TRALAC - Trade Law Centre

South Africa: Mastering the Bloc of Trades

Saturday, 06 September 2003

Source: Business Report

Xavier Carim (44) is the chief trade negotiator in the department of trade and industry. Although he is intimately involved with the World Trade Organisation (WTO) talks - which start in the Mexican resort city of Cancun this week - Carim is also overseeing the negotiation of free trade agreements with the European Free Trade Association, which comprises Iceland, Liechtenstein, Norway and Switzerland; western European countries outside the EU; and the US. The department of trade and industry is also in preliminary discussions with China, India and Nigeria.

Educated at the University of Toronto in Canada, Carim held research posts at Rhodes University and the University of the Western Cape after his return from exile. He joined the department in 1995 and was South Africa's representative to the WTO from 1998 until last year.

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BR What are the chances of a successful World Trade Organisation (WTO) meeting in Cancun?

XC There has been a backtracking on the ambitious aims agreed on in Doha in 2001, and going into this meeting we are seeing very little of the kind of ambition we wanted to see and which is set out in the Doha agenda.

But there has been progress on the Trips (trade-related intellectual property rights) agreement and this should give the talks some impetus.

And South Africa has joined 19 other developing and agricultural exporting countries - including Brazil, India, China and some of the Cairns Group of agricultural exporters - to push for a more ambitious outcome in the agriculture negotiations than is being proposed by developed countries.

Unless there is progress in the agriculture negotiations there is very little prospect of success in other areas of the negotiations that are important to developed countries.

These include getting agreement on the environment, trade facilitation, competition rules and transparency in government procurement.

It must be remembered that the reform of the common agricultural policy of the European Union (EU) will leave the value of subsidy payments unchanged until 2013 and will introduce new non-tariff trade barriers.

The reforms are also delayed and partial, and will leave the EU fully capable of continuing to protect itself against imports of products that are key to developing countries.

BR What are the benefits to South Africa of a freer world trade regime?

XC Because it provides a larger market for economic operators and exporters, it generates more production, profits and employment and grows the economy.

Also important from a domestic point of view is that opening up trade lowers the costs of production in our own economy, because it allows producers to import industrial inputs much cheaper than they can be produced locally.

BR What about criticism that opening up to international trade does not deliver significant benefits?

XC Studies have shown that the net effect of opening up to trade is beneficial.

The most striking example is China, where 200 million to 300 million people have been lifted out of poverty.

But the fact is that in opening up the economy there will be adjustment costs. If our own producers are not as competitive as foreign producers, they stand the risk of losing out and being pushed out.

The way to deal with this is to make sure that the pace and sequencing of the opening up is done in a way that allows companies to increase their competitiveness.

This means new investment in upgrading production facilities, increasing skills and installing new technology.

You have to see trade policy against a wider set of policy instruments - it is only one instrument in a comprehensive development strategy.

BR But South Africa has lost more than a million jobs over the last decade?

XC There have been a lot of studies on what has been the cause of these job losses. The largest single shedder of jobs was the mining sector, where about 50 percent of the jobs were lost, showing that job losses have a lot to do with other external shocks.

Also a lot of job losses were attributable not to trade liberalisation per se, but to changes in production processes such as companies investing in more capital intensive forms of production that led to them laying off workers.

There are some instances - such as textiles and footwear - where job losses are more directly attributable to trade liberalisation. But these industries still have pretty high levels of protection by South African standards.

It is simply not true in all cases that opening up led to job losses. And as we increase exports, in some cases some sectors are creating jobs.

This is important - growing employment in internationally competitive industries is much more sustainable over the long run.

BR South Africa is negotiating several free trade agreements at the moment. Why is this significant, and why have regional agreements as well as the WTO?

XC Regional agreements have been part of the government's strategy since 1994. We are part of the WTO, but we also want to integrate and link up with strategic economies where we see benefits.

We have the agreement with the EU. We are negotiating with the US, which is important to us not just because it is a big economy and a major market for our goods and services, but because it will give us access to investment, finance and technology.

We started at the beginning of the year and it has moved quite fast.

We have also started negotiating with the European Free Trade Association (Efta).

Efta has been looking for a free trade agreement since 2000. Its motivation is that it is highly integrated with the EU and it is aligning all its relationships with third parties by entering into agreements similar to those the EU has.

Because the agreements will be very similar, it makes sense from our side to have a single relationship with all of western Europe.

We have started talks with Nigeria. We have a framework agreement and want to pursue the negotiations, but there are capacity constraints on both sides. We are each building up information bases on each other's respective economies.

We will also be looking at the possibility of entering into free trade agreements with China, India and Mercosur, the South American trading bloc.

China is moving steadily away from being a centrally planned economy to a market economy. It is huge, is growing extremely fast and is very dynamic.

BR Why do we need a free trade agreement if we already benefit from the African Growth and Opportunity Act (Agoa)?

XC Agoa was passed in 2000 and provides duty and quota free access (to the US) to sub-Saharan African exports.

But it sees the office of the US trade representative approaching African countries for free trade agreements at some point.

Through Agoa the US market has become extremely important to the Southern African Customs Union (Sacu) and South Africa. (Sacu comprises Botswana, Lesotho, Namibia, Swaziland and South Africa).

But the problem with Agoa is that there is no predictability or certainty. The whole thing lapses in 2008 and, while there is talk of the US extending it, it is not a foregone conclusion that Agoa will be extended.

And as long as there is this uncertainty it will be difficult to attract major investors.

US businesses are also increasingly saying that they are giving us preference in their markets and that they need reciprocal access to ours. If they don't get this, then there will be increased resistance to African exports.

There is also a lot of resistance in the WTO to countries giving different preferences to different groups of developing countries. The feeling is that if preferences are given they should be given equally to all developing countries.

All these factors influenced the Southern African Custom Union (Sacu) decision to enter into an agreement that would lock in Agoa's benefits and would provide the basis to go beyond Agoa.

The free trade agreement will be wider than Agoa. The agreements with Nigeria, China and India will also be done by Sacu and not by South Africa by itself.