A SOUTH AFRICAN TRADE POLICY AND STRATEGY FRAMEWORK

1. A SOUTH AFRICANTRADE POLICY AND STRATEGYFRAMEWORK PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY PUBLIC HEARINGS Hans van der Merwe CEO – Agri SA 17 March 2010

2. Agricultural Trade and Tariff Policy (Factors to be considered) • National Industrial Policy Framework • Trade Policy: Principles • WTO commitments • Current situation: PSE’s and fair trade • Agriculture: Structural characteristics • Protection of agricultural products • Agriculture: Trade Policy • International trade-environment and policy • IPAP-linkage • Conclusion

3. National Industrial Policy Framework • The NIPF states that “our fundamental approach is that tariff policy should be decided primarily on a sector by sector basis, dictated by the needs and imperatives of sector strategies”. • Agricultural strategies • Agricultural Sector Plan • AgriBEE

4. National Industrial Policy Framework • The NIPF: • Seeks to encourage value-added, labour-absorbing industrial production and diversify the economy away from its current over reliance on traditional commodities and non-tradable services and, in this way, catalyze employment growth. • Considers recent experiences of economic development, taking into account the changing basis of international competition as well as the trade and industrial policy ingredients for success in an increasingly competitive global economy. • recommends a strategic and calibrated approach to future tariff setting as an essential component of improving South Africa’s trade performance in future.

5. Trade Policy and Strategy Framework (TPSF) • The TPSF: • Offers policy guidance on trade and tariff policy and strategy • Provides greater clarity on the linkages between trade and tariff policy and industrial policy • Representatives from the Department of Agriculture, Forestry and Fisheries submitted substantive input on the agricultural sections of the Framework • It became evident that there was a broad convergence on the need to place greater emphasis on strategic trade policies • Consultation took place against the background of growing emphasis on the role of the state in optimising economic growth and managing structural change

6. Tariff Reform and Trade Performance • Successful developing economies have adopted a strategic approach to tariff policy. • They have ensured that their tariff policy is informed by industrial policy and that where trade liberalisation is pursued, it is done gradually and selectively to support broader programmes aimed at industrial development. • Tariff reductions have not induced the structural changes in the economy to significantly alter the export basket beyond the range of products that reflect South Africa’s static comparative advantage. • In the early 1990s, South Africa’s average tariff was around 23%. It now stands at 8.2%. In 2006, the proportion of zero-rated tariff lines rose to about 54%. • Considerable simplification of tariff regime: • 13 609 tariff lines in 1990 to 6420 in 2006 • Elimination of import controls

7. Uruguay Round “Establish a fair and market-oriented agricultural trading system and that a reform process should be initiated through the negotiation of commitments on support and protection and through the establishment of strengthened and more operationally effective GATT rules and disciplines”

8. Commitments • Export subsidies • Domestic support • Tariffication • Current market access/minimum market access • Sanitary and Phytosanitary (SPS) Measures • Agreement on Technical barriers to trade • “Peace Clause” • Special and Differential Treatment

9. Numerical targets for cutting subsidies and protection

10. Objective for Agricultural Negotiations: “To achieve a substantial improvement of market opportunities for all South African agricultural products with export potential, to improve fair trade conditions on agricultural products imported of exported; and to ensure that South Africa’s rural development objectives are accommodated within the allowable range of WTO disciplines”

11. Agri SA’s view • Market Access • Reductions in bound rates • Increase in market access quotas for SA’s exportables • New and agreed disciplines on tariff quota administration • Renegotiating special safeguards as application are cumbersome and impractical

12. Agri SA’s view • Export Subsidies • Entire elimination of all export subsidies • No accumulation of unused export subsidies • Termination of measures – equivalent effect • Elimination of export taxes

13. Agri SA’s view • Domestic support • Blue Box: Measures scaled down and capped • Amber Box: Subsidies: Eliminated completely and de minimis maintained • Green Box: Criteria for Green Box measures tightened

14. The Producer Support Estimate (PSE)is an indicator of the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, measured at farm gate level, arising from policy measures, regardless of their nature, objectives or impacts on farm production or income.

15. Estimates of support to agriculture in selected non-OECD and OECD countries (2008) Percentage PSE Source: OECD

16. Producer Support Estimate by commodity Source: OECD

17. Contribution of agriculture to the gross domestic product in SA, 1999 to 2009 Percentage (%) Source: SA Reserve Bank, Dec 2009

18. Expenditure on intermediate goods and services (2009)

19. Forward linkage – downstream linkage • Final consumption expenditure on food, beverages and tobacco. Liberally viewed = forward multiplier • The empirical results suggest that for a 1% growth in the agricultural sector, the non-agricultural sector (manufacturing) responds by more than 1%. The empirical results supports the argument, that South Africa should follow an “agricultural-led” growth strategy for successful development (Department of Agricultural Economics, University of Pretoria)

20. Imports and exports of agricultural products, 2004 to 2009 R’million Source: DAFF

21. South African Agricultural exports and imports, 1986-2009 Source: DAFF

22. EXPORT AND IMPORT VALUE OF AGRICULTURAL PRODUCTS (F.O.B) (R’000) Source: DAFF

23. Agricultural trade balance: Reasons for agricultural import dependency on processed food • SA became a strong net-importer of processed agricultural products in 2007 and 2008. Reasons: • Government income support to target vulnerable groups/poor • Strong currency (from 2003 to 2007) that favoured imports • Rand was largely over valued due to foreign speculation. • Credit crises in 2008- speculative investment withdrawn • Population increase in recent years • Strong spending and growth in the SA middle class • Prices of many primary products peaked in 2007 (droughts elsewhere e.g. Australia > low levelsof world stocks ) • 2007 was a dry year in the summer rainfall areas – overall both volumes and prices went up.

