TWN Info Service on WTO and Trade Issues (June10/03)
15 June 2010
Third World Network

South Africa eyes South-South trade possibilities
Published in SUNS #6942 dated 11 June 2010

Geneva, 10 Jun (Kanaga Raja) -- South Africa is now looking at a number of possibilities in South-South trade involving other "poles of growth" such as India, Brazil and China, Mr Rob Davies, South Africa's Trade and Industry Minister, said Wednesday.

He placed this view in the context of European economies being in the throes of a crisis, and a weak euro (and the European Union drive for a fiscal contraction in Member States.)

[Nobel Laureate Paul Krugman, in a blog post at the New York Times, has said that the euro weakness is turning the euro-zone's fiscal contraction into a global problem, and would affect the rest of the world, including the United States. A fiscal contraction in one country under floating exchange rates, leads to currency depreciation and in fact imposes a contraction on the rest of the world. The euro-zone weakness is now a global problem, and getting ugly, he says, and suggests that the US needs to be thinking of how to insulate itself from the European masochism.]

At a media briefing in Geneva (where he was attending the executive session of the UNCTAD Trade and Development Board), Davies said that although multilateralism has been where developing countries have focused their attention, the picture is changing with the emergence of "new poles of economic power" and new forces of dynamism in the world economy.

"And we now see a huge number of possibilities from South-South trade," he further said, adding that a lot of South Africa's efforts are being deployed there.

He cited India, China and Brazil as examples of the powerful economies, and fellow developing countries, and South Africa is involved with them in negotiations. He mentioned in this context the need to identify complementarities "so that we're not actually trying to frontally compete with each others' own developmental efforts."

Speaking at the same media briefing, Richard Kozul-Wright, Chief of UNCTAD's Unit for Economic Cooperation and Integration among Developing Countries, highlighted concerns in UNCTAD in the way the Millennium Development Goals (MDGs) are being "hijacked" by an economic agenda which "we don't think is capable of achieving the MDGs within the requisite time-frame (by 2015)".

"The need to move essentially from a focus on deprivation which is how the MDGs have become conceived to a focus on development - which is where we think they should be - essentially requires countries to rethink their development strategies and look towards new development paths...," he said.

He added: "I think that message is very much underpinned in our (UNCTAD's) analysis by a need to rethink macroeconomic policy, a need to reintroduce some of the policy challenges that have been essentially excluded from the agenda thanks to the dominance of very conventional thinking over the course of the last couple of decades."

One of the big victims of that, in UNCTAD'S view, is industrial policy which has essentially not been discussed for two decades amongst policy-makers, particularly in the development community, he said.

He also said that this has been the case in many developing countries themselves who have been either forced into accepting that exclusion or have themselves bought into the conventional thinking.

Rob Davies said that South Africa is in full support of the approach that UNCTAD is taking to assist in achieving the MDGs. He highlighted South Africa's approach to trade policy (presented at the executive session of the TDB on Wednesday), saying that it is a very critical issue. South Africa's trade policy is rooted in its industrial policy. He stressed that South Africa's approach to trade policy is that it is subordinate to industrial policy. "Our industrial policy will determine the parameters of our tariff setting."

On the Doha Round, Davies said that South Africa, like many other developing countries, supported the developmental mandate, but that mandate has become diluted.

"The level of ambition on agriculture reform has been a modest one, but we're seeing now that there are demands which are couched as raising the level of ambition, but in our estimation, they are not about raising the ambition per se across the board, but are actually requests or demands on so-called advanced developing countries that they must now make a whole lot of concessions to the demands of the developed world," particularly in industrial tariffs and services and a number of other issues in the "horizontal" process, he said.

South Africa is saying that "we must make sure that this process does not lead to, not a raising of the level of ambition, but a tilting of the balance against developing countries."

Although multilateralism has been where developing countries have focused their attention for very good reasons - because bilateralism has not been all that attractive - he said that picture is changing, because "we've seen the emergence of new poles of economic power in the world economy" and new forces of dynamism in the world economy.

"And we now see a huge number of possibilities from South-South trade," he said, adding that a lot of South Africa's efforts are being deployed there. Davies said South Africa was not merely looking for more trade, but wider South-South cooperation in development.

Asked about South Africa's view in respect of the fears in Europe on a second round of recession and the European countries introducing austerity measures, Davies said that South Africa is "watching the space of what happens in Europe very, very carefully."

Although South Africa is involved in a diversification of its trade and China has become its largest trading partner two years ago, the European Union as a collective is still South Africa's largest trading partner, he said. The picture is one where trade with the European Union took a big thump in 2009 in a lot of countries and is down by very significant percentages.

"And we have also seen the impact of the devaluation of the euro," which means for some time to come, as long as this crisis continues to engulf Europe, "it is going to have ripple effects on some of us," he said. "I think we do now have alternatives and that is, that we can diversify and there are other poles of growth and I think that will be one of the real consequences of this situation."

He was of the view that there is risk of double-dip recession in Europe. He noted that stimulus packages have led to increased debt and if these packages are pulled too quickly, who knows what may happen. At the same time, something has to be done about the cost of the debt.

Asked about industrial policy gaining primacy over trade policy and whether this will go against the WTO Trade-Related Investment Measures (TRIMs) Agreement, Davies said that there is probably more policy space available than many countries imagine. "I think that's something which we're learning and certainly we will be looking to identify the policy space that we have."

"We're not looking to break the rules. We're not looking to challenge the DSU (Dispute Settlement Understanding), but we are looking to use the policy space in a creative and serious way to advance our objectives," he added. "I think that also means that we will be seeking to preserve important policy space in whatever outcome there is that emerges, if there is indeed an outcome," he stressed.

Asked if there is going to be any progress in the Doha Round or will there be a permanent impasse, Davies said that "there is a sort of consensus there's nothing going to happen this year. Everybody is looking to 2011."

Indicating that South Africa has no objection to engaging in the "horizontal" process (involving the issues of services, environmental goods, fisheries subsidies and rules), Davies said "but we should disabuse ourselves and anybody else of the idea that the outcome there is all about delivering some pay-off for all the reforms that have been made in agriculture."

He said that he had pointed out that the Doha development mandate is there because there are a number of structural issues in the existing world trading system that are to the disadvantage of the developing countries. The focus of the Doha Round should be on these. It is true and clear that those are most evident and sharpest in agriculture, but they are not confined to that. In each of the other subjects, the Doha mandate says that Members must prioritize the needs and interests of developing countries.

When talking about services, environmental goods and fisheries subsidies, there must be a developmental outcome on each of those as well as in the overall developmental outcome of the Round, said Davis, pointing out that this is the work programme that South Africa is prepared to engage in.

"We want to conclude a developmental Round," he stressed. "We want an early conclusion that is loyal to the mandate. If we have to choose between the two, we'll take one that's loyal to the mandate and we'll wait for it." +