As the Group of 20 (G20) summit – planning the recovery from the global economic meltdown – drew to a close in London, the world’s economic elite made a commitment to promote global trade and investment and reject protectionism.

This came after forecasts from the World Trade Organisation (WTO) indicating that world trade in 2009 is expected to decline by 9% in volume terms – the biggest drop since World War II.

Developed-economy exports are expected to fall by some 10% on average, and developing-country exports are expected to shrink by 2% to 3%.

The Organisation for Economic Cooper-ation and Development estimates world trade will plummet by 13,2% in 2009, while the World Bank also notes that it expects world trade of goods and services to contract by 6,1% in 2009 – the largest decline in 80 years.

The South African Situation
South Africa is not immune from the downturn. The idea of decoupling economies, where developing countries remain unscathed as developed markets contract, has not materialised.

If one considers the latest trade statistics from institutions such as the International Monetary Fund (IMF) or the WTO, it is evident that demand for South African goods, from all sectors, has decreased dramatically.

South African Institute of International Affairs trade research fellow Peter Draper tells Engineering News that there has “not yet” been any significant shift in South Africa’s trade policy.

“Rather, the crisis is reinforcing a shift that has been under way for some time – away from liberalisation as the preferred option, to intervention through industrial strategy targeting economic sectors,” he adds.

In February, South Africa released its fiscal stimulus proposal, entitled the Framework for South Africa’s Response to the International Economic Crisis. The document was drafted collectively by business, labour, government and community representatives, under the aegis of the Presidency and the National Economic Development and Labour Council.

The Framework hinted at subsidy packages for favoured, and vulnerable, sectors, such as the automotive and textile industries, which raised concern over the competitiveness of such supported sectors.

‘Bail-out packages’ were not given. Finance Minister Trevor Manuel has argued that improving health and education, enforcing competition laws, continued improvements in the regulatory regime, streamlining tax and tariff systems and the upgrading of basic transport, energy and telecoms infrastructure are “better uses of public resources than the frequent demand made for special assistance to specific firms and sectors”.

Webber Wentzel partner and trade lawyer Robert Wilson confirms that there appears to have been no shift in South African trade policy in light of the broader financial crisis. However, he notes that the South African response to the global meltdown seems presently undeveloped. While current initiatives appear to reinforce a broadly liberal trade policy, he avers that this is unlikely to con- tinue.

Although other countries are said to be increasingly adopting protectionist measures, South Africa seems to have resisted doing so to date.

“While it is said that we need to avoid protectionism, in practice, many countries, including the largest developed and industrial countries, have taken a range of measures, including significant financial support, to protect their industries.

"We have seen real evidence of economic nationalism all around,” South African Department of Trade and Industry (DTI) international trade and economic development deputy director-general Xavier Carim tells Engineering News.

Examples of this creeping protectionism are found in Argentina, which has imposed licensing requirements on car tyres; in the European Union, which has introduced anti- dumping duties on Chinese steel; in India, which has introduced a 20% duty on imported soybean oils; in Mexico, which has withdrawn various trade concessions on US imports; in the US, which has introduced a ‘Buy American’ campaign; and in the US and France, which have offered significant financial support to their auto industries.

“The fact is that many countries are seeking to protect their industries, and South Africa has not implemented any overtly protectionist measures as yet – but we may need to,” adds Carim.

Deputy Trade and Industry Minister Rob Davies highlights that South Africa does not have the resources “to be able to play the bail-out game”. He warns that South Africa should not go into the situation “as starry-eyed idealists”, and should not get itself into a situation “where we say we will not raise a tariff even if we have WTO legal space because we do not want the world to go into protectionism”.

He asserts that South Africa may have to increase some tariffs (after having lowered some tariffs), based on an understanding that this action is something that will take an industry forward over a long period.

WTO director-general Pascal Lamy has also indicated that protectionism is indeed on the rise, although it is only likely to further hinder global recovery. The world awaits a study by the WTO of a number of national financial stimulus packages to fully assess the extent of protectionism taking place.

“The DTI recently suggested that South Africa’s tariff rules would be reformed and simplified. The International Trade Administration Commission seems increasingly sceptical of claims from domestic industries that certain import competition is harmful. The country’s trade negotiators appear to be pursuing a dual foreign policy and trade policy agenda, focusing on trade liberalisation within Africa and with other emerging economies, such as India, Brazil and China,” explains Wilson, adding that these initiatives suggest a liberal trade policy.

However, he asserts that this is unlikely to continue, and is “more indicative of a wait-and-see attitude of policymakers” in the run-up to the April elections.

“The resurgent influence of the Congress of South African Trade Unions within the African National Congress (ANC) cannot be underestimated. Neither can the election promises of the ANC to address the most pressing of social hardships, including unemployment, be ignored,” highlights Wilson.

The full effect of the economic crisis is yet to be seen. “In addition to facing increasingly protectionist measures in other countries, obtaining sufficient trade finance will become more difficult. International demand for South African commodities and manufactured products is thus likely to fall. Foreign direct investment will also probably become more difficult to attract and portfolio investment is likely to flow out of the country,” says Wilson.

Thus, in response to international developments, a new trade policy could emerge after the election.

“However, this will probably not happen quickly nor be fundamental. South Africa remains a member of the WTO and is party to various free and preferential trade agreements. All these limit the country’s ability to introduce radical reform. Rather, the change is likely to be at the margin provided by existing rules,” affirms Wilson.

Global Response – Funding and Refraining from Protectionism
In trying to alleviate the impacts of the global economic downturn, World Bank president Robert Zoellick says: “The G20 should endorse a WTO monitoring system to advance trade and resist economic isolationism, while working to complete the Doha negotiations to open markets, cut subsidies and resist backsliding.”

