10th World Trade Organisation (WTO) Ministerial Conference in Nairobi: Minister briefing

Meeting report

10th World Trade Organisation Ministerial Conference, Nairobi, December 2015: Minister of Trade and Industry briefing

Dr Rob Davies, Minister of Trade and Industry, noted that the 10th World Trade Organisation (WTO) Ministerial Conference would be held for the first time in sub-Saharan Africa, in Nairobi, Kenya, from15 to 18 December 2015. As yet, things were a little uncertain because although Dr Davies had anticipated that South Africa would receive an early draft of the Ministerial Statement that would be tabled there, nothing had yet been received. There were a number of issues to be discussed, but the most important would be the future of the Doha Development Round.

Dr Davies said that he would firstly discuss the challenges from the original Doha Agenda.

An important aspect from that mandate was ‘to place interests of developing countries at the heart of the work programme’. A majority of WTO members are developing countries who had concerns about the functionality of the WTO, and this was obvious from the struggles that had been raised in previous meetings. Doha must consider the needs of developing countries foremost. One major call was for reform in agriculture, especially around subsidies, and he made the point that the question of subsidies hardly ever appeared on the agenda. The high levels of subsidies offered in the developed world acted to the disadvantage of farmers in the developing world, both in relation to export competition and in domestic support. Some of these subsidies were recognised as actually distorting trade. There were proposals that there should be improved market access, a reduction in subsidies, and the elimination of export competition.

Other aims were for the enhanced exports of products of interest to developing countries, and greater policy space for developing countries. In the latter area, there were calls for effective Special and Differential Treatment provisions in favour of developing countries.

Dr Davies noted that negotiations had reached an impasse in 2008. Over the course of negotiations, the developmental content of the Doha Development Agenda (DDA) had been steadily eroded. China was one of the main causes of the impasse. Developing countries were striving to achieve agriculture reform, but any anticipated outcome would be moderate reform at best. Developing countries would be required to take steep cuts in their industrial tariffs, with negative impact on their industrial development and employment objectives. Especially for South Africa, this would result in no new access into agriculture and deep cuts being made for industrial products. Emerging economies were opposed to the notion that they would have to meet commitments equivalent to those of developed countries.

Ahead of the Nairobi meeting, there had already been an indication that many developed countries were less interested in the DDA. Developed countries were trying to say that the old system of classifying development was outdated and that the world should treat emerging economies like developed countries. This was essentially one way for developed countries to do less. Developed countries were now focused on mega-regional negotiations like the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership. A number of WTO members had also been engaged in pluri-lateral negotiations. Examples included government procurement, Information Technology, and services and environment. Emerging economies and African countries generally had not been part of these pluri-lateral negotiations in favour of regional trade development.

The Ninth Ministerial Conference in Bali delivered the main outcome of the Trade Facilitation Agreement (TFA). However, South Africa and others were concerned that this outcome lacked balance. The TFA did not require developed countries to do anything new and facilitated easier market access for them. Conversely, developing countries, particularly in Africa, would need to make major investments of finance and also would have to effect costly change to administration, legislation, and regulation to meet TFA requirements. There had been no legal commitment from developed countries to help with this. Developing countries were advocating for “best endeavour” language on issues important to them.

There was an indication that, for the 2015 meeting in Nairobi, the developed countries wanted to make expectations for the DDA more realistic, or basically lower. South Africa wanted the Swiss Formula off the table, and the developed countries seemed to agree. South Africa wanted to revisit export competition. In 2005, a meeting in Hong Kong had suggested that export subsidies should be eliminated by 2010. The EU had indicated that it wanted this elimination pushed back to 2013, but it still had not been resolved.

In September 2014, it had been proposed that work continue on a ‘small package’ of outcomes for the WTO Conference, addressing export competition, improvements on transparency, and outcomes favourable to Least Developed Countries (LDCs).

The main issue for the upcoming conference would be the future of the DDA. Some members opposed continuation of the current DDA architecture, arguing that it was impossible to accomplish DDA goals under the current mandates. Most developing countries, since 2001, had supported the DDA and now did not want to abandon its progress.

As mentioned, another key subject would be agricultural reform. A ‘Ministerial Declaration’ would be a legally binding text if produced. It was, however, unclear whether such a declaration would sufficiently address the small package and Doha. Developing countries still feel strongly that agricultural trade reform is necessary. Some members were of the opinion that development had stood in the way of trade.

