ATC100512: Report South African Trade Policy and Strategy Framework

Trade, Industry and Competition

Report of the Portfolio Committee on Trade and Industry on South African Trade Policy and Strategy Framework, dated 12 May 2010

 

1. Introduction

 

Processes and consequences in globalisation are fundamentally altering the way each country integrates into the global economy through trade[1]. South Africa is informed by the need to strengthen regional economic integration to achieve more balanced global trading relations. The correlation between structural unemployment, industrialisation and trading practices compels our government to develop and contextualise its trade policy to achieve government’s broader economic development vision. The imperatives in the National Industrial Policy Framework ensure that it drives trade policy.[2] This calls on the government to re-examine and re-assess current trade practices and to craft trade policy that can be strategically applied to sectors and regional needs.

 

“A South African Trade Policy and Strategy Framework: Discussion Document”, November 2009 (Trade Policy Framework), followed earlier government efforts in 2007 to formulate a strategic framework for trade policy. This was intended to complement the first National Industrial Policy Framework followed by the revised Industrial Policy Action Plan (IPAP2) and is considered central to achieving the developmental goals forSouth Africa. Cabinet called for more consultation on the November 2009 trade document. This process would run parallel to the NEDLAC process.

 

As part of this broader consultative approach of the Department of Trade and Industry (DTI), a request was received by the Committee to express an opinion on the Trade Policy Framework to ensure that Parliament’s views could be incorporated. The Committee welcomed this opportunity and process as it allowed it to study the “Discussion Document” and engage stakeholders openly on the future path of South Africa’s trade policy to ensure equitable results.  The need to determine a development model that would guide trade policy is essential in achieving government’s objectives[3]. Current international and national debates on trade policy focus on protectionism versus further liberalisation. However, the DTI has indicated in the Trade Policy Framework and in its engagement with the Committee that rather than a generic approach to trade policy, a more strategic approach informed by sectoral needs would be pursued.

 

In light of this, the Committee invited several stakeholders including non-governmental organisations and academic institutions to express their general views on the Trade Policy Framework. These were provided to the Committee either through written submissions or orally during public hearings in March and April 2010. This engagement assisted the Committee in developing a comprehensive response to the Trade Policy Framework.

 

 

 

 

 

2. Policy Context

 

The development of the Trade Policy Framework took place against the backdrop of a global recession that required government to develop and promote strategies that would underpin South Africa’s broad developmental framework. It attempts to place South Africa on a trajectory that would address the underlying structural challenges within the economy, namely poverty, unemployment and inequality, as well as a response to the global competitive challenges[4].

 

The Trade Policy Framework broadly refers to the Accelerated and Shared Growth Initiative for South Africa (ASGISA)[5] and the National Industrial Policy Framework when outlining its policy framework. The "new growth path" referred to by the Minister of Trade and Industry, Minister of Economic Development and the Minister of Finance in his 2009-2010 budget speech is not simply a pillar of ASGISA which was to "pursue a developmental strategy and accelerated growth path that generates sustainable and decent jobs" but the "new growth path" provides a platform for the National Industrial Policy Framework. The National Industrial Policy Framework seeks to encourage beneficiation through increased value-added production on a more labour-absorbing industrialisation path that could be the catalyst for employment creation and diversification of the economy away from its current over-reliance on traditional commodities and non-tradable services.

 

Trade liberalisation[6] of the 1990s did not succeed in supporting the transformation of South Africa’s productive capacity away from commodity based exports. This led to the subordination of trade practices to industrial practices to promote diversification. Currently, exports are dominated by commodities except in African markets.  In response to a question from the Committee to the reasons for the dominance of commodity exports, the DTI was of the view that this evolved over years and that Africa was import dependent. The rapid liberalisation resulted in South Africa not charging duties on 54 per cent of its tariff lines although it had the scope to do so[7]. Another issue that informed the Committee during its engagement with stakeholders and deliberations is the cost of capital for industry and the relationship of the interest rate charged by commercial banks and development finance institutions. 

 

In its briefing on the Trade Policy Framework, the DTI informed the Committee that the document strives to develop a definitive position on trade policy and attempts to clarify how trade policy could contribute in achieving Government’s goals. The aim of the policy was thus to support industrial development and upgrading, employment growth and increased value-added exports.

 

In formulating the framework, the DTI reviewed among others, the ingredients for growth and success in a changed global environment and the economic and trade theories that underpin trade policies. The review covers trade performance over the last 15 years, a review of changes in trade tariffs, recommendations for future tariff reform, new issues on the international trade agenda, and South Africa’s trade strategy[8].

 

The key objectives of the Trade Policy Framework as outlined are as follow:

 

·         To adopt a “strategic approach to tariff reforms that supports industrial and employment objectives”. Proposed changes to tariff reforms would be evidence based and considered case-by-case;

·         To develop a Trade Strategy supportive of the developmental interest of South Africa;

·         To develop the South Africa’s terms for global integration to secure policy space to pursue national economic objectives and leverage opportunities that may arise from global markets and the flow of trade;

·         To identify future focus areas such as services, investment, intellectual property, procurement, labour and environment.

