RESTRICTED
WORLD TRADE WT/TPR/G/34
25March 1998
ORGANIZATION(98-1200)
Original: English
TRADE POLICY REVIEW
SOUTH AFRICA
Report bytheGovernment
Pursuant totheAgreement Establishing theTrade Policy Review Mechanism (Annex 3ofthe
Marrakesh Agreement Establishing theWorld Trade Organization), thepolicy statement bythe
Government ofSouth Africa isattached.
Note:Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting oftheTrade
Policy Review Body onSouth Africa.Republic ofSouth Africa WT/TPR/G/34
Page 3
TABLE OFCONTENTS
Page
EXECUTIVE SUMMARY 5
I. INTRODUCTION 7
II. POLICY CHALLENGES 8
(i) Poverty andinequality inSouth Africa 8
(ii) Theeconomy 9
(iii) Recent developments 10
(iv) Thegrowth, employment andredistribution strategy 12
(v) New democratic institutional context forpolicy making 13
III. TRADE AND INDUSTRIAL POLICIES: ANEW VISION 14
(i) Thevision andpolicy overview 14
(ii) Small, medium andmicro-sized enterprises development 15
(iii) Agriculture 16
IV. TRADE-RELATED ISSUES 17
(i) Intellectual property regime 17
(ii) Anti-dumping andcountervailing measures 17
(iii) Competition policy 17
(iv) Investment policy 18
V. SOUTHERN AFRICA 19
(i) TheSouthern African Customs Union (SACU) 19
(ii) TheSouthern African Development Community (SADC) 20
(iii) SADC andthemultilateral trading system 20
VI. EXTERNAL TRADE POLICY 21
VII. BILATERAL TRADE RELATIONS 21
VIII. TRADE NEGOTIATIONS WITH THE EUROPEAN UNION 21
IX. MULTILATERAL TRADE RELATIONS 23
X. LOOKING TOTHE FUTURE 23Republic ofSouth Africa WT/TPR/G/34
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EXECUTIVE SUMMARY
1. TheGovernment ofthenewSouth Africa hasembarked onanhistoric national effort toconfront
theprofound developmental challenges thatarethelegacies offivedecades ofracial oppression and
three decades ofeconomic decline. Thechallenge ofredressing inherited injustices andinequalities
isnotsimply acollective moral obligation. Theimperative derives alsofrom theconviction thatit
isonlythrough correcting pastinequities willitbepossible toestablish thesocial andpolitical stability
necessary toachieve sustainable economic growth, andagenuinely democratic andprosperous society.
2. South Africa 'sfirstfreeelections inApril 1994andtheemergence ofademocratically elected
Government under thePresidency ofNelson Mandela, established astable political environment in
whichitwaspossibletodefine,throughabroad-basedconsultativeprocess,thekeychallenges,objectives
andstrategies forrevitalizing theeconomy andsociety. TheGovernment 'sReconstruction and
Development Programme (RDP) -thepolicy framework forsocio-economic transformation in
South Africa -istheoutcome ofthisprocess. TheRDP hasbeenendorsed byallsocial partners as
thebroad social pacttocreate anappropriate environment forrapid growth, increased investment and
accelerated delivery ofpublic services.
3. InJune1996,theGovernmentpublisheditsmacroeconomicframework,theGrowth,Employment
andRedistribution (GEAR) programme. GEAR builds upontheRDPinseeking torealize thevision
ofacompetitive, fast-growing economy thatcreates sufficient andsustainable employment forall,
andredresses thesocio-economic inequities inherited from apartheid. GEAR objectives include the
achievement of6%gross domestic product (GDP) annual growth andthecreation of400000jobs
perannum by2000.
4. Long-term improvements inemployment andwealth creation willrequire ashiftaway from
dependence onrawmaterial exports tovalue-added manufacturing exports. Inseeking toattain
international competitiveness formanufactured exports, theGovernment hasimplemented aseries of
integrated policy initiatives tofoster:
- astable andsustainable macroeconomic framework;
- investment insocial andeconomic infrastructure;
- small business development withanemphasis onblack economic empowerment;
- trade promotion;
- newforeign anddomestic productive investment; and
- regulations thatensure anenabling environment foreconomic development.
5. ThecoreoftheGovernment ’seconomic strategy isindustrial policy which aimsatconsolidating
thecompetitive advantage thatupstream industries enjoy andtransferring thisadvantage totherelatively
labour-intensive subsectors ofmanufacturing. Inaddition, aseries ofindustrial analyses hasbeen
undertaken toidentify thecompetitive fundamentals which underlie manufacturing productivity growth
anddefine programmes tochange theindustrial structure inherited from thepast.
6. Trade policy features centrally inthedrive toenhance international competitiveness. The
South African Government hasembarked onaprogramme ofcomprehensive trade policy reform that
includes:
- industrial tariff reductions averaging one-third by2000;
- binding 98%oftariffs lines;
- rationalizing thenumber oftariff lines;
- converting quantitative restrictions andformula duties toadvalorem tariffs; andWT/TPR/G/34
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- terminating export subsidies (effective July1997).
7. Thereduction oftariffs andphasing outofsubsidies havebeenaccompanied byashiftin
industrial policy towards market-led supply-side support measures. Awide range ofsupply-side
measures, compatible withtherules oftheWorld Trade Organization (WTO), hasbeenputinplace
topromote industrial restructuring, technology upgrading, investment andexport promotion, small,
medium andmicro-enterprises (SMMEs) development, andblack economic empowerment.
8. TheGovernment ’sindustrial policy hasasectoral focus aimed encouraging theexports of-
andattracting investment andtechnology to-those sectors thatwilldrive industrial development in
South Africa. Councils thatbring together theprivate sector andGovernment arebeing established
topromote exports, investment andtechnology inamore coordinated andtargeted manner.
9. TheGovernment 'stradepolicy iscomplemented byanactive tradediplomacy atthebilateral,
regional andglobal levels aimed atenhancing South Africa 'saccess toexport markets, investment and
technology.
10. TheGovernment isengaged inefforts toestablish strategic bilateral relationships. Inaddition
toformal relations withtheUnited States, Germany, France andAustralia -which holdconsiderable
investment andtechnology transfer potential -South Africa iscurrently engaged innegotiations with
theEuropean Union foraTrade, Development andCooperation Agreement aimed atestablishing a
bilateral freetrade area.
11. South Africa alsoseeks tostrengthen itsbilateral traderelations withAfrican, Latin American
andAsiancountries.ThesegrowingregionaleconomiesoffervastmarketopportunitiesforSouthAfrica's
value-added exports. Their comparable levels ofdevelopment alsooffers unique anduntapped
opportunities interms ofinvestment, jointventures andtechnology transfer. InSouthern Africa, the
Government 'spolicy isaimed atpromoting adynamic, globally competitive regional economy in
partnership withneighbouring states, through acombination ofsectoral cooperation, policy coordination
andtrade integration within theframework oftheSouthern African Development Community
organization. Current negotiations amongst SADC member states seekto:
- implement anasymmetrical freetrade areatoprovide rapid andsignificant market access for
regional exports totheSouth African market;
- linkregional trade development andindustrial restructuring toreflect current anddynamic
comparative advantages across theregion; and
- promote coordinated infrastructure andresource-based industrial development.
12. Attheglobal level, theGovernment attaches great importance toitsmembership oftheWTO
andtoenhanced security andcertainty inthemultilateral trading system provided bytheWTO rules.
13. InconsistentlyseekingtofulfilltheobligationsitundertookthroughratificationoftheMarrakesh
Agreement establishing theWTO, theGovernment aimstocontribute toastrengthened multilateral
trading system andtodemonstrate itsopposition tounilateralism andextra-territorialism intrade
diplomacy. South Africa iskeentoparticipate inshaping thefuture evolution ofthemultilateral trading
system andbelieves thatmutually beneficial andbalanced outcomes forallWTO members isvitalin
securing theintegrity andsustainability ofthetrading system.
