Davies, at the Budget Vote debate, NCOP
18 May 2006
Chairperson, it is an obvious proposition that in an increasingly globalised
world prospects for local and regional economic development are greatly
influenced by trends in international trade relations. Conversely, developments
at local and regional level may impact in varying degrees on what happens in
the international sphere. Therefore while the primary focus of this council is
on provincial and local economic development, giving effect to this mandate
requires also engagement with matters of international economy and trade.
In my input today, I want to concentrate on aspects of both sides of this
coin. First, I want to discuss the development of active clusters as part of
the national industrial policy framework that the Department of Trade and
Industry (the dti) is in the process of finalising. Later I will discuss some
implications of recent developments in the World Trade Organisation (WTO) Doha
Development Round negotiations in which I am glad to see that members of the
National Councils of Provinces (NCOP) and in particular of the Select Committee
ably chaired by Ms Nosipho Ntwanambi, are taking a keen interest.
Chairperson, beginning with the first matter the dti is in the final stages
of completing an industrial strategy framework for South Africa. Indeed, we
hope it will pass through the relevant processes of governmental approval by
the end of July. The broad principles that we envisage, underlying a renewed
and more robust industrial policy have been elucidated on a number of
occasions. To briefly recap:
We will, firstly, be encouraging stakeholders, (government, business and
labour) to engage in exercises of self discovery both to identify sectors which
need to be prioritised and within sectors to identify key action plans that
need to be undertaken in order to move those sectors forward and promote growth
and job creation within them.
Key action plans emerging from such processes we envisage informing to a
greater degree than in the past the development of more customised incentives
and offerings made available by government to support efforts by targeted
sectors to transform themselves and enhance employment and income generating
potential.
We are further saying that government must be prepared to strategically
deploy more resources on a scale sufficient to make a difference. And finally
we are indicating that there should be greater conditionality in the deployment
of our resources, in the sense that beneficiaries will be expected to actively
implement key action plans that were agreed to at sectoral level and if they do
not government should be ready to withdraw its support.
The targeting of sectors which are already undergoing customised sector
programmes at various levels of development and implementation has taken place
through self-discovery processes with key stakeholders undertaken at national
level. However, we need to recognise that sectors also have a spatial
dimension. Targeted industrial and service activities take place in
identifiable regions of our country. There are also other regions where
targeted industrial activities could take place but are not currently doing so
for various reasons, including the deep-seated regional inequalities that were
created and sustained by apartheid.
The constitution of our country whose 10th anniversary we have just
celebrated provides for different spheres of government each with their own
responsibility. It also provides for cooperative governance between the
different spheres. Both national and provincial government have competence in
the area of industrial promotion and local government under the oversight of
both national and provincial government is responsible for the elaboration and
implementation of programmes of local economic development. Provincial
governments have established provincial investment promotion and development
agencies and several provinces have elaborated quite advanced and sophisticated
sectoral strategies for key industries of importance in their regions. Indeed,
in some cases exercises in self-discovery at sectoral level may be more
advanced in some of the provinces than they are at national level. There is
clearly a need for more intense and detailed strategic dialogue between
national, provincial and local government about active sectoral industrial
policy as a critical element both of our overall industrial strategy and of a
regional industrial policy framework.
At the last MinMec meeting, Minister Mpahlwa signalled the need for a
strategic conversation of this nature. Among other things, we need to seek a
measure of agreement on the identification of sectors which are targeted as
priorities. When national, provincial and local government agree on the
identification of priority sectors, we need then to clarify the respective
roles of the three spheres of government in the implementation of sector
development strategies. There may of course be differences in priority
selection. In such a case we need to have an opportunity to persuade each other
of the merits of the inclusion or noninclusion of particular sectors as
priority targets. Within the dti as a critical element of industrial policy, we
are seeking to promote a greater integration between divisions responsible for
the production of sector strategies and those responsible for the design and
distribution of incentives and offerings. We also need to promote a greater
coherence and integration between programmes that are offered at national level
and those at provincial level, so that as far as possible these can be mutually
reinforcing in a way that increases their impact.
Clustering has long been recognised as an important vehicle for fostering
economic development and competitiveness as experience in many countries has
shown. Clustering essentially means bringing firms within a value chain
together to cooperate and realise synergies that will enable the whole cluster
to compete more effectively. In South Africa however, it is generally accepted
that with some exceptions, for example the automotive sector and clothing and
textiles, cluster development has been rather ad hoc and passive. In
particular, there has been insufficient integration between efforts promoted by
the three spheres of government between sector associations and private sector
firms both big and small.
A major challenge will be to develop more effective cluster strategies
through processes of private public consultation involving key government
structures in all spheres, private sector associations and partner agencies.
Provinces and local authorities have a critical role to play in this regard and
indeed may sometimes be better placed to lead and dynamise cluster processes
than national government. Issues of finance to facilitate cluster processes are
also a critical challenge.