 

 

3. Alignment with Other Policies

 

The Trade Policy Framework refers to a developmental strategy as referred to in ASGISA, National Industrial Policy Framework, Government’s Medium Term Strategic Framework (2009-2014), and the revised Industrial Policy Action Plan (IPAP2). Generally, these policy documents call for economic growth that leads to sustainable, decent job creation as well as the alignment with industrial policy. Specifically, IPAP2 introduces tariffs as a tool to support industrial policy interventions and outlines the sectors that will be actively supported. National Industrial Policy Framework and IPAP2 also articulate the strategic and selective use of tariff reform on a sector by sector basis to support sector strategies, as well as addressing customs fraud and illegal imports. However, very little reference has been made to the role of standards, quality assurance and metrology or technical infrastructure systems within the Trade Policy, as outlined in IPAP2.

 

 

4. Tariffs

 

Trade liberalisation pursued since 1994 did not yield the desired outcome of improved distribution of income, and reduction of income inequality and poverty. In response to a question by the Committee regarding the rationale behind trade liberalisation, the DTI expressed a view that, at the time, the manufacturing sector was considered to be highly protected, uncompetitive and costly. In response to the newly elected, democratic Government’s recognition that South Arica would seek benefits from the growth in world trade by stimulating exports and integrating into the world economy, the country had to liberalise trade.

 

The Trade Policy Framework recognises the failure that industrial support had not been provided, in conjunction with tariff reduction, resulting in the anticipated structural economic changes not being induced to significantly alter the export basket beyond the range of commodity based products.  Countries, where a strategic approach to tariff policy was pursued, ensured that their tariff policies were informed by industrial policies with selective trade liberalisation supportive of the broader industrial programme[9]. The National Industrial Policy Framework states that “our fundamental approach is that tariff policy should be decided primarily on a sector by sector basis, dictated by the needs and imperatives of sector strategies”.

 

The manufacturing sectors of most developing countries are often subjected to severe trade restrictions in terms of high levels of tariffs and extensive import prohibitions via licenses and quotas. Therefore the analysis of the impact of trade policy changes on manufacturing performance calls for the construction of a well-chosen set of measures that represent the complex nature of commercial policy (in this case, IPAP2) as well as comprehensive information on the direction of change in a country’s trade regime.

 

The Trade Policy Framework calls for a strategic review of tariffs to support industrial development and assumes a developmental approach to tariff reforms. This implies that tariffs on mature upstream industries can be reduced or eliminated to lower the input cost of downstream labour-intensive manufacturing industries. Tariffs on downstream industries with employment or value addition potential could be retained or raised to ensure sustainability and job creation[10]. The Trade Policy Framework concludes that if evidence suggests that some industries or sectors require protection then state support (intervention) would be considered. However, these determinations will be conducted on the basis of case-by-case, detailed investigation and analysis and not on an a priori presumption of the benefits or costs of maintaining either low or high tariffs. In addition, any tariff changes will be within the upper limits for tariff setting set by the binding obligations South Africa has taken in the WTO and in other bilateral trade agreements

 

The Trade Strategy Group (TSG)[11] supports this view in that no country has developed, diversified and industrialised without active state intervention. As a result of the current financial crisis, one was seeing the direct intervention of the State in many industrialised countries. However, the TSG stressed that business that is being supported through tariffs or other measures, must receive this support on a quid pro quo basis. Such support should have conditions attached to them including a genuine commitment to employment creation, contribution to South Africa’s development needs and sensitivity to regional cooperation modalities[12].

 

Stakeholders[13] broadly supported the thrust of tariff policy direction outlined in the Trade Policy. The TSG is concerned about mainstream media’s attempts to classify the Trade Policy Framework as a protectionist and interventionist strategy. As they fail to acknowledge the necessity of appropriate policies within the Trade Policy Framework and that the DTI intends to apply tariff reforms selectively and with strategic pragmatism[14]. The TSG called on Government and the DTI to clearly signal to business the conditionality and transitional nature of tariff support.

 

Furthermore, export driven policies pursued by developing countries in order to grow their economies have proven not to be successful. A response is therefore required regarding support for the continued outflow of capital resources to pay for imports that could be sourced locally, as trade liberalisation is being pursued[15]. The TSG and COSATU expressed the view that an import substitution[16] strategy should be considered both to create jobs and to address our trade deficit.

 

COSATU[17] welcomed the direction of tariff policy as “it promotes dynamic industrialisation as opposed to static comparative advantage”. This, in COSATU’s view, would create policy space and time to enable industries to develop and restructure in response to global competition. The consultative approach that underscores the Trade Policy Framework is welcomed; however, COSATU cautioned against potential abuse and rent-seeking[18] by powerful lobby groups. 

 

There appeared to be convergence by stakeholders on the overreliance on tariffs as an instrument to address the major challenges. Business Unity South Africa (BUSA),[19] in their submission, endorsed the position that tariffs could be used to indirectly support industrial development but cautioned against the one tool focus of the Trade Policy. The creation of a business environment conducive for economic growth, these included issues such as infrastructure development, regulation and supporting services; should be complimentary tools to tariffs. COSATU also acknowledged the Trade Policy Framework focus on tariffs but placed emphasis on other instruments such as research and development anti-dumping[20] measures and safeguards. 

