Cablegate: South Africa to Use Doha Delay to Negotiate Bilateral

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ZNR UUUUU ZZH
P 071416Z AUG 06
FM AMEMBASSY PRETORIA
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INFO RUCNWTO/WORLD TRADE ORGANIZATION COLLECTIVE
RUEHTN/AMCONSUL CAPE TOWN 3203
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E.O. 12958: N/A
TAGS: ETRD EAGR ECON WTO SF
SUBJECT: SOUTH AFRICA TO USE DOHA DELAY TO NEGOTIATE BILATERAL
AGREEMENTS

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1. (U) Summary. Xavier Carim, chief trade negotiator for South
Africa, said in Johannesburg August 2 that South Africa would use
the opportunity provided by the stalled Doha round to intensify
trade talks with a variety of partners, including SACU, India, and
to make preliminary assessments of a trade deal with China. It
would also improve neglected aspects of its economic policy such as
services and intellectual property rights enforcement. End
Summary.

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Background
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2. (U) The South African Institute of International Affairs (SAIIA),
part of Johannesburg's University of the Witwatersrand, held a
seminar entitled "South African Trade Strategy: Rearranging the Deck
Chairs?" on August 2. Some 65 people attended from government
agencies, diplomatic missions, and the university to hear
presentations by four speakers. Xavier Carim, the chief South
African trade negotiator, spoke on the effects that the Doha Round's
difficulties would have on South African policy. Dr. Lawrence
Edwards of the University of Cape Town expounded on the scope for
unilateral trade reform in South Africa. Peter Draper of SAIIA
talked about the country's free trade negotiation agenda. Finally,
Mark Pearson, the director of the UK's Regional Trade Facilitation
Programme, gave a short presentation on the importance of southern
and eastern Africa to South Africa's trade policy. Questions
following each presentation varied, but the audience was uniformly
sympathetic to neoliberal economic theory, favoring free trade over
protectionism in principle.

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Xavier Carim: SA will build bilateral trade relations
--------------------------------------------- --------

3. (U) Xavier Carim stressed that historical experience indicates
that the Doha talks will resume eventually. Fundamentally, all
countries have an interest in reviving talks, and nobody wants to
lose the considerable progress already made through negotiations.
He expects more clarity about the status of talks by September, when
the WTO reconvenes after its August recess, but talks are unlikely
to reopen before the American elections. In the next 5-8 months the
U.S. legislature may change dramatically, Congress will discuss
extending fast-track trade negotiating powers, and the U.S. Farm
Bill may be changed or extended. If conditions in the U.S. are not
amenable to a resumption of talks by next spring, Carim stated that
the WTO might be forced to wait for the next U.S. administration in
2009.

4. (U) Dismissing Pascal Lamy's concept of a "triangle of issues"
holding up Doha (U.S. agricultural subsidies, EU market access, and
developing countries' industrial tariffs), Carim said that
agriculture is the single issue that will decide the future of the
Doha round. The industrial tariffs were not a topic of discussion
in the last days of negotiation. According to Carim, the final
proposals made by the EU and U.S. are "an inversion" of the original
Doha rhetoric, which recognized that developed states must accept
less than full reciprocity from poorer countries for the sake of
development. Many concessions will have to come from the developed
states to make an agreement worthwhile for G-20 and NAMA-11 states.
Carim also defended high tariffs in targeted economic sectors,
claiming that no late-industrializing state has ever built a
competitive export economy without government intervention.

5. (U) The Department of Trade and Industry (DTI) anticipates an
opportunity to work with the WTO on several technical issues before
the main talks recommence, particularly on antidumping measures.
Carim also expressed hope that some WTO subsidiary bodies,
particularly the dispute resolution mechanism, would enjoy some
progress as member states would be able to devote attention to
issues marginalized by the greater priorities of Doha. The pause in
negotiations may also give South Africa time to stop "playing
catch-up" on intellectual property, services, and other neglected
portions of foreign trade policy and resolve ambiguities in its
development strategy. The DTI also plans to finalize its industrial
development strategy before talks resume, clarifying South Africa's
priorities for negotiations. The Cabinet rejected a draft
industrial policy last week, but declared that the plan's flaws are
relatively minor.

