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Trade policy, the WTO and productive transformation strategies in a context of regional and bilateral trade agreements: Perspectives from South Africa HSRC BRICS Seminar Series 3 November 2015 Nicolette Cattaneo

Outline

• Introduction
• 1. South Africa’s Trade Policy

and Strategy Framework

• 2. Strategic trade and industrial

policy

• 3. Recent trends and

challenges

• 4. Lessons for the BRICS

economic cooperation agenda

• 1. South Africa’s Trade Policy and

Strategy Framework

• Trade and industrial policy since late 2000s informed by

2007 National Industrial Policy Framework

• NIPF goals: diversification of SA’s productive structure

towards non-traditional tradeables; a more labour- absorbing value added industrialisation trajectory; support for development of Africa’s industrial capabilities

• Emphasises need for coherence with other policy areas,

particularly macroeconomic, technology and social policy

• Trade policy viewed as an instrument of industrial policy:

– Strategic tariff policy – Export promotion and diversification strategies

• FDI promotion in line with industrial policy goals

• 1. South Africa’s Trade Policy and

Strategy Framework

• 2010 TPSF has two key aspects:
• 1) outlines a developmental trade policy in support
• f the industrial policy framework, reinforcing the

‘strategic tariff policy’ set out in the NIPF

• 2) sets out a policy of ‘strategic integration into the

global economy’ designed to participate in the world economy while preserving sufficient policy space to pursue domestic development objectives.

• There are bilateral, regional and multilateral

dimensions to this global strategy.

Strategic global integration

At the multilateral level:

• SA committed to conclusion of Doha Round on basis of

development mandate

• Special and differential treatment and less-than-full-

reciprocity to underlie developing country commitments

• Critical of pressure on emerging economies for greater

market access commitments in industrial tariffs and services on the basis of growth performance

• Opposes the pursuit of plurilateral agreements in the

WTO (erode multilateralism, lack transparency, inclusiveness)

• Concerned about the policy prescriptions associated with

the emergence of GVCs

Strategic global integration

At the regional level:

• Tripartite FTA negotiations between SADC, EAC

and COMESA. Trade-in-goods agreement based on 3 pillars: market integration, infrastructure development and industrial development

• ‘Developmental integration’ approach
• SACU work programme to resolve outstanding

issues related to the implementation of 2002 Agreement

• SADC: SA favours consolidation of FTA , sectoral

cooperation, infrastructure, industrial development, addressing NTBs; concern that deepening to a customs union would impact on STP

Strategic global integration

At inter-regional and bilateral levels:

• Preferential trade agreements (PTAs) that may initially

be fairly limited, but provide institutional basis from which to develop and consolidate relations

• Recognition of need to structure trade and investment

relations with developing countries in ways that are sensitive to industrial devt and employment goals

• Of concern is replication of traditional North-South

trading patterns in SA’s trade with emerging economies

• Reflected in provisions of Comprehensive Strategic

Partnership Agreement signed with China in 2010 and limited PTA concluded between SACU and MERCOSUR in 2009

Strategic global integration

• From SA’s perspective, therefore, strategic integration

into the global economy should support industrial policy at each level by harnessing trade and investment relations to improve market access for SA products and firms.

• In this regard, other African countries are a key

destination for SA’s manufactured exports

• But SA trade and industrial policy-makers underscore

the need for development integration and regional industrial policy to prevent the reproduction of the same imbalances that concern SA in its own trade with SSA

• Highlights the important point that trade expansion in

and of itself does not equate to development

Strategic global integration

• Recognition has implications for NAMA negotiations on

industrial tariffs at the multilateral level, approaches to regional integration and bilateral trade agreements, and prospects for moving towards a BRICS-wide market

• TPSF outlines main focal points of economic

engagement with BRICS partners: reform of global economic and financial architecture, including enhanced collaboration in the Doha Round, building trade and investment relations that take account of industrial policy goals, and supporting BRICS engagement with the rest

• f Africa in ways that further the continent’s development

agenda (the dti, 2012: 25).

