Transcript a south african trade policy and strategy framework

A SOUTH AFRICAN
TRADE POLICY AND
STRATEGY
FRAMEWORK
PORTFOLIO COMMITTEE ON TRADE
AND INDUSTRY
PUBLIC HEARINGS
Hans van der Merwe
CEO – Agri SA
17 March 2010
Agricultural Trade and Tariff Policy
(Factors to be considered)
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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
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
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.
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
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
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”
Commitments
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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
Numerical targets for cutting subsidies
and protection
Developed countries
6 years: 1995-2000
Developing countries
10 years: 1995-2004
-36%
-15%
-24%
-10%
-20%
-13%
-36%
-24%
-21%
-14%
Tariffs
Average cut for all agricultural
products
Minimum cut per product
Domestic support
Total AMS cuts for sector (base
period: 1986-88
Exports
Value of subsidies
Subsidized quantities (base
period: 1986-90)
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”
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
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
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
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.
Estimates of support to agriculture in selected non-OECD
and OECD countries (2008)
Percentage PSE
Source: OECD
Producer Support Estimate by commodity
Source: OECD
Contribution of agriculture to the gross domestic
product in SA, 1999 to 2009
4.5
4
3.5
3
2.5
2
1.5
1999
2000
Source: SA Reserve Bank, Dec 2009
2001
2002
2003
2004
2005
2006
2007
2008
2009
Expenditure on intermediate goods and
services (2009)
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)
Imports and exports of agricultural products,
2004 to 2009
Source: DAFF
South African Agricultural exports and imports,
1986-2009
Source: DAFF
EXPORT AND IMPORT VALUE OF AGRICULTURAL
PRODUCTS (F.O.B) (R’000)
EXPORTS
TOTAL S.A. PRODUCTS
TOTAL AGRICULTURAL PRODUCTS
2003
2004
2005
273,126,802 292,078,673
2006
2007
327,125,414
393,046,718 463,237,932
23,252,678
22,656,749
26,141,249
26,977,545 30,666,837
9,521,019
9,760,538
11,073,307
10,460,430
13,731,659
12,896,211
15,067,942
16,517,115 18,136,727
8.5
7.8
8.0
256,977,662 304,745,791
349,163,721
465,215,663 484,837,495
20,588,468 29,304,473
TOTAL UNPROCESSED AGRICULTURAL
PRODUCTS
12,530,110
TOTAL PROCESSED AGRICULTURAL
PRODUCTS
AGRICULTURE AS % OF TOTAL EXPORTS
6.9
6.6
IMPORTS
TOTAL S.A. PRODUCTS
TOTAL AGRICULTURAL PRODUCTS
13,910,467
16,415,496
16,286,418
3,829,848
4,007,462
3,205,131
10,080,619
12,408,034
13,081,287
5.4
5.4
4.7
TOTAL UNPROCESSED AGRICULTURAL
PRODUCTS
4,625,818
5,971,064
TOTAL PROCESSED AGRICULTURAL
PRODUCTS
AGRICULTURE AS % OF TOTAL IMPORTS
Source: DAFF
15,962,650 23,333,409
4.4
6.0
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 levels of world stocks )
– 2007 was a dry year in the summer rainfall areas – overall both volumes and
prices went up.
Import tariffs on agricultural products
PRODUCT
Meat
Milk powder
Butter
Chillis
Frozen potatoes
Processed fruit
Wheat
Grain Sorghum
Sugar
Wine
TARIFF
40%
450 c/kg
500 c/kg
15%
30%
5% - 20%
2%
3%
38,1 c/kg
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
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
DOHA-importance
i.
Enhance market access for products of export
interests to developing countries;
ii. Eliminate industrial country subsidies and
support to inefficient producers, particularly in
agriculture;
iii. Re-negotiate rules that perpetuate imbalances
in international trade; and
iv. Ensure policy space for developing countries to
pursue developmental objectives through
meaningful implementation of the principle of
special and differential treatment.
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.
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.
IPAP: Key Action Plan
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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
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
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
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
Thank you