South Africa has handed over a key trading weapon in its arsenal to China as part of the controversial agreement to get the country to agree to import quotas on a range of clothing items.
China agreed to the quota deal, which covers 200 clothing products, in exchange for South Africa agreeing to give it the status of market economy in trade relations. Few countries have accorded China this status.
During Jacob Zuma’s tenure as deputy president, he said that South Africa would recognise China as a market economy, according to international trade law consultant Gustav Brink. But Brink said that China’s effective status had been as a non-market economy before the import quota deal cemented its market status.
Market economy status means that if trade disputes arise, such as in the case of dumped goods, Chinese prices will be used rather than the prices of an independent country.
The memorandum of understanding between China and South Africa, which covers the controversial agreement, includes clauses that include skills and technology. Observers question whether these could now apply, for instance, to technology transfer by Sasol to China. Attempts to get clarification from trade and industry officials were unsuccessful.
Brink said that the memorandum of understanding between the two countries followed a request by clothing union Sactwu for safeguard protection from Chinese clothing imports.
The imposition on quotas on Chinese imports flows from closed-door negotiations between Sactwu and the department of trade after it applied to Itac, a specialist body within the department that handles the applications of safeguards. The Sactwu application became part of a much wider negotiation covering general trade issues.
Sactwu chose products on the basis of several criteria, including the amount of imports, the growth in imports, local capacity available and their vision for how the industry would grow. T-shirts, for example, were not included because they represent low-value-added items, said a union official who asked to remain unnamed.
Brink said that what had started with one institution designed to handle safeguards had ended up as a much wider, general agreement.
Sactwu wanted import quotas on 38 tariff headings covering 900 clothing imports. The Chinese rejected this. The department of trade and industry subsequently held separate meetings with Sactwu and the Chinese.
The eight-page memorandum of understanding was signed on August 28, published on the South African Revenue Service (Sars) website and gazetted on September 1. On the same day Minister Mandisi Mpahlwa announced the import quotas on 31 headings covering 200 clothing lines.
Sars, which has the responsibility of managing the new quotas, has said it was not consulted on the implementation and is not ready for it.
Critics say that there were at least two problems associated with the process to date. It was neither transparent nor inclusive. When news of the import quotas broke, billions were wiped off the market capitalisation of JSE-listed retailers.
In the storm of protest retailers said they already had shipments on the water and that they had not been consulted on the import quotas. Reserve Bank Governor Tito Mboweni has said the move was protectionist and would not encourage the clothing industry to become competitive.
He said cheaper clothing imports contributed to lower inflation.
The department of trade and industry responded by delaying the implemention of the quotas until January.
Retailers warn that jobs will be lost after the quotas are introduced in a sector that grew 347 000 of the 544 000 new jobs in the past year, according to the most recent labour- force survey released this week.
“Certain elements of it are devoid of sound economic rationale and are entirely politically expedient,” said Standard Bank’s group economist Goolam Ballim. He explained that the private sector should engage globalisation independently of state partnership, noting that the government’s actions were taken to further its socio-economic objectives.
Robert Wilson of the Trade Law Centre for Southern Africa said that the way in which the trade deal was negotiated reflects a lack of clarity regarding the domestic interactions around trade policy.
While the trade deal reflected Sactwu’s interests, he said, “they knew how to play the game”. In contrast, the retailers were “caught out”.
Criticism from Sars and Mboweni suggested a breakdown within the public sector on the issue of import quotas, while the retailers and manufacturers voiced problems in the public sector’s interaction with the private sector on the matter.
For Wilson, this reflects the fact that South Africa is in “unchartered territory” and needs clarity on systems for domestic bargaining on trade policy. He said that Harvard economist Dani Rodrik concluded in a recent study that, “an element of protectionism is necessary in the new order” but stressed that “it has to be done within an appropriate domestic institutional framework”.
The necessary institutional settings should be independent and transparent and produce accountable decisions that are credibly in line with broader developmental objectives, he said.
In contrast to these objective conditions, the import quota agreement was hammered out behind closed doors. Besides recognising China as a market economy, South Africa also gives up its right to use an article relating specifically to safeguards against Chinese goods.
Brink argued that South Africa gave up the right to use the special safeguards on all Chinese imports in terms of the deal and not just clothing and textiles.
The structure of the quota system is also relatively favourable to the Chinese, he said. Other countries that have negotiated similar deals on import restrictions with China have increased the amount that can be imported each year by about 7%. In the current arrangement, the amount that imports can increase by each year, or the escalation, is as high as 20%, he said.
A number of categories that Sactwu wanted to have protected were not protected in the final import quota deal. While footwear was in the initial application, it was not included in the final import quotas, said Brink.
Similarly, many fabrics that local industry wanted to be on the list were excluded, such as bed, table, toilet and kitchen linen.
In 2004, 4 283 tonnes of this fabric were imported to the value of R47,3-million.