29 August 2007
editorial
Johannesburg — THE state is planning to use tariff instruments to support its industrial policy, part of an ambitious drive to enhance economic growth.
The thinking goes like this: cutting the tariffs on upstream products that are needed as cheap inputs into downstream industries will help drive down costs and aid competitiveness, and so encourage the establishment and expansion of downstream manufacturers, a key aim of industrial policy.
As Deputy Trade and Industry Minister Rob Davies put it, the state believes that trade policy should be in service of industrial policy, and on the face of it this argument makes perfect sense. But drilling into the nitty-gritty throws up all kinds of questions that the policy itself does not answer.
Firstly, SA is on decidedly shaky ground legally. Import tariffs are not a national instrument, but an instrument of the Southern African Customs Union (Sacu). In terms of the Sacu agreement of 2003, SA committed to develop common policies and strategies with respect to industrial development. But the industrial policy that seeks to employ Sacu trade instruments is focused exclusively on boosting South African industry.
Regional industrial development gets only an oblique mention in the document, creating the impression that regional prosperity will only enjoy attention once SA's economy is steaming ahead. The trouble is, if import tariffs are adjusted to suit SA's industrial development strategy, that would leave little or no policy space for the BLNS countries (Botswana, Lesotho, Namibia and Swaziland) down the line, if they want to embark on industrial development strategies of their own.
But there is another, more pertinent question, and that is how much policy space actually exists at the moment for SA to manoeuvre within. The answer is very little, and this illustrates the deeper problems with the approach the bureaucrats have taken.
For instance, the state wants to review the import duties on upstream chemical products, with a view to cutting them to reduce input costs into downstream activities. But those in the trade point out that well over 90% of tariffs on upstream chemical products have already been abolished, leaving almost no room to move.
Another point worth noting is that Sacu's tariff structure is terribly lopsided. Whereas most countries' tariffs are lower on raw materials and upstream products and increase as more value is added, SA's are the other way around -- tariffs are relatively high on upstream products and decline as the amount of value added rises. So policy wriggle room is already limited by our economic history.
The reason for this is that SA has never had a coherent tariff or trade policy. Decisions about tariff adjustments are not made in the context of their implications for the broader economy, but are seemingly decided willy-nilly on a sector-specific -- sometimes even company-specific -- basis if and when the perceived need arises. This has left SA rudderless and exposed in the multilateral system at the worst possible time, when multilateral trade negotiations are at a critical stage.
But this habit of not taking account of the economic impact of policy decisions stretches far wider than the latest proposals.
Another prominent example is the Motor Industry Development Programme (MIDP), a piece of industrial policy the department likes to boast about as one of its big successes. The MIDP has helped expand SA's automotive sector significantly, the department is quick to point out, but what it fails to mention is that this has come at a tremendous cost to consumers.
Ultimately, this is the vital question the government's industrial development plans fail to answer. What are the long-term implications for the economy and consumers?
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