 

The Trade and Industrial Policy Strategies[21] (TIPS) were concerned with the lack of reference to the cost and inefficiencies associated with imposing tariffs. TIPS argued that the cost is often borne by consumers and downstream producers. Furthermore, domestic firms would require more tariff protection, as their production costs are too high to compete with foreign firms.

 

The Committee agrees that tariffs must be used to protect infant industries and those industries facing unfair practices but also strategic industries. However, it should not be used to protect businesses and industries that are neither financially viable nor assist in achieving government objectives such as employment creation and earning foreign exchange. It is generally accepted that tariffs may be used to protect industries at their infant stage in order to counter foreign competition until such time that the industry is mature enough to withstand the competition. At this stage, tariffs can be lowered. Furthermore, the Committee urges the DTI to implement countervailing duties and use the WTO’s dispute settlement mechanism to protect its industries from imports that have received export subsidies.

 

In the Committee’s view, the Trade Policy Framework should make a direct link to the objectives of IPAP2, with a particular focus on leveraging public procurement to support local industries. In this regard, the International Trade Administration Commission of South Africa should receive the kind of focus and attention afforded to the Competition Commission in recent years to enhance its role for facilitating tariff reform as proposed in IPAP2.

 

Research and development will be imperative for future economic development and growth, as well as increased global competitiveness. This is also an accepted non-monetary form of assistance to South African industries and would not be in conflict with the WTO rules and spirit.

 

 

5. Agriculture Trade Strategy

 

The Trade Policy Framework recognises the importance of the primary agriculture sector in terms of employment creation, upstream and downstream linkages and food security in South Africa, as well as its potential to contribute to rural development and poverty alleviation. It also acknowledges distortions in developed markets that hamper exports and the need to support black emerging farmers while entering the commercial mainstream. However, the DTI’s view is that agriculture had “developed a resilience to withstand competition and has maintained its competitiveness, particularly in fruits, sugar and wine exports” over the past 15 years. Its strategy is to consider the application of tariffs based on evidence presented per case. Trade policy should not negatively impact on food security by decreasing affordability, while addressing supply side constraints and competition issues, and consumer prices.[22]

 

South Africa has undergone enormous economic, social and political change since its democracy in 1994. The agricultural sector is dualistic with a small number of commercial operations run predominately by white farmers and large numbers of subsistence farms run by black farmers. Small holder farming, still located mostly in the former homelands, is an impoverished sector, dominated by low-input, labour-intensive production.

 

Reforms in South Africa, since the 1990s, have resulted in low levels of government support to producers. These reforms included deregulation of the marketing of agricultural products, abolishing certain tax concessions favouring the sector, reductions in budgetary expenditure on the sector, land reform and trade reform. As measured by the aggregate percentage Producer Support Estimate (PSE) [23], producer support in South Africaaveraged to 5% of the gross farm receipts in 2000-03, fluctuating between 2% and 18%.[24] AGRI-SA reported that, in 2008, the local agriculture sector’s PSE was only 3%, while most other countries had higher PSEs, a selection revealed estimates ranging from 6% in Australia to 62% in Norway.

Only New Zealand, out of 13 other countries or regions, had a lower estimate than South Africa at 1%[25]. AGRI-SA has called for:

§         Increased market access for South Africa’s agricultural exports including agricultural processed goods and the renegotiation of foreign special safeguards that are cumbersome and impractical to implement,

§         Elimination of foreign export subsidies[26] and taxes, no accumulation of foreign exports subsidies and the termination of foreign sanitary and phyto-sanitary[27] measures.

§         Increased domestic support that addresses infrastructural deficiencies, such as access to transport infrastructure and the cost of transport, telecommunications, irrigation and other escalating input costs.[28]

 

BUSA welcomed the inclusion of agriculture as a specific section in the Trade Policy. It assumed that concerns raised during the NEDLAC process would be included in the revised Trade Policy. These focused on addressing non-tariff barriers and other distortions in the global agriculture market.[29]

 

COSATU agreed that non-tariff barriers should be addressed in the Trade Policy Framework but stressed that South Africa had to express its intention to engage in initiating and collaborating on disputes against developed countries’ protectionist policies. However, in COSATU’s view, the sector had not been performing well and the Trade Policy Framework failed to acknowledge the poor working conditions of farm labourers. COSATU also called for South Africa’s trade policy and remedies to ban subsidized, imported products and those that contravene other WTO agreements, especially when these products are manufactured or grown locally.[30]

 

TIPS submitted that a weakness in the Trade Policy Framework was that reference was mainly made to the commercial sector, leaving out many small and aspiring emerging farmers. TIPS expressed a view that these farmers together with the rest of the SME (small and medium enterprises) cluster and those participating in the informal sector must be accommodated by the trade policy, even if their role is to fill the domestic gap that is left by large exporting farmers. Other support that could be accommodated within the Trade Policy Framework or in conjunction with the Industrial Policy Action Plan included access to financing, assistance in creating cooperatives, and developing partnerships with larger traders and mentorships.[31]

 

The Committee recognised that agriculture and agriculture-related industries are very important not only for food security within South Africa, but also for increased employment and resettlement in rural areas. It also has a role to play in vigorously stimulating and supporting viable and sustainable land reform and BBBEE action plans in the agricultural sector.  Agricultural industries could be a catalyst for infrastructure rejuvenation in rural areas and an important earner of foreign exchange.

