Topics publications: Trade law and regulation
Trade Reports
South Africa: Tariff policy – does it matter?
In recent years South Africa has increasingly turned to changes in the SACU tariffs to stimulate its economy. These changes have included both decreases in the case of inputs into domestic manufacturing and increases in the case of the importation of those goods directly competing with the domestic sector. It is only the latter category that we concentrate on in this paper.
Some analysts decry the increases as reverting to a past era of protectionism that increases consumer costs, while others welcome the moves to stimulate the economy and generate more jobs. We make no judgement on the economic merits of these tariff increases but rather set out to report on their consequential effect on import flows and assess their relative importance in terms of import values.
At the start we acknowledge a difficulty in assessing the impacts of the tariff increases and in particular judging their ‘success’ or otherwise in decreasing import flows as this ignores the counterfactual. Would imports have increased in the absence of tariff increases? Over a short period in a static analysis of this nature and acknowledging possible counterfactuals we cannot make a definitive judgement on this.
In many of the cases the data shows that import decline is more related to non-tariff market factors (for instance the global financial crisis, world price spikes, significant decrease in local demand etc.) than the increase in tariffs itself. This seems to question the effectiveness/success of the tariff adjustment policy. Many products continued to show import growth even after the tariffs were introduced. Usually one should have expected the tariff increases to have had an immediate impact on trade (e.g. the following year) but this was not the case, as imports continued to fluctuate quite markedly (some products, for instance, reached import peaks two years after the tariff was introduced).
The authors are Trade Negotiations Coordinator (SACU) and tralac Associate, respectively. This paper reflects the views of the authors and does not represent the view of the SACU Secretariat. It was developed as part of the ‘Geek Week’ data training workshop held at tralac during the week of Monday 11 April to Friday 15 April 2016.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
One Year after its Launch: Has the Tripartite Free Trade Area been overtaken by Events?
The Tripartite FTA (TFTA) is often referred to in publications and in statements as if already a reality, or at least imminent. The true position is that this agreement is not in force; and not even concluded in terms of all critical elements to be agreed upon. The negotiations, in key areas such as tariff liberalisation and rules of origin, have not been finalized and the process might be losing momentum. In short, there is, as yet, no TFTA. It is still subject to negotiations in key substantive areas. At this stage 17 of the 26 negotiating member states have signed the incomplete agreement; ratification will have to wait till everything has been concluded.
Present indications are that the parties (or at least some of the main players) are bogged down in difficult technical and political issues involving the extent of their tariff offers and the content of the concomitant rules of origin. These are essential elements in the design of a trade in goods agreement, if they are not finalized then there cannot be new FTA. In the meantime very important new trade-related developments are taking place elsewhere on the continent and there is a possibility that the FTA could be overtaken by events.
The TFTA teaches us several lessons. The CFTA will have to produce meaningful outcomes if it hopes to meet the real challenge at hand; to boost intra-African trade in an effective manner. When doing so it may actually clarify the choices of individual states regarding the TFTA and whether to pin their hopes on its results. An honest pursuit of the CFTA goals may lead to a realization that unless the synergies between itself and the TFTA are in fact mutually supportive and the arrangements are designed to produce compatible results, the TFTA in its present form may turn out to be a stumbling block, rather than a building block for the CFTA.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
International regulatory cooperation in the SADC tourism services sector
The tourism sector makes a significant contribution to the Gross Domestic Product of all Member States in the Southern African Development Community. It is an important provider of employment and offers endless opportunities to especially small, medium and micro enterprises. If governments could remove existing blockages and inefficiencies hampering competitiveness of the tourism sector, it can become an even stronger driver of economic growth and development.
In a combined effort to promote and market the SADC region as a single destination, the Members adopted the SADC Protocol on the Development of Tourism. The Protocol aims to address some of the issues negatively affecting the sector through a mix of best endeavour provisions and legally binding obligations. On the one hand, it encourages Members to harmonise training programmes and develop exchange programmes; and, to abolish visa requirements and implement a UNIVISA. On the other hand, it obliges Members to develop common standards for service providers and tourism facilities; collect and share tourism statistical data in line with international guidelines to facilitate the upgrade and development of tourism products and services in the tourism value chain; and, to improve the quality of tourism transport through the implementation of the provisions of the SADC Protocol on Transport, Communications and Meteorology.
This paper explores ways in which SADC Members can achieve the objectives of the Protocol on the Development of Tourism by increasing regulatory cooperation amongst them. It also highlights shortcomings in existing SADC legal frameworks that are hampering the implementation of shared tourism objectives and makes recommendations on how it could be addressed in the ongoing negotiations under the Protocol on Trade in Services.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
Revised RISDP: A New Growth Path for SADC’s Industrial Development?