14. South Africa believes thatthereality ofcountries experiencing marginalization, aswellasthe
question ofcoherence inglobal economic policy-making constitute thekeychallenges facing the
multilateral trading system andthegovernance oftheworld economy.Republic ofSouth Africa WT/TPR/G/34
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I. INTRODUCTION
15. Thenewdemocratic Government ofSouth Africa embraces thisopportunity topresent this
report totheWTO 'sfirstpost-apartheid tradepolicy review. Thetransparency principle thatunderpins
theTrade Policy Review Mechanism (TPRM) resonates comfortably withtheprinciples thatcharacterize
South Africa 'snewConstitution andthenature ofdemocratic South Africa 'seconomic andpolitical
governance.
16. Since South Africa 'slasttrade policy review in1993, rapid andfundamental changes have
occurred bothwithin South Africa andglobally. Domestically, South Africans haveachieved what
hasbeenwidely referred toasa"miraculous" transition toademocratic political order based ona
commitment tohuman rights andsustainable development.
17. Thepursuit ofeconomic transformation andsustainable development inSouth Africa coincides
withrapid changes intheworld economy from which nonation canbeimmune. Thedeepening
integration ofglobal financial, technological, service andcommodity markets (globalization) andthe
shifttowards outward-oriented, liberal economic policies (liberalization) arehallmarks ofthecurrent
environment. Theneed forenhanced coordination amongst nations ismanifest ataglobal level.
Multilateralismisincreasinglythevehicleforglobaleconomicgovernanceandrepresentstheinstitutional
andpolicy response toglobalization andinterdependence.
18. Indeed, theestablishment oftheWTO in1995, following theconclusion oftheUruguay Round
ofmultilateral negotiations, marked theemergence ofastrengthened rules-based international trading
system withacompetence thatextends beyond thetraditional focus ontrade ingoods oftheoriginal
General Agreement onTariffs andTrade. TheWTO alsoencompasses disciplines intheareas oftrade
inservices, trade-related investment measures andintellectual property rights. While thedisciplines
emerging from theUruguay Round establish a"minimum" setofmultilateral rights andobligations,
theagreements alsoinitiate processes topromote further liberalization andextend multilateral disciplines
interms ofthebuilt-in agenda and,potentially, interms ofnewissues currently under study inrelevant
WTO forums.
19. Simultaneously, tradeandeconomic relations arebeing pursued withtheframework ofregional
integration arrangements, which haveexpanded vastly innumber, variety andscope. Thepursuit of
regional integration inSouthern Africa within theframework oftheSouthern African Development
Community (SADC), mirrors theglobal trend andhasbeengiven newimpetus bythe1996agreement
among SADC Member States towork towards thecreation ofafreetrade area.
20. These broad features characterize theglobal trading system towhich South Africa returns after
years ofapartheid-induced isolation. Inlightofthisbroad context, theSouth African Government
hasdeveloped aholistic andintegrated approach toeconomic andtrade policy. Thepolicies seekto
reflect theparticularities ofthesocial andeconomic realities inSouth Africa andtheSADC region,
aswellasthedominant trends intheglobal economy.
21. Theobjectives ofSouth Africa 'seconomic andtradepolicies aretoraisethestandard ofliving
ofitspeople andpromote sustainable development, while contributing positively tothedevelopment
ofmutually beneficial andbalanced economic relations inSouthern Africa, theAfrican continent and
globally.
22. Thisreport setsoutthedevelopmental challenges confronting South Africa. Itoutlines key
features ofGovernment policy which aimbothtoredress socio-economic inequalities inSouth AfricaWT/TPR/G/34
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andtocreate aninternationally competitive economy. Itfocuses onagricultural, industrial andtrade
policies andoutlines policy developments inrelevant trade-related areas. Thereport outlines the
Government ’spolicy withregard toSouthern Africa which isthecentrepiece of-andplatform for
-South Africa ’swider international trade diplomacy.
II. POLICY CHALLENGES
(i) Poverty andinequality inSouth Africa
23. ThenewSouth African Government inherited aneconomy inwhich realgross domestic product
(GDP) hadbeendeclining since 1965. Inthefirsthalfofthe1960s, growth wasalmost 6%peryear
but,bythelate1980s, ithadfallen toaround 1%. With aGDP ofUS$112.6 billion in1996, the
World Bankranks South Africa among upper middle income countries above Venezuela andBotswana,
andbelow Croatia, Mexico, Mauritius andGabon. With thepopulation growing atabout 2.6% each
year, percapita GDP growth declined between 1981 and1993. South Africa ’scurrent levelofhas
apercapita GDP ofaround US$2918 must beseenagainst therealities ofmassive long-term
unemployment andprofound inequalities inincome andwelfare.
24. Employment growth hadbeen deteriorating consistently since 1970. Structural factors
constraining employment creation andequality include persistent loweconomic growth; high
concentration ofwealth anddecision-making intheeconomy; substantial increases inthecapital-labour
ratioinallsectors; small increases inlabour productivity; asignificant decline incapital productivity
inmining, manufacturing andservices; ahighimport propensity; asmall andunderdeveloped home
market; andasevere lackofinvestment inhuman resource development andsocial services.
25. ThesestructuralcharacteristicsofSouthAfrica'seconomyhavecontributedtotheoveralldecline
intotal formal employment, with unemployment reaching 29% ofthelabour force by1996.
Unemployment today cannot bedivorced fromthepolicies ofapartheid thatsucceeded indispossessing
themajority black population from aself-sustaining economic base, while actively undermining its
ability todevelop alternatives. Apartheid created thetype,structure andpersistence ofunemployment
thatmust nowbeaddressed bythenewGovernment.
26. Apartheid policy intensified inequalities inSouth Africa beyond thelevelexpected inacountry
ofitslevelofdevelopment. Thesharp divergence ofpercapita incomes across racial groups makes
inequality inSouth Africa oneofthehighest intheworld asmeasured bytheGiniCoefficient. The
white minority receives anincome 9.5times thatoftheAfrican majority. Atpresent, thewealthiest
2.4million South Africans account forover40%ofallconsumption, while thepoorest 21million
account forunder 10%. Thevastmajority ofSouth Africans, particularly theunemployed, livebelow
thepoverty line(around 40% ofthepopulation and52.7% ofAfricans) andlacktheeducational
qualifications orskilllevels required tocompete fortheoccupations thatwillbemost indemand in
comingyears.Thereislimitedornon-existentaccesstobasicinfrastructure,services,education,primary
health careorsocio-economic opportunities forthemajority ofthepeople, especially Africans and
rural residents. Inequitable income distribution inSouth Africa alsohassevere gender andspatial
(urban/rural) dimensions.
27. While social indicators (such asinfant mortality, lifeexpectancy) forthewhite minority compare
favourably withdeveloped countries, those fortheAfrican majority arecomparable tothepoorest
LLDCs. These extremes tendtoconfirm theview thatfirstandthird world conditions coexist in
South Africa. Forexample, while almost allwhite households haveaccess toelectricity, electricity
isavailable toonly20%ofAfrican households. Also, inthestrongest economic region inAfrica -Republic ofSouth Africa WT/TPR/G/34
Page 9
theregion surrounding Johannesburg -70%ofAfrican households havenodirect access towater and
50%liveinstructures builtofimpermanent materials.
28. TheUnited Nations Development Programme (UNDP) human development index further
illuminates theprevalence ofinequality inSouth Africa. IntheUNDP 1994 survey covering
173countries, South Africa ranked 93interms ofliteracy, lifeexpectancy andstandard ofliving. The
index alsorevealed thatifwhite South Africa wereaseparate country, itwould rank24intheworld,
justafterSpain. Black South Africa, bystark contrast, would rank123,justabove Congo.
