Doha dol­drums

SA draws line in sand but can it take on emerg­ing giants?

Finweek English Edition - - Openers - TROYE LUND troyel@fin­week.co.za

SOUTH AFRICA HAS drawn a line in the sand about what it ex­pects from the United States and other de­vel­oped na­tions in the Doha Round of world trade talks that are to be re­vived later this year. If the US and other de­vel­oped na­tions don’t stop push­ing for lib­er­al­i­sa­tion in Africa while cling­ing to pro­tec­tion­ism at home, South African Trade & In­dus­try of­fi­cials say this coun­try will build bi­lat­eral trade re­la­tions with de­vel­op­ing economies such as Brazil, In­dia and China.

“We re­ject pro­tec­tion­ism. We’ll em­brace the global trad­ing sys­tem as a way to steer the global econ­omy out of the dol­drums,” says Demetrios Maran­tis, new US deputy Trade Rep­re­sen­ta­tive in Africa. Maran­tis adds the new Barack Obama-led ad­min­is­tra­tion is pre­pared to “roll up its sleeves” and re­view trad­ing re­la­tions with Africa in a way that proves how the US can “co-op­er­ate glob­ally”.

SA Min­is­ter of Trade & In­dus­try Rob Davies is heart­ened by the ap­par­ent shift in US sen­ti­ment. But he re­minds Maran­tis of what such a shift will re­quire from the US, which stood to ben­e­fit far more than de­vel­op­ing coun­tries from the cur­rent deal on the ta­ble. “In­equities pop up in one Doha is­sue af­ter an­other. Ein­stein said it: do­ing the same thing over and over again and ex­pect­ing a dif­fer­ent out­come is the def­i­ni­tion of in­san­ity.”

Davies goes fur­ther and pushes what’s been la­belled a dis­sent­ing view on pro­tec­tion­ism. He con­tends it’s “naïve” to ar­gue de­vel­op­ing coun­tries should re­frain from us­ing the pol­icy at hand to limit re­ces­sion­ary ef­fects on their in­dus­tries – es­pe­cially when the de­vel­oped world is do­ing it.

Davies says that if de­vel­op­ing coun­tries such as SA re­nounce the in­stru­ments at hand, think­ing they’d some­how ben­e­fit, they’re wrong. “The world’s rules-based mul­ti­lat­eral sys­tem does al­low us some pol­icy space to act counter-cycli­cally on a num­ber of fronts.”

How­ever, the key ques­tion is whether trade re­la­tions with the world’s ma­jor de­vel­op­ing economies do in­deed pro­vide the kind of al­ter­na­tive African leaders are hop­ing for. If not, then us­ing them as lever­age in the soon to be re­vived Doha ne­go­ti­a­tions is a gam­ble that could back­fire. The deal is worth around US$150bn to the be­lea­guered global econ­omy, which is why there’s an air of des­per­a­tion among de­vel­oped coun­tries who want ac­cess to de­vel­op­ing mar­kets.

The talks – which started in 2001 with the aim of al­low­ing poor coun­tries to pros­per through world trade – came un­stuck in July last year af­ter In­dia and the US clashed over the ca­pac­ity of poor na­tions to raise tar­iffs and pro­tect vul­ner­a­ble in­dus­tries when agri­cul­tural im­ports surged.

That’s pre­cisely the point Davies in­tends push­ing at the new talks in Geneva later this year. He’s warned that SA doesn’t want to be put in the “dog box” and un­fairly ac­cused of pro­tec­tion­ism just be­cause it in­tends ex­am­in­ing tar­iffs on a case-by-case ba­sis and then in­creas­ing or low­er­ing them, de­pend­ing on the ev­i­dence at hand.

That may sound a per­fectly rea­son­able ar­gu­ment against blan­ket lib­er­al­i­sa­tion. But does it make good eco­nomic sense?

The Trade and Law Cen­tre for SA (Tralac) says deal­ing with the large and di­ver­si­fied economies of Brazil, China and In­dia is go­ing to be just like deal­ing with large di­ver­si­fied economies of the West. Tralac’s Colin McCarthy says the bot­tom line is that African economies need to di­ver­sify eco­nomic growth to es­cape their cur­rent “hub-and­spoke trade pat­terns of ex­port­ing a lim­ited range of pri­mary com­modi­ties”.

“A South-South per­spec­tive prop­a­gates ex­pand­ing trade with economies in the south as a growth en­gine. But can that have a real im­pact if note is taken of the fact that the larger, more in­dus­tri­alised economies of the south have a com­pet­i­tive ad­van­tage in pre­cisely those goods that would be the prime candidates for ex­port-ori­en­tated African in­dus­tri­al­i­sa­tion?”

McCarthy stresses that even if nom­i­nal wage lev­els are lower in Africa, pro­duc­tiv­ity en­ters the equa­tion in de­ter­min­ing much lower lev­els of unit labour costs in In­dia and China. That will se­verely en­cum­ber ex­ports to those mar­kets.

Se­quenced lib­er­al­i­sa­tion. Rob Davies Re­jects pro­tec­tion­ism. Demetrios Maran­tis

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