Summary
Trade Minister Davies reflections on South Africa’s experience of trade liberalisation, which, with hindsight it is held, moved too rapidly for the countries capacity to adjust, potentially holds important lessons for ACP countries as they move towards the implementation of the EPAs concluded with the EU. It suggests ACP governments need to work together to ensure EPAs are interpreted and applied in a flexible and differentiated fashion, which places centre stage the structural economic transformation needs of ACP countries. This will need to be a central component of the forthcoming ACP-EU post-Cotonou negotiations, as well as on-going ACP Ministerial discussion on EPA implementation.
South Africa was the first ACP country to sign a reciprocal preferential trade agreement with the EU involving extensive tariff liberalisation (the EU-South Africa Trade Development and Cooperation Agreement – TDCA). The TDCA was concluded in 1999, entered into force in 2000 and was fully implemented by the end of 2012. It provided the model for the EU’s subsequent economic partnership agreement negotiations with ACP regional groupings, including the EU-SADC EPA which provisionally entered into effect on 10th October 2016 (1).
Against this background South Africa’s long-serving Trade and Industry Minister, Rob Davies gave a thoughtful speech to the ANC Parliamentary caucus, setting out the core trade policy challenge facing South Africa and, by implication, many other ACP governments as they seek to promote the structural transformation of their economies.
He highlighted how without exception ‘all countries that have become industrialized… have passed through a phase where they have nurtured, supported, defended and protected emerging industries’. He noted how it was only later, once domestic industries became more competitive, that freer trade was embraced. Commonly however, developed country governments have sought to ‘deny to other late comers access to the very same policy tools they themselves used to get to where they are’ (2).
He pointed out how ‘the rhetoric of free trade… is constantly at odds with the reality that all governments regularly deny liberalization to protect vulnerable sectors, or for a variety of legitimate or vested interest driven public policy reasons’. Minister Davies cited in particular ‘the reality of highly protected and subsidized agricultural sectors in the developed world’, a policy which is ‘defended fiercely by governments that preach free trade to others’ (see for details the companion article ‘USDA Highlights EU’s Continued Use of Protectionist Tools in the Agro-Food Sector’, 20 April 2017) (2).
Significantly, given South Africa was the first ACP country to conclude a reciprocal trade agreement with the EU, Trade Minister Davies noted the South African government allowed itself to be ‘persuaded or cajoled to cut tariffs and open up markets to an extent that, with the benefit of hindsight, moved too rapidly beyond our capacities’ (2).
Minister Davies argued there is now a growing body of opinion in the developing world which rejects the ‘one size fits all narrative’, which suggests ‘ambitious trade liberalization was as good for the poorer and weaker as it was for the richer and stronger’. He argued there was ‘a major backlash’ underway against this unbridled free trade paradigm as a result of the ‘visible absence of inclusive growth’ and ‘widening inequality’ (2).
Minister Davies implicitly called for greater differentiation in rules governing trade between rich and poor countries and for the provision of greater policy space for developing countries to promote structural economic transformation. More specifically he called for ‘a more inclusive progressive multilateralism… characterized by real cooperation and solidarity… sensitive to the needs of the poorest, which recognizes their need for policy space, and cooperates to prioritize the developmental challenges that continue to confront much of the world’ (2).
However he recognised the political context in a number of developed countries was not necessarily conducive to such ‘a more inclusive progressive multilateralism’. Minister Davies warned that the current political context in some developed countries could ‘see trade wars between major economies’ whose repercussions would spread across the globe. He expressed the view that at a minimum this political climate will ‘inevitably see a more blatant pursuit by powerful economies of an openly partisan agenda seeking to prioritize the addressing of perceived disadvantages to themselves in multinational, regional and bilateral trade arrangements’ (2).
In this context the question was posed: how should governments in countries such as South Africa respond?
Trade Minister Davies maintained being ‘overly protectionist’ would ‘risk retaliation’ and the policy response therefore needed to be ‘resolute’ and ‘smart’, defending the right of government to ‘take tariff decisions based on our own needs and to deploy appropriate trade remedies’. In this context he noted how since 2012, South Africa’s trade policy decisions had been subordinated to industrial policy requirements (2).
Trade Minister Davies made specific reference to South Africa’s recent experience in the poultry sector. He acknowledged that there were a range of domestic competitiveness issues which needed to be addressed in the South African poultry sector. However, he also highlighted the existence of ‘serious structural distortions in the global market for poultry products’, which needed to be addressed. He highlighted the preference of consumers in the developed world for ‘white’ poultry meat, which generated a surplus of ‘brown’ poultry meat and bone-in-portions which could not be sold domestically. This saw these poultry parts being exported at ‘just above marginal cost’ to the developing world (2), with serious consequences for local producers (for details see companion article ‘Will South Africa’s introduction of poultry safeguard duties by challenged by the EC?’, 23 February 2017)
Trade Minister Davies stressed the importance of learning from the experience of countries like Ghana, Cameroon and Ivory Coast, where the opening up to imports, as part of structural adjustment programmes saw a major downsizing of the local poultry sector. In the case of Ivory Coast, Minister Davies cited reports which suggested this had seen ‘1500 enterprises employing 15.000 workers close(d) shop’ (2).
