The inherent imbalance in South Africa’s Free Trade Agreements
By Dr Ivor Blumenthal
A Free Trade Agreement allows countries to trade with one another in prescribed goods and services, within a specified zone without fear of incurring duties, taxes and weighted penalties of varying sorts and intensities, as these goods and services cross borders.
South Africa works hard at establishing such agreements with individual countries and also within zones such as in SADEC, the Southern African Development Community, as one such example. SADEC creates such an agreement to trade without hindrance and the imposition of protectionist duties amongst 15 neighbouring countries.
The problem, however, is that whereas “Parity” should be sacrosanct when considering creating a free-trade zone, it very seldom is the case that true parity exists between countries.
Consequently, because no consideration is given to the underlying factors which affect different countries within a free-trading network of sovereign states, parity simply does not exist. Nothing stops countries from finding innovative ways to support the production of agricultural products, subsidise wages and conditions of employment, or turn a blind eye towards human rights infringements, child labour and even slave labour.
It becomes increasingly impossible for South African manufacturers, farmers and business in general, to compete with products being dumped into our country from outside our borders, sourced from countries which do not have our burdensome labour relations framework, health laws, manufacturing and building codes, and prohibitive tax framework. All of these restrictions and requirements increase the costs of service and production and in-turn make South African companies uncompetitive in a zone or environment where absolutely no protection to counter this imbalance of conditions of production exist.
It has to be obvious therefore that the South African Government, enters into Trade Agreements for political reasons, where with the larger more productive and successful countries such as the USA, China, the UK, wealthy countries in Europe and elsewhere, there is an exchange of benefit which does not impact at all to the benefit of the Business Community. Instead, our Government selling out entire Industries at times, possibly translates into foreign aid from those countries elsewhere and generally most of the time into social benefit. A large proportion of the good done in this country in the last three decades has been done because of the amount of aid received from countries such as the USA, Germany, the European Union, Australia, and the UK. Our policy machine and infrastructure in various arms of Government would not have been possible if not with the assistance of foreign countries in exchange for trade compromises. These are the countries with which we have major trading deficits where the value of our imports far outweighs the value of our exports.
Political reasons for entering into these Free Trade Agreements, in zones and with countries which have weaker economies than South Africa’s, more-often-than-not have to do with commitments our Government has made when participating in structures such as NEPAD (The New Partnership for Africa’s Development), the equivalent in Africa of the European Union, commitments often designed to create regional stability at the cost of local Industries. A typical example in this regard would be the selling out of South Africa’s Textile Industry.
Particularly concerning are agreements to Trade reached in blocks such as BRICS, where an immense imbalance arises between conditions of production, legislative impediments and the sort when one looks at countries such as India and China, and exchange agreements such as with Russia when it comes to contracts to build Nuclear Installations.
Whatever the quid-pro-quo reached in such exchanges, one can be pretty sure that our South African Government in almost every instance would have failed to respect the Social Partnership which so much lip-service is paid to by various Ministers, the Deputy President and the President, in times when the support of the Business Community is required. Seldom if ever is Business included as a major participant in the negotiation of such agreements and then when it is, cherry-picked Business yes-men and women are chosen in the place of fully aware and mandated Business representatives.
One particular case in-point is Paint. Our Government is so intent on creating Free Trade Agreements with such a quid-pro-quo focus, that when it comes to the import of paint there is absolutely no protection against dumping into South Africa of lead-laden paint, produced at a fraction of the cost it is capable of being manufactured in South Africa at, where South African manufacturers are subject to the Labour Relations Act, minimum wages and prohibition against the use of lead in paint. Labour costs of $100 a month in India, equate to identical labour services for $350 in South Africa. No protection tariffs apply. No Health Certificates, typically from a Global Authority such as REACH, which are required to export into any part of the world as a South African manufacturer are required for paint being imported into South Africa, sometimes through extreme collusive practices with some Retailers to the detriment of South African paint manufacturers.
Paint is one such example of a lack of parity with our state-appointed Trading Partners. The same story could be told of every other economic sector in this country. China, on the other hand, is exceptionally protective of its manufacturing sector, providing not only burdensome tariffs on imports of all sorts but extreme subsidisation in critical and key Industries and Sectors. Almost every other country we trade with is similarly dedicated.
Our own South African Government does not understand nor it appears to care, about the stink, reality and consequence of parity imbalance. The South African Business Community is really on its own.
Dr Ivor Blumenthal is CEO of the niche consultancy, ArkKonsult, which is designed to cater to the needs of Organised Business in reclaiming control and authority over their destiny, within the Social Partnership.