(ii) Theeconomy
29. Recent economic recovery inSouth Africa must beseenagainst theinheritance ofahighly
concentrated, distorted, protected and, generally, uncompetitive economy. These features of
South Africa ’seconomy arerooted inthecountry ’spastpattern ofindustrialization anditsincorporation
intotheworld economy asaprimary products exporter.
30. Formuch ofthiscentury, South Africa pursued import-substitution policies, which fostered
local manufacturing byraising tariff barriers. Theresulting highcosts ofproduction undermined
significant export growth. Inaddition, thecountry ’shighly skewed, racially-based income distribution
exacerbated thelimitations ofasmall domestic market. Since industry remained critically dependent
onimported technology, machinery andtransport equipment, anexpansion inlocal production of
intermediate andconsumer goods spurred theneedforforeign capital.
31. Bythe1980s, capital goods comprised over40%ofimports. Anygrowth inthedomestic
economy, therefore, increased thedemand forforeign exchange, which thecountry could acquire either
fromexports orinflows offoreign investment. Thus, forSouth Africa, likemany newly industrializing
countries, sustained economic growth hinged onahealthy balance ofpayments.
32. Lacking acompetitive manufacturing base, South Africa paidformany imports withproceeds
from mineral, agricultural andother rawmaterial exports. Primary products comprised over80%
oftotalexports inthe1980s, withgoldcomprising over40%ofSouth Africa ’sexport trade. Through
the1960s, direct andindirect foreign investment supplemented thecountry ’scapacity toimport capital
goods.
33. Thecontribution ofmanufacturing toGDP peaked in1989 at26%. Although mining had
historically beenthedominant productive sector, itscontribution toGDP hasdeclined toaround 10%
inrecent years. Agriculture contributes about 5%toGDP. Thelong-term decline inSouth Africa ’s
GDP reflected thedecline ofthemanufacturing sector. Until 1970, themanufacturing sector grew
atanaverage rateof6.9%, toleadalleconomic sectors. From 1981, thesector began tostagnate
interms ofoutput, employment andrateofcapital accumulation. Decline inmanufacturing wasa
major reason fortheoverall decline intheSouth African economy inthe1980s andearly1990s. There
arenumerous, related reasons forthedecline:
- falling aggregate demand;
- declines inprivate andpublic investment which revealed weakening business confidence;
- ashifttowards lower productivity capital investment inthepublic sector; and
- expensive andunproductive “strategic ”investment aimed atreducing external dependence on
energy andarmaments.WT/TPR/G/34
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34. Inaddition, theperiod wascharacterized by:
- declining capital andlabour productivity;
- insufficient investment human resource development;
- falling capacity utilization;
- agrowing andunmanageable external debt;
- thedebtcrisisof1985andfinancialsanctionswhichexacerbatedbalance-of-paymentconstraints;
- agrowing fiscal deficit which crowded outinvestment andcontributed tothebalance ofpayment
problems;
- a15%rateofinflation; and
- aproduct-specific traderegime biased tohome market production, reinforced byinternational
boycotts against South African products.
35. Insum,structural weaknesses andinappropriate policies hadculminated inprecipitous economic
decline thatwasexacerbated byintensifying international anddomestic opposition toapartheid. By
the1980s, theSouth African economy hadentered aperiod ofprofound crisis andpossibilities for
revitalizing economic growth were predicated onachieving apolitical solution toendapartheid.
Negotiations prepared thebasis foratransition toapost-apartheid order, leading toSouth Africa ’s
firstdemocratic election inApril 1994andtheestablishment ofanewGovernment under thePresidency
ofNelson Mandela.
(iii) Recent developments
36. Against thebackground ofasuccessful democratic transition, theeconomic decline that
characterized South Africa inthe1980s andearly1990s hascome toanendandconsiderable progress
hasbeenmade in:
- securing areturn togrowth inexcess ofpopulation growth;
- reducing thebudget deficit andre-prioritizing public expenditure;
- reforming thetaxsystem;
- bringing down inflation;
- easing thebalance ofpayment constraint;
- opening theeconomy tointernational competition andsecuring access tonewmarkets;
- integrating thecivilservice andtransforming thepublic sector institutions; and
- establishing policy frameworks forthedelivery ofsocial services.
37. Followingtheprolongedcontractioninoutputfrom1989to1993,aggregaterealGDPaccelerated
from 1.5% in1993 to2.5% in1994 to3.5% in1995. In1996, GDP growth declined slightly, to
3%in1996. Themanufacturing sector, which hasbeengrowing strongly since 1994 onthebackof
strong demand inthedomestic market andabroad, grewbyonly0.5% in1996, having grown by7.5%
in1995.
38. Thedeceleration inthepaceofmanufacturing production halted towards theendof1996 and
annualized growth atarateof5%wasregistered inthefirsthalfof1997. Animportant reason for
therecovery wasstrong demand formanufactured exports which hadbeenprompted byimproved price
competitiveness following thedepreciation oftheRand from February toOctober 1996. Growth in
manufacturing output hasbeenmatched withhighproduction capacity utilization andnewproduction
asmany industrial subsectors undergo deeprestructuring.Republic ofSouth Africa WT/TPR/G/34
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39. Themain source ofgrowth in1996 wastherecovery inagricultural production. Realvalue
inagriculture, which hadcontracted by15%in1995, rebounded by26%in1996. Therealvalue
added bygoldmines fellby5.5% in1996asgoldoutput reached itslowest levelinfortyyears. Real
output inthenon-gold mining sector expanded byabout 2%in1996, largely onaccount ofstrong world
demand forminerals andcoal. Incontrast tothehighdegree ofvolatility inagricultural production
volumes andthegenerally steady decline inmining output, therealvalue added innon-primary sectors
hasconsistently recorded growth since thebeginning of1993. Therealvalue added bythetertiary
sectors increased by3%in1996.
40. Aggregate realgross domestic fixed investment (GDFI) increased by10.5% in1995 and7%
in1996, butthendeclined toaseasonally adjusted andannualized rateof2.5% inthefirsthalfof1997.
Thegrowth inaggregate GDFI since1993succeeded inreversing thedecline intheratioofnetdomestic
investment toGDP, which hadbeenevident since1989. Total realnetfixedinvestment, asapercentage
ofGD,increased from 1%atthebeginning of1993 toalmost 4%inthefirsthalfof1997.
41. Theaggregate increases inGDFI arenevertheless considered toolowinlightofSouth Africa ’s
development needs. GDFI constituted about 17%ofGDPinthefirsthalfof1997. However, research
indicates thataratio of25% isrequired toabsorb ofentire increment oftheeconomically active
population intogainful employment andtogradually reduce unemployment overtime.
42. Except formining, mostsectors oftheeconomy havebeenexperiencing growth andstructural
change since1993. Therising levels ofrealoutput havenot,however, beenaccompanied bysustained
increases intotalemployment intheformal non-agricultural sectors oftheeconomy. Total formal
sector employment increased onlyonceduring thepastseven years; by0.7% in1995. Between 1989
and1996, theaverage levelofemployment intheformal non-agricultural sector fellby6.9%, indicating
alossofabout 392,000 formal jobopportunities.
43. During thesame period, recession inthemanufacturing sector accounted foralossofabout
140,000 jobs. Inthefourth quarter of1996, theseasonally adjusted level oftotalformal-sector
employment outside agriculture increased atanannualized rateof0.4%, orabout 4,000 positions.
Thisincrease, notwithstanding, theaverage leveloftotalemployment stilldeclined 1.1% in1996.
44. Itisimportant todistinguish between short-term impact responses andlonger-term adjustment
responses. Along withshifts within andacross sub-sectors, theshifttoengaging micro-enterprise
contractors distorts employment figures since most ofthese jobsarecreated intheinformal sector,
which official datafailstocapture. Overall manufacturing output hasimproved considerably with
increased capacity utilization andsignificant improvements inlabour productivity. Restructuring need
notbecontractionary; arange offirms managed toexpand bothoutput andemployment.
