Speaking notes to India-Brazil-South Africa (IBSA) Business Round Table, Johannesburg: Minister Mandisi Mpahlwa

16 October 2007

At the outset, I would also want to extend a warm welcome to South Africa to our friends from Brazil and India, including the business community from each country.

The rationale for enhancing trade among the three countries is rooted in longstanding and sound sets of arguments that call for enhancing South-South economic integration and cooperation. These go back to the mid-1960s and have been detailed in a great deal of political engagement and technical work, particularly in the context of the work done by the United Nations Conference on Trade and Development (UNCTAD), over many years.

The central argument is that by broadening economic space through larger markets, developing country firms can achieve economies of scale and enhance their competitiveness at the regional level as a platform to compete more effectively on a global scale. Opening trade within the South serves the twin purposes of assuring both positive trade and economic growth among developing countries and facilitating their preparedness for trade openings at the global level.

Improved competitiveness for firms from developing countries can also be forged through cooperative arrangements in the critical areas of, amongst others, transport, communication, and technology sharing for industrial upgrading. South-South arrangements also offer greater possibilities to attract FDI, and to pool economic, human, institutional, technological and infrastructural resources. Finally, cooperation can contribute to building solidarity among developing countries to assert their common development aspirations in a range of multilateral forums.

Each of these elements is evident in the Joint Press Communiqué issued by the IBSA Heads of State at the last Summit held in Brazil.

But beyond these traditional arguments, new developments in global trade suggest the need to pursue South-South cooperation and integration with more vigour. Recent analysis shows that over the last decade, developing countries share of international trade has grown dramatically, accounting for around 30% of world trade.

Almost all of this growth has been in trade among countries of the South, with over 40 percent of developing country goods exports now destined for other developing countries. Further, such trade is increasing at an annual rate of 11 percent (nearly twice the growth rate of total world exports). South-South trade in services is also on the rise, offering substantial possibilities for developing countries to diversify their goods-dominated export structure. These processes are, of course uneven among developing countries, but the central point of the growing importance of the South in global trade is clearly evident.

A recent study by the Organisation for Economic Co-operation and Development (OECD) observes that trade barriers affecting South-South trade are higher than those affecting other trade: 11,1% on average, compared with 4,3% for North-North trade. It follows therefore that reducing South-South tariff barriers can have a major impact on trade flows. Overall, the OECD suggests that, from a development point of view, South-South liberalisation is at least as important as tariff-free market access to Northern markets.

Taken together, these arguments are at the centre of the idea of the changing economic geography outlined by President Lula. It is important to note that the focus on increased South-South trade should be seen as a complement to rather than a substitute for North-South trade.

Turning more specifically to IBSA, our cooperation is also forged on the basis of a common set of values of democracy, human rights and development. We share a common understanding of importance of trade for development and to address poverty and unemployment. It is a perspective that recognises that the development process is complex and requires carefully calibrated policy interventions. Our common approach to the global economy is one perhaps best captured in the notion of "strategic integration" on terms and conditions that promote our development objectives.

This may be best reflected in the shared views the IBSA countries hold with respect to the multilateral rules-based system in the World Trade Organisation (WTO). In this arena, we have consistently pursued a common agenda to strengthen the trading system in a manner that redresses existing imbalances and promotes development. In the current Doha Round, we have together pursued four key negotiating outcomes:
First - new market access for developing country exports of goods and services
Second - the removal of distortions in agricultural trade
Third - redress the design rules that prejudice the interests of developing countries
Fourth - in the design of new rules, ensure there is sufficient flexibility to pursue our development objectives.

These shared views have been manifest at a political, operational and technical manner on most issues in the Doha Round but particularly in agriculture and industrial tariff negotiations through our common membership in the G20 and Non-Agricultural Market Access (NAMA) 11. The establishment of these developing country groupings, in which IBSA countries have been at the centre, is historic in the global trading system. It has shifted the negotiating dynamic and ensured that the development objectives of the Round are not eroded.

With respect to the challenges that confront us, the first point to make is that Brazil, India and South Africa are comparatively large growing developing economies, and pivotal in their respective regions. Collectively IBSA countries working together can give new impetus to meaningful South-South cooperation.

There are nevertheless several substantive and process related issues we need to confront. In some respects, it may be easier to make progress in the areas of cooperation that have been identified such as: transport, communication, technology, energy etc. Useful cooperation in these areas is already underway.

It is perhaps more difficult to make progress in tariff negotiations that aim to broaden the economic space for our firms and industries. The reasons for these difficulties are not hard to find. They relate to the fact that our industrial development is still underway and, against the background of widespread poverty, unemployment and a host of other development problems, it is difficult to open markets that may place severe pressure on domestic production and exacerbate unemployment. Indeed, the key issue is whether our industrial and agricultural structures are complementary or directly competitive with each other.

Given the sensitivities of our economic structures, it would be difficult to envisage an agreement that covers substantially all trade, as set out in the WTO rules. While a more limited preferential trade arrangement, covered by the Enabling Clause in the WTO, would more appropriate, we would need to seek to broaden the scope of an exchange of tariff preferences beyond the current level of exchanges of preferences, if the trilateral trade arrangement is to be meaningful. This, it seems to me, is the crux of the matter, and a challenge we need to confront squarely.

IBSA has agreed to a way forward. We have established a Working Group to undertake a study on the "modalities" that would aim to define a framework for the envisaged trilateral arrangement. The Working Group composed of the Southern African Customs Union (SACU), Mercosur and India (11 countries), will "explore, define and reflect on the modalities/parameters for future trilateral trade negotiations process". This work is vital.

On the modalities, it seems that, as compared to free trade agreements, more limited preferential trade agreements allows for a more strategic integration process among developing countries. This, perhaps, is the first point of agreement. As tariff negotiations are both sensitive and at the heart of the envisioned trilateral trade arrangement, we will need to initiate a process of solid research and analysis so that we are able to demonstrate empirically to each our domestic constituencies, the benefits of such an arrangement. This will be essential to secure their support for the process. Such studies are envisioned as part of the modalities.

As we acknowledge that tariffs are not always the most important barrier we face in foreign markets, the modalities should include an approach that allows us to deal more effectively with non-tariff barriers. We will also need to consider whether other types of cooperative arrangements are viable. This may include, for example, sectoral cooperation agreements, and mineral product supply linked to investment in value added activities.

The final point is that IBSA countries generally accept that we must strengthen existing bilateral agreements. These bilateral agreements will determine the basis and starting point for our longer-term ambition. I am pleased to note that the SACU-India PTA negotiations have commenced, and the 2nd phase of SACU-Mercosur PTA negotiations has been largely completed. I am also pleased to note that a first trilateral discussion between SACU, India and Mercosur has been held.

In sum, pursuing the trilateral trade arrangement in IBSA is compelling and preparatory work is underway that will advance towards that objective.

Thank you

Issued by: Department of Trade and Industry
16 October 2007
Source: Department of Trade and Industry (http://www.thedti.gov.za)

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