Trade Policy, Negotiations & Implementation: DTIC briefing

Meeting report

Opening Remarks
The Acting Chairperson noted that there was a quorum and invited the Department of Trade, Industry and Competition (dtic) to make the presentation on trade matters.

Presentation by the dtic on SA Trade Policy and an update on trade negotiations as well as implementation of trade agreements
Ambassador Xavier Carim, DDG: Trade Policy, Negotiations and Cooperation, dtic, stated that SA supported multilateral cooperation to manage interdependence amongst economies, and supported a rules-based trading system as embodied in the World Trade Organisation (WTO). However, WTO rules exhibited a range of imbalances and inequities that prejudiced the trade and development interests of developing countries.

Ambassador Carim noted that a key problem relating to international trade is the fact that the dispute settlement mechanism of the World Trade Organisation (WTO) had been disabled, which increased risks and, as a result, there had been no direct challenges to the United States trade policies. The ‘Most Favoured Nations” principle was in danger as a result of bi-lateral and group negotiations that were arising. That could lead to a risk of fragmentation and put consensus-decision-making, an underpinning principle of the WTO, in danger.

In respect of the African Continental Free Trade Area (AfCFTA), he noted that 45 Members, including 4 customs unions in Africa had submitted tariff offers, of which 29 were verified as in accordance with agreed modalities. Processes to finalise the Southern Africa Customs Union (SACU) tariff offer to meet modalities and reciprocity were close to being finalised. Future negotiations would address outstanding Rules of Origin (textiles and clothing, sugar, autos), with a deadline set for September 2022.

The five-year review of the European Union-SADC (Southern African Development Community) export agreement formally commenced in November 2021. In the review, SA would be seeking improvements in the agreement. Speaking of SA’s trade with the United States of America, he stated that SA exports under AGOA (African Growth and Opportunity Act) had peaked at 31% in 2013, declining to 11% in 2020 due to poor economic conditions and measures restricting exports. In 2018, the US had imposed high tariffs on imports of steel (25%) and aluminium (10%), which had negatively impacted SA exports. In addition, South African car manufacturers no longer exported to the USA.

Overall, Ambassador Carim noted that the biggest problem for SA was that exports were dominated by raw materials while imports were dominated by manufactured goods.

The Acting Chairperson thanked the DDG and invited comments and questions.

(See Presentation)

Discussion
Mr M Cuthbert (DA) asked what the Ambassador’s views were on the opinions expressed by the Chief Negotiator, Dr Morgenie Pillay on localisation and how that policy might impact on SA’s participation in the AfCFTA and whether she was still the Chief Negotiator for SA. He requested some background on that matter. Had the dtic obtained a legal opinion whether government’s localisation policy on the WTO policy and the General Agreement on Tariffs and Trade (GATT) was legal? Several commentators had commented on that issue and he believed that it was worth investigating because SA did not want to be in a situation where Parliament was agreeing to a domestic policy that would, in future, have international trade repercussions.
 
Mr Cuthbert asked whether the dtic was still in favour of the Ambassador Walker Process at the WTO to resolve the dispute mechanism impasse, and whether any progress had been made in that regard. What was the official view on the Ambassador Walker’s Process? Could Ambassador Carim also provide more specific information on the Trade Related Intellectual Property Rights (TRIPS) waiver in respect of Covid-19 vaccines?

He noted that government had put forward a xenophobic overture, particularly to the country’s brethren to the north of SA, and wondered how that co-existed with the policy of integration. He found it rather contradictory. The previous year, the DA had suggested that SA enter into some sort of trade negotiations with China, especially in respect of agro-processing, but also other industries. He was aware that there had been several engagements with China as regards under invoicing but as far as he had been made aware, SA’s trade negotiations were governed by secret memoranda of understanding (MOUs). What steps had been taken to make those MOUs open and transparent to the public? He believed that if there were some sort of trade agreement in place, SA would have some sort of recourse methods available to deal with the customs fraud of under invoicing, etc. There was a missed opportunity on that front. Had there been any effort to create specific tariffs targetting value-added products imported from China?

He added that the DA supported the renewal of the AGOA and the government’s efforts in that regard as there were no non-reciprocal measures in the agreement. It provided an opportunity for trade with the USA and he hoped that, with the upswing in trade in the global economy, SA would be able to find greater benefit in such an agreement.