Against this background, Minister Davies called for close and detailed scrutiny of ‘proposals emanating from others’, with governments needing the ‘courage to say no to those that would decommission or restrict important policy tools’ (3). He further argued that in trade discussions developing country governments would need to work together to strengthen their influence in trade policy debates.
| Comments and Analysis Minister Davies observation that South Africa was ‘persuaded or cajoled’ to cut tariffs far more extensively than the country’s economic capacity warranted, raises important questions in regard to the future implementation of concluded economic partnership agreements across the ACP. His observations on the need for greater differentiation in the application of trade rules, would appear to be particularly relevant to the interpretation and application of the commitments contained in the various economic partnership agreements relate to both tariff reductions and the dismantling of non-tariff barriers to EU exports. According to WTO Trade Policy Reviews, no less than 27 sub-Saharan African governments’ make use of trade policy tools in support of local agri-food sector development, which could be brought into question under various provisions of economic partnership agreements (3). This would appear to suggest a need for concerted ACP action to secure commitments from the EU Council of Ministers to the responsible and flexible application of EPA commitments in the light of the structural transformation needs of ACP economies. Such a commitment would be wholly compatible with the EU’s legally binding policy commitment to ensuring policy coherence for development. It would also be complementary to the commitment made in the November 2015 Valetta Summit Action Plan on Migration which committed the EU to facilitating ‘responsible private investment in African agriculture, agri-business and agro industries and boost intra-African trade and exports of agricultural products through agricultural finance initiatives … with a view to contributing to rural economic transformation’ (5). Agri-food sector based rural transformation is likely to be consistently set back if routine crisis situations give rise to patterns of EU exports which close off market opportunities for local producers and disrupt the development of local agri-food sector supply chains. It can be argued it was the conjuncture of a number of disruptive events (Russian import restrictions and a severe drought in Southern Africa) which contributed to the current crisis in the South African poultry sector. Providing flexibility in the trade policy responses permitted would appear to be essential if efforts to promote the development of local integrated agricultural supply chains, which provide sustainable and attractive long term livelihood opportunities, are to be successful. However, as noted by Trade Minister Davies the political climate in developed countries is not necessarily conducive to an approach involving ‘more inclusive progressive multilateralism’. This being noted in the specific EU context, there are elements of the EC’s proposed approach to the post-Cotonou negotiations on which a ‘more inclusive progressive multilateralism’ could be built. At the political level the European Commission (EC) has highlighted its concerns over ‘the mounting political and diplomatic influence of emerging powers such as China, Brazil or India, notably in developing countries’. It is held ‘competing agendas’ are ‘not always fully in line with EU interests and ambitions’. This situation is seen as affecting ‘the EU’s capacity to promote and diffuse its political values.’ In this context, the EC is looking to build ‘strategic alliances with partner countries… to foster EU values and goals at the global level’ (4). A major priority for the EC is thus to establish a renewed EU-ACP framework which allows the EU to effectively pursue its interests in an increasingly competitive world. Engaging with the EU in ways which address this underlying EU political concern, could usefully be made conditional on the adoption of a more nuanced, flexible and responsible EU approach to the implementation of its economic partnership agreements. A more nuanced, flexible and responsible approach which places centre stage the need for greater differentiation in the application of trade rules as part of ‘a more inclusive progressive multilateralism’ (4). However this political dimension is only one aspect of the EC’s proposed approach to the post-Cotonou negotiations. The EC has also come under increased pressure from EU member states to ensure EU interests are more effectively promoted within any future EU-ACP partnership. In response the EC has asserted the need to forge ‘the best type of relationship after 2020 that allows the EU to effectively pursue its interests in an ever-competitive global arena’ (4). This has seen the EC emphasise the importance of identifying opportunities arising in a changing world ‘to accelerate economic growth for the EU’. Specifically the EC expressed the view that ‘advanced ACP economies have a role to play as strategic partners to achieve with greater success the EU’s own growth, jobs and investment agenda through trade, investment and other sector cooperation’ (for more details see companion article ‘Implications of the EC orientation for Post Cotonou negotiations for ACP agro-food sectors’ (4). EU member states remain keen to address the ‘perceived disadvantages’ they face through the fuller implementation of existing trade agreements. The question arises: in the forthcoming post Cotonou negotiations between the EU and the ACP will immediate EU economic concerns dominate the EU’s underlying political concerns and long term development interests of ACP countries?
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Sources:
(1) EC, ‘Economic Partnership Agreement (EPA) between the European Union and the Southern African Development Community (SADC) EPA Group’, 10 October 2016
http://europa.eu/rapid/press-release_MEMO-16-3340_en.htm
(2) ANC, ‘Contribution to SONA Debate by Rob Davies Minister of Trade and Industry’, 15 February 2017
http://caucus.anc.org.za/show.php?ID=4789
(3) For details see the various WTO Trade Policy Reviews of Sub-Saharan African governments’ policies since October 2010 posted at
https://www.wto.org/english/tratop_e/tpr_e/tpr_e.htm
(4) EC, ‘A renewed partnership with the countries of Africa, the Caribbean and the Pacific’, Joint staff working document impact assessment, Accompanying the document Joint Communication to the European Parliament and the Council, 22 November
https://www.tralac.org/images/docs/10866/impact-assessment-a-renewed-partnership-with-countries-of-africa-the-caribbean-and-the-pacific-22-november-2016.pdf
(5) EC, ‘Valletta Summit, 11-12 November 2015 Action Plan’
http://www.consilium.europa.eu/en/press/press-releases/2015/11/12-valletta-final-docs/
| Key words: South Africa, Poultry Tags: SADC EPA, West African EPA, central African EPA EAC EPA, ESA EPA, Caribbean EPA, Pacific EPA, Poultry, Post Cotonou |