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 PRETORIA 00002560 001.2 OF 002 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. -------------- Thinking About Trade Policy -- At Last -------------- ¶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 �A;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." -------------- Rhetoric Versus Reality -------------- ¶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.) PRETORIA 00002560 002.2 OF 002 ¶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.) -------------- Comment -------------- ¶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