Budget Speech: Rob Davies, Deputy Minister, Department of Trade and Industry in South Africa

Author: www.moneyweb.co.za

Published: 02/06/2008

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The Deputy Minister of Trade and Industry reflects on his two main areas of responsibility namely international trade, covering trade negotiations as well as trade and investment promotion, and industrial policy. This is some of his comments:

The reason why the Doha round negotiations has been so protracted, is fundamentally that the advanced industrialized countries have found themselves unable to come to the party with sufficiently ambitious proposals for reform in areas that have so evidently impeded the ability of developing countries to participate in the global trading system, while combining this with ultra ambitious demands directed at developing countries in other areas. Agricultural trade remains the most heavily distorted area in the global trading system.

The current paper on NAMA does for the first time provide some specific recognition of the need to provide additional flexibilities for South Africa. That is a concession that we have won through hard work and a refusal to be part of some "made in the US and EU" consensus. Considerable work and hard negotiating lie ahead if we are to come out of the Doha Round with a deal that will be of net benefit to South Africa and the developing world.

In the Economic Partnership Agreements with the European Union, we have had to confront a situation in which in order for ACP countries to secure improved access for their products to the European Union market, they have had to make substantial commitments to the European Union in areas where the European Union has manifested strategic ambitions. In the case of South Africa, which had no legal obligation to participate in the EPA negotiations, but which took a decision to do so in the interests of harmonizing our trading relationship with other members of the region, we have found a number of these obligations such a serious impediment to fundamental policy, that we have at this point been unable to initial the interim EPA agreement.

The fundamental issues of contention have not been in the area of trade in goods. The problems which we faced had to do mostly with matters of trade rules. The European Union indicated that it was not willing to agree to enhance market access, unless there were simultaneously negotiations resulting in agreements on so called new generation or Singapore issues, such as investment, competition policy and transparency in government procurement. The argument put forward was that rules about such matters were essential to enhance the attractiveness of ACP regions as investment destinations.

The problem which we had with that proposition is firstly, that we do not as the SADC EPA configuration, consisting of SACU members plus Mozambique and Angola, have in place common rules or common procedures on any of those matters.

Secondly, we became aware that these matters have been identified in strategic papers of the European Union, as matters which they would want to address as so called "beyond the border" matters judged necessary to make market access for European companies across the world, real and valuable. The specific demands in each of these areas have accordingly been to insist that regulatory authorities act to defend European interests against preferences for domestic producers, and also to act on their behalf against so-called domestic monopolies. In the interim EPA arrangement as well, we encountered a series of demands, which in our view would have allowed the European Union to exert significant influence on our economic governance in a highly partisan and non-developmental manner.

The EPA councils would have emerged as powerful new bodies, potentially trumping either SADC or SACU.

This brings me to the third important area which a new administration will have to grapple with, that is the issue of promoting regional integration. This is in a context in which SADC, which has set itself the ambition of launching a fully fledged Free Trade Area (FTA) at the summit in August 2008, and retains the ambition of moving towards a customs union by the date of 2010. Let me just say Chairperson, that the date of establishing a customs union by 2010, looks at this juncture, to be highly over ambitious. We believe therefore, that what we need to do is revisit our regional integration programmes with a view to accelerating our cooperation and coordination agendas, in real economy areas such as infrastructure, industrial policy and the like, and that this should be the basis upon which we eventually, and at an appropriate time, move towards a properly negotiated and constituted Customs Union.

In future we anticipate Industrial Policy Action Plans being three year rolling programmes aligned to the MTEF process. The first such rolling three year IPAP is under preparation, and we anticipate that it will be completed ahead of this year's Medium Term Budget Policy Statement. This will take forward the work that has been done in the lead sectors, and to identify new targets and new milestones to ratchet up the work to another stage. At the same time, we anticipate new priority sectors emerging, including some parts of agro processing, mari-culture and craft industries. Simultaneously with this, we will be addressing important cross cutting issues of which the most important is probably the issue of industrial financing, as well as capital upgrading programmes in targeted sectors.