South Africa in the World Trading System.doc

8. South Africa in the World Trading SystemByTrudi HartzenbergSAPES TrustHarare, ZimbabweandRashad CassimTrade and Industrial Policy SecretariatJohannesburg, South Africa1.IntroductionThe conclusion of the Uruguay Round of trade negotiations coincided with South Africas transition to a democratic dispensation in 1994. This coincidence of events marked South Africas return to the international economic community and more active participation in the regional integration initiatives in southern Africa. South Africas unilateral commitment to trade liberalization was strengthened by its World Trade Organization(WTO) commitment (it became the first African country to tender a General Agreement on Tariffs and Trade GATT offer), which in turn bestowed credibility on the countrys outward-oriented development strategy. This paper focuses on South Africas interface with the WTO. Despite being an original signatory to the GATT in 1947, South Africas status was unclear owing to its apartheid policies and the stringent trade and investment sanctions against the country, especially during the 1980s. The paper begins with an examination of South Africas trade policy and performance, pre- and post-Uruguay. Next, it surveys South Africas market access conditions and examines the impact of the Uruguay Round agreements on that access. The paper analyses the influence of the WTO on the countrys trade policy and related policy initiatives, and then focuses on South Africas regional and bilateral trading agreements and assesses whether these are in conflict with or complementary to the countrys multilateral trade strategy. Finally, an assessment of future trade and related challenges, and the countrys priorities in this regard, are explored.2.South Africas trade performance South Africa is a typical middle income country with a highly diversified industrial structure. Its trade profile is by contrast much less diversified, although the export sector has become increasingly diversified, especially since the early 1990s. Table 8.1 shows the changing composition of South Africas exports since the late 1980s.Table 8.1: South Africas export profile, 1988_1996Category 1988 1992 1996Gold 36% 27% 22%Primary products 20% 21% 20%Beneficiated primary products 23% 23% 28%Material intensive products 5% 5% 7%Manufactures 6% 13% 18%Source: Industrial Development Corporation. The traditional significance of gold in terms of its contribution to GDP and to export earnings, as during the recent past shown a marked decline. By contrast the relative importance of other commodities has increased. Diamonds, metallic minerals, coal, platinum, metal ores and others, in particular, are growing in significance. Despite this diversification, primary commodities still dominate South Africas trade profile. Table 2 shows the percentage contribution of all minerals, and gold in particular, to total exports for the period 1985_1995.Table 8.2: South Africas exports: Contribution of minerals (in percentages)Year1985198619871988198919901991199219931995All minerals66.7666057.757.154.253.249.148.742Gold43.442.540.33833.831.2302929.720Sources: Department of Mineral and Energy Affairs, Central Statistical Services, Industrial Development Corporation.When examining products in which South Africa has a revealed comparative advantage (RCA), it is not surprising that minerals and other material-intensive products emerge as key products. Table 8.3 lists those products (based on the 1996 Harmonized System HS code) where South Africa has an RCA greater than 0.5.Table 8.3: South Africas revealed comparative advantage1996 HS CodeProduct categoryRCA71Pearls & precious stones 11.929026Ores, slag & ash 9.882208Edible vegetables 5.894325Salt, sulphur & earths 5.671811Milling products 4.696075Nickel & articles 4.538481Base metals 4.429751Wool, fine & coarse 4.064072Iron & steel 3.833628Inorganic chemicals 3.463420Vegetable preparations 3.307747Pulp of wood 2.724422Beverages & spirits 2.643341Hides, leather & skins 2.226406Trees & plants 1.869574Copper & articles 1.794217Sugar & confectionery 1.655027Mineral fuels & oils 1.254003Fish & aquatic products 1.209110Cereals 1.167912Oil seeds & grains 1.017648Paper & paperboard 0.967536Explosives & pyrotechnics 0.831915Animal & vegetable fats 0.801631Fertilizers 0.799286Railway locomotives 0.792044Wood & articles 0.768394Furniture & medical 0.683301Live animals 0.667468Building products 0.621338Other chemicals 0.617873Articles of iron or steel 0.6154Source:UNCTAD, 1997a, Trade Analysis and Information System.South Africas recent trade patternsManufactures, which currently constitute less than 20% of South Africas exports, are showing significant growth, albeit from a small base. For the last five years manufactured exports have grown at an average of approximately 5% per annum in U.S. dollar terms (CSS). The sectors that have accounted for this growth are:· Iron and steel (20% growth per annum, on average)· Beverages (37%)· Electrical machinery (29%)· Metal products (19%)· Transport equipment (19%)· Industrial chemicals (9%)The average annual growth rates for the last five years are shown in parentheses (Bureau of Economic Research). What emerges from closer analysis is that since the late 1980s South Africas downstream export capacity has improved. Manufactured exports, beneficiated mineral exports and material intensive export products have shown noteworthy increases. These value-added products increased their contribution to total exports from approximately 30% in 1988/89 to approximately 50% in 1995/96. There is still a long way to go, however, as primary and semi-processed products still dominate South Africas exports. Development of the countrys downstream manufacturing export capacity is therefore a priority.As is to be expected, the destinations for South Africa's exports differ across markets. Non-traditional exports tend to be associated with non-traditional markets. Of significance for South Africa is the most favoured nation (MFN) phase-out schedule for specific markets, specifically for African countries where South Africas manufactured exports have been growing, in U.S. dollar terms, at 12% per annum on average for the period 1991 to 1996. Table 8.4 shows the growth of Southern African Customs Union (SACU) exports (since these are dominated by South Africa, the data can be interpreted as reflecting