45. Consistent application ofacounter-inflationary monetary policy, together withimproved fiscal
discipline, trade liberalization andgrowing competition inthedomestic market, havecontributed to
adeclineinpriceinflationsincethebeginningofthe1990s.TheGovernment’sBudgetforfiscal1997/98
issupportive ofcounter-inflationary monetary policy andassisted inlowering expectations of-and
potential for-inflation.
46. Production price index declined from9.6% in1995to6.9% in1996 -wellbelow theannual
rateofincrease of8.5% fortheperiod 1990-96. Consumer price inflation declined fromanaverage
of8.7% in1995, to7.4% in1996, thelowest year-to-year ratesince 1972. Despite a25%decline
inthetrade-weighted value oftheRand in1996, increases ininflation andespecially theinflation rateWT/TPR/G/34
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ofimports havebeensmall. Increased competition resulting from trade liberalization hashelped to
neutralize theinflationary impact oftheRand’sdecline.
47. In1995, totalexpenditure grewfaster thanproduction, resulting inadeterioration inthecurrent
account ofthebalance ofpayments. Growth inrealgross domestic expenditure slowed from 5%in
1995, toanestimated 3%in1996, inlinewithgrowth inproduction. Improvement inthecurrent
account ispartly duetostrong performance ofmerchandise exports, which grew by12%involume
and21.5% byvalue in1996. Theimproved export performance wasbroadly based, withincreases
inmining andmanufactured goods.
48. Between 1988 and1996, thedecline ingoldearnings asacontribution tototalexports was
compensated byincreasing shares ofmanufactured exports, beneficiated mineral exports and
material-intensive exports -allvalue-added exports, rather thanprimary products. Thecontribution
ofthese three export categories increased fromone-third oftotalexports in1988/89 tomore thanhalf
by1995/96. These increases canbeexplained bysuccesses inindustrial restructuring, thereversal
ofSouth Africa ’sprevious isolation frominternational markets, andthesharp depreciation oftheRand.
49. Private netcapital inflows weresteeply negative from 1986 to1992. In1993 and1994, the
flows were slightly positive, while in1995 theprivate capital netinflow soared tooverR5billion.
In1996, withthecollapse oftheRand, outflows wereroughly equal toinflows. Since 1994, about
250foreign companies haveentered South Africa, while South African companies continue toinvest
abroad. Arecent study hasdemonstrated thatof27countries mostlikely toattract significant foreign
investment,SouthAfricaoffersthecheapestbusinessoperatingcostsintermsoflowlabourandoperating
costs, lowexecutive costs andcheap rent.
50. Sources indicate thatforeign direct investment (FDI) intoSouth Africa amounted toR4.9billion
in1994, R5.5 billion in1995, R8.2 billion in1996, andR13.6 billion in1997. FDIincreased 49%
fortheperiod 1995/96 and65%fortheperiod 1996/97. Fortheperiod 1994to1997, FDIinexisting
assets amounted toR9,349 million, FDIthrough expansion wasR7,160 million, andFDIinnewassets
wasR4,041 million.
(iv) Thegrowth, employment andredistribution strategy
51. Whilethesedevelopmentsconstitutefavourableinitialconditionsforareturntoeconomicgrowth
inSouth Africa, sustaining growth alsorequires acoordinated national effort. InJune1996, the
Government revealed itsmacroeconomic framework document, subtitled the"Growth, Employment
andRedistribution" (GEAR). TheGEAR aimstoredress thelegacies inherited from apartheid and
toplace theeconomy onanaccelerated andsustainable growth path. TheGEAR builds ontheRDP
which setsouttheoverall socio-economic policy framework emphasizing social responsibility andthe
needforrestructuring social services tomeetbasicneeds. TheRDPalsoestablishes discipline regarding
theroleofGovernment ineconomic affairs andarticulates anewemphasis onharnessing market forces
topromote economic growth.
52. TheRDP andGEAR frameworks callforatransformation towards:
- acompetitive outward-oriented economy which creates sufficient jobsforallwork-seekers;
- aredistribution ofincome andopportunities infavour ofthepoor;
- asociety inwhich sound health, education andother services areavailable toall;and
- anenvironment inwhich homes aresecure andplaces ofwork areproductive.Republic ofSouth Africa WT/TPR/G/34
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53. GEAR 'sobjectives include theachievement of6%GDP annual growth andthecreation of
400,000 jobsperannum by2000. GEAR concentrates oncapacity-building tomeetthedemands of
international competitiveness which isdefined interms ofsocietal competitiveness rather thaneconomic
efficiency. Inthedrivetocreate acompetitive outward-oriented economy, GEAR suggests thatfivekey
interrelated developments needtooccur:
- accelerated growth ofnon-gold exports;
- abrisk expansion inprivate sector capital formation;
- anacceleration ofpublic sector investment;
- animprovement intheemployment intensity ofinvestment andoutput growth; and
- anincrease ininfrastructure development andservice delivery, making useoflabour intensive
techniques.
54. Tomeetitsobjectives, GEAR proposes anintegrated policy approach which includes:
- budget reforms tostrengthen theredistributive thrust ofexpenditure, while simultaneously
accelerating thedeficit budget reduction programme tofreeupresources forproductive and
infrastructural investment;
- keeping realeffective exchange ratesstable andcompetitive, while gradually reducing exchange
controls andkeeping inflation down;
- reducing tariffs, expanding trade andinvestment flows, providing taxincentives tostimulate
newinvestment andrestructuring stateassets; and
- wage moderation, developing thecollective bargaining system andfunding training needs.
55. TheGEAR framework setsoutcomplementary objectives andprogrammes forfiscal policy;
monetary andexchange ratepolicy; trade, industrial andsmall enterprise policies; social andsectoral
policies; public investment andassetrestructuring; employment, wages andtraining; anational social
agreement; andpolicy coordination. Allprogrammes aredesigned touphold theGovernment 's
commitment tofiscal andmonetary discipline.
56. Theframework implies thatindustrial development andinvestment willbedriven bythemarket
withtheGovernment providing leadership andaconducive environment tostimulate andsupport these
trends. TheGEAR refers topriority industry investigations andregional industrial locational studies
toidentify mechanisms toenhance thecompetitiveness ofselected industrial subsectors through
appropriate interventions. While thestrategy doesnotpurport to"pick winners" ortoprovide them
withincentives, there isanappreciation ofthedifferent roles andrequirements ofvarious industries
which needtobeattended toinorder toharness theircontribution totheattainment ofGEAR 'soverall
objectives.
57. TheGEAR envisages anexpansionary thrust where non-gold exports would rise10%over
theprojection period (1996-2000). Thiswould besupported bycurrency devaluation, increased
investment byGovernment, parastatals andtheprivate sector which willprovide substantial demand
stimulus, aseries ofsupply-side measures tolower production costs, andincreased inward FDIflows.
TheGEAR emphasizes supply-side measures withtechnology, innovation, training andproductivity
enhancementmeasurestosupporttheten-yeartaxholidayavailabletoqualifyingmanufacturingconcerns.
(v) NewDemocratic Institutional Context forPolicy Making
58. Anytransformation programme ofthisscaleinevitably entails significant social andeconomic
adjustment costs. Inaddition totheconstitutional provision forcooperative governance between allWT/TPR/G/34
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tiersofgovernment, thepursuit ofsocio-economic transformation inSouth Africa isunderpinned by
ademocratic andconsensual approach topolicy-making. Therationale forthisapproach isthe
recognition thatinorder tosustain processes ofliberalization andrestructuring, itisnecessary toensure
thatthekeyconstituencies andstakeholders bearing theburden ofadjustment actively participate in
theevolution ofeconomic policy.