• Engagement with the US: AGOA, TIDCA
• SADC EPA with the EU

• 2. Strategic trade and industrial policy

2.1 Industrial policy and the strategic use of tariffs 2.2 Industrial policy instruments and policy space 2.3 Trade policy and the new generation ‘trade- related’ issues: 2.3.1 Investment policy 2.3.2 Public procurement policy 2.4 Development integration

2.1 Industrial policy and the strategic use

• f tariffs
• SA’s TIP position is based on a fundamental critique of
• rthodox trade theory and its policy prescriptions.
• Adopts a heterodox approach: highlights the longstanding

argument that the type of products a country produces is of major importance for development (Chang, 2005; Reinert, 2008)

• Output and growth consequences differ significantly for

increasing as opposed to decreasing return activities.

• Focus on a labour-absorbing industrialisation trajectory.
• Transfer of production technology and other knowledge not

costless or immediate. Technologies not “blueprints” that can be costlessly applied elsewhere.

• Time needed for learning by doing, investment in developing

technological capabilities and absorbing / adapting technologies.

2.2 Industrial policy instruments and policy space

• Strategic use of trade and industrial policy instruments

required to create and nurture dynamic comparative advantage.

• But implementation can be significantly constrained by

lack of coherence between different aspects of economic policy-making

• In addition, wide array of trade and industrial policy

instruments affected by WTO rules with conclusion of Uruguay Round.

• And North-South trade agreements that induce

developing countries to undertake deeper obligations than those required at the multilateral level, particularly in areas such as services, intellectual property protection and investment policy, have proliferated.

2.3 Trade policy and the new generation “trade-related” issues

• Services, investment, intellectual property rights,

public procurement, competition policy

• Each has a critical role in industrial policy and its

articulation with other key policy areas

• In a context of trade and financial liberalisation each

has been subject to the discourse of liberalisation and regulatory reform

• With the Doha impasse, it is in the context of

plurilaterals, RTAs and IIAs that some of these issues are being taken forward

2.3.1 Investment policy

• With Doha impasse: proliferation of international investment

treaties and investment chapters in RTAs Constraints to development policy space:

• Affects coherence between FDI, industrial and technology

policy

• May significantly restrict ability to use capital controls

(Gallagher, 2010)

• Issue of investment arbitration: investor-state dispute

mechanisms allow foreign firms to institute claims against host governments (Gallagher and Shrestha, 2011)

• Claims targeted against public policies and costs high
• SA’s response has been not to renew BITS and to develop

a domestic legislative framework to protect local and foreign investment that takes account of domestic policy goals

2.3.2 Public procurement policy

• WTO GPA is a plurilateral agreement that few developing

countries have shown interest in signing

• GP is an important industrial policy tool in a shrinking policy toolkit
• Pressure in some North-South RTAs to prise open the

procurement markets of developing countries

• Such markets comprise as much as 20% of GDP or more in both

developed and developing countries

• Weiss and Thurbon (2006): procurement as trade strategy in the

US – tight procurement markets at home while pursuing market

• pening abroad
• SA: public procurement an integral part of the IPAP sector

strategy and for social redress

• Links to technology policy via PPfI (public procurement for

innovation) (Kattel and Lember, 2010) and links to green economy sectors

2.4 Development integration

• Economic integration seen as an instrument of industrial policy in

particular and development policy more generally

• Underlying framework needs to move beyond the inappropriate

promotion of an orthodox linear model of market integration (effectively amounting simply to regional liberalisation)

• Take account of problems of integration among countries at

unequal levels of development

• Integration not simply seen as a way to facilitate broader and

deeper liberalisation and insertion into a global free trade system

• Proper analysis needed of services and investment provisions
• Impact of financial liberalisation and broader macroeconomic

aspects also neglected in the traditional approach

• Market integration approach should be critiqued on basis of

polarised development, greater inequality and concentration of investment in more developed partners

• 3. Recent trends and challenges

3.1 The Doha impasse and the trend towards plurilaterals in the WTO 3.2 Trade facilitation and global value chains 3.3 The mega-regional FTA negotiations

3.1 The Doha impasse and the trend towards plurilaterals in the WTO

• Doha impasse (Ismail, 2012a):
• Shifts in balance of negotiating power: developing

countries able to resist demands for additional market access beyond 2008 texts

• US: “not enough on the table from emerging economies”

and US trade policy gridlock

• Emergence of plurilateral negotiations (US lobby: non-MFN;

single sector)