The G20, which includes South Africa, responded by reaffirming commitments made in Washington in November 2008, before the full effect of the global financial crisis had hit.

“We will ensure availability of at least $250-billion over the next two years to support trade finance through our export credit and investment agencies and through the multi- lateral development banks,” the nations promised, as the monetary cherry topping the G20 commitments.

Commitments “to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing WTO-inconsistent measures to stimulate exports” were made by the leaders of the most powerful economies.

They added that they would “rectify promptly any such measures”, and would extend this pledge to the end of 2010 – presumably after a study by the World Bank’s International Trade Department found that, despite the November promises, 17 of the G20 countries had indeed implemented measures “whose effect was to restrict trade at the expense of other countries”.

Filling the Finance Gaps
In the real economy, shippers, exporters and producers have been hard hit by the drawback in trade financing – which is said to be easy to cut by banks when they assess costs, as the margins are low.

In times of economic turmoil, customers want lower prices and are taking longer to pay for shipments.

“The drying up of trade finan- cing lines is already having a major impact on the African continent. This needs to be addressed urgently,” emphasises African Development Bank president Donald Kaberuka.

The World Bank estimates that the drop in demand for goods and services has led to a fall in trade flows of over $1,5-trillion, thanks to increased costs and reduced availability of finance.

Following on this, the G20 commitment of $250-billion over the next two years to support trade finance, although most welcome, is viewed as a rather small amount.

Realising the need to go beyond guarantees, the World Bank introduced its Global Trade Liquidity Programme (GTLP) – an initiative involving governments, development financial institutions and private sector banks. It has targeted initial commitments of $5- billion from the public sector that should be able to support up to $50-billion of trade in developing markets over three years.

The World Bank, through the International Finance Corporation (IFC), has contributed $1-billion to the GTLP, and operations will start in May 2009. The programme has attracted further commitments by the UK government, which intends contributing up to £300-million. The Canadian government announced it will commit $200-million and the Dutch government will commit $50-million.

One of the first two banks in line to work with the GTLP is South Africa’s Standard Bank, whose chairperson, David Munro, signed an agreement with Zoellick in terms of which the bank will receive an initial credit line of $400-million to enable it to scale up the flow of trade finance to emerging market banks.

Standard Chartered is the other bank, which receives an initial credit line of $500-million.

A separate trade-related programme is the IFC’s $3-billion Global Trade Finance Program (GTFP), which extends and complements the capacity of banks to deliver trade financing by providing risk mitigation in new or challenging markets where trade lines may be constrained. The GTFP offers confirming banks partial or full guarantees, covering payment risk on banks in the emerging markets for trade-related transactions.

Confirming banks in the programme in South Africa include Calyon South Africa, FNB International Banking, HSBC Bank’s Johannesburg branch, Nedbank and Standard Bank of South Africa.

The World Bank also has a trade facilitation facility, which is a $40-million, multidonor trust fund focused on improving infrastructure, transport logistics and customs procedures.

Doha in the Doldrums
The July 2008 Doha Development Round of trade-liberalising negotiations suffered when talks collapsed, largely because consensus could not be reached on the important areas of agricultural and nonagricultural market access (industrial) tariff adjustments.

Many of the G20 leaders at the recent London Summit called for efforts to kick-start the suspended Doha Round, with added pressure for countries to show flexibility and to reach consensus.

However, it is largely felt that the overwhelming global economic crisis, rather than adding impetus to conclude the negotiations, has diverted attention from the trade-liberalising negotiations. Doha has been placed on the back-burner.

“One assessment is that the worst time to try to conclude the negotiations is in a time of crisis like this – first of all, it may be that the leadership required to make compromises would be distracted. Most of the focus is on dealing with the sources of the financial crisis, and trying to implement stimulus packages to get global demand going again, to revive the global economy that is necessary for trade to pick up again,” says Carim, who is also South Africa’s chief negotiator at the WTO discussions in Geneva.

He adds that only once the economy is revived, are negotiations likely to continue. “There is the distinct possibility that the negotiations could be in a drift for some time.”

“The US has indicated that it will not engage in any further high-level discussions until the third quarter of 2009. The Indian congressional elections scheduled for April and May have also cast some uncertainty over the process. Lamy, nevertheless, hopes to convene a high-level meeting before the August vacation. In terms of the WTO agreement, a date does need to be set some time this year for the two-yearly Ministerial Conference. All indications are that this conference will only take stock of the current round and not result in any substantive negotiations,” explains Wilson.

Carim emphasises that the Doha Round can deliver important benefits, but stresses that the “developmental content of the round has been eroded”, and South Africa, which has emerged as an important developing country voice at the negotiations, in particular, continues to insist that the development content of the round is reclaimed.

“It is very important that we retain development goals at the centre of the negotiations,” reiterates Carim.

He also highlights that the other issue holding back the round is that there is no certainty on the direction that the new US administration will take with regard to the Doha development agenda.

“We are still awaiting a clear position from the new US admin- istration on how they plan to deal with Doha. They have issued a concept paper, or discussion document, on trade policy, but the new head of the US trade policy, Ronald Kirk, was only recently appointed,” says Carim.

It was hoped that the new US administration would be more sensitive to the needs of develop- ing countries, although it was evident that the US national fiscal stimulus plans are top priority at this point.

“For Doha, we need to consolidate all the progress made so far, keep the original development mandate intact and then we need to see how major countries align to this, particularly the US, and then to hope that we can, in the not-too-distant future, continue the negotiations and move towards a developmental outcome,” affirms Carim.

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