South Africa strongly supported a successful outcome of Doha. However, the Minister suspected that the Doha agenda would neither be concluded fully nor be abandoned fully.

Discussion

Mr D Macpherson (DA) thanked the Minister. He noted that a recent article in Business Day indicated that the BMW X3 investment was replacing the 3 series, and he asked whether the 3 series was going elsewhere . He asked why the Automotive Production and Development Programme (APDP) review took longer than expected.

Mr Macpherson said there appeared to be concerns about the policy continuing. He asked for an indication of South Africa’s progress towards bringing the TFA framework to Parliament, noting that many countries were holding back and waiting on other countries. He asked if the Minister agreed with that observation. He asked what the new classifications might be for the LDCs, and what position South Africa held on this.

Mr Macpherson indicated that he would look forward to reading the Ambassador’s thesis.

The Chairperson agreed that she too would like to read that thesis, and quipped that she hoped that it would not be so heavy as to inspire sleep.

Mr N Koornhof (ANC) asked whether the impasse on Doha would be bad for South Africa in particular, or for developing countries in general.

Mr J Esterhuizen (IFP) asked whether the WTO was losing its credibility as a platform of consensus-building across country groups. He wondered if mega-regional negotiations were undermining Africa and the DDA, and whether the approach to trade would not harm workers and the poor and the environment, and lead to benefits or enrichment of only a few people.

Mr Esterhuizen noted that in the EU, trade among EU members was around 65% whereas in Africa, inter-country trade was only around 11%. Developing countries needed export subsidies and developed countries did not. He suggested that the African Growth and Opportunity Act (AGOA) could help re-develop the agriculture of the country and Continent. He said that there was a need to facilitate rather than hinder development through global trade rules, and also a need to consider food security. He asked whether subsidies on agriculture export would harm developing countries and domestic production, and suggested that perhaps there was a need for a safeguard mechanism on import searches.

The Chairperson said that she and Mr Macpherson heard about this issue at the International Parliamentary Union. “Low-income” was a new and unaccepted classification. It was explained that countries that were largely “on the breadline” would qualify for this classification. South Africa held that the issue would need a plenary discussion. She asked what the new EU move was in this regard.

D Davies answered the questions in turn. He firstly indicated that BMW was intending to make the X3 SUV locally, instead of the 3 series, and this would start when the current cycle for the 3 series expired. BMW would be spending R6 billion refining its plant to do this. It was not waiting for the APDP, but rather was waiting for a decision from BMW Headquarters as to the country in which the X3 expansion would take place. That review was not delayed, and was positively received by the automotive industry. The automotive industry was also pleased that work was starting on the post-2020 review. Studies had been done into the position in Australia, where the last plant in Australia was about to close because Australia pulled out all of its auto programmes. Automotive manufacturers loved South Africa because the rand was favourable, and so was the environment.

Dr Davies said that the TFA would be presented soon to Parliament. It was unlikely that Parliament would have ratified this agreement by the time that the WTO met in Nairobi in December, but after ratification had taken place, then South Africa would have to iron out its Category A and B objectives. Virtually everything in the TFA was already being practised here in South Africa already. There were some indications and expectations that TFA has been tripled to $3 trillion in realisable income, though this may be an exaggeration. Services waiver was a bigger priority.

Dr Davies also agreed that he had heard about the new classifications in an OECD presentation recently. However, the concept of LDC remained intact. This new classification attempted to split developing countries into low income developing countries and emerging countries.

The Chairperson said that it was clear, when she heard about these new classifications for countries, that the split was supported by the World Bank, the International Monetary Fund (IMF), and the United Nations (UN).

Minister Davies said that South Africa had been very clear that it would not support such a re-classification if it was used to differentiate obligations, rather than a mechanism for developed countries to contribute more. If there was an outcome of the Doha round that required South Africa to take serious industrial tariff cuts that may cut into its policy space, or that did not allow South Africa to use policy tools to aid industrial development, that would be a bad outcome.

The Minister then addressed the question of subsidies on agricultural products to help farmers in developed countries. He said that Brazil would “thump” developed countries on agricultural product lines. It was good to liberalise on tariffs, but not on subsidies. Subsidies helped countries become competitive. He repeated that the question of subsidies never was put on the table during any bilateral negotiations. Only in the WTO was there any chance of successfully negotiating around agriculture. There were some very weak disciplines. If the WTO remained in its current form, then hopefully negotiations could continue to take place, in a useful way.