In April 2015, the Extra-Ordinary Summit of the Heads of State and Government from the Southern Africa Development Community (SADC) adopted the Revised Regional Indicative Strategic Development Plan (RISDP) 2015-2020. The RISDP was adopted by SADC Member States in 2003 as a 15-year plan to facilitate regional integration and development. The priorities of the initial RISDP were trade/economic liberalisation and development, infrastructure in support of regional integration, peace and security cooperation, special programmes with a regional dimension. Evidently, the initial plan had no clearly laid down plan to industrialise the region.
The mid-review of the RISDP considered the progress that had been made with respect to the implementation of, for example, the SADC Trade Protocol, and the specific targets that were adopted in the RISDP, including the deadlines for the implementation of the linear integration model. The review was not merely an exercise to adopt new target dates for implementation, but a more fundamental reflection and enquiry to ensure that regional and global realities were taken into account in the design of SADC implementation strategy. It is noteworthy that the adoption of the Revised RISDP coincided with the adoption of the SADC Industrialisation Strategy. This SADC Industrialisation Strategy 2015-2063 was adopted by the same Summit of Heads of State and Government. More importantly, one might want to understand what are the synergies, contradictions, new provisions in the RISDP, and which one is the leading document?
Developments in the world economy will have a direct or indirect impact on the efficacy of both the Revised RISDP and the SADC Industrialisation Strategy. It is therefore imperative on the part of policy makers to be conscious of these developments when evaluating these regional programmes and projects. In 2015, sub-Saharan Africa experienced its slowest economic growth rate since the 1998 global financial crisis. According to the IMF, the region’s real GDP growth fell from 5.0 percent in 2014 to 3.75 percent in 2015 and will rebound to 4.3 percent in 2016. Given recent global and regional trends, it is likely that the IMF will revise its 2016 sub-Saharan Africa growth forecast downward. This situation calls for strong macroeconomic policies to help the region bounce back. Not all is lost, though: global changes like these create opportunities for appropriate and timely policy measures that can make a difference and help sub-Saharan African economies regain their growth momentum both in the short and long terms.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Critical Issues in the Negotiations of the Continental Free Trade Area
On 15 June 2015, the African Union Assembly launched the negotiations to establish the Continental Free Trade Area (CFTA) by 2017. Experience of existing Free Trade Areas (FTAs) in the regional economic communities (RECs) in Africa; and from the ongoing Tripartite FTA (TFTA) negotiations comprising members of the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC) are relevant to fostering our understanding of the political economy dynamics of negotiating, designing and implementing FTAs in Africa. These dynamics can offer vital lessons for the continental trade policy making process in Africa.
In addition, the process by which trade policy is negotiated has become more dynamic and complex, and should take cognizance of the rapidly changing regional and global economic environment, particularly the rising prominence of global trade and production networks. Across Africa, traders and investors are confronted with similar challenges when doing business across borders, such as tariffs, complying with differing standards and regulations for the same goods and services, dealing with hurdles due to non-transparent, uncoordinated and unpredictable government regulations, etc. Negotiating trade policy is only meaningful if it is addressing these challenges.
As such, the substance of trade agreements has to adapt to this new reality. This requires a paradigm shift in the way FTAs are designed and implemented in Africa. Apart from the need to eliminate intra-African tariffs on goods (which are still relatively high), a meaningful CFTA will need to improve regulatory practices aimed at facilitating trade and investment flows across borders. This requires policy ambition to address behind-the-border trade-related issues such as services, competition, intellectual property rights, and public procurement.
To set the stage, this paper raises the question as to whether the envisaged CFTA will result in a single trading arrangement for Africa or add another layer of overlapping trade regimes in the continent. In this regard, lessons from the Tripartite FTA negotiations are highlighted. Subsequent sections deal with some negotiation, design and implementation issues in the context of new global trade and production realities.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
South Africa and AGOA: Recent developments 2015-2016 and possible suspension
The African Growth and Opportunity Act (AGOA) has received much publicity and attention over the past year in particular, for two main reasons: (a) the legislation was set to expire at the end of September 2015 amid uncertainty and many questions about whether it should be renewed, and in which format, and (b) the legislation’s eligibility requirements were brought to the fore amid serious questions around South Africa’s continued compliance with these underlying provisions. South Africa had in the meanwhile become the largest and most diversified AGOA beneficiary.
Fast-forward to end 2015. AGOA has since been renewed by ten years, and South Africa remains in the fold, albeit on somewhat precarious ground, and very much in the spotlight. Special provisions targeting South Africa – in the sense of compelling a mandatory formal review of South Africa’s compliance with AGOA’s eligibility provisions – were included in the new legislation. Overhauled eligibility requirements and associated processes and reviews, as well as possible sanctions for non-compliance, feature in the new AGOA.
