wanted to trade with SA. The last reported contribution was R80 billion, but there was a responsibility on SA to provide competitive infrastructural development, to relieve the burden on road infrastructure and to invest more in rail infrastructure. He asked what the overall impact of such trade benefits was, apart from tariffs. For years the trade pattern had been dominated by raw commodities, and there was now a specific focus on beneficiation. He asked what South Africa needed to do and whether some of the tariffs should not be sacrificed to liberate trade reform, because labour-intensive production played a critical role in job creation. The bias towards capital and high skill-intensive growth created problems, because over-emphasis on capital in a ‘mixed economy’ meant that the ‘ordinary people’ did not benefit. How could this be avoided?
Dr Vickers said a range of policy instruments were used by rich countries to industrialise. They used tariff protection, subsidies, the way in which credit was directed to particular sectors and how conditions were imposed on foreign investors. Most of these instruments that were good for developed countries to industrialise, were now considered bad -- and were outlawed in some instances. The WTO allowed the use of export taxes, but the EU trade agreement had banned export taxes in the previous agreement. That had now been regained. There were probably better policy instruments for industrialisation than tariffs, but hands were tied by the WTO around the use of export subsidies and conditions placed on foreign investors. The Industrial Policy Action Plan (IPAP) tried to navigate the way through the maze of what the international obligations were, and what the country wanted to achieve. The experiences of Brazil, China and Malaysia had also been considered, as well as what could be learnt from best practices. Brazil had shown the importance of development finance. The DTI offered a competitive enhancement package, which showed there was only a particular role for tariffs. There was already a 45% tariff on clothing imports, but the industry needed more than that to be able to compete with the low cost, low wage, subsidised produce from Asia and other countries. The DTI took a strong view that it was not the quantity of FDI that the country attracted, but rather the quality of FDI. The country should not be ranked on the volumes of FDI attracted, but rather on FDI that supported the expansion of the productive sectors, not the speculative or financial sectors. DTI was currently finalising a paper on what type of FDI the country wanted to attract and contributed to the NDP, the NGP and to the industrial policy through joint ventures and localisation.
Mr W Faber (DA, Northern Cape) said on a recent trip overseas, he found the consensus was that South Africa should be a top economic power based on the country’s resources, but the real challenge was exporting complete or refined products, rather than raw materials. Pecan nut farmers had been approached by Chinese companies to buy land in South Africa to intensify pecan nut farming, to export the produce from South Africa to China. SA should protect its economy from this type of infiltration.
Dr Vickers said there was growing competition from the BRICS countries, but the Minister had been very clear when he said all available policy instruments should be used to support South African industry. If there was a case to raise tariffs, an application should be made. At the same time, trade remedy instruments were also used. If a surge of imports came from China, it could be investigated and an anti-dumping duty could be imposed, as had been done with poultry. A countervailing duty could be imposed on subsidised goods. It was a legitimate policy space provided by the WTO and should be used to support the South African industry, in addition to tariffs.
The reverse side of the coin was that partnerships needed to be built with the BRICS, and an outcome of SA’s term as the chair of BRICS had been a joint trade study. The purpose of the study was to identify more ways to promote more value-added trade and change the structure of trade among BRICS countries. SA had developed the ‘ten products approach’ with China, where ten high value products had been identified to sell in the Chinese market. These products would be showcased at trade fairs and exhibitions, with China covering the cost for one year, and the second year covered by SA. There had been an exponential demand for South African wines from China, but the focus was on more finished manufactured products, like automotive components. SA also looked to attract more investments from China, and the President himself had attended the opening of the first automotive heavy truck assembly plant in Coega, which was a R600 million investment from China.
Mr L Mokoena (EFF, Free State) said this had been the most comprehensive input on what SA was trying to achieve. The country was still suffering from the Uruguay Round, and he asked if SA was not running ahead of itself by opening the economy as much as it had. According to Mr Ha-Joon Chang, a world renowned economist, and an expert in derivatives, Mr Satyajit Das, developed countries protected their economies when they started, because they strengthened their economies from within before opening up. These developed countries then asked developing countries to open up their markets so that they could take what they wanted, and those countries remained ‘developing’. By opening up the markets and not protecting the country’s resources and commodities, South Africa was victimising itself. Lesotho was a huge potential trade partner, but Lesotho’s role within SACU was worrying. Instead of helping Lesotho, South Africa was victimising Lesotho through customs and immigration rules. Lesotho was the weakest country within SACU and should be helped up to the standard required to build a strong economic region. Within this ‘mixed economy’, South Africa’s key priority should be to protect the economy.