59. Inthisconnection, theNational Economic Development andLabour Council (Nedlac) was
established in1995 asastatutory consultative body drawing together Government, organized labour
andbusiness, andcommunity organizations todevelop consensus around keyareas ofeconomic, trade,
labour anddevelopment policy-making. Furthermore, astrong tradition ofcollective bargaining
underpins South Africa ’sindustrial relations environment. Thechallenge facing theGovernment and
itssocial partners istoensure thatthenational agreement underpins growth, jobcreation, social
development, economic restructuring, andincome distribution.
III. TRADE AND INDUSTRIAL POLICIES: ANEW VISION
(i) TheVision andPolicy Overview
60. TheGovernment iscommitted tobuilding acompetitive, fast-growing economy thatleads to
sustainable employment andtheimprovement oftheliving standards ofallSouth Africa ’speople.
Tothisend,theGovernment hasembarked onacomprehensive programme toreform South Africa ’s
economy andtheunderlying policies.
61. Since assuming power in1994, theGovernment hasformulated andbegun toimplement arange
ofstrategies designed toplace theeconomy onarapid, sustainable growth path. Industrial policy is
atthecoretheeconomic reform programme. TheGovernment ’snewindustrial policy hasasectoral
focus aimed ateffecting ashiftfromdependence onprimary exports tovalue-added, globally competitive
manufactured exports.
62. Thenewindustrial strategy seeks initially toconsolidate thecompetitive advantage enjoyed
byupstream industries (primary manufacturing sectors) asaresult ofpastpolicies (which favoured
capital andenergy-intensive manufacturing). Thisadvantage willbetransferred totherelatively
labour-intensive subsectors ofmanufacturing, many ofwhich supply inputs intotheprimary
manufacturing sector and/or utilize primary processed commodities askeyinputs intheirproduction
processes. These subsectors areexpected togenerate between 70,000 and100,000 jobsperannum
bytheyear2000.
63. TheGovernment isdeveloping astrategy ofintegrated trade andindustrial policy measures
topromote production, particularly forexport. TheGEAR identifies growth ofmanufactured exports
asanessential ingredient ofeconomic andemployment growth andaseries ofindustry analyses has
beenundertaken toidentify theircompetitive strengths andweaknesses, andtodesign measures tolaunch
keysectors onaglobally competitive growth path. Rather thanbeing arecipe ofidentifying "winners",
thestrategic focus liesintargeting thecompetitive fundamentals which underlie manufacturing
productivity growth toencourage anappropriate transition inindustrial structure.
64. IndustrialClusterResearchProgrammesaretobecarriedoutin12sectors.ClusterProgrammes
create bothaforum andaprocess forrelated firms andorganizations tojointly identify impediments
tointernationalcompetitiveness,andtodesignappropriateresponses.Moreimportantly,clusterprocesses
helptodefine avision forindustry intheglobal economy andfacilitate ongoing dialogue between firms
andtheGovernment. Closer cooperation inimproving thequality andavailability ofinputs, logistics,Republic ofSouth Africa WT/TPR/G/34
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market information, product andprocess R&D, andthedevelopment ofaskills poolcanbeimportant
elements forachieving industrial competitiveness.
65. TheSouth African Government hasalsoimplemented anindustrial participation procurement
policy which aimstouseGovernment purchasing power tosupport itsindustrial anddevelopment
objectives. Inawarding statecontracts, thepolicy grants preferences forlocally manufactured goods,
previously disadvantaged individuals, andSMMEs. Theprogramme stipulates thatsuccessful tenderers
ofallstateandparastatal purchases withanimported content above US$10 million (ortheequivalent)
areobligedtoactivelycontributetothedevelopmentoftheSouthAfricaneconomythrough,forexample,
accelerating newinvestment; jointventures; export promotion; sub-contracting work toSMMEs;
technology upgrading etc.
66. Trade policy features centrally inthedrive toenhance international competitiveness, andtariff
policyhasbeenanimportantinstrumentofindustrialpolicy.SouthAfricahasembarkedonaprogramme
ofcomprehensive trade policy reform thatisrooted initsWTO obligations. Itshould benoted that
thereforms being implemented were anticipated and,inthemain, agreed toprior toSouth Africa 's
signing oftheMarrakesh Agreement. Keyelements ofthepolicy reform programme include:
- industrial tariff reductions averaging one-third by2000;
- binding 98%oftariffs lines;
- rationalizing thenumber oftariff lines;
- converting quantitative restrictions andformula duties toadvalorem tariffs; and
- termination ofexport subsidies (which tookeffect inJuly1997).
Thefactthatthespeed ofthetariffphase down hasbeenfaster thanSouth Africa undertook initsWTO
offer, illustrates theGovernment ’sseriousness inliberalizing theeconomy toachieve international
competitiveness.
67. Thereduction oftariffs andphasing outofsubsidies havebeenaccompanied byashiftinpolicy
towards market-led supply-side support measures. Awide range ofWTO-compatible supply-side
measures (both financial andnon-financial) havebeenputinplace tofacilitate industrial restructuring,
technology upgrading, investment andexport promotion, andSMME development. Thesectoral
industrial policy approach willbereflected inSouth Africa ’sforeign economic strategy, including its
trade andinvestment promotion efforts, aswellasitsbilateral andmultilateral negotiations.
(ii) Small, medium andmicro-sized enterprises (SMMEs) development
68. Promoting thedevelopment ofSMMEs isacentral component oftheGovernment ’sstrategy
foremployment creation, income generation andblack empowerment. Forhistoric reasons, SMMEs
areunderdeveloped inSouth Africa. TheGovernment hasestablished abroad range ofinstitutions
andmeasurestosupportthedevelopmentofSMME s.Theseinclude,amongstotherthings,theprovision
of:
- lowinterest loans, andloanguarantees;
- apreshipment export finance guarantee;
- financial support foradvice andtraining ontechnology andmarketing;
- equity investment forbusinesses withhighaverage expected return oninvestment, butlimited
security;
- loans tobusinesses withanacceptable capital structure andadequate collateral, butlimited
access tocapital markets;WT/TPR/G/34
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- equity participation andloans tobusinesses which donothaveready access tocapital markets,
anacceptable capital structure orsufficient collateral; and
- equity participation andloans tobusinesses wishing topurchase business premises.
69. Mechanisms havebeenestablished toreview theimpact ofallexisting andproposed legislation
onsmall business andprovide foreconomy-wide guidelines topromote small business.
(iii) Agriculture
70. Agricultureaccountsforabout5%ofSouthAfrica'sGDPandemploysapproximately1.5million
farmworkers.Giventheextentofforwardandbackwardlinkageswithothersectors(66%ofagricultural
output isusedasintermediate products inother sectors), conditions intheagricultural sector have
important implications fortherestoftheSouth African economy.
71. Taking advantage oftheevolving global trading environment toaugment South Africa 's
agricultural exports isanimportant means ofincreasing levels ofagricultural employment andincome.
Thefuture contribution ofagricultural trade toSouth Africa restsonitsability tomeetthechallenge
ofglobal competition. Animportant aspect ofthisisfinding newmarkets andimproving market access
withexisting trading partners.
72. South Africa 'scommitment tofreertradeinagriculture predates ratification oftheMarrakesh
Agreement.The1995WhitePaperonAgricultureestablishedthegeneralintentiontoremovedistortions
inagriculture andmake thesector more market-oriented. Amajor policy shiftaway from measures
toachieve self-sufficiency infoodtowards relying oninternational trade, when itisefficient todoso,
laidtheground forSouth Africa 'scommitment tofreertrade inagriculture.
73. Policiesarenowtransparentandproducers,exposedtointernationalcompetition,areencouraged
toexploit theircomparative advantages andenhance thecompetitiveness andefficiency ofSouth Africa 's
agricultural production andtrade. Continued subsidization andprotection bySouth Africa 'smajor
competitors andsuppliers mean thatitisoftendifficult tofollow thepreferred trajectory foragricultural
growth anddevelopment.
