SA STRUGGLES TO FORM TRADE AGENDA WITH CHINA

C O N F I D E N T I A L SECTION 01 OF 02 PRETORIA 000569 SIPDIS C O R R E C T E D C O P Y (TAGS) SIPDIS E.O. 12958: DECL: 01/30/2017 TAGS: ECON ETRD EFIN PREL CH SF SUBJECT: SA STRUGGLES TO FORM TRADE AGENDA WITH CHINA REF: (A) PRETORIA 554 (B) 06 PRETORIA 03868 PRETORIA 00000569 001.2 OF 002 Classified By: Economic Counselor Perry Ball, Reasons 1.4(b) and (d). ¶1. (C) Summary: South Africa has not devised a comprehensive strategy to promote and govern trade with China, despite a booming bilateral trade relationship. SAG policy on China trade tends to be reactive and ad hoc, and framed in response to "emergencies" such as surges of Chinese textile imports. Work on a free trade agreement seems to be on hold while South Africa focuses its trade agenda on the EU, Brazil and India. Trade agreements signed during the recent visit of Chinese President Hu were relatively minor. End Summary. -------------- What's the Agenda? -------------- ¶2. (C) South Africa has not devised a comprehensive strategy to promote and govern trade with China, despite a booming bilateral trade relationship (Ref A),according to experts and SAG officials. Philip Alves, a China trade expert and economist at the South African Institute of International Affairs (SAIIA),recently told post's trade and investment officer that the Department of Trade and Industry (DTI) seems to have no strategy to engage China on trade. On the contrary, Alves said, DTI has walked away from its former pro-trade agenda in the wake of rising public anxiety about Chinese imports and China's so-called "colonial approach" to trade. An ad hoc approach will not work in the long run, Alves warned, citing the case of the textiles quotas imposed in January 2007. Local retailers quickly turned to other suppliers in South Asia, providing little or no relief for local manufacturers, he said. -------------- The Government's Vague Line -------------- ¶3. (C) When asked to discuss South Africa's trade objectives with China, DTI officials tend to resort to generalities and invoke NEPAD and AU principles. According to DTI's Chief Director for African Economic Relations, George Monyemangene, South Africa's main objective at last November's Forum on China-Africa Co-Operation (FOCAC) conference in Beijing was to stress the need to normalize trade relations between South Africa and China. Monyemangene stated that South Africa wants China to look at higher-end products for export to South Africa and to bring in development, not just extraction of minerals. He commented that the "trade deficit is a result of supply side constraints in South Africa" and that China and South Africa need to cooperate to address capacity and development problems in South Africa. ¶4. (C) The SAG often complains that China must not only move away from centering its trade on extraction of natural resources, but should also consider NEPAD goals. The Director of DTI's NEPAD unit, Xolelwa Mlumbi-Peter, told trade and investment officer that South Africa, in line with NEPAD goals, was orienting its bilateral trade towards a more multilateral "African agenda" under the African Union (AU). According to Mlumbi-Peter, Madam Shu, the Chinese Minster of Foreign Affairs, made several visits to South Africa aimed at defining areas to support African development. However, other than citing NEPAD goals, DTI officials provided few if any details about the AU agenda. ¶5. (C) Mlumbi-Peter further commented that the new AU multilateral focus would not halt bilateral trade negotiations, as each AU country still has its own agenda that fits within NEPAD. She stated that the SAG was looking for other avenues to develop capacity building through its existing trade agreements with China. For example, South Africa negotiated an addendum to the textile quota, which, in addition to import ceilings, provides for Chinese investment in the South African textile industry. This agreement has not yet been finalized. -------------- No FTA In Sight -------------- ¶6. (C) Mlumbi-Peter also told trade and investment officer that South Africa intends to "begin negotiations soon" on a China-SA Free Trade Agreement (FTA) and that studies of the impact of a trade deal with China are continuing. However, talk of an FTA is nothing new and has never been followed up with actions. Brendan Vickers, Senior Researcher of Multilateral Trade at the Institute of Global Dialogue, a local research center, stated that "even two years ago when I PRETORIA 00000569 002.2 OF 002 worked in the Ministry of the Presidency, they were discussing China FTA negotiations and it hasn't gone much further." ¶7. (C) The Chinese Embassy Economic and Commercial Counselor Wang Jingbo confirmed to trade and investment officer that the FTA is completely on hold. DTI's Manager for the Americas Desk Cob Pillay confirmed that DTI is in the process of restructuring its trade agenda to focus on only a few countries, including the EU, India, and Brazil, more in line with its South-South Cooperation goals. FTAs with U.S. and China are no longer of immediate interest, he confided. -------------- Hu's Visit -------------- ¶8. (C) The limited nature of South Africa's trade engagement with China was reinforced during the February 6-7 visit of Chinese President Hu Jintao. Although the South Africa press tends to hype the dangers as well as the potential of trade with China, the visit received low-key coverage. South African and Chinese officials praised the growth of bilateral trade and signed agreements on trade in apples, grapes, and tobacco. However, they announced no major new initiatives. South African President Mbeki told reporters that a free trade pact was not part of his discussions with Hu. -------------- Comment -------------- ¶9. (C) Heightened public concern about Chinese imports, South Africa's standards of transparency and good governance, and a shift in trade diplomacy towards South-South relations have all limited engagement with China. However, South Africa's trade deficit with China is growing at a rapid pace. Without a comprehensive trade strategy for handling China, Chinese imports will continue to fuel the growth of protectionist sentiment. BOST