South Africa first

‘If government accepts this draft trade and tariff policy, SA farmers will be able to compete on a level field.’
Issue date 8 June 2007

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Since 1994, Gen Hertzog’s famous slogan “South Africa first” had to take a backseat to our goal of playing a role in international affairs. This is as true in the arena of international trade as it is in the arena of international affairs.
The international agricultural trade scene has changed a lot since 1994. Before 1994 agricultural imports were managed with import permits issued by ­different control boards. The boards, with a majority of farmer members, were very reluctant to issue import ­permits and only did so under tremendous ­pressure.
The Uruguay Round (UR) of World Trade Organisation Agreement changed all this. Since 1994, all import ­control was abolished and the only ­protection against imports was import tariffs.

Walking in front

In the UR agreement, South Africa decided to set an example of good ­international behaviour and fixed the tariffs for ­agricultural products at levels far below the allowed maximum (bound) rates.

Initially, the Board on Tariffs and Trade calculated import tariffs by comparing local ex-factory prices with the corresponding price for imported products. Tariffs were then set at a level that placed the local industry under some pressure. For example, if a 35% tariff equalised local and imported product prices, the tariff was fixed at 31%.
As agricultural products were then ­heavily subsidised in developed ­countries, ­­so-called normal prices on the world market included the effect of export and other subsidies. Import tariffs calculated with these prices therefore did not offer enough protection to local agriculture. The situation was worsened by the inclusion of in-tariff quotas that allowed imports of specified quantities of products at ­discounted tariffs. Technical problems with the calculation and administration of these quotas intensified the problem.

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The International Trade ­Administration Commission (Itac) manages our import tariffs. Itac’s stated policy was the ­reduction of import tariffs. Itac policy also stated that one can only apply ­ordinary import tariffs to protect against so-called ­normal trade. So-called abnormal trade is ­managed with remedies like ­anti-dumping duties, countervailing duties and special safeguards. However, the ­process of application and burden of proof to apply measures against abnormal trade has resulted in very few ­successful applications for anti-dumping levies.
Developing countries discovered that the freer agricultural trade dispensation resulted in more exports of ­manufactured goods from developed countries to ­developing countries. Developing countries got together under the leadership of SA, India and Brazil, forming the Group of 20, which took a firm stance against subsidies at the Cancun World Trade Organisation (WTO) ministerial meeting. This led to the failure of the meeting. Their stand was re-affirmed at the recent Hong Kong ministerial. Since then the WTO has struggled to marry ­developing countries’ stand on subsidies with the developed world’s insistence on lower tariffs.

A new SA trade policy

While South Africa now takes a firm stand in ­multilateral negotiations, the same was not true in the application of tariff and trade policy. Itac and the Department of Trade and Industry pushed for lower tariffs generally and in terms of the multitude of trade agreements we are busy negotiating with all and sundry.

In 2006 a workshop on tariff and trade policy was held in Pretoria. Since then a trade policy review committee has worked hard to develop a draft trade and tariff policy. The policy documents are still under discussion, but contain a few important pointers towards a more favourable agricultural dispensation. The document recognises the fact that ­market liberalisation and deregulation has a large social cost, especially for poor rural people. According to the document, ­commercial farmers managed to adapt to the freer economy, but emerging ­farmers could not do so. However, commercial farmers also did not manage to adapt completely. In many agricultural sectors production has ­suffered as a result of low-priced imports.

Possible impact on agriculture

If accepted, the proposed trade and ­tariff policy will bring the viewpoints of ­officials who administer policy in line with the policy stance taken by South Africa in ­international ­negotiations. If government has the will to accept this policy, South African ­agriculture can look forward to a ­dispensation where it can compete on a level field with agriculture in other ­countries. This will effectively put a stop to some ­officials’ goal of “lower tariffs at all cost”.
Dr Koos Coetzee is an ­economist at the MPO. All opinions expressed are his own. |fw