growth in South Africas exports).Table 8.4: Growth of SACU exports, 1992_1994 and 1992_1996 (in percentages)Destination 1992-1994 1992-1996Southern Africa19.3 29.6Rest of Africa 30.66 44.25Europe 7.64 10.91EEC 10.72 18.84EFTA 22.32 4.63Central Europe -0.71 21.42Rest of Europe -26.86 49.94America 9.78 9.70North America 1.34 4.47Central America 106.64 57.11South America 39.56 32-3Asia 11.93 17.89South Asia 98.83 98.00East Asia 13.48 17.89ASEAN 13.48 56.65China region 69.03 12.66Middle East -2.10 12.76Oceania 7.55 43.76Note: Calculations based on nominal rand values.Source: South African Customs and Excise Department.For the period 1992_1997, five major regions are the recipients of approximately 83% of South Africa's exports. The regions and their percentage share of South Africas manufactured exports are the European Union, taking 33%, the Far East (19.2%), Southern Africa (14.5%), North America (9%) and the rest of Africa (6.9%). This picture is distorted by the fact that the bulk of diamond exports, falling in the category "other manufactures" from SACU, goes to the European Union. Exclusion of this category leads to the breakdown of manufactured exports for these five regions shown in Table 8.5.Table 8.5: Breakdown of South Africa's manufactured exports (%), excluding "other manufactures"Regional shareAnnual growth rate1992_96European Union24.3% 4.7%Far East23.1% 11.9%Southern Africa17.8% 15.4%North America10.1% 11.6%Rest of Africa 8.5% 24.3%Source: Industrial Development Corporation (1997).These revised figures indicate a slowdown in growth of exports to the European Union. They also show that growth of exports to the rest of Africa is the most significant.A focus on exports to African countries reveals that two-thirds of these are destined for southern African countries: Angola, Mozambique, Zimbabwe, Zambia and Malawi. Growth of exports to the southern African region averaged 15.4% per annum for the period 1992_1996. Four sectors accounted for the significant growth. These were:· Chemicals, rubber and plastics· Metal products and machinery· Transport equipment· Food, beverages and tobacco (IDC, 1997)The largest and fastest growing African markets are Zimbabwe, which absorbs one-third of manufactured exports and grew by 24% per annum for the period 1992_1996, and Mozambique, which absorbs 14% of manufactured exports and also grew by 24% per annum. Zambia is drawing 10.5% of South Africas manufactured exports to the African continent, and exports grew by 5.2% per annum from 1992 to 1996. The growth of South Africas exports to countries beyond southern Africa has been quite significant. In particular, exports of chemicals, metal products and machinery have increased significantly, although from a small base. Exports in chemicals, rubber and plastics, metal products and machinery, food, beverages and tobacco, and transport equipment recorded a 32.9% increase from 1992 to 1996 (IDC, 1997). The most important markets absorbing these exports include Zaire (US$314 million in 1996), Tanzania (US$8 million in 1996) and Mauritius (US$124 million in 1996), while exports to Madagascar, Ghana, Nigeria, Egypt and Uganda are also gathering momentum, again from a small base.A number of studies have attempted to assess the trade potential of various regional integration arrangements in Africa. For our analysis, those that have focused on southern Africa have indicated that the trade potential for the Southern African Development Community (SADC) region is relatively poor (Cassim and Hartzenberg, 1997, for example). A particularly important issue is whether South Africa, as the dominant economy of the region, is singularly poised to reap the trade gains from regional integration. Data presented above seem to support the conclusion that this may indeed be the case. The reasons for this are complex, and are rooted in comparative advantage, traditional trade and other economic relations, and trade policy differences. Recently a number of concerns have been raised about access, specifically by countries in southern Africa, to South African markets. The Zimbabwean clothing and textile debate, a particular issue in the renegotiation of the South Africa_Zimbabwe free trade agreement, is a case in point. Zimbabwean footwear producers have also vociferously protested at the (quota) protection that was afforded South African footwear manufacturers in early 1997. Similar concerns are being heard from Zambia and other southern African neighbours.The Far East drew approximately 80% of South Africas total manufactured exports destined for Asia in 1996. The newly industrialized countries (NICs)Hong Kong, Singapore, Taiwan, South Korea, Malaysia, Indonesia, Thailand and the Philippinesabsorbed 60% of these exports. A breakdown of the composition of these exports indicates that basic metals accounted for 60% of the total exports to this region, indicating a shift in South Africas basic metal exports away from the European Union to the Far East. Exports to four of the NICsTaiwan, Hong Kong, South Korea and Singaporeaccounted for more than 80% of manufactured exports to the NICs in 1996, with exports to Taiwan slowing down since 1992. North America absorbs 70% of South Africas manufactured exports destined for the Americas. The growth of exports to Canada has been quite significant_18.5% per annum from 1992 to 1996. Two categories, basic metals and chemicals, and rubber and plastics, together make up more than 60% of total exports to this region. The significant increases in exports recorded for clothing, textiles, leather and footwear, and transport equipment, could reflect niche marketing successes by South African exporters. However, the post-sanctions effect should also be taken into account.Other regions that are beginning to feature more prominently in South Africas trade profile are Latin America, Central Asia and Oceania. In Latin America, Brazil has shown a 50% increase per annum in imports from South Africa since 1992; the major categories are basic metals, chemicals, rubber and plastics, and food, beverages and tobacco. This trend suggests that this region presents a particular opportunity to South African exporters.In the central Asian region, exports to India have increased significantly and India shows much potential as an export market for South Africa. Exports to India are concentrated in basic metals, chemicals, rubber and plastics, metal produ