Mr W Thring (ACDP) asked what was being done to reduce the dominance of global powers in the WTO as emerging markets invariably were on the raw end of trade deals. Regarding the grouping of certain
nations with regards to trade, instead of the multi-lateral approach, how was BRICS (Brazil, Russia, India, China, South Africa) viewed in that regard? What had BRICS Bank done to support SA? What was being done in respect of reducing the power of former colonists in Africa? Opinion had it that a lot of the unrest was caused in order to assist the plundering of resources by former colonialists, particularly in Northern Africa, which kept former colonies in bondage.

He stated that export to BRICS consisted of only 24% manufactured goods, which had been a longstanding problem and spoke to the unbalanced trading situation. What targets had been set to increase that percentage and what was the timeframe? He agreed that minerals might be different. In order to grow the economy, SA had to export manufactured goods, not only to Africa, but also to the country’s Asian, European and American counterparts. Noting the economic challenges faced by SA, the growth of Agro-processing was a no-brainer, so what had been put in place, in terms of key perform indicators as well as monitoring and evaluation systems, to turn things around from the current status quo?

[The voice of Ms R Moatshe (ANC) was extremely faint]. She said that according to reports, SA lost about R375 million a year as a result of companies avoiding tax at customs. Through co-operation with the SA Revenue Service (SARS), what was being done practically to put a stop to that? What industrial development co-operation was in place with African trade partners to give expression to AfCFTA?

Mr S Mbuyane (ANC) asked about the ways in which AfCFTA wanted to increase Africa’s share of the global export market as it currently enjoyed only 3% of the market. What strategies were being employed to build the capacity to produce vaccines and other pharmaceutical products in Africa?

Ms N Motaung (ANC) asked what programmes the dtic and other countries on the African continent had to address climate change, which posed a serious threat to food security. The Ports Container Index indicated that the poor management of ports had a direct cost on trade and inhibited economic growth and development. What remedial action had been taken with other stakeholders to remedy that situation?

The Acting Chairperson asked about the WPO appellate body’s inability to fill vacancies which meant that enforcing rules was a problem. Was anything being done to resolve the situation, particularly because that affected mostly developing countries? Concerning the TRIPS waiver at the WTO, she asked if there had been any side engagements? What were the current discussions between African countries about manufacturing across the continent?

Noting the poor efficiency of ports which affected trade, she said that the Ports Container Index indicated that the poor management of ports had a direct cost on trade and inhibited the economic growth and development. What remedial action had been taken with other stakeholders to remedy that situation?

Ambassador Carim, responded to all the questions. He stated that the first question asked for his personal view on a statement made by his colleague. He believed that he needed to put the question in context. There was no such designation as chief negotiator in the SA team: the Minister of Trade, Industry and Competition led the delegation. When he, Xavier Carim, was not chairing a committee, he led the negotiations from the floor. At the moment another person was leading those negotiations because he was chairing a committee until later in February 2022. However, all points to be raised by a particular person were fully discussed and agreed to by the team prior to the meeting.

The localisation question, in relation to trade agreement was not a binary question They were linked – SA needed to produce goods to export and needed external markets to produce goods. If the trade profile was                                                                                                                                                         based on the export of minerals, which was the bulk of SA exports, then the country was exporting low value goods and the worth of low value goods reduced over time, so volumes had to continue going up to keep up the level of export. It was an important question that had to be unpacked properly. Manufacturing was supported by localisation and beneficiation, so the point was to build industrialisation: that was what was happening everywhere. Other countries were also promoting localisation. It was an ongoing process. China’s growth as a leader in trade was built on the back of very effective localisation. The economic lesson was clear: to move up the value chain, a country had to industrialise effectively. Building export trade was dependent on that process of industrialisation. To improve Africa’s participation in global trade, he would give the same answer: building manufacturing capability.

SA was very clear about the rules of the WTO, having been a participant since its inception. There was jurisprudence that went back 20 years as to what types of industrial policy was permissible. The Department had not taken a legal opinion as such, but it was very clear that SA was working within the rules of the global system and would have to face the consequences if it did not. No matter what had been said by others, he was sure that SA’s approach was legal. The only way to check that was a legal challenge, but there had not been one and he could not see any violation.

Regarding the question on the appellate body of the WTO, he explained that there were vacancies in that body because all decisions taken by the WTO were taken by consensus, so to fill vacancies on its appellate body, all members had to agree on the appointments and that agreement had not been achieved. The USA, in particular, has raised a number of questions about the functioning of the appellate body which it considered problematic.