Implementing a more effective and regionally sensitive industrial strategy
will require much more intensive consultation between and within the different
spheres of government. We look forward to engaging in that important strategic
conversation in the period that lies ahead.
Let me now turn to the second issue I want to address. The World Trade
Organisation (WTO) Doha Development Round negotiations have missed yet another
deadline. The sixth Ministerial Conference held in Hong Kong Ministerial in
December last year agreed that April the 30th should be the deadline for the
negotiation of what are called full modalities in the agricultural and
non-agricultural market access, or industrial tariff, negotiations. This
deadline was not met because the positions of the membership on key issues
remain too far apart. In our analysis, the critical blockage remains the
inability of the European Union (EU) to significantly improve its offer on
agricultural market access. This has led the United States (US) in turn to
adopt a stance that without an improvement in agricultural market access it
cannot improve the offer it made in October last year for cuts in domestic
support (the biggest category of subsidies). The analysis of the G20 group of
which we are part was that although the USâs October 2005 offer was an
important initial move, it needed improving because as it stands cuts would
take place only in bound but not in applied levels. As the USâs current applied
levels of domestic support are well below its bound levels, it could indeed on
its current offer even increase payments beyond current applied levels. The
third major element in the equation is the Non-Agricultural Market Access or
industrial tariff, negotiations. Here, the 27 or so developing countries that
in terms of definitions already agreed would be required to make formula cuts
are also finding themselves under intense pressure to make very ambitious and
in our view, disproportionately large cuts.
Though the deadline of 30 April was missed, intense efforts are underway in
Geneva to reach agreement on what is called the triangle of issues that need to
be unblocked to advance the process agriculture market access, domestic support
and non-agriculture market access. A new implicit deadline in the middle of
June or early July has been set. If this deadline is missed, we are told that
the possibility of reaching agreement within the time frames of the current
trade promotion authority of the US will be slim. The Doha Development Round
may as a result collapse with consequences including the entrenchment of the
existing, skewed and anti-developmental status quo in agricultural trade the
enactment of a new Farm Bill in the US that will retain large subsidies for at
least five more years and an onslaught of aggressive bi-lateral negotiations in
which the big trading blocs attempt to impose what they failed to win in the
multi lateral process.
Chairperson, in Hong Kong, South Africa played a leading role in
consolidating a group of countries potentially subject to formula cuts in
industrial tariffs into an alliance which we called the Non-Agriculture
Agricultural Access (NAMA) 11. At Hong Kong we made the point that a
development outcome to the Doha Round needs to see the biggest adjustment in
the area of agricultural trade which is subject to major distortions to the
disadvantage of developing countries resulting from protectionist policies and
subsidies by developed countries. We also said that the principles of special
and differential treatment and less than full reciprocity agreed at Doha meant
that the overall balance of the Round must result in developing countries
making proportionately smaller adjustments than developed countries. Through
intense lobbying and negotiation we managed to have included in the Hong Kong
declaration a paragraph that says that there must be a corresponding level of
ambition in NAMA and in agriculture. This we consider one of our biggest
achievements in Hong Kong.
Chairperson, in the Trade Negotiating Council (TNC) session held in Geneva
on 1 May, I spoke on behalf of the NAMA 11 and stated that while we were
prepared to work with the rest of the membership to reach an agreement on full
modalities by the new implicit deadline, we insisted on our contribution being
proportional and fully respecting the principles of less than full reciprocity
and special and differential treatment. We indicated to the TNC that we would
be making a series of calculations to inform our positions. These would be
firstly about the impact of proposed formula adjustments on our own industrial
sectors and secondly on the value of the adjustments we would be asked to make
in NAMA compared to the value of the benefits we would receive both in
industrial cuts by developed countries and in adjustments in the agricultural
sector.
We have insisted that only when we were convinced that these were
proportional, and were based on principles of less than full reciprocity, would
we be able to agree to a deal.
Chairperson, intensive technical work and preparation are going on within
our NAMA 11 group, to put agreed numbers to the positions we will take forward
in these negotiations. Let me assure members of this House, that at the very
moment we are embarking upon a more robust and more ambitious industrial policy
with a more active and more effective regional industrial component we are not
about to fritter away our hard-won advances to facilitate an unbalanced deal in
the WTO. We have prioritised agricultural trade reform, both because it will
benefit some of our own agricultural and agro industrial sectors and because it
is systemically important for developing countries as a whole to enlarge their
opportunities for industrial development in the only sector where they have a
real comparative advantage, agriculture.
But as I concluded in my input to the TNC on 1 May, there is an old adage
which is often referred to by a leading trade union negotiator in our country.
Both the chicken and the pig need to make sacrifices in order to produce bacon
and egg breakfast. But their sacrifices are of a different order and a
different magnitude. We have told the WTO membership that a deal will only be
possible in the Doha Round if countries in our NAMA 11 group are not asked to
make a pigâs sacrifice in order to gain chicken feed.
Issued by: Department of Trade and Industry
18 May 2006
Source: Department of Trade and Industry (http://www.dti.gov.za)