6. (U) South Africa will also use the WTO lull to pursue a variety
of regional and bilateral trade agreements. In southern Africa,
Carim pledged to build common cause within SACU before Doha talks

PRETORIA 00003247 002.2 OF 002

resume and resolve trade issues within SADC. Carim emphasized that
South Africa must pursue initiatives through SADC, SACU, and COMESA;
no one body is strong enough yet for South Africa to abandon the
others. However, he also admitted that a country cannot belong to
more than one customs union; some consolidation or harmonization
among the trade blocs is inevitable. SACU may also enter into
negotiations with the EAC. Outside of Africa, South Africa will
seek to deepen relationships with the EU through Economic
Partnership Agreement negotiations. India is another possible
partner for a bilateral deal, though no dates are set for talks.
Carim also stated that South Africa is preparing for negotiations
with China, though a great deal of internal assessment would be
necessary before negotiations could begin. Economic cooperation
will be a major focus of talks, rather than traditional free trade
or preferential trade areas.

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Lawrence Edwards: Unilaterally lower tariffs
--------------------------------------------

7. (U) Dr. Lawrence Edwards, of the University of Cape Town, spoke
on the benefits of unilateral trade reform. South Africa has a
complex tariff structure, with 14% of tariff lines peaking over 30%.
It is also a world leader in business complaints, largely due to
its import/export policies. Although market access is important for
manufacturers, Edwards claimed that lower tariffs on intermediate
goods could be more valuable. In particular, research indicates
that agriculture and textiles, two heavily-protected sectors of the
SA economy, are uncompetitive primarily because expensive
tariff-protected inputs raise the cost of production. While lower
tariffs would probably raise GDP, he also acknowledged that the net
effect on jobs is unclear and that employment losses would primarily
hit vulnerable unskilled and semi-skilled workers. Adjustment
policies would be necessary to offset negative social effects.

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Peter Draper: Protectionist policies are failing SA
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8. (U) Peter Draper is a Research Fellow for SAIIA's "Development
Through Trade" program. His speech stressed that South Africa's
trade strategy, focused largely upon maintaining high tariffs to
protect key sectors, was not an effective way to deal with the
country's problems. South Africa, he said, assumed market failure
in building its sector strategies, thereby inviting state capture,
inefficiency, higher prices, and a host of other economic evils. He
was particularly critical of South Africa's Motor Industry
Development Program (MIDP) (Pretoria 3203.) Although the MIDP has
certainly attracted investment, its effects on employment are
unimpressive, the sector's trade deficit is growing, vehicle prices
are certainly higher, and South African transport costs are higher
than they need be, making all other business less competitive by
extension.

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Mark Pearson: SADC is "an afterthought" in SA policy
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9. (U) Mark Pearson is the director of a UK development agency for
southern Africa, the Regional Trade Facilitation Program. His
presentation on the place of southern and eastern Africa among South
Africa's trade priorities concluded that Africa was relatively minor
market for South Africa, though its trade was highly significant to
the region's other countries. Zambia and Malawi, for instance,
obtain 40% of their imports from South Africa. Although 19% of
South African exports go to southern Africa, the economic status of
its neighbors makes major expansion unlikely. Furthermore, South
Africa is a sufficiently major producer in the African context to
easily discount bilateral trade agreements with other African
states. In general, major South African companies will move into
promising markets with or without a regional trade agreement,
opening the doors for other South African businesses. The effect of
SADC on international trade is marginal, according to Pearson.
Seventy percent of interstate trade within SADC stems from regional
trade agreements predating SADC or negotiated outside of its
framework and all but two of its members are presently negotiating
other customs union agreements.
BOST

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