The Multilateral Trading System and South Africa’s developmental ambitions

The history of the Multilateral Trading System

The multilateral trading system was developed through a series of trade negotiations, or rounds, held under the General Agreement on Tariffs and Trade (GATT). The first rounds dealt mainly with tariff reductions but later negotiations included other areas such as anti-dumping and non-tariff measures. The Uruguay Round, undertaken in 1986-94 – led to the WTO’s creation.

The General Agreement on Tariffs and Trade (GATT) was established in Geneva in 1947 to create a framework that would regulate international trade and stimulate international commerce. The World Bank and the IMF that were established at Bretton Woods in 1944 in order to deal with matters of international finance were associated initiatives. In addition to the latter two organisations, policy makers also envisaged the formation of an International Trade Organisation (ITO), which would oversee international trade and enforce a framework of rules. A charter for the ITO emerged from a 1946 conference in Havana, although this was never ratified by member governments.

As a result, the GATT continued to be governed by “provisional” and “interim” measures, and remained an agreement without a formal organisation to enforce it. The signatories to the GATT, known formally as contracting parties (rather than members) applied the GATT according to the Protocols of Provisional Application (PPA), and the secretariat that administered the GATT kept the title of Interim Committee of the International Trade Organisation (ICITO). These “provisional” arrangements persisted up until 1994, when the Final Act of the Uruguay Round eventually brought the World Trade Organisation (WTO) into being.

Objectives of the GATT

The objectives of the 1947 Agreement were to establish an orderly and transparent framework within which barriers to trade could be gradually reduced, and international trade thereby expanded. In order to facilitate this, the agreement contained within its text certain underlying principles and provisions that have been built upon over consecutive rounds of negotiation. The most important elements of the Agreement included those of:

  • non-discrimination: the Most Favoured Nation (MFN) principle –each contracting party is required to treat all other contracting parties in the same way that it treats its “most favoured nation”.
  • reciprocity;
  • transparency;
  • tariff reduction- when GATT was established the main form of trade protection were tariffs. As such negotiations focussed on tariff reduction.

Exceptions and waivers

The agreement also recognised that there are circumstances in which strict adherence to these principles would be inappropriate. The GATT therefore provided for exceptions and waivers. In particular:

  • developing countries were to be given special status;
  • countries that offer each other more favourable treatment within a custom’s union were allowed to waive full adherence to the MFN clause;
  • Agricultural trade was given special treatment, especially with regard to non-tariff barriers.

The Uruguay Round

South Africa was notified as a developed country during the Uruguay Round, under the apartheid government. As such, South Africa was required to apply tariff cuts for developed countries. By virtue of the Common External Tariff, SACU as a whole was required to apply the tariff as South Africa. This considerably reduced SACU bound rates and the ‘water’ between bound and applied rates in comparison to the developing country average. That payment must be taken into account in this Round.

The Doha Round

The Doha Round was launched in 2001 with emphasis on the need to deal with trade distortions (especially the effects of export and domestic subsidies in the agricultural sector in the USA and in Europe). The negotiations mainly focussed on agriculture and Non-agriculture market access (NAMA) tariff cuts; however it has failed to produce an agreed outcome; and also failed to generate the needed progress in other areas such as services.

Since its launch in 2001, progress in multilateral trade negotiations in the WTO – the Doha Development Agenda or DDA – has been slow with intermittent advances. In failing to meet a series of interim deadlines, the negotiations are well behind schedule. Missed deadlines culminated in the collapse of negotiations at the 5th Ministerial Conference in Cancun in September 2003. Cancun was to mark the mid-way point of negotiations and, having missed that mark, it was evident the overall deadline, originally set for December 2005, would be elusive. Following months of recrimination after Cancun, WTO Members managed to put negotiations on track, with more focus, when they adopted the “July Framework” in 2004.

Paragraph 2 of the Doha Ministerial Declaration makes several important points relevant to development: (a) it recognized that the majority of WTO members are developing countries; (b) it placed “their needs and interests at the heart of the Work Programme adopted in this Declaration”; (c)  Members “shall continue to make positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth of world trade commensurate with the needs of their economic development” and (d) that “enhanced market access, balanced rules, and well targeted sustainably financed technical assistance and capacity building programmes have important roles to play.”

A development round requires removing distortions in international trade rules that inhibit export growth in developing countries. While the DDA is wide, agriculture remains key as trade distortions (export subsidies, domestic support and tariffs) in agriculture are most pronounced and combine to stifle the developmental prospects in the sector where developing countries have the greatest potential for export growth. Removing these anti-development measures remains a core objective of the round and progress on other aspects of the DDA rests on progress in agriculture.

It is also important to ensure that the DDA provides the necessary policy space to promote industrial development. The WTO rules impose restrictions on industrial policies which include the ban on export restrictions which affects all countries except the least developed countries, restrictions on the use of local inputs (domestic content requirements) as well as rules and regulations governing patents and copyrights under the TRIPS Agreement. To some, these restrictions are preventing developing countries from adopting policies and institutions that developed countries used to develop.

