Jacob Zuma’s new power brokers are signalling that a new trade regime is on the way.
His new industry minister, Rob Davies, for one, said he wants to increase tariffs to the maximum allowed by World Trade Organisation (WTO) rules. In many cases actual tariff levels are significantly below those required by the WTO.
Davies said that in some instances — on a ”case by case” examination — there is no reason why tariff levels could not be taken to the bound levels allowed by the WTO.
Bound tariff rates are the maximum tariff levels a country agrees to under the WTO.
South Africa is one of just a few countries that has not raised its tariff levels in response to the global financial crisis, research by the World Bank shows.
South Africa, Japan and Saudi Arabia are the only G20 countries not to do so.
South Africa has, in recent years, been taking an increasingly defensive stance in the WTO on liberalising trade. But analysts believe with new ministers such as Davies at the Department of Trade and Industry and Ebrahim Patel at the new Department of Economic Development the position may quickly become an entrenched one.
”We won’t and can’t become protectionist in our approach to the crisis,” said Davies, ”but we must also examine international reactions to [events]. It shouldn’t only be up to individual countries with water in their tariffs to restrain themselves.”
”Water” is the difference between applied tariffs and their maximum bound rates and indicates how much room countries have to manoeuvre.
According to research done by Peter Draper and Gilberto Biacuana of the South African Institute of International Affairs (SAIIA), goods that enjoyed the highest average applied tariffs in 2008 include textiles and clothing, 22.4%; footwear, 20.9%; and manufactured articles, 10.5%.
In all these cases SAIIA’s research points to a good deal of room for the country to increase its levels to the average bound rates. For items such as manufactured goods this could rise from the 10.5% applied rate to the 30% average maximum bound rate, while items such as textiles and clothing could rise to 35.9%.
Imports of machinery, mineral products and transport equipment amounted to $3-billion, $2.6-billion and $1.2-billion respectively, according to SAIIA’s calculations.
All these products enjoy low applied tariffs relative to their bound rate, with machinery, for instance, sitting at 4% against 30%. If the maximum or bound tariffs are applied in this instance alone it could cost the country as much as an additional $780-million or R6.6-billion.
Draper views the benefits tougher trade measures will bring South Africa with scepticism. Because the rest of the world has increased protection measures ”does not mean it’s right” for South Africa to follow suit, he said. He pointed to a host of problems that could arise, including the effect such as move might have on exporters and domestic consumers.
Much of the concern about tougher tariff measures began with the release by government earlier this year of the Framework Document for South Africa’s Response to the International Economic Crisis. The document, put together under the auspices of Nedlac, was intended to explore ways for business, labour and government to mitigate the effects of the crisis on the local economy.
It highlighted sectors in distress, including the automotive industry and clothing and textiles, which could warrant assistance from government in a bid to save jobs.
Previous minister of finance Trevor Manuel was critical of any bailouts for industries already protected by trade and industrial policies.
But both Patel and Davies support sectors deemed to be job creators.
Davies said there is a difference between bailouts and the financial support being proposed for troubled sectors, which will come on the back of a ”serious appraisal of projects” that show potential.
Similarly, Patel said the Industrial Development Corporation had been asked to prepare a report on ways it can help companies and industries in distress, based on clear criteria that must include the saving of jobs.
”Any support that government may make available through the department of trade and industry will be evidence-based,” Patel said.
Patel said more effective industrial policy measures to promote competitiveness and innovation would be emphasised, with a drive to strengthen industrial policy capacity.
But the emphasis that local industrial policy has placed on the manufacturing sector is ”a gamble” in the context of the crisis, said Brendan Vickers, senior researcher in multilateral trade at the Institute for Global Dialogue.
So far South Africa has been unable to compete with international powerÂhouses in Asia because of high labour costs and a lack of skills and capacity. In addition, policies that emphasise economic growth on the back of exports are proving to be flawed as global demand for manufactured goods has fallen through the floor.
Ultimately, however, the way forward on microeconomic policy still remains unclear. With Manuel sitting in the presidency as head of the National Planning Commission, and Pravin Gordhan heading up the national treasury, any major interventions proposed will have to take into account what is practical, implementable and affordable.