The process relating to South Africa was partly concluded in November 2015 when President Obama wrote to Congress, in line with the provisions of the new AGOA legislation, to give advance-warning of an intention to suspend some of South Africa’s market preferences under AGOA. In January 2016, Obama followed-through with this threat and formally suspended South Africa’s AGOA preferences for agricultural exports amid a new 60-day notice period, as required by the legislation, effective 15 March 2016. Until then, South Africa has a final opportunity to rectify, implement or finalise the few remaining issues to which this suspension relates.
This Working Paper aims to provide a relatively non-technical and accessible overview of recent events (and those that preceded the current situation), look at the potential trade impact of the proposed sanction and associated vulnerable sectors, as well as inform on South Africa’s rebate system relating to the agreed chicken quota that has become available to South African importers regarding chicken imports from the United States.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
The Use and Potential of Export Taxes for Africa: an Introductory Analysis
Export taxes have been used as long as international trade has taken place, both as a generator of revenue and also for strategic reasons. However, despite the unambiguously negative (inefficient) nature of export taxes, when viewed from the perspective of global welfare, they continue to be used in world trade, especially among developing and middle income countries.
Export taxes are most popular for primary sectors, which is not unexpected given that these dominate the exports of developing countries, the primary users of the taxes. Sugar, coffee, cocoa, forestry products, fishery products, leather, hides & skins products; and metal & mineral products are the sectors most impacted by export taxes.
Solleder (2013) suggests that the use of export taxes, far from being on the decline, is actually increasing among developing nations. Africa is no exception, and its countries have both historically and currently made use of export taxes as well as simple quantitative export restrictions or outright bans. In fact, African countries dominate other continents in the use of export taxes, with 91% of African countries making use of them, as opposed to Asia – 76% – and the Americas – 71%. Some of the notable countries which do not make use of export taxes are the USA, Peru, Iceland, most of the EU (export taxes are not prohibited vis a vis external trade), Algeria, Libya, Eritrea, Somalia, South Korea, Japan, Australia and New Zealand.
The extent of export taxes among developing and middle income countries is of interest to economists, since the conditions under which an export tax will be welfare-raising are somewhat limited. In fact, the pervasive logic and common sense of Ricardian trade predictions suggest that any form of trade barrier would fail to raise welfare, undoubtedly from a global perspective but also usually from a country perspective as well. Economic theory shows that, for an export tax to be domestically welfare-raising, certain specific conditions relating to the market power of the exporting nation must be met, failing which the tax may raise some revenue, but will ultimately be negative-sum for the exporting country and indeed for the world.
This paper attempts an introduction to an analysis of export taxes for Africa. It starts with a review of theoretical considerations in order to understand the central research question. Next an overview of the historical and current use of export taxes and restrictions in Africa is provided, in order to contextualise the issue. The final section contains a Computable General Equilibrium (CGE) simulation of the use of export taxes in the case of Namibia’s Uranium and Thorium ore exports. Policy implications and some recommendations are drawn out in the conclusion to the paper.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
The Agriculture Negotiations at the World Trade Organization (WTO)
The Doha Development Agenda (DDA) owes its existence to the fourth WTO Ministerial Conference held in Doha, Qatar in November 2001, which resulted in the Doha declaration. There were a range of subjects discussed under the declaration; however, this background paper* focuses on the section on agriculture. The Doha declaration built on the work that was already going on in agriculture negotiations, following the Uruguay round of trade negotiations (1986-1994) and the conclusion of the agreement on agriculture (AoA). The objective of the AoA was to remove agricultural trade distortions in order to ensure that import and export markets remained predictable for traders. These distortions arose from the loopholes in the GATT that allowed members to use import quotas and subsidise agricultural trade.
The Doha declaration reconfirmed the long-term objective of establishing a fair and market oriented trading system through a programme of fundamental reforms. However, Members were unable to meet the deadline of March 2003 on modalities on agriculture that would enable them produce their comprehensive draft commitments. They proceeded to prepare a framework of modalities, which was completed in August 2003, even though the process continued to August 2004. From September 2004 till now, members are in the modalities phase.
The MC10 will be the first WTO ministerial meeting to be held in Africa. Little progress has been made so far in terms of possible areas of agreement and if the statement by the chair of agriculture, Ambassador Vangelis Vitalis of New Zealand, is anything to go by: “Unfortunately, the areas of divergence remain and our challenge is to see what is still possible to narrow the gaps and precisely where”.