Fundamentally, developing countries would like to be given the flexibility to set and implement a set of initiatives aimed at accumulation of capabilities over time and over a range of areas, including skills, technology and production necessary to promote economic growth and development. There is a good deal of force in this argument, for the benefits of open markets do not flow automatically to countries. Rather the promise of trade liberalisation is likely to be enjoyed by those with the capacity and capabilities to export as the experience of East Asia demonstrates. This leads to the proposition that the accumulation of capabilities should be given pre-eminence over trade liberalisation.

The essential point is that WTO rules should not constrain the ability of developing countries to implement policies that advance their development. The removal of capacity constraints that make it difficult for developing countries to develop the comparative advantage to produce and export and the removal of unfair trade rules are important aspects of the development dimension.
The key objective for South Africa has been to consolidate the work undertaken in the various negotiation sessions to ensure negotiations continue without compromising South Africa’s developmental ambition.

Bali outcome

At the Ninth WTO Conference (MC9) held in December 2013, in Bali, Indonesia; South Africa raised a concern at the lack of balance in the outcome. We noted that the issues of importance to most developing countries and least developed countries (LDCs), such as the elimination of agricultural export subsidies, duty and quota free (DFQF) market access for LDCs, establishing a mechanism on special and differential treatment in favour of developing countries, were crafted in non-binding language with no clear commitment that these would be taken up in future.

The key outcome for MC9 was the conclusion of the Trade Facilitation Agreement (TFA). The TFA involves simplifying customs and other border procedures (health inspections, standards requirements or testing) procedures in order to reduce customs and transit barriers, and move goods across borders controls faster and at lower cost. It is clear that the burden of implementing the legal commitments of the TFA will not be shared equitably. While developed countries will not be required to undertake any significant national reforms to implement the TFA, the burden of implementation falls disproportionately on developing countries, particularly African countries, that will require substantial financial, human and infrastructural investment to meet the TFA obligations. These costs relate to regulatory change, institutional development, enhanced coordination among relevant agencies, training of staff, equipment and technology upgrading, and awareness building for economic operators having to use the new systems.

The TFA sets out the specific legal commitments on customs standards; provides that developing countries will be able to ‘self-designate’ their commitments under three categories [A, B and C]. They will be able to specify which commitments they can meet immediately [A]; those that can be implemented over a specified period of time [B]; and those which they can implement only if adequate financial, technical and human capacity building is provided [C]. Self-designation is, however, constrained as it will require agreement by the other WTO Members, and an oversight committee is to be formed that will assess the capacity of individual members to meet the standards.

The importance of trade facilitation cannot be over-emphasised. However, African countries need to ensure that benefits of trade facilitation support the continent’s structural transformation, integration and industrial development. In addition, they will need to schedule their TFA commitments in a manner that ensures coherence with regional and continental integration objectives.

The Post-Bali Work Programme and the key priorities for MC10

The WTO is expected to conclude the Post-Bali work programme which will outline key focus areas for the multilateral trade negotiations and will influence the expected outcome of the 10th WTO Ministerial Conference to be held on 15-18 December 2015 in Nairobi, Kenya. This is the first time it is held in the African continent.

South Africa will continue to support the conclusion of the Doha Round on the basis of its development mandate. We recall the Doha mandate agreed that the majority of the members of the WTO are developing countries, and that the needs and interests of developing countries must be at the heart of the WTO work programme. This does not apply just to the subjects agreed at Doha but must be integral to all subjects under negotiation at anytime at the WTO.

On Agriculture, South Africa seeks the removal of trade-distorting subsidies, while maintaining space for development support to rural development. The biggest distortions in the multilateral rules system that disadvantage developing countries in general and African countries in particular, continue to be the subsidies and high tariffs in force to support farmers in the developed world. We should continue to insist that any credible negotiation process must lead to meaningful commitments on export competition, domestic support and market access. A credible outcome will be an outcomes that results in reform of agricultural trade.

On industrial tariffs, the 2008 modalities would see South Africa take the deepest and widest tariff cuts of any WTO Member, South Africa’s will only accept an outcome that offers significant additional flexibilities to ensure equity and to preserve our ability to support industrial development and employment creation. Furthermore, commitments required of African countries in noon-agriculture market access (NAMA) must be sensitive to the continents’ ongoing agenda of promoting industrialisation and developmental regional integration, including in the context of Africa’s customs unions. Africa has defined its future as moving away from being integrated into the world economy as producers and exporters of primary mineral and agricultural commodities, through moving up the value chain and focusing on beneficiation and industrial development. Regional value chains are a critical component of an African industrial strategy. We need policy space and need to ensure that any commitments in NAMA do not lead to a displacement of value added products produced in Africa by finished goods coming from elsewhere.

On Services, South Africa can support an outcome that does not require significant further openings of our markets, as the South African services economy is already open to an extent that exceeds many developed countries.

Essentially as the South African government our engagement in the multilateral trade system is informed by the objective of promoting our national interest alongside the interests of the developing world at large. We pursue a systematic reformation of the internat6ional trade system that positively reinforces the developmental interests of the developing world, of which we are part.

Cde Mzwandile Masina is Chairperson of the ANC Ekurhuleni Region and Deputy Minister of Trade and Industry

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