 

South Africa has taken a decision to redress the existing equity imbalances of the past in agriculture by a number of measures including the promotion of small-scale farmers while the global trend has been to merge smaller agricultural units into larger units to increase productivity and affordability due to increasing economies of scale. However, given the country’s socio-economy, the agricultural model may need to be reviewed so as to maximise both equity considerations with the benefits from large scale production. The Committee welcomes the identification in the Trade Policy Framework of supply side constraints, including marketing and infrastructure. In addition, the role of the emerging small-scale farmers, together with SMME’s and the informal economy, must be given greater recognition within our trading agreements and relations.

 

In light of this, the Committee concurred that Government should support the agricultural sector through the provision of development finance for capital at competitive interest rates, address deficiencies in infrastructure and inputs such as diesel costs, provide technical and research support to particularly emerging farmers and adequately develop appropriate agricultural skills for farm labourers and researchers through agricultural sciences at schools and agricultural colleges. Furthermore, there were opportunities to integrate regional agricultural businesses within SADC and thus opportunities for South African investors.

 

 

6. Integration into the Global Economy

 

The Trade Policy Framework recognises trade policy as a tool for sustained economic development and the vehicle that defines its conditions for integration into the world economy[32]. The policy document recognises the need for policy space to pursuit national economic objectives that could be influenced by opportunities arising from increased trade interaction. A global economy that is supportive of development is in the interest of South Africa’s developmental agenda.

 

In order to be a relevant global competitor, the Committee acknowledged that South Africa needs to identify and develop competitive advantages in global trade. Despite its emphasis on industrial development and local beneficiation, Government support and facilitation is required to take advantage of global trade opportunities, including domestic and foreign trade beneficiation. The end benefits must include increased employment and foreign exchange earnings through strong export competitiveness.   

 

6.1 African Relations

 

The Trade Policy Framework purports to continue consolidating trade and investment relations developed in the context of the economic agenda of the African Union (AU) and NEPAD (New Partnership for Africa’s Development). Any trade agreement with non-African countries or regions should be leveraged to serve the developmental priorities of African countries.

 

Both BUSA and TIPS supported the expansion of South African business into the African market as outlined in the Trade Policy. However, The TSG cautioned against business’ enthusiasm regarding market liberalisation, as the TSG was of the opinion that business supported liberalisation in order to gain market access for their products without regard for the implications for South Africa. One of the key concerns was the terms on which a free trade area in Africa is established. Imbalanced terms may be destabilising for Africa, especially if South Africa becomes the main export beneficiary within this type of area.

 

Given the evidence presented by TIPS, South Africa’s export share into the African market has increased when compared to other world markets, excluding East Asia. In addition, there has been a trend to move towards more diversified export basket in Africa, whereas most other markets had shown an increased concentration in South Africa’s export basket between 2005 and 2009. TIPS expressed a concern that the Trade Policy Framework understates the importance of the African market. The document should provide a clear strategic direction to grow the market in Africa, as well as to deepen integration. In their submission, BUSA highlighted the absence of mechanisms and strong institutional support for such initiatives.

 

In the Committee’s opinion, integration with Africa offers many economic opportunities, not only as a wider market for South Africa’s value-added goods and services, but as an alternative and more competitively priced source of natural resources e.g. oil, electricity, etc. This could assist in improving South Africa’s global competitiveness.  South Africa can also regain its role as the leading African trade destination, and the gateway to African trade.

 

Given the opportunities that regional integration offers, the Committee emphasised that the Trade Policy Framework must prioritise Intra-African Trade and promote the production of complementary goods and services. In this regard, our Trade Policy Framework must also promote trade facilitation by providing technical support to SADC and the African Union (AU). Regionally, the Trade Policy Framework calls for the consolidation and extension of regional integration through the:

§         South African Development Community (SADC),

§         South African Customs Union (SACU), and

§         Proposed tripartite Free Trade Area (FTA) between SADC – East African Community (EAC) – Common Market for Eastern and Southern Africa (COMESA).

 

Both BUSA and COSATU support the prominence placed on regional integration despite the limitations and constraints highlighted in the Trade Policy. TIPS was of the view that the reduction of import tariffs among African countries had not been sufficient to improve intra-regional trade, as the productive capacity of the region has to be enhanced to unlock constraints. TIPS and COSATU support infrastructure and institutional development that is supported by South Africa in order to facilitate trade and contribute to macroeconomic convergence of the region. Tralac raised a concern around opposing views regarding the role of import tariffs within SACU, where South Africa considered tariffs as an industrial tool, while most other SACU countries were reliant on tariffs as a government revenue generation tool.

 

The introduction of Industrial Partnership Agreements in product development among the private sector, where development takes place across several SADC countries, was proposed[33]. This would enhance the integration process, as countries would focus on their relative comparative advantage in the value-chain process. 

 

Although BUSA supports the expansion of a FTA to East Africa, the consolidation of SADC and the implementation of existing trade agreements, it was of the view that a SADC Custom Union is not currently feasible. BUSA was also of the view that the existing Preferential Trade Agreements (PTAs) model being pursued was not yielding the expected trade benefits and had little scope to address issues beyond tariffs[34]. Tralac also expressed concern that despite the general support of African relations, no clear strategy has been outlined in terms of South Africa’s involvement in SADC, the proposed tripartite FTA and Africa in general[35]. The Committee agreed that regional integration should be prioritised, particularly the promotion of the Tripartite Free Trade Area to assist in securing African markets.

