TRALAC - Trade Law Centre

South Africa: 'Not time to be inward-looking'

Wednesday, 18 July 2018 Published: | BD Editorial

Source: Business Day (South Africa)

Spare a thought for Trade and Industry Minister Rob Davies, who will have a tough job convincing the US not to impose possible export duties on vehicle and component exports.

He has already lost the battle to have SA excluded from US President Donald Trump’s tit-for-tat trade war with China, with duties imposed on steel and aluminium.

With vehicles and components, however, the stakes are higher.

Of all the sectors Davies’s department has been punting for a revival in local manufacturing, it has been by far the most successful, with automotive exports reaching R164.9bn in 2017, nearly 14% of total exports.

In addition to lucrative government incentives, automotive manufacturers in SA benefit from duty-and quota-free access to the US under the Africa Growth and Opportunity Act (Agoa), which was signed into law by former US president George W Bush in 2000 to provide improved market access to the US on a range of products for qualifying African countries.

The aim has been to encourage development and alleviate poverty on the continent, where few countries have reached middle-income status.

There has been lobbying in the US to exclude "too rich" SA from Agoa over the years, as many other much poorer countries around the world do not enjoy the same market access. The critics would also like to see some reciprocity for US exporters. Why give duty-and quota-free access to South African producers, if US manufacturers do not get the same privileges in SA?

Without a formal trade agreement between SA and the US, Davies does not have much of a leg to stand on. As a unilateral trade policy, the US can revoke privileges at any time — and not only for automotive exports, but a range of other products shipped duty-free, including clothing, textiles and footwear, chemicals, agricultural products and electronic products.

Admittedly, even if we had a formal agreement in place — years of talks came to nought in 2006 – Trump would not hesitate to ride roughshod over it, given how he has been treating his most important trade allies.

Trump’s disregard for the multilateral trade system should provide pause for thought for South African policy makers, who have been reluctant to enter into new trade agreements after the liberalisation of the economy in the 1990s and early 2000s – and the job losses seen in sectors such as manufacturing since then.

With an election looming and unemployment at 27%, one can understand the reluctance of politicians to touch anything that may put jobs at risk.

Yet this is the time to resist being inward-looking. It has been demonstrated, notably in the latest Visa Africa Integration Index, that the extent and nature of a country’s connections, to the global and the regional economy, is one of the single biggest influencers of socioeconomic change. By increasing their levels of connectedness, countries can boost economic growth, inclusion and income levels, according to the index.

A clear example is Rwanda. Between 2012 and 2017, Rwanda displayed the largest relative gain in connectedness among the 19 countries in the Visa index, including SA, manifesting in a 7% gain in per-person income per year. SA’s is largely unchanged.

One challenge is that we are stuck in a bad neighbourhood, speaking from an economic competitiveness perspective, with no neighbour in a position to really keep us on our toes. All support should therefore be made available to help Zimbabwe recover, and for Mozambique to benefit as much as possible from its mineral riches. It may even be time to blow some new energy into Brics.

And if President Cyril Ramaphosa has to wine and dine every leader in the Middle East, Southeast Asia and Latin America over the next 12 months, let us happily pick up the tab.

 

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