• Existing: Government Procurement Agreement
• Trade in Services Agreement negotiations: proposals for

financial services liberalisation seem set to constrain ability to re-regulate finance

• Plurilaterals undermine the single undertaking by de-linking

negotiations from agriculture and other DDA issues

3.2 Trade facilitation and global value chains

• Work on measurement of trade in terms of value added and GVCs by

OECD and WTO accompanied by a narrative that the emergence of GVCs “provides a compelling reason for countries to have more open trade policies” (Gurria, OECD, 2012)

• SA position critical of this narrative: seen as a way to enhance a

wholesale liberalisation agenda, extended to services (Ismail, 2013)

• Rather, developing countries need to consider imaginative ways of

forwarding their TIP agendas in a context of GVCs

• Draper and Lawrence (2013) imply that SA policy-makers wish to

“ignore” issues related to GVCs and development; policy toolkit

• On the contrary, the SA position raises the GVC narrative as an

important issue in the current global environment

• Is an extensive underlying related literature on power relations and

industrial policy in the GVC context (e.g. Milberg et al., 2014)

3.3 The mega-regionals

• Include the TPP (Trans-Pacific Partnership), TTIP (Trans-

Atlantic Trade and Investment Partnership) and RCEP

• Introducing an agenda for regulatory convergence with

characteristics that go beyond some of the WTO-plus provisions in, for example, the EPAs and IIAs

• TPP: Regulatory convergence in areas such as trade in

goods and services but also (Rosales and Herreros, 2014):

• Investment: US pushing investor state dispute settlement in

financial services – Australian Govt Productivity Commission critique (2010) argues will inhibit host country willingness to regulate

• US position on capital controls: already a problem in IIAs

and FTA negotiations; in TPP the US appears to aim to restrict the ability to use capital controls significantly

3.3 The mega-regionals

• “US positions appear highly ideological, placing freedom of

movement for international capital above prudential regulation ..and fail[ing] to reflect the lessons learnt from the recent financial crisis” (Rosales and Herreros, 2014: 13)

• Increasing intellectual property protection in FTAs – strong US lobby;

highly controversial in terms of public health and industrial policy issues

• Operation of SOEs: US proposing “competitive neutrality” between

SOEs and private sector firms: would affect (for example) loans on beneficial terms and public procurement policies

• Agriculture off the table in the mega-regionals, while US agriculture,

banks and financial institutions benefit from massive subsidies and bailouts

• So-called “modern” agreements, but selective – focused on areas of

interest to developed countries

• 4. Lessons for the BRICS cooperation

agenda

• Considers emerging BRICS positions in some of these areas

and the lessons that can be learnt from the SA perspective.

• Examination of BRICS statements and communiques and

the literature on BRICS cooperation in the WTO (Thorstensen et al 2014 and FGV et al 2014) to obtain an understanding of evolving BRICS views and contradictions.

• Clear common positions on developed country policy

responses to the global crisis; on reform of global economic and financial architecture especially IMF; central role of WTO and greater role for UNCTAD

• Joint positions on plurilaterals, mega-regionals and

international investment agreements much less clear

• 4. Lessons for the BRICS cooperation

agenda

• Joint BRICS positions on strategic tariff policy unclear

(most important to SA and India?) and tensions evident on use of trade remedies

• Emphasis on development of value added trade relations

but no explicit discussion of industrial policy

• BRICS study needed on prospects for intra-industry trade

specialisation within BRICS, on the industrial policies of the member countries, and on the trade & industrial policy implications of GVCs and the trade facilitation agenda, as well as other ‘new’ trade issues

• Joint policy response needed on plurilaterals, mega-

regionals and policy space

• 4. Lessons for the BRICS cooperation

agenda

• Can South-South developmental integration be ‘an

instrument’ of trade and industrial policy in the BRICS context?

• Regional policy and regional cooperation are not the

same as regional liberalisation

• First establish appropriate national policies and

regulatory frameworks in these areas

• DFIs become more critical: cooperation among

development banks and the NDB

• How do we extend the idea of a strategic trade and

industrial policy effectively to the broader BRICS level to drive development?