SOUTH AFRICA STUDIES TRADE POLICY

C O N F I D E N T I A L SECTION 01 OF 02 PRETORIA 002560

SIPDIS

STATE PASS TO USTR FOR BILL JACKSON

E.O. 12958: DECL: 11/21/2018
TAGS: ECON EIND ETRD SF
SUBJECT: SOUTH AFRICA STUDIES TRADE POLICY

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Classified By: Economic Counselor Perry Ball, reason 1.4 (b) and (d)


1. (C) Summary: The South African Department of Trade and
Industry (DTI) is preparing a policy document to set forth
the basic goals and objectives of South African trade policy.
The document will be completed by mid-2009 and then approved
by the cabinet. The exercise is being driven by Deputy
Minister of Trade and Industry Rob Davies, who wants a clear
statement that trade policy will be subordinated to and
supportive of industrial policy. While there is disagreement
within the SAG about the details of trade policy, almost all
officials believe the country must remain export-oriented.
Industrial policy is still in its infancy. Many senior ANC
officials disagree with the economic policies being promoted
by the Congress of South African Trade Unions (COSATU). End
Summary.

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Thinking About Trade Policy -- At Last
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2. (C) DTI Chief Director of Trade Policy Review Mzukisi
Qobo (protect) met with Deputy Economic Counselor and Trade
and Investment Officer on November 3. Qobo is coordinating
the preparation of a short (20 page) concept paper on trade
policy that will be submitted to the cabinet for approval by
mid-2009. According to Qobo, Trade and Industry Deputy
Minister Rob Davies initiated the review, which is intended
to articulate a comprehensive position on trade policy.
Davies is dissatisfied that South African trade policy has
been developed on an ad hoc basis by trade negotiators
working on specific negotiations. Davies wants trade policy
to be conducted within the broader framework of industrial
policy and national economic development. (Note: Qobo said
that Davies is popular with business and unions, and could
take over as Minister of Trade and Industry under the next
government. He said that Davies' grasp of detail is amazing,
and sometimes intimidates DTI bureaucrats. End Note.)


3. (C) According to Qobo, the trade paper will take the
position that trade policy must be subordinated to industrial
policy and be supportive of job-creation in key sectors such
as auto-making, pharmaceuticals, chemicals, and plastics.
The paper will advocate the retention of high tariffs on
final goods in these sectors, while supporting lower tariffs
on imported inputs. It will also advocate the simplification
of the overall tariff structure. Qobo hopes the paper will
be allowed to address "new generation" trade issues such as
IPR, government procurement, the environment, and
competition. "So far the government hasn't given much
systematic thought to these (new generation) issues," Qobo
confided, noting, "DTI has capacity problems dealing with
them. Capacity in general is a problem at DTI. The turnover
is incredible."

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Rhetoric Versus Reality
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4. (C) Qobo advised post to take SAG rhetoric on trade and
industrial policy with a grain of salt. He said, "When the
government talks publicly about industrial policy, it always
stresses job creation. But within government, the talk is
also about export promotion. People always cite the example
of East Asia." He predicted that tariff levels would
continue to fall over the long-term in order to reduce the
Qcontinue to fall over the long-term in order to reduce the
anti-export bias of the economy. "Trade is our destiny," he
argued.


5. (C) Qobo also scoffed at the SAG's more grandiose
pronouncements on industrial policy. "Industrial policy is
still a work in progress," he said, adding, "I'm not sure how
DTI picked the sectors to be supported. The choices seem
pretty arbitrary to me." He confided that DTI and National
Treasury are still bickering over the level of funding to
provide to industrial policy programs. (Note: Last week a
junior official at DTI told Deputy Economic Counselor that
she was recently given six weeks to determine whether an
industrial strategy is warranted for the entire household
electronics goods sector. She called the short timetable
absurd and admitted she was not qualified to carry out the
task. She believes there is pressure coming from the top of
DTI to move forward quickly with sectoral plans. End Note.)


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6. (C) Qobo advised us not to read too much significance
into Alliance (ANC/COSATU/SACP) statements on economic
policy. He explained, "The government has to publicly play
up issues like job creation or industrial policy that stroke
COSATU. That's a fact of life of Alliance politics." The
reality, however, is that "very senior people" in the ANC
reject COSATU's leftist economics and support retention of
the "social democratic" mixed-economy policies that have been
followed since the 1990s. He added, "Even if they (the
senior ANC officials) didn't support a mixed economy, the
fact is that South Africa is now integrated into global
markets. It can't lurch to the left without wrecking its
image with investors."


7. (C) Qobo thought that the quality of COSATU's
contributions to policy debates has declined in recent years.
"They have lost a lot of talent," he claimed. (Comment:
Post shares this impression. Five years ago COSATU and its
related think-tank NALEDI had a small but talented staff of
economists and policy analysts. Almost all of these
individuals are now working in government, academia, or the
private sector. Most have not been replaced and COSATU now
seems to be drawing on outside advisors to shape its policy
positions. End Comment.)

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Comment
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8. (C) Qobo has worked previously at Stellenbosch
University, the South African Institute of International
Affairs, and in government (DTI). He is now employed as a
DTI Chief Director on a temporary contract that expires in
April 2009. His insider/outsider status gives him a unique
vantage point on trade policy and domestic politics, and his
comments are a good "reality check" on DTI rhetoric about
industrial policy. They also confirm the widespread
impression that policy differences continue to roil the
Alliance and the SAG itself, notwithstanding oft-repeated
assurances that "nothing will change" under the new ANC
leadership.
LALIME