24. Import tariffs on agricultural products

25. A Strategic Tariff Policy: Future Perspectives • The South African Government has chosen a growth and development path that prioritises industrial upgrading in more labour intensive sectors to generate sustainable and decent employment. • The Framework thus recommends a ‘strategic tariff policy’ approach. • The NIPF is explicit: “… our fundamental approach is that tariff policy should be decided primarily on a sector by sector basis, dictated by the needs and imperatives of sector strategies”. • Sectoral work is grounded on a ‘self-discovery’ process of engagement between government and stakeholder and will build in appropriate disciplines to meet industrial policy objectives. • There is no a priori presumption of the benefits or costs of maintaining either low or high tariffs, but the upper limits for tariff setting are, of course, set by the binding obligations South Africa has taken in the WTO and in other bilateral trade agreements. • ITAC’s consultative and evidence-based approach to tariff setting is an important bulwark against ill-advised proposals

26. Agriculture • Global players are subsidised and protected • South African agriculture has developed resilience and has maintained its competitiveness particularly in fruit, sugar and wine • The primary agricultural sector’s strong indirect role in the economy is a function of backward and forward linkages to other sectors • Given the strategic role of the sector for the economy, particular attention will need to be granted to the application of tariffs in agriculture given the highly distorted nature of international agricultural trade

27. DOHA-importance • Enhance market access for products of export interests to developing countries; • Eliminate industrial country subsidies and support to inefficient producers, particularly in agriculture; • Re-negotiate rules that perpetuate imbalances in international trade; and • Ensure policy space for developing countries to pursue developmental objectives through meaningful implementation of the principle of special and differential treatment.

28. Agriculture • South Africa also plays an active role in strengthening continental processes - NEPAD • Building regional markets and strengthening cross border infrastructure development • In the context of growing extra-continental interest in securing access to Africa’s resources, a second dimension of the work is to ensure that such relations serve the developmental priorities defined by African countries. • Bilateral engagements with African countries, South Africa will continue to pursue cooperative arrangements to promote infrastructure development, intra-African trade and investment and technical assistance, with particular attention to efforts supporting the reconstruction and development of African countries emerging from conflict. • South Africa is deeply committed to development integration in Southern Africa that combines trade integration with infrastructural development and sectoral policy coordination. • Our approach privileges the policy interventions required to build regional productive capacity and infrastructure as experience has demonstrated that the main barriers to increasing intra-regional trade are often not tariffs.

29. Agriculture • Require purposeful interventions in Africa that address underdeveloped production structures and develop infrastructure and institutions across the region. • Need to respond to the Economic Partnership Agreements (EPAs) between the European Union (EU) and SADC countries. • Member states of SADC and SACU will need to respond collectively to this new challenge to the region’s integration and development strategy. • South Africa will intensify engagement and cooperation with these emerging economies - India • We have learned important lessons that will inform our future bilateral engagements. First, as compared to free trade agreements, more focused preferential trade agreements allows for a more strategic integration process among developing countries. Second, it is increasingly apparent that tariffs are not always the most important barrier faced in foreign markets and hence negotiating outcomes must deal more effectively with non-tariff barriers. Third, we will need to give attention to forging sectoral cooperation agreements to support South Africa’s industrial development objectives.

30. IPAP: Key Action Plan • Sector specific tariff policy • TBT’s and NTB’s • Indicative reference pricing • Concentration in agri-food chain • Focus on agro-processing (Cluster 1) • Focus on Biofuels (Cluster 2) • Full exploitation of food and beverage subsectors

31. Which “industrial” crops • Sugar cane – has set the clearest and best example over years (it still has a great future) • Sugar beet – vast potential particularly in “homelands” • Maize – a new coming • Sweet sorghum – comeback king • Cotton – great market value chains • Canola • Soya beans – import replacement • Hemp – what a future in biomass and textiles

32. Agriculture • ‘Strategic integration’ should aim to ensure that we preserve the policy space to pursue national objectives while leveraging the benefits of more integrated regional and global markets. • The emergence of global trading system that is supportive of the developmental objectives and interests of developing countries would broadly favour national aspirations. • South Africa will continue to align itself to the broad developmental objectives of developing countries

33. Conclusion • Agricultural linkages important: Down and upstream to remain competitive • Dedicated trade and tariff policies paramount • NTB’s to be assessed and monitored • DOHA-round – import tariff trade off • Trade fascilitation and agriculture • DTI/DAFF/ITAC interaction • Tariff escalation: Specific focus • Local value – addition • General view: Trade Policy

34. Thank you