The G33 have made proposals to have special safeguards mechanisms that allow developing countries to temporarily raise tariffs to curb import surges should be included in under sides to be discussed in Nairobi. Australia has also made a proposal on how export competition could be commercially beneficial. There have been no changes on discussions on public stock holding, cotton, domestic support and market access. It is clear that the Nairobi Ministerial is unlikely to deliver much progress in terms of agreements on issues at stake in agriculture, more so conclusion of the Doha round.
* Background Paper Prepared for the 10th WTO Ministerial Conference in Nairobi. The author is affiliated to the Institute of Economic Affairs, Kenya.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
The WTO’s Aid for Trade Initiative at 10: An Overview
Trade costs are a major influence on the pattern of global trade and can limit the extent to which countries are able to exploit their comparative advantages and market access opportunities for economic gain. High trade costs combined with a lack of supply-side capacity can therefore be an impediment to the ability of developing and least developed countries (LDCs) to participate in trade and develop economically. The good news is that measures can be taken to reduce trade costs and increase supply-side capacity. This will in turn enhance the ability of developing countries to engage in trade and thus uplift their economic status and performance. The Aid-for-Trade Initiative is aimed at linking donors and partner countries together in an effort to address these two issues in priority areas.
2015 marks ten years since the Aid-for-Trade Initiative was launched at the WTO’s Hong Kong Ministerial Conference in 2005. It is therefore an opportune time to revisit the rationale behind the initiative, examine its current status and review its impact on developing and least developed countries.
The aim of this paper is thus to provide some background regarding the Aid-for-Trade Initiative as well as to give an overview of its achievements, the challenges encountered in its implementation, and the opportunities that it provides for developing countries wishing to improve their capacity to trade through reduction of trade costs.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
A historical perspective on South Africa’s trading and investment profile with Africa in recent years
The objective of this working paper is to provide some background to the South African trade and investment profile in recent years, with a special emphasis on the trade relations with the African continent. We explore the merchandise trading relationship before putting South Africa’s investment position with Africa in perspective and finally examining the SACU revenue-sharing formula and options.
South Africa’s exports to Africa have been stable at around 15% of total exports through to around 2008 and they then increased to a figure of nearer 30%. However, this increase has largely been driven by the inclusion of the BLNS (Botswana, Lesotho, Namibia and Swaziland) data in a comprehensive manner as netting out BLNS trade sees an increase to just under 20% in 2014. Botswana and Namibia are the main destinations, followed by Mozambique and Zambia. Fuels are the main export by product.
Imports from Africa are a lower percentage of the South African total, although they have risen steadily from just under 3% (sans BLNS data) to around 13% including BLNS imports, and around 11% without these BLNS imports. Nigeria and Angola are the main sources, and mineral fuels dominate by product with a share that has risen from around 45% of the total from Africa to around 65% or higher in recent years.
For South African agricultural exports new data shows that Africa is significantly more important than the EU as a destination, while the aggregate BRICs (Brazil, Russia, India and China) are more important than the first single destinations of Hong Kong, United Arab Emirates and the United States of America. Furthermore, for South African destinations within Africa the feature is that immediate or very close neighbours dominate the list. By product South Africa exported R105.5 billion worth of agricultural exports in 2014, which constitutes 10.8% of the country’s overall total exports for the year.
The EU is the main source of South African imports, and this share is increasing: from 25.7% in 2010 through to 32.4% in 2014. Similarly, the import share from BRICs is also increasing, while the aggregate share from each of Africa, ASEAN and BLNS declined over the period. Argentina was the top single non-EU import source, followed by Indonesia. The two BLNS countries of Swaziland and Namibia head the list of imports from Africa, followed by Zimbabwe and Zambia.
Collectively, Africa accounted for some 40% to 50% of South Africa’s exports of manufactured goods in 2013, with the close neighbours the most important destinations. General and electrical machinery and vehicles are the main exports. South Africa also dominates intra-Southern African Development Community (SADC) merchandise trade.
Examining the South African foreign investment profile we find that Africa has a modest (4% to 6%) share of liabilities (owed by South Africa), but a higher share of South African investment assets held abroad are invested in Africa. The latter has steadily been increasing from around 4% of South Africa’s investments abroad in the early years from 1997 to nearly 10% by 2012. Namibia has the most invested in South Africa, while South Africa has the most invested in Mauritius.
The final section explores intra-SACU merchandise trade and the way in which the SACU revenue-pool formula impacts upon the tariff revenue-pool shares. Given the high percentages of total BLNS government revenues that these tariff pool distributions make up this formula is critical to the BLNS. The formula and these revenues are set against a background of increasing unease about their continuation and the resulting implications of changes for the future.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.