The Minister asserted that the WTO needs constant negotiations to keep it relevant. African countries wanted to preserve policy space. The mere fact that mega-regional negotiations and discussions were taking place did not mean that South Africa should rush to be a part of these, of even bring such things into the WTO. Intra-regional trade was better in the EU because those countries were industrialised and diversified. Africa needed to diversify. The process of regional integration was informed by development integration. “Development” in this context meant development forces, and allowing countries to industrialise beyond primary products while also allowing for human development.

The Minister noted that AGOA does not address agricultural subsidies.

The Chairperson observed that there were no further comments.

She confirmed that the Ambassador was converting his thesis into a book.

The Ambassador noted that the PhD was awarded with distinction in October 2015, from the University of Manchester.

Minister Davies said that the thesis is very readable.

Other Committee Business:
Adoption of Minutes
The minutes of the meeting held on 11 November 2015 were confirmed.

Committee oversight
The Chairperson noted that the Committee was applying to conduct oversight visits in January, to address the issues the Committee would have explored  in the trip that had initially been planned for KwaZulu Natal, and that hopefully the Members would be able to visit Pretoria or Johannesburg.

Ratification requests
The Chairperson noted that the Minister had made some reference to a protocol that may be tabled, and asked if the Committee needed to be made aware of any world trade agreements needing ratification.

Ms Xolelwa Mlumbi-Peter, Deputy Director General: International Trade and Economic Development, Department of Trade and Industry, said that the Department was in the process of tabling an agreement to Parliament and would shortly be asking for time to make a presentation in order to take the documentation through the ratification process in Parliament.

AGOA Discussion

Mr Macpherson said that a media statement had been released about the Poultry HPAI trade protocol being finalised. He thought that the US President’s letter caused this process to finish suspiciously quickly. He noted that mention had been made that “AGOA is secure”. However, the reputation of South Africa had been damaged, and only under dire threat did South Africa finally finish what was necessary. He asked whether there was any feeling that the Department of Agriculture, Forestry and Fisheries might have misled the Department of Trade and Industry on the true status of the veterinary protocol, and, if so, how South Africa could avoid this in the future.

Dr Davies said that on 13 November South Africa had sent off its proposals, hoping to close at the end of October for the US proposals. It was not correct that South Africa was failing to do what it was supposed to do. The veterinarians had signed off on the main issue, which was to do with poultry. A health certificate for poultry awaited a US signature, and so did the certificate in respect of pork. Now South Africa had to deal with the administrative aspects around the quota. South Africa believed that it was on track in the process, and he believed that it would be possible to conclude well before the deadline, despite this process taking longer than the Minister had anticipated. In this regard, however, he pointed out that the systems in the two countries were not the same, and further pointed out that trade negotiations never finished on time, so he did not believe that there was anything that was ominous in the circumstances. He would certainly like to see the whole agreement officially signed and sealed, but at the same time it was not particularly helpful to try to make an estimation of the time frames when this might happen.

The Minister added that South Africa had known about the AGOA demands for quite some time. The current version of AGOA had changed since it last expired last December, and he noted that South Africa did not simply agree to everything but did negotiate, and he would stand by those negotiations. He was pleased to note that South Africa had not simply removed the anti-dumping duty, and had eventually found the solution to the problem in June. He believed that the veterinarians were fulfilling their mandate, and he could not and would not attempt to tell veterinarians what to do, for it was up to them to satisfy all the safety standards. He noted that a few years back, a disease had cost the local pork industry R1 billion. Although the deal was taking a long time, this was far preferable to making the wrong call or any drastic mistake. Ms Alexander from DAFF had done an excellent job in facilitating. The Minister did not agree that there had been any reputational damage. Some of the questions raised in the negotiations had been very scientific in nature, and he had mentioned at a previous Committee meeting that the Departments were close to reaching a conclusion. He had sent out the proposals to conclude by the end of October, as originally hoped, but the point was that sometimes the US negotiators may also not be as efficient as they could be. He would be very happy to have a reputation as a strong negotiator, rather than merely accepting what had been proposed.

The meeting was adjourned.