Ambassador Carim explained that he had chaired the Dispute Settlement Body until 2018, so he had a good understanding of the processes and procedures. The opinions in the Walker Process were ventilated in the time that he was there and so he also had a good understanding of what was contained in the Walker Process. Some of the procedural issues could be easily addressed, but the more substantive issues at stake included the role of the appellate body in deciding on matters. The USA felt the body had exceeded its mandate and seemed to be in favour of some countries and against others and that had opened a can of worms. Many countries had since raised concerns about where they felt the Appellate body had exceeded its mandate when it had taken a decision against a country. He believed that the Appellate Body tried to balance sides but, in some cases, it was unclear what the negotiators had meant during negotiations. Ambassador Walker had attempted to capture the two sides to the problem: the administrative and the substantive sides.

He responded to the question on the negotiations relating to vaccines under TRIPS. SA and India had begun the process but had very quickly been joined by 65 countries, which were co-sponsors. There were ongoing engagements with the 65 countries to ensure everyone remained on the same page. There were proposals and counter-proposals and small group discussions, which had led to progress in bridging gaps but full agreement was not there as yet. The challenge was that even if there was agreement amongst key players, that agreement had to be taken to the entire membership for agreement. Small groups could converge, but the broader membership might not be able to do that. The process would require time, but there was greater clarity about the issues at hand and what was possible.

Regarding a trade deal with China, Ambassador Carim declared that there were no secret MoUs with China that he knew of. SA had a strategic partnership with China based on a framework document that set out a range of areas where the two countries would co-operate. The Department of International Relations and Cooperation (DIRCO) was in charge of the framework process but dtic gave input in respect of its expertise on trade. There was an MoU regarding cooperation in the area of Special Economic Zones (SEZ); another MoU dealt with customs issues, including under-invoicing. MoUs were not binding but committed SA and China to talk about the issues. There were several MOUs with China but SA also had many MOUs with other countries around the world.

Tariffs could not be directed at penalising only China. He said that, as directed by the WTO, a country could not have a specific tariff that applied to China only, or any single country, unless it was included in a bilateral trade agreement; bilateral agreements were intended to reduce tariffs and to provide better access into each other’s market. A trade agreement with China would require greater access by China to SA goods and would reduce tariffs on SA’s goods.

Questions regarding reducing the influence of major powers was a difficult one for him. Economies depended on size of trade and power of markets but that changed over time. Over the last two decades China, Brazil and India had risen from developing economies and many factors accounted for that change. In the context of the WTO, the principle of consensus decision-making was key: it meant that every country had the right to raise a concern. That fostered cooperation because, to get an agreement, a country had to consider other countries and get consensus. Sometimes countries, particularly smaller countries, grouped together to have their voices heard, or they could stand together to refuse to accept an unfavourable or prejudicial agreement.

BRICS did not have standing at the WTO. Within the WTO, there were a few instances where countries had come together to negotiate agreements amongst themselves. They wanted the WTO to accept their agreements but legally group agreements were not accepted unless the framework was changed. BRICS was not inside the WTO. Within the WTO, the countries did not take a BRICS position. In the BRICS process, the countries could discuss the approach that the member countries would take with regards to decisions to be taken in WTO. BRICS countries were individual members in the WTO.

Two questions went beyond his expertise: the BRICS Bank fell under National Treasury, which could respond to the question on whether BRICS Bank had programmes that might favour SA. The role of colonial powers had to be taken up with DIRCO as it dealt with security issues across Africa and elsewhere. The dtic was focused on the AfCFTA which was geared to increase inter-African trade and to build industrial capacity in Africa by allowing for economies of scale for producers in countries in Africa and so allowing them to expand their businesses. There was lots of scope to increase the trade of manufactured goods across Africa, particularly those goods that were imported from former colonialists.

He agreed that 24% of export goods were manufactured goods, but the overwhelming majority of imports were in manufactured good. SA looked for opportunities to supply value-added products. It was ongoing work. The precise work done to find opportunities for trade was done by other branches of dtic, so he did not have the answer on targets set. That applied also to KPI’s. It was difficult to say what the targets would be for exports and imports because those activities were dependent on a multitude of factors, including what work other countries were doing in developing their exports of manufactured good, but the process of gaining investments into SA’s manufacturing sector and improving exports of higher value-added products was ongoing.