Dr Vickers said the Uruguay Round was an unfortunate legacy from the past, but it was important that fellow WTO members recognised that there was an injustice. With the liberalisation commitments that would or would not be taken in the Doha Round, there was recognition that SACU was a special case and would need extra attention, extra flexibility and more policy space to compensate.
A programme last year that should perhaps be promoted, was between the DTI and the Industrial Development Cooperation called the African Programme of Rethinking Development Economics. This programme was very much informed by the work of Ha-Joon Chang, and he was one of the guest presenters. South Africa was a developing country that had been inserted into a global economy to participate -- but also to contest and to resist. Developed countries were in crisis because growth was static or low, and needed structural adjustment to prosper. Emerging economies were the new sources of global trade and investment, and Africa was the second fastest growing continent in the world, just behind Asia. Developed countries were looking for access to Africa through EPAs. There were approximately one billion people in Africa with a rapidly growing middle class that represented a lot of purchasing power for their goods and services. At the same time, developed countries kept Africa in check through a range of policy instruments.
Through the developmental integration approach, focus would be on the developmental challenges of countries such as Lesotho. Lesotho was probably the best country with which to build a regional value chain. South Africa had lobbied very hard for Philips to come and establish a factory that made compact fluorescent light bulbs in Lesotho. There was a strong emphasis on the cross-border work in Lesotho and hopefully, when the South African Development Partnership Agency came to life, more development cooperation would be provided to other countries.
Mr Suka said there were a lot of untapped resources in the Eastern Cape, especially coal in the eastern part of the Eastern Cape, and resources along the coastline. The ANC and the President had talked about ‘radical economic transformation’ and he asked what was ‘radical’ in SA’s trade policy. There had been a shift in the goal posts, where SA had been given the status of representing other African countries in the G20, and the international companies were protecting their interests at the expense of developing countries.
From a constituency base, he asked what tangible issues could be reported to the communities. The presentation was comprehensive and he asked if this message from the DTI -- and other similar information packages -- could not be made available through electronic media (not necessarily "pay television"), but a slot on SABC to advance the cause and to take the country along on what was happening or what was planned. South Africa was focused on its urban basis, while it was its rural population that needed the most help.
Dr Vickers said it was too simplistic to say that South Africa was on a liberalisation trajectory. Through the trade policy review process, it had been decided that trade policy had to be informed by and supported industrial development. All legitimate trade policy instruments and policy space, acquired as a member of the WTO, needed to be used to support local industry. In the G20, the Minister had said if tariffs were raised from 20% to 45% on clothing, it was allowed -- it was not protectionism, as long as the tariff increase did not exceed the rates set by the WTO, or exceeded 50%. The Minister told the developed country partners in the G20 that their monetary and fiscal policies had a far more protectionist and distorted impact on our economies via the exchange rate and other variables, but this was never construed as protectionism.
Mr Nthebe said the kind of investment mentioned at Coega was what was needed.
The Chairperson said South Africa’s trade policy could not be exercised in isolation. The country was part of a global trade environment and the policy needed to be exercised within that context. No mention had been made of Zimbabwe and this should be reviewed in terms of the regional integrated approach. Many workers in South Africa were from neighbouring countries, because taxes from Mozambican mine workers in South African mines were levied in Mozambique. Very often with imported goods, the goods were under declared, undercutting the manufacturer in South Africa, or elsewhere on the continent. There were some WTO members that were not very amenable to the trade policies of the developing world, and this highlighted some of the problems in the Doha Round of negotiations. It emphasised the responsibility of South Africa, not only domestically, but also towards other countries in Africa and the developing world.
He thanked Dr Vickers and the Department for their contribution.
Consideration and Adoption of minutes
The minutes dated 23 July were adopted without amendments.
The meeting was adjourned.
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