74. SincetheMarrakeshAgreement,majorpolicyshiftsoccurredwithregardagriculturalmarketing.
Under the1996 Agricultural Products Act,allmarketing control boards aretobeabolished, thereby
substantially reducing Government ’sroleinagriculture. Interest ratesubsidies havebeencutasaresult
ofmonetary policy reforms which reoriented financial services tothemarket. Thedepreciation of
theRand eliminated anysubsidization ofimported inputs thatmayhaveresulted from overvalued
exchange rate.With thetermination ofGeneral Export Incentive Scheme inJuly1997, Government
assistance tothesector willbeintheform ofWTO-compatible supply-side measures ofa
Green Box-nature.
75. TheGovernment hasderegulated agricultural marketing totheextent thatitslevelofsupport
-12%in1995 asmeasured bytheProducer Subsidy Equivalent -ranks itamong countries withthe
lowest levels ofsupport suchasNewZealand (4%) andAustralia (9%). These compare withJapan
(77%), theEU(49%) andtheU.S.(15%). Similarly, domestic support tothesector, asmeasured
bytheAggregate Measurement ofSupport (AMS) willdecline to5%ofthetotalvalue ofagricultural
production by2000. Thediminishing realvalue ofthebound levels ofsupport isduetohighinflation
ratesinthepast. Allagricultural products arenowsubject totariffs ofwhich 340tariffheadings (38%)
receive 0%tariff, and72%havetariff levels oflessthan15%.Republic ofSouth Africa WT/TPR/G/34
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76. TheGovernment believes thatWTO disciplines inagriculture haveserved South Africa well
andwillneedtobestrengthened andrefined intheyears ahead. Itintends topursue itsagricultural
tradepolicy objectives intheWTO through theCairns Group ofagricultural exporting countries, which
ithasjoined in1998. Through itsparticipation intheCairns Group, theGovernment hopes todraw
ontheexperience ofthese agricultural exporting nations, particularly inthelightoffuture WTO
negotiations onagriculture, suchasarescheduled for1999.
IV. TRADE-RELATED ISSUES
(i) Intellectual property regime
77. South Africa hasawell-developed intellectual property rights (IPR) regime byinternational
standards, andaimstobeamong theleading countries inupholding IPRprotection through multilateral
disciplines. IPRprotection inSouth Africa isconsistent withtheWTO Agreement onTrade-Related
Intellectual Property Rights (TRIPS). South Africa istheonlydeveloping country tohaveassumed
theobligation -applicable tocountries classified "developed" intheWTO -tofullyimplement the
agreement oneyearafteritsentry intoforce in1995.
78. Inaddition toWTO reviews ofSouth Africa ’sIPRlaws, asrequired byWTO procedures,
theGovernment undertook legislative amendments in1996 tofurther improve IPRprotection in
South Africa inconformity withtheTRIPS Agreement (thatis,through theIntellectual Property Laws
Amendment BillandtheCounterfeit Goods Bill,bothofwhich areexpected tobepassed byParliament
inits1998 session).
(ii) Anti-dumping andcountervailing measures
79. AspartofitsWTO obligations, theSouth African Government hasdismantled mechanisms
thatpreviously protected local industries from "unfairly" low-priced imports. TheGovernment is
currently revamping itslegislation andmechanisms foranti-dumping andcountervailing measures in
conformity withWTO rules. Abilltothiseffect willbetabled inParliament in1998.
(iii) Competition policy
80. TheGovernment believes thatcompetition policy inSouth Africa must beintegrated more
effectively intotheoverall objectives oftheGEAR toencourage morebalanced andsustained economic
growth. TheGovernment thusseeks tosafeguard competition, competitiveness andefficiency inways
thatensure access totheeconomy bypeople previously discriminated against.
81. Competition policy inSouth Africa accepts thelogicoffreeandactive competition inmarkets,
theimportance ofproperty rights, theneedforgreater economic efficiency, theobjective ofensuring
optimal allocation ofresources, theprinciple oftransparency, theneed forgreater international
competitiveness, andthefacilitation ofentry intomarkets.
82. TheGovernment willendeavour toapply competition policy withdueregard totheneedto
correct structural imbalances andpasteconomic injustices, andtoeliminate anydisincentives tonew
investment associated withtheenvironment forcompetition.
83. TheGovernment hasembarked onaconsultative process toreview existing competition policy.
Thisisexpected toresult inadraftbillinthefirstquarter of1998 withParliamentary approval andWT/TPR/G/34
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implementation following attheendof1998. Themain elements ofthenewcompetition policy will
include:
- acompetition policy integrated intotheoverall national policy objectives;
- areformed andstrengthened monopolies lawdirected atanti-competitive conduct under the
direction ofacompetent, professional andpowerful administrative authority;
- astrengthening ofdivestiture laws;
- areview ofexisting securities regulations andinstitutions withprincipal oversight ofcorporate
structure; and
- astrengthening ofconsumer protection.
84. Thepolicy willnotaimatdirect control oftheabsolute sizeofenterprises, theprohibition
ofmergersandacquisitionsinconcentratedindustries,theenforcedunbundlingordivestitureofvertically
integrated corporate ownership, ortheexistence ofmonopolies, oligopolies andcartels. Thecatalyst
tointervention willbeaclearviolation ofpublic interest defined interms ofbalancing theobjectives
ofcompetitiveness, economic efficiency anddevelopment.
85. Thedevelopment ofGovernment ’scompetition policy willalsotakeaccount oftheinteraction
between tradeandcompetition policies, including intheregional andglobal contexts, seeking toenhance
mutual reinforcement between thepolicies. From thisviewpoint, theGovernment attaches great
importance totheWTO ’sWorking Groups studying theinteraction between trade andcompetition
policy, andintends tocontribute toanddraw from thiswork.
(iv) Investment policy
86. SouthAfrica’sinvestmentregimewelcomesforeigninvestors.Thegeneralbusinessenvironment
isbased onnon-discrimination towards foreign investors andtheright ofestablishment. While
South Africa retains normal sovereign prerogatives ofexclusion, inprinciple screening doesnotoccur,
andapplication toinvest isonlyrequired when useistobemade oftheGovernment ’sdevelopment
programmes.
87. Thisliberal investment climate isunderpinned bythenewConstitution andBillofRights which
embodiestheprinciplesofequalityandnationaltreatment,aswellasincorporatesbalancedenvironmental
considerations.Followinggenerallyacceptedrulesofinternationallaw,theBillofRightsalsoguarantees
against expropriation except under certain conditions andsubject tocompensation.
88. Domestic constitutional provisions forinvestment protection arefurther reinforced byBilateral
Investment Treaties concluded withforeign countries. These treaties offer abroad definition of
investment,nationalandmostfavourednationtreatment,andprovideforacceptedinternationalstandards
andnorms ofinvestment protection, suchasfullcompensation intheevent ofexpropriation, theright
ofprofit repatriation, andthirdparty dispute resolution.
89. TheGovernment iscurrently developing anintegrated investment promotion strategy for
South Africa. Asconsiderable financial resources arebeing deployed tomobilize inward investment,
aCabinet-level Committee hasbeenestablished tocoordinate investment ininfrastructure andproductive
activities, andtoovercome impediments tonewinflows.
90. ARegional Industrial Location Study hasbeencommissioned todevelop more coherent and
interlocking industrial andtrade policies atprovincial, SACU andSADC levels. Thestudy employs
theSpatial Development Initiative methodology (discussed below) which identifies appropriateRepublic ofSouth Africa WT/TPR/G/34
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infrastructural andproduction projects inSouth andsouthern Africa asdefined through the
Cluster Studies. While central Government coordinates theefforts ofallnational departments around
asingle investment strategy, ithasalsoestablished Investment South Africa (ISA) tocoordinate
investment promotion incollaboration withtheProvinces, toactasafirststopforpotential investors,
andtomarket investment projects topotential foreign investors.