 

In terms of SACU, the Trade Policy Framework recognises SACU’s potential to be the catalyst for deeper regional integration in SADC and beyond. It purports the view of SACU as the vehicle for advancing and deepening sub-regional, developmental integration and a platform to develop a common position on future multilateral trade relations and agreements. Divergent views emerged during the hearings regarding SACU. The TSG no longer viewed SACU as a viable entity unless it was renegotiated within the SADC context. TIPS, COSATU and BUSA acknowledged the need to transform SACU but questioned the political will do so. In their submissions, both BUSA and the Trade Law Chambers expressed concern around the failure to implement the 2002 SACU Agreement and its key provisions. Continued membership of SACU limits South Africa’s trade policy options but would require further discussion with stakeholders[36].

 

The Trade Policy Framework is silent on the direction of SACU, with SACU operating as a “quasi-customs union” that had not moved beyond the revenue-sharing benefits of a customs union[37]. Although there was a common external tariff, individual members from the BLNS countries (Botswana, Lesotho, Namibia and Swaziland) have entered into negotiations under the SADC-European Union interim Economic Partnership Agreements (EPAs), which had BUSA calling for the critical review of the future of SACU.

 

In their written submission, Tralac expressed the view that the Trade Policy Framework should have been discussed at the SACU level, given the existence of South Africa within the context of a customs union. This is essential as members of a customs union have agreed to relinquish their individual trade policy space in order to collectively determine a common external tariff. Furthermore, Article 31 of the 2002 SACU Agreement requires member states to negotiate and enter into preferential trade agreements with third parties collectively. The TSG group welcomed South Africa’s stance against the interim EPAs as it undermine its trade policy direction.

 

The Committee is in agreement with stakeholders and the DTI that the SACU arrangement should be reviewed. This should address existing imbalances, which developed prior to 1994 in the revenue sharing arrangements and should ensure that the South African economy is not undermined by international trade agreements entered into by individual BLNS countries. Currently, decision-making is by consensus of member states. This would promote and be a catalyst for further regional trade integration as well as the realignment of regional trade bodies. Furthermore, there should be policy harmonisation between the SACU arrangement and developments within SADC.

 

6.2 South-South Co-operation

 

The Trade Policy Framework recognises the opportunities for developing political and economic relations that would support the national industrial developmental objectives. This would be in the context of creating political and socio-economic space for the fight against poverty, underdevelopment and marginalisation of the South[38]. The prospect of reshaping the global trade regime through the mobilisation of partnerships between developing economies presents an opportunity to strengthen trade and investment linkages among developing countries. 

 

The Trade Policy Framework outlined an approach that would emphasise cooperation instead of deeper market integration.  COSATU approves of the non-predatory commitment of South Africa in engage with countries of the South, especially from the continent. The TSG cautioned that developing countries should not succumb to the belief that South-South relations are devoid of the dangers facing relatively weaker economies. These relationships should also not be based on FTAs but rather on the basis of PTAs, technology transfer, investment and other issues that promote local development.

 

The Committee acknowledged that South-South partnership agreements should be intensified to ensure a developmental outcome, particularly within WTO negotiations. The current focus of South-South relations, where little or no value-added products are exported to South-South countries, must be reversed and replaced with an expansion towards a more diverse export basket including more value-added products. As the South-South region offers the biggest market expansion to which South Africa can be party to, to facilitate a sustainable future economic growth and development. South Africa must be cautious to avoid mainly exporting primary commodities that are not beneficiated only just to import these finished products later from South-South nations, to the detriment of employment and foreign exchange earnings. Hence, South Africaneeds to develop competitive advantages relevant to these market areas.

 

However, in the Committee’s opinion, the Trade Policy Framework should adopt an approach of strategically selecting trading partners. Policy should therefore be informed by thorough market or cost-benefit analyses that consider the impact of an alliance on Government’s objectives. The Committee stressed that the pursuit of South-South relations, although critical, must not be at the cost of established well developed markets in the North.

 

6.3 World Trade Organisation (WTO)

 

The Trade Policy Framework supports multilateralism in order to manage globalisation and develop a response to it. It claims that the current WTO rules are imbalanced and prejudicial to the developmental interests of developing countries. South Africa is at the forefront of calling for the reform of global institutions in order to ensure a more equitable and transparent outcome.

 

Both BUSA and COSATU highlighted the failure of the Trade Policy Framework to maximise the benefits of the alliance forged by South Africa at the WTO.  The Trade Policy Framework should look at how to better present South Africa’s position to achieve broad-based support as well as leverage our position in the region and on the continent.  COSATU was of the view that strategic consideration of the benefits and the challenges of these alliances would strengthen the Trade Policy. BUSA, on the other hand, called for the strengthening of the enforcement mechanisms available, and the protection of South African interests in the WTO. Therefore, building the necessary capacity within government to deal with dispute resolutions becomes essential.

 

COSATU called for the Trade Policy Framework to commit to the reclassification of South Africa’s status as a “developed country” to that of a “developing country”. COSATU was of the view that our status as a “developed country” hides the income inequalities and unemployment evident in South Africa. 

