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Thursday, 23 August 2007

Trade and Industry Monitor Volume 32: Trade Policies Review - Experiences and Impacts

This edition of the Trade & Industry Monitor considers various aspects of trade policy and its influence on development and growth. The first article by Cosatus Tanya van Meelis and Neva Makgetla looks at the impact of trade on economic structure, and is a response to Xavier Carim of the dtis article, South Africas Trade Policy: Ten Years On, which was published in the September 2004 Monitor edition.

The article points out that simply growing trade in its current form might assist in maintaining macroeconomic stability, but will not do much to create employment or support increased equality. It suggests that, if trade is to assist in alleviating the countrys overwhelming unemployment problem, a much more differentiated approach is required, and points towards the need to link trade strategies with consistent support for labour-intensive sectors, such as light industry and services. It also suggests the need to work harder at improving trade relations within southern Africa.

Better integration of regional concerns and expectations is also a theme of our second article by Bilal and Laporte, which documents Sas experience in conducting negotiations on a free trade agreement (FTA) with the EU. They find that Sas preparations for and approach to the negotiations meant that, despite numerous constraints and drawbacks, it was possible to successfully devise and pursue a development-oriented trade strategy, even with a partner that is economically and politically more powerful.

Using the SA experience, the article provides insights and possible lessons on how developing countries can mobilise its limited capacity to effectively prepare for and conduct trade negotiations. Foremost is that a comprehensive strategic framework should be in place before embarking on trade negotiations.

However, one of the lessons learnt from the negotiation process is to address regional trade concerns more effectively. Southern African Customs Union (SACU) member states have observed that insufficient consulting with them around the trade negotiations have had major effects on their economic development.

Also in this Monitor, TIPS economist Mmatlou Kalaba reports on the key issues discussed at The Third Annual Southern African Trade Research Network (SATRN) symposium Policy Space and Implementation of World Trade Organisation Agreements, which was held in Namibia in November 2004. The main objective of the symposium was to identify the type of policy space required by SADC countries to achieve their development objectives within the WTO disciplines improving special and differential treatment (SDT) in the WTO, implementing WTO Agreements, rules of origin and the erosion of trade preferences in an attempt to drive economic development and further integrate developing countries into the global trading system.

A number of options were suggested that could be considered to preserve the future of trade preferences, including liberalising rules of origin and simplifying the process of certifying compliance; compensating for erosion of preferences margin although this may prove highly complex defining preferential tariffs relative to MFN tariffs rather than in absolute terms; and shifting more towards "aid for trade".

In November 2004, the Small Business Project (SBP) published a ground-breaking new report on regulatory compliance cost in SA. The SBP study Counting the Cost of Red Tape for Business in SA is the first comprehensive survey of its kind in SA, and covers regulatory compliance costs from large corporations through SMEs to the informal sector. This edition of the Monitor carries the key findings of the report, which estimates that, based on a costing of the time spent and professional fees paid to meet regulatory requirements, compliance costs are about R79bn a year across the economy. This is equivalent to 6.5% of GDP a high ratio when compared to that in developed countries. The study also found that compliance costs also disproportionately affect small business: in firms with sales of less than R1-million, compliance cost 8.3% of turnover, while in firms with sales of R1-billion or more, it cost 0.2% of turnover.

Most importantly, the SBP report shows that the socio-political costs of reforming the regulatory environment need not be high, while the rewards could be very large indeed. Obviously, this is an opportunity to accelerate growth and development that SA cannot afford to miss.

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