91. Theobjective ofSpatial Development Initiatives (SDIs) istocreate employment through
innovative methods ofinvestment facilitation. Regions withhighgrowth potential forinternationally
competitive activity areidentified andusually linked toaportforeasytrade access. Thereafter, an
intensive appraisal ofexisting andpotential economic activity isconducted. Constraints toinvestment
areidentified (these usually relate totheprovision orupgrading ofinfrastructure) andprivate-public
partnerships areestablished tofinance infrastructural rehabilitation ordevelopment. Theoutcome is
abasket offinancially viable projects forprivate sector investment.
92. TheroleofGovernmentistofacilitateand,wherenecessary,tointervenestrategicallytopromote
investment anddevelopment. Public resources areemployed toleverage or"crowd-in" private sector
investment around projects thatwillhavethemaximum impact ongrowth anddevelopment objectives.
Theprocess isdesigned todemonstrate thatSDIsareaviable investment option byidentifying clusters
ofinterlinked andprofitable economic activities. Thesuccess oftheMaputo Corridor SDIhaslaid
thebasisforextending themethodology toother partsofSouth andSouthern Africa. UptonineSDIs
across Southern Africa have been identified andareatvarious stages offeasibility planning and
implementation.
93. Arangeofnewandenhancedsupply-sidemeasureshavebeenputinplacetopromoteinvestment.
Thesehavebeendesignedtopromotemanufacturing,employmentcreation,internationalcompetitiveness,
innovation,sectoralrestructuring,regionaldevelopment,blackempowermentandSMME s.Theyinclude
aforeign investment grant, amanufacturing development programme andataxholiday. Infuture,
financingforlargeprojectswilldiminishanditislikelythatlargeprojectsmayemergeinotherprovinces
aswellasinSADC countries.
V. SOUTHERN AFRICA
94. Insouthern Africa, South Africa hasbeenengaged invarious programmes tofoster regional
industrialization. Themostprominent ofthese include: (i)there-negotiation oftheSACU agreement;
(ii)thenegotiations toconclude aprotocol forafreetrade areaintheSADC region; and(iii)and
SDIInvestment projects.
(i) SACU
95. Theobjective oftheSACU renegotiations istorestore theintegrity oftheCustoms Union,
recognizing thattaken together, South Africa andtheBLNS states (Botswana, Lesotho, Namibia and
Swaziland) constitute asingle market. Negotiations havefocused on:
- policy development andcoordination;
- review oftherevenue-sharing formula; and
- review ofinstitutional arrangements.
96. Significantprogressmadehasbeenwithrespecttotherevenue-sharingformulawhereagreement
hasbeenreached ontheprinciples forrevenue-sharing. Further work remains onthequestion ofthe
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tocompensate theBLNS countries fortheirlossoffiscal discretion andtocompensate them forthe
price-raising effect oftheircommon external tariff withSouth Africa.
97. Theobjective ofthereview ofSACU institutional arrangements isthedemocratization of
decision-making inSACU andthefostering ofconcurrence between agricultural, industrial andtrade
policies oftheSACU members. Theachievement ofaconsolidated anddemocratic SACU implies
thatanyfuture trade agreement between South Africa andathird party willflowoutofacommon
SACU mandate.
(ii) SADC
98. SouthernAfricaisofconsiderableimportancetoSouthAfrica'smacro-economy.SouthAfrica's
growing tradesurplus withSADC contributes tooffsetting tradedeficits withother regions andexports
toSADC include asignificant proportion ofvalue-added manufactured goods. Given thenewpolicy
imperatives ofpromoting manufactured exports, SADC assumes great relevance forSouth Africa 's
emerging trade andindustrial policy.
99. Thestructural trade imbalance between South Africa anditsSADC partners is,however,
unsustainable. South Africa, therefore, seeks torestructure thisrelationship byencouraging regional
importsandpromotingoutwardinvestmenttotheregion.Throughacombinationofsectoralcooperation,
policy coordination andtrade integration, South Africa 'sregional policy aimstoachieve adynamic
regional economy capable ofeffectively competing intheglobal economy.
100. ItisinSouth Africa ’strade interest thattheregion achieves sustained economic growth.
Moreover, regional security threats, socio-economic dislocations andthe"spill-over" effects they
engender, aremore effectively addressed inacontext ofregional economic growth anddevelopment.
101. TheGovernment iscurrently engaged innegotiations withneighbouring SADC member states
aimed at:
- anagreement foranasymmetrical freetradearea(FTA) inwhich South Africa willgrant rapid
andsignificant market access toexports fromtheSADC region, while dueattention isgiven
tosensitive regional sectors through specific protocols;
- linking regional tradedevelopment andindustrial restructuring toreflect current anddynamic
comparative advantages across theregion;
- promoting coordinated infrastructure andresource-based industrial development through the
Cluster Programmes andSDIs;
- encouraging South African firms toinvest regionally through afurther relaxation offoreign
exchange controls oncapital destined fortheregion;
- promoting regional trade facilitation, strengthening custom control andadministration, and
eliminating non-tariff barriers; and
- targeted assistance toLLDCs intheregion.
(iii) SADC andtheMultilateral Trading System
102. Globalization andthetendency ofthemultilateral trading system toextend itscompetence over
ever-wider areasofdomestic economic governance haveincreased pressures forharmonizing economic
policies. AsallSADC member states arealsomembers oftheWTO, theSouth African Government
willstrive,withitspartners,todevelopacoordinatedregionalapproachtoparticipationinthemultilateral
trading system, based onagradual attainment ofpolicy convergence intheSADC integration project.Republic ofSouth Africa WT/TPR/G/34
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103. South Africa participated intheSecond Extraordinary Meeting ofSADC Ministers ofIndustry
andTrade inNovember 1996 heldinpreparation fortheWTO ’sfirstMinisterial Conference. This
meetingrepresentedthefirstsubstantialattemptbySADCmemberstatestocoordinatetheirparticipation
inamultilateral trade forum.
VI. EXTERNAL TRADE POLICY
104. Intensifying competition forexport markets, investment andtechnology isthehallmark ofthe
current global economic environment, access towhich requires -andcontributes to-sustained
international competitiveness. Thesuccess oftheGovernment ’sexport strategy depends onpartnerships
andcoordination between government andexporters onthebasisashared appreciation ofthestrengths,
weaknesses anddynamics ofSouth African industry andindustrial policy atthesectoral level.
105. Export councils, mirroring theindustrial Cluster Studies, arebring created asabasisbothfor
formulating andimplementing acoordinated foreign economic strategy forSouth Africa. Thecouncils
willdraw together exporters andGovernment toidentify theexport potential of,andmarket niches
for,competitive sectors, andtodevise appropriate market penetration measures. Thearrangement
willalsoconstitute abasisforeffective bilateral andmultilateral negotiations toenhance access toglobal
markets forexports, investment andtechnology.
106. Acritical component ofSouth Africa 'sexport drive istheprovision offinancial assistance
topotential exporters, particularly SMMEs, andtothose exporters attempting topenetrate complex
anddifficult foreign markets. Financial support through credit guarantees toencourage exports and
tosupport successful tendering forprojects, particularly intheconstruction andengineering fields,
isalsobeing provided. Conversely, support isprovided toencourage inward investment andtechnology
transfer.
VII. BILATERAL TRADE RELATIONS
107. BilateraltraderelationsareaimedatsecuringincreasedmarketaccessforSouthAfricanproducts
inforeign markets andtodeepen tradeandinvestment linkswithimportant trading partners. Aprimary
thrust ofthese efforts istodevelop bilateral traderelations withmarkets inAfrica, Latin America and
Asia.TheseoffervastexportopportunitiestoSouthAfricabecausetheyaregrowingrapidlyandbecause
thestructure ofourtrade reflects ahigher proportion ofvalue-added exports. Inlight ofthe
complementarities thatemerge from comparable levels ofindustrial development, these economies
alsooffer unique opportunities interms ofinvestment, jointventures andtechnology transfer.
