South Africa ’ s Trade Policy and Strategy Framework (TPSF)

1. South Africa’s Trade Policy and Strategy Framework (TPSF) Dr Rob Davies, MP Minister of Trade and Industry Presentation to the Parliamentary Portfolio Committee on Trade and Industry 23 August 2013

2. Trade Policy and Strategy Framework • TPSF completed in 2010 and revised in 2012, on both occasions approved by Cabinet. • Outcome of a 3 year consultative review process that included extensive consultations with all stakeholders, including Parliament. • Sets out how trade policy can contribute to Government’s economic development objectives outlined in NIPF, IPAP, NGP and NDP. • Trade policy is an instrument of industrial policy. • Must support industrial development and upgrading, employment growth and increased value-added exports.

3. Trade Policy is informed by and must support IPAP Source: IPAP 2013/2014-2015/2016

4. Setting the Scene • SA has a relatively high ratio of merchandise trade to GDP, ranging between 50-60%. • SA is a relatively open economy, only “moderately” protected by tariffs. • Simple average MFN applied tariff: 7.7% (down from 23% in the 1990s). • 56% duties are set at 0% • Compared to our trading partners, the tariff regime is transparent and not overly complex (e.g. no NTBs). • WTO Services commitments on par with OECD countries. • Very permissive and FDI enabling environment.

5. SA’s Trade Reform Experience • Extensive tariff liberalisation since 1994. • BUT while SA exports increased significantly, the basket of export goods, with some notable exceptions, remains largely unchanged. • SA exports continue to be dominated by commodities, except in African markets. • Labour-intensive production has contracted due to imports. • Bias towards capital and high skill-intensive growth (rather than low-skilled labour intensive production). • Hence NIPF, IPAP and NGP argue for ‘developmental’ trade policies.

6. SA’s Approach to Tariff Reform • International experience demonstrates the importance of a strategic approach to tariff policy (i.e. as part of industrial policy, and pursued gradually and selectively to support industrial development). • An evidence-based, case-by-case assessment will inform tariff changes in SA (no a priori position). • Vital role for ITAC. • Tariffs on mature upstream input industries could be reduced or removed to lower the costs for downstream, labour-creating manufacturing. • Tariffs on downstream industries with employment or value-addition potential could be retained or raised to ensure sustainability and job creation.

7. The New Trade Narrative and GVCs • Growing debate on trade policy implications of global value-chains (GVCs). • Observation that 60% of world trade is in intermediate products, and countries should aspire to participate in GVCs. • GVCs offer new methodology to calculate trade and includes contribution of services. • BUT prescriptive too: liberalise tariffs and services, reduce NTBs, introduce trade facilitation measures. • Until recently, ignores how countries can move up VCs and structurally transform their economies.

8. The New Trade Narrative and GVCs • SA/Africa is already integrated into GVCs, generally at low end, except for autos, chemicals etc. • Moving up VC requires deliberate industrial policy and policy space to do so. • Negotiations with major players involve demands that close off policy space for industrial development. • Agreements not necessary to address industrial and infrastructure development and trade facilitation; this work is underway in the region (eg. SADC). • We have strong services sectors: communication, transport, tourism, construction and finance. • We need to focus on building regional services trade.

9. The New Trade Narrative and WTO • There is also debate on new approaches and new issues for concluding the WTO’s Doha Round. • New approaches (e.g. plurilateral negotiations) undermine multilateral principles, can unravel coherence of the Doha mandate and aim to extract greater access to our markets. • ‘Cherry-picking’ issues, like Trade Facilitation. • Proposals to introduce new issues in WTO are premature given the unfinished business of the Doha Round. • SA is committed to concluding the Round on the basis of the development mandate and Single Undertaking

10. Bali Ministerial and the Doha Round • 9th WTO MC in Dec offers an opportunity to deliver a modest package. • A balanced and structured in favour of the poorest WTO members (LDCs). • Several modest outcomes in Agriculture • A balanced outcome on Trade Facilitation preserving the principle of special and differential treatment. • Signal the multilateral trading system retains vitality, is attuned to the concerns of the poorest, and establish a basis for progress on the wider Doha Development Agenda post-Bali.

11. SADC-EAC-COMESA T-FTA • T-FTA negotiations underway: behind schedule (2014 deadline) • Key principle agreed: Negotiations among T-FTA members with no preferential arrangements in place (no reopening SADC TP). • In effect SACU will negotiate tariff concessions with non-SADC Members of T-FTA (notably EAC and Egypt). • Agreed Modality for offers: 60% of tariff lines duty-free at entry into force; 25% to be negotiated; 5-8 years implementation. • Key challenge is Rules of Origin must ensure benefits of preferences accrue to T-FTA Partners, not third countries (clothing sector). • SA is developing its market access offers and requests, and texts, in NEDLAC, as basis for the SACU position. • Work underway on N-S Corridor and industrial development.