Some questions were outside his expertise. Regarding illicit trade (under invoicing) in SA, the dtic participated in prevention mechanisms with other departments, such as SARS and National Treasury. For the dtic the under invoicing of goods could threaten industries that it was actively promoting prevention as it could negatively affect the Department’s industrial policy. It led to questions about other illegal activities, such as illegal scrap metal and gold exports. The incorrect importing of poultry, which had been re-packaged, etc. to avoid import regulations, was another problem, but such issues had to be addressed at the borders.

Regarding infrastructure and industrial development initiatives, Ambassador Carim explained that there was the fundamental matter of addressing the trade profile by building up the industrial base, which was supported by Master Plans, localisation etc. That should see SA’s profile improve. SACU had established a new committee two years previously to develop opportunities to collaborate on industrial capabilities in the SACU economies, such as textiles and clothing, chemicals, pharmaceuticals, cosmetics and auto parts. It was an ongoing process that engaged with the private sector as well. The private sector was asked for insights and what support it needed from governments. That process was within SACU but could be the basis for exports under AfCFTA in the future.

Work on industrial policy in AfCFTA consisted of a proposal to establish an industrial advisory board that would advise on possible industrial networks and projects across Africa. It had not been finalised as a result of the focus on trade, but it would come to fruition. The Afreximbank (African Export-Import) Bank was raising a significant amount of funding to support industrial development projects in various countries. Countries could apply for a loan for specific industrial projects. Various initiatives to support industrialisation were beginning to come together. It was important to remember that the AfCFTA would be an ongoing project for the next generation or more. The building blocks were currently being put into place.

A range of infrastructure projects were being developed which focussed on  rail, road and port development to support land-locked countries. That work had been happening under the African Union (AU) for a number of years, but that was the work of the Department of Transport, Transnet, Portnet, etc. The intention of SA was to develop a North to South corridor, eventually linking to Maputo, etc. all way to North Africa and included roads, bridges, borders, etc. He did not have details but could find out more if it was important to Members. Concerning port performance, he agreed that the ports index showed SA had poor position but the ports fell under the Department of Transport. The President had said in the State of the Nation Address (SONA) that work would be commencing in Durban but, while it impacted on trade, that was not a process for which dtic was responsible. Likewise, climate issues and the policy for climate resilience  were  dealt with by the Department of Forestry, Fisheries and the Environment while the Department of Agriculture, Land Reform and Rural Development could answer questions on food security and nutrition.

Strategies regarding producing vaccines and other pharmaceuticals in Africa was the work of the AfCFTA secretariat, but its initial task had been to put the trade in place. As he had mentioned, work was taking place on the foundations for trade and the advisory board was working on investments and financial support. The question of pharmaceuticals and vaccines would also be taken up by AfCFTA. Work on producing vaccines and building the production processes was underway. SA was trying to upgrade facilities so that the country was no longer at the “fill and finish” level but was moving to improve technology to undertake the process at all stages from development to finish. The President had announced seven similar hubs where vaccines would be produced in Africa. Steps were being taken to secure vaccines, etc. as relying on outside help in a health crisis placed a vulnerability on the continent. Significant progress had been made.

Ambassador Carim was not sure whether he had answered all questions.

Mr Cuthbert placed the question that the Ambassador had missed on the Zoom chat page: How can government speak to African integration when government makes xenophobic overtures through the Department of Home Affairs et al?

Mr Cuthbert also asked for copies of all the information that Ambassador Carim had referred to.

Ambassador Carim said it was a difficult question but stated that SA’s commitment to engaging with African countries was well-known, such as in SADC, etc. Further afield, SA had engaged in the AU and had participated in an approach to continental integration, not just about trade, but also about industrialisation and a drive on infrastructure. The developmental integration approach had guided SA and that was part of the lexicon of African integration. He could only say that the desire of SA to integrate was well-known.

He agreed to provide the material that he had referenced.

Closing Remarks
The Acting Chairperson said it was important to keep up with issues of trade. She noted the integration of trade with other departments and suggested that the Portfolio Committee needed to find a way to have discussions with other colleagues.

The Committee Secretary informed Members that the following meeting would be on Wednesday 23 February 2022: A briefing by the dtic, National Regulator of Component Standards (NRCS) and the South African Bureau of Standard (SABS) on the Public Protector’s Report regarding the illegal conversion of goods-carrying Toyota Quantum Vans into passenger-carrying minibus taxis.

The Acting Chairperson declared the meeting closed.

The meeting was adjourned.