 

The Committee noted that while government should focus resources on the agricultural sector to promote rural development; trade policy and trade remedies should be seriously considered and reviewed so that imports of subsidised products and products that contravene other WTO agreements do not undermine local industries. South Africa has actively complied with the WTO rules and honoured its obligations, where other countries have not been as diligent in this regard. There is thus a need to ensure that other member nations do not ignore these rules to the detriment of local industries, particularly in agriculture.

 

The Committee urges the Government to remain committed to ensuring the Doha Round achieves the broad parameters of its developmental agenda However, it noted that consideration should be given to promote African cooperation in respect of WTO negotiations, especially in the development of  a common position on agriculture, and to pool negotiating skills.

 

Furthermore, a much firmer position is needed in the Trade Policy Framework on, especially, the prerogative of government to exclude public services, government procurement and other strategic areas from the ambit of the WTO. The South African Government was called upon to reaffirm its right to regulate markets and invest in the public interest.

 

 

7. “New Generation” Issues

 

The Trade Policy Framework is silent on the approach that South Africa will adopt in relation to the “new generation” issues. The new frontiers for trade policy are tradable services, investment, competition policy, government procurement, labour, environment and other issues. The Trade Policy Framework recognises that the service sector’s contribution to economic development and its linkages to the promotion of economic growth, employment and equity. Although the Trade Policy Framework recognises the importance of services and trade in services to global economic growth, it does not depict the direction of South Africa’s policy development on this matter. The Trade Policy Framework advocates that any future negotiations in services would be research based and would need to consider the developmental principles set out in the General Agreement on Trade in Services (GATS), as South Africa had already become a signatory in 1994.

 

TIPS, BUSA and Tralac identified the services sector as a vehicle for economic growth, employment creation and equity.  COSATU called for a more definitive position on government’s right to exclude public service and government procurement from the ambit of the WTO. TIPS was of the view that the failure of government to have a clear position on services is due to the fact that trade in services is subject to the GATS. However, TIPS cautioned that by not positioning itself on the matter, South Africa could find itself at a disadvantage in future trade negotiations.

 

Tralac argued that the inclusion of “new generation” issues during negotiations would provide a rules-based approach to the entry of foreign direct investment and services, for instance, thus providing a more transparent and fair process. On the other hand, the TSG welcomed South Africa’s rejection of “new generation” issues being included in the interim EPA negotiations, which contradicts the direction that Government is currently taking. In terms of service liberalisation, the TSG was opposed to liberalisation, as in its view, South Africa still required a deepening of quality service provision within the country and should not facilitate the export of the South African services sector.

 

The Committee recognises the importance of services and other “new generation” issues in the Trade Policy Framework but acknowledges that these are complex issues that would require the DTI to embark on further consultative processes with the relevant stakeholders. However, the development and implementation of the guidelines would have to observe policy constraints. There was also a view that warehousing businesses could be considered as part of the services and to expedite the distribution of products to Africa. Furthermore, the Trade Policy Framework should promote products developed in Africa and in the interest of greater trade solidarity, which would benefit an African market. In the committee’s opinion it is imperative that foreign direct investment must be productive and should stimulate other industries in the country and promote employment. A balance needs to be found between developing the country’s competitive edge while supporting strategic and infant industries. 

 

 

8. Concluding Comments

 

Trade policy is critical to determine the strategic direction for South Africa’s trade relations. The country’s priority is not to only export goods and services but to deepen its industrial base and increase employment. Based on the Committee’s study of: “A South African Trade Policy and Strategy Framework: Discussion Document”, and engagement with stakeholders followed by the Committee’s deliberations, the Committee reached several conclusions.

 

8.1               The Committee supports the general thrust outlined in the “Discussion Document” known as the South African Trade Policy and Strategy Framework that seeks to deepen the industrial base, drive economic growth and reduce poverty. This underpins the relationship between industrial development and employment creation as outlined in the industrial policy. Furthermore, the Committee welcomes the realistic approach to trade policy development that is reflected in the “Discussion Document”.

 

8.2               The shift from earlier trade liberalisation to a more strategic and sectoral position informed by industrial policy is in the Committee’s opinion more in line with the decision to “define protection more broadly”[39] and to promote manufacturing, and the priorities noted in IPAP2, which include agro-industry. Certainly, there is support to avoid “across the board tariff liberalisation”[40] and its impact on employment and poverty reduction. The importance of sequencing trade measures, as noted in the “Discussion Document” is a critical imperative to the success of policies.  In addition, safeguard measureshave to be tightened in accordance with WTO rules to protect industries as they grow to maturity, as well as from heavily subsidised imported products.

 

8.3               The Committee supports the position on tariff reforms that are informed by sectoral support within the strategic industries outlined in IPAP2. However, the “case by case” approach should be supported by a critical assessment of identified sectors and their respective value-adding of products. In this regard, ITAC’s turnaround time should be accelerated and its capacity increased to support such measures. Measures to overcome other trade barriers referred to in the “Discussion Document” are also supported.