108. South Africa isengaged inaseries ofstrategic bilateral relationships. Ofthese, thebi-national
commissions withtheUnited States, Germany, France andAustralia holdconsiderable potential for
newinvestment andtechnology transfer. Atthesame time, South Africa hasentered intostrategic
bilateral relations withIndiaandEgypt, which arepivotal among thedeveloping countries oftheSouth.
South Africa andSADC arealsoforging cooperative relations withotherregional groupings, including
MERCUSOR andtheIndian Ocean Rim(IOR).
VIII. TRADE NEGOTIATIONS WITH THE EUROPEAN UNION
109. Outside SADC, South Africa ’snegotiations withtheEuropean Union (EU) arethepriority
external tradepolicy project onGovernment ’stradediplomacy agenda. TheEUisSouth Africa ’smajor
trading partner andlargest source ofinward investment. South Africa ’sobjective inthenegotiations
aretoachieve along-term bilateral arrangement which willguarantee stable andimproved market accessWT/TPR/G/34
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intheEU,andencourage increased flows ofnewinvestment andtechnology. South Africa hasthus
proposed aTrade, Development andCooperation Agreement (TDCA) withtheEUwhich will:
- contribute toachieving thegoals oftheRDP andGEAR;
- facilitate therestructuring oftheunderlying relationship (inwhich South Africa exports mainly
rawandsemi-processed products andimports highly processed capital goods) intoamore
balanced andmutually beneficial one;
- remove discriminatory treatment currently applied toSouth African products ascompared to
other countries; and
- contribute towards increasing flows ofFDIintoexport-oriented sectors andregional investment
projects.
110. BothSouth Africa andtheEUrecognize theproposed TDCA willhavetotakeintoaccount
thecurrent imbalances between thetwoeconomies, while being compatible withWTO rules. The
arrangement isthusenvisaged tohaveasymmetrical provisions asadefining feature, interms ofthe
substance andtiming, asfarasthefreeing ofbilateral trade between theEUandSouth Africa is
concerned, aswellasinother related areas ofcooperation between thetwoparties. Specifically, this
would entail alonger phasing-in period forSouth Africa ’stariff reductions fortheEU,while theEU
willbeencouraged toopenagreater percentage ofitsmarket toSouth Africa thanwillberequired
ofSouth Africa.
111. Theoutcomeofthenegotiationswillhaveimportantimplicationsforthedevelopmentalprospects
oftheentire Southern African region. South Africa 'sambition istoconsolidate itstrade relations
withtheEUandtoremove thedichotomy inEUtradepolicy vis-a-vis South Africa andSouthern Africa.
Inthisregard, South Africa hasadirect interest intherenegotiations oftheLome Convention, due
tobegin inSeptember 1998. Theoutcome islikely torestructure traderelations between ourSouthern
African neighbours andtheEUand,thereby, impact onthedevelopmental prospects ofSADC.
South Africa believes thatthenewarrangement between theEUandtheACPcountries, ofwhich SADC
isapart,should bestructured toimprove ACPcapacity toparticipate effectively intheglobal economy
andtosupport regional integration objectives.
112. South Africa ’snegotiations withtheEUareoccurring inthewider context oftherenegotiations
ofSACU andnegotiations toconclude theSADC Trade Protocol. SADC countries arelikely tolose
anypreferential position theyobtain intheSouth African market iftheyhavetocompete onanequal
basisagainst highly competitive -andoftensubsidized -EUexports. Bilateral tariffreductions between
South Africa andtheEUwillalsoerode thecustoms revenue thatsome members ofSACU areheavily
dependent onfortheirbudgeting requirements.
113. Forthese reasons, South Africa alsoexpects thattheagreement withtheEUbesynchronized
withtheSADC Trade Protocol soasnottoundermine region ’sefforts atintegration. Thisislikely
torequire that,inthecontext ofclearregional growth anddevelopment strategies foreachsector, SADC
partners enjoy priority overtheEUinobtaining preferential access totheSouth African market. Also,
theburden ofthecostofadjustment ontheregion ’svulnerable economies would needtobeshared
withtheEUinaccordance withtherelative capacities oftheparties involved.
114. Enhanced market access toSouth Africa would notinitselfassist ourneighbours insouthern
Africa. Access tofinance tosupport infrastructure development andproductive capacity insouthern
Africa willbeacrucial element ofthepackage ofmeasures theEUwillbeencouraged todevelop.Republic ofSouth Africa WT/TPR/G/34
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IX. MULTILATERAL TRADE RELATIONS
115. TheSouth African Government attaches great importance toitsmembership oftheWTO and
toenhanced security andcertainty inthemultilateral trading system provided bytheWTO rules. The
Government endeavours tofulfill itsobligations interms oftheMarrakesh Agreement establishing
theWTO, which itratified in1995. Inthisway,theGovernment seeks tocontribute toastrengthened
multilateral trading system andtodemonstrate itsopposition tounilateralism andextra-territorialism
intrade diplomacy.
116. South Africa iskeentoparticipate inshaping thefuture evolution ofthemultilateral trading
system. TheGovernment believes thatmutually beneficial andbalanced outcomes forallWTO members
isvitalinsecuring theintegrity andsustainability ofthetrading system. South Africa ’sinterest also
liesinsecuring thedevelopmental dimension intheWTO interms oftheinterpretation and
implementation ofagreements already concluded, andinfuture negotiations.
117. South Africa 'shosting oftheNinth United Nations Conference onTrade andDevelopment
(UNCTAD IX)in1996 wasakeylandmark intheprocess ofnormalising thecountry ’smultilateral
economic relations. Inhosting theConference, South Africa demonstrated itssupport oftheUNCTAD
mandate toaddress, inanintegrated manner, therelated issues oftrade, investment, finance, technology,
services andtheenvironment, fromadevelopmental perspective. InSouth Africa ’sview, UNCTAD
performs aunique andindispensable roleinthatitistheonlyuniversal forum where countries can
debate, deepen theirunderstanding andidentify theirinterests around critical trade anddevelopment
issues prior toentering intobinding negotiations intheWTO. South Africa 'shosting ofUNCTAD
IXdemonstratedtheimportancetheGovernmentgrantstoanopendiscoursethatintegratesthechallenges
ofglobalization, liberalization, development andglobal economic governance.
118. South Africa supports attempts toenhance cooperation, coordination andcomplementarities
between theWTO, UNCTAD, theBretton Woods andotherrelated agencies, interms oftheirrespective
mandates, policy-making processes andoperational cultures. IntheSouth African Government ’sview,
theneedforinteragency cooperation isunderscored bythepersisting reality ofeconomic marginalization
and,more recently, thefinancial crisis inEastAsia. These realities poseongoing challenges tothe
multilateral trading system andmake itimperative toachieve coherence inglobal economic
policy-making.
X. LOOKING TOTHE FUTURE
119. South Africa ’ssuccessful democratic transition in1994 created theconditions necessary to
embarkonanambitiousdevelopmentalprogrammetoredresstheseveresocio-economiclegaciesinherited
fromapartheid andtolaythefoundations forcreating acompetitive, fast-growing economy thatprovides
sustainableemploymentforall.ThedemocratictransitionsimultaneouslylaidthebasisforSouthAfrica’s
return totheinternational community andtomoreactive participation inthemultilateral trading system.
120. Asitpursues itsprogramme oftradepolicy reform, theGovernment ofSouth Africa willseek
todrawonlessons fromtheexperiences offellow members oftheWTO. Atthesametime,South Africa
willendeavour toenrich thedeliberations oftheWTO bysharing itsexperiences inconfronting its
developmental challenges, andthechallenges thatemanate fromtherapidly integrating global economy.
TheGovernment ofSouth Africa looks forward toplaying aconstructive roleintheWTO toensure
theemergence ofasystem ofglobal economic governance isinclusive, democratic andequitable.
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