12. SACU-India PTA • PTA negotiations since 2007 with progress made on legal texts (Main Agreement and Safeguards). Dispute Settlement text almost agreed. • Market access requests exchanged in December 2011. • Concerns from constituencies include India’s request in sensitive sectors (clothing chemicals) and that NTBs will diminish value of Indian offer. • Ministers agreed in January 2013 to a reduced level of tariff exchange (level to be agreed). • PTA to be building block to incrementally grow trade. • Preparation of SA offer re-started in Nedlac

13. EPA Negotiations • Steady progress since 2007 to “fix” Interim EPA. • Good possibility of new Rules of Origin to assist clothing exports and for regional cumulation. • Focus now on exchange of tariff concessions in agricultural products, many of which are sensitive. • In Sept 2011, SA agreed to EU demand to negotiate Geographic Indications in part to ‘pay’ for market access requests in agriculture: Progress made in GI engagement • Controversial legal provisions resolved; MFN can be solved; difficult issues are export taxes and agricultural safeguards. • ‘Deadline’ 1 October 2014. • Impact on regional integration?

14. Africa Growth and Opportunity Act • AGOA has assisted in growing trade between SA/SSA and the US, and has generated goodwill. • SSA calling for a 15-year extension of AGOA beyond expiry in September 2015. • Bipartisan and Administration support in US to extend. • Some questions about SA and idea of graduation. • We advocate to build on existing arrangement, avoid any adjustment that would undermine relationship. • AGOA should be strengthened to support Africa’s regional integration agenda more directly.

15. Key trade promotion activities • 2013/14: • 21 National Pavilions in international trade fairs • 45 Trade Missions • 5 Investment and Trade Initiatives (Brazil, Russia, India, DRC & Zimbabwe) • 2 Special Projects • South African Expos in China • World Cup Legacy Project in Qatar • Review of the National Export Strategy • Finalization of the Diversification Strategy

16. Number & location of Trade Missions (2012/13) • 43 Trade Missions: • 27 Inward Buying Missions (from Brazil, Russia, India, China, USA, Italy, France, Japan, South Korea, Poland, Singapore, Czech Republic, Cameroon, Malaysia, Switzerland, Venezuela, Singapore, Mexico, Turkey, Slovakia) • 13 Outward Selling Missions (to Benin, USA, Sudan & Ethiopia, Mozambique, Cameroon & Gabon, Italy and Netherlands, Turkey, Equatorial Guinea, Saudi Arabia, Mozambique, Nigeria, UAE & Oman, Vietnam) • 2 Outward Investment Missions (to South Korea & Japan, USA) • 1 Inward Investment Mission (from UK) • 5 Investment & Trade Initiatives (ITIs) • Brazil, Russia, India, Zimbabwe and DRC

17. Number & location of Trade Missions (1 April 2013 to present) • 12 Trade Missions: • 3 Inward Buying Missions (from Russia, Mauritius) • 9 Outward Selling Missions (to Sudan & Ethiopia, Ireland, Chile, Algeria & Tunisia, Netherlands, India, Nigeria, Ghana & Benin, Brazil) • 1 Special Project • World Cup Legacy Exhibition in Qatar

18. INVESTMENT PROMOTION & FACILITATON • Investment Pipeline of R 53.5 bn with a potential of creating over 20 000 jobs for financial year 12/13 • Multinationals have affirmed South Africa as a hub and a Gateway into the continent with new investments and expansions in the manufacturing sector. These include Unilever, Proctor & Gamble, Nestle, Kimberly Clark amongst others • Investments from emerging economies include: Tata, KLT, FAW, CAM, Hisense, Suzlon, Jindal, Action Group, Renova & LG

19. INVESTMENT PROMOTION & FACILITATION • In the manufacturing sector in March 2013 Johnsons Control opened their plant in East London. Tellumat expanded in Atlantis and the announcement of Proctor & Gamble new investment of R 1.6 bn for a multi purpose category plant in Gauteng • In the services sector in February, SERCO opened its International Business Process Outsourcing (BPO) service delivery centre at Newspaper House in Cape Town with 500 seats and plans to grow to 1500-2000 seats • Investment Pipeline of R12.7 bn of potential projects achieved for Q1 of 13/14

20. INVESTMENT PROMOTION & FACILITATION • Hisense launched and opened their plant in Atlantis in June to manufacture TVs and Fridges • TISA elected Executive Vice President of the World Association of Investment Promotion Agencies in Geneva • South Africa named best offshoring destination of the by the European Outsourcing Association in April • Partnered Mitsubishi Financial Bank and presented in targeted Seminars in Tokyo, Osaka and Nagoya • Signed MOUs with JETRO, Mizuho Bank, CIPA, Board of Investment Mauritius on cooperation and investment promotion.

21. INVESTMENT PROMOTION & FACILITATION • In May TISA as an IPA won award for best greenfield investment project facilitated in Africa at the Annual Investors Meeting in Dubai • TISA participated in the Financial Times investment climate benchmarking survey and on 9th August South Africa was the winner of the African Countries of the future 13/14