 

8.4               The Committee supports the principle of multilateralism but shares the position reflected in the “Discussion Document” that the regulatory framework should be reviewed.  The prevailing position was informed by a radically different global environment in which developed countries dominated the agenda. The current composition of WTO members reflects a very different landscape. The Committee believes South Africa’s trade policy should be more explicit in advocating for the change of South Africa’s status from a ‘developed country’ to a ‘developing country’ within WTO. Certainly South Africa cannot take “deeper and wider industrial tariff cuts” than other members. This is in conflict with the principle of “fairness” espoused by the WTO.

 

8.5               Trade facilitation by encouraging the development and maintenance of appropriate regional infrastructure is important but so are other aspects of trade facilitation particularly the availability of efficient services, such as freight logistics that require more detail. The Committee noted the inclusion of the relationship between regional trade and regional cooperation however the Committee believes stronger emphasis and greater input in this area should be reflected in trade policy.

 

8.6               The support noted in the “Discussion Document” for domestic industries, and related incentives should be dynamic and regularly reviewed against their contribution the economy and South Africa’s competiveness.  The Committee observed that markets alone do not always create competitive advantage in new areas and a country may require state intervention. This should inform among others, fiscal measures including taxation instruments.

 

8.7               The Committee is of the view that comparative advantage is more likely to attract foreign direct investment in South Africa. By developing a value-added chain of products this can encourage the establishment of plants, which will promote manufacturing and labour absorption but also encourage higher value exports.

 

8.8               The Trade Policy Framework should promote the beneficiation of mineral resources mined in South Africa. This would support the priorities of a developmental state of employment creation and equity. SADC needs to consider the development of complementary regional product value chains. The Trade Policy Framework needs to emphasise trade diversification in terms of both products and geographic areas being exported. South Africa cannot afford current unemployment rates to increase and would have to avoid any trade policies that would exacerbate this situation.

 

8.9               The Committee recognises SACU as the oldest customs union and that it has in earlier years served the purposes of member states. However, relations have become increasingly strained due mainly to external factors and more recently, for example the negative impact on members of SACU who have not signed the interim EU-SADC Economic Partnership Agreements negotiations. In this regard, the Committee supports the review of the SACU arrangements in line with the changing economic environment.

 

8.10           Developing countries are internationally regarded as new sources of growth. Stakeholders highlighted the importance of south-south trade also highlighted in the “Discussion Document”. The Committee agrees with the view expressed in this document that while we share many of the same challenges, the changing global environment and indeed the direction we are pursuing in our own economy calls for carefully configured trading relationships. Therefore, the Committee believes it is up to developing countries to promote and build on South-South cooperation at the bilateral, sub-regional and inter-regional levels including triangular cooperation with the support of the UN system particularly the Special Unit for South-South cooperation which requires further strengthening in order to enable it to fulfil its mandate.

 

8.11           However, South-South cooperation must not be used or seen as a replacement for North-South cooperation. The Committee recognises the point that the North remains a significant source of investment and that developed countries have much particularly in the technological field that can be shared with South Africa.

 

8.12           The current practice, of Parliament merely ratifying international trade agreements, dilutes the power of the oversight instrument, which can be used effectively to support trade policy. Therefore, in the fourth Parliament, as an activist Parliament, consideration should be given to strengthen cooperation between the Executive and the Committee before the execution of an agreement thus to avoid different approaches and possible divergence between the stages of execution and ratification of an agreement.

 

8.13           This may require Parliament to review its rules relating to how it processes or deals with international trade agreements, so that Parliament is involved at an earlier stage during the negotiation process. In this regard, Parliament would need to allocate adequate resources for its involvement during the negotiation process of international trade agreements. Furthermore, the Portfolio Committees of Trade and Industry and of International Relations and Cooperation must forge closer working relations to promote an integrated economic approach to trade agreements.

 

8.14           Public participation including communication and public awareness on trade policy issues must be enhanced. Certainly this is a joint responsibility of both DTI and Parliament. The Committee regrets to report that due to time constraints some of the invited stakeholders could not attend the public hearings.

 

 

9. Acknowledgements

 

The Committee acknowledges the contributions made by academic and research institutions, organised business and labour, and the DTI into the Trade Policy and Strategic Framework process.  The Committee also wishes to thank its Committee support staff in particular the Committee Secretary, Mr A Hermans, the Content Advisor, Ms M Herling and the Researcher, Mr L Mahlangu, for their professional support and conscientious commitment to their work.  The Chairperson thanks all Members of the Committee for their active participation during the process of engagement and deliberations and their constructive recommendations made in this report.

 

 

10. Recommendations

 

The Committee recommends to DTI that:

 

10.1      The position of the Committee noted in detail in the Concluding Comments on “A South African Trade Policy and Strategy Framework: Discussion Document”, should be carefully considered and taken into account in the development of the South Africa’s trade policy. Further that there is an alignment with the appropriate macroeconomic policies that would advance South Africa’s developmental agenda, as well as in relation to IPAP2.

 

10.2      Engagement and consultation should continue with relevant stakeholders regarding “new generation” issues, specifically climate change, investment and public procurement and notwithstanding the process leading to the development of a trade policy the DTI should report to the Committee within six months.

 

10.3      Guidelines and/or criteria on the selection of bilateral trade partners should form an integral part of trade policy.

 

10.4      Relations between trade and investment should be articulated to include references to ethical conduct and empowerment of local businesses by South African businesses in other developing countries especially Africa when linking trade to investment within trade agreements.

 

10.5      Adequate time should be factored in to the negotiation processes to enable Parliament to make meaningful inputs during the negotiation processes for international and regional trade agreements.

Report to be considered.

 

 

 

References

 

AGRI-SA (2010) A South African Trade Policy and Strategy Framework. Submission to the Portfolio Committee on Trade and Industry. Cape Town: 17 March 2010.

 

BUSA (2010) SATPSF: A BUSA Submission to the Portfolio Committee on Trade and Industry. Submission to the Portfolio Committee on Trade and Industry. Cape Town: 17 March 2010.

 

COSATU (2010) Submission on SATPSF. Submission to the Portfolio Committee on Trade and Industry. Cape Town: 6 April 2010.

 

Disenyana, T. (N.d.) Trade policy trajectory in South Africa. Online: www.saiia.org.za [Accessed 12 April 2010].

 

OECD (2006). South Africa’s Agriculture Policy Review. Review of Agricultural Policies, April 2006.

 

Portfolio Committee on Trade and Industry (2009) Report of the Portfolio Committee on Trade and Industry on Budget Vote 32: Trade and Industry, dated 25 June 2009.

 

Shepherd, A.R. (1970) Economic Rent and the Industry Supply Curve. Southern Economic Journal, October: 209-11.

 

The DTI (2009) A South African Trade Policy and Strategy Framework: Discussion Document. Prepared by the International Trade and Economic Development Division of the Department of Trade and Industry, South Africa. 20 November.

 

The Presidency (2006) Accelerated and Shared Growth Initiative for South Africa.

 

Trade and Industrial Policy Strategies (TIPS) (2010) South African Trade Policy and Strategic Framework. Submission to the Portfolio Committee on Trade and Industry: Constraints and Challenges.

 

Trade Law Centre of Southern Africa (2010) Key Observations: South Africa’s Trade Policy and Strategy Framework.  Written Submission to the Portfolio Committee on Trade and Industry

 

Trade Law Chambers (2010) The Trade Lawyer’s View. Submission to the Portfolio Committee on Trade and Industry. Cape Town: 17 March 2010.

 

Trade Strategy Group (2010) Dot Keet: Oral submission to the Portfolio Committee on Trade and Industry. Cape Town: 17 March 2010.

 

 

 

 

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[1] Tralac (Trade Law Centre for Southern Africa) (2010)

[2] The DTI (2009)

[3] Portfolio Committee on Trade and Industry (2009)

[4] Disenyana, T. (N.d.)

[5] The Presidency (2006)

[6] Trade liberalisation refers to the reduction of tariffs and removal or relaxation of non-tariff barriers.

[7] The DTI (2009)

[8] The DTI (2009)

[9] AGRI-SA (2010)

[10] The DTI (2009)

[11] An informal forum consisting of NGO’s, research Institutions, labour organisations and church based organisations focused on trade related matters and sustainable development.

[12] TSG (2010)

[13] BUSA (2010), COSATU (2010) and TRALAC (2010)

[14] TSG (2010)

[15] TSG (2010)

[16] Import substitution refers to a deliberate effort to replace major consumer imports by promoting the emergence and expansion of domestic industries such as textiles, shoes, and household appliances. Import substitution requires the imposition of protective tariffs and quotas to get the new industry started.

[17] COSATU is a federal labour movement.

[18] Rent seeking is a term often used in economics to describe an individual, organisation or firm that seeks to earn income by capturing economic rent through the manipulation or exploitation of the economic or political environment rather than by earning profits through economic transactions and the production of added wealth. Economic rent is defined as the excess distribution to any factor in a production process above the amount required to draw the factor into the process or to sustain the current use of the factor. (Shepherd 1970)

[19] BUSA is the merger of the Black Business Council and Business South Africa.

[20] Dumping occurs when goods are exported at a price less than normal value, generally meaning they are exported for less than they are sold in the domestic market or third country market, or at less than production cost.

[21] TIPS (2010)

[22] The DTI (2009)

[23] Producer support estimate is an indicator of the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, measured at farm gate level, arising from policy measures, regardless of their nature, objectives or impacts on farm production or income (AGRI-SA 2010).

[24] OECD (2006)

[25] AGRI-SA (2010)

[26] These are payments made by the government to encourage the export of specified products. As with taxes, subsidies can be levied on a specific or ad valorem basis. The most common product groups where export subsidies are applied are agricultural and dairy products.

[27] Sanitary and phyto-sanitary measures refer to border control measures necessary to protect human, animal or plant life or health e.g. to protect against diseases such as foot and mouth.

[28] AGRI-SA (2010)

[29] BUSA (2010)

[30] COSATU (2010)

[31] TIPS (2010)

[32] The DTI (2009)

[33] TIPS (2010)

[34] BUSA (2010)

[35] TRALAC (2010)

[36] BUSA (2010)

[37] TIPS (2010).  TIPS refers to SACU as a “quasi” customs union, as SACU has failed to formulate common policies on trade, industrial development, agriculture, competition and some sectoral priorities, as well as not establishing common structures, as agreed to in the 2002 SACU Agreement.

[38] The DTI (2009)

[39] The DTI (2009)

[40] Ibid