Tradeoff

Business Day, South Africa

Tradeoff

By Dave Marrs

1 December 2008

Opinion

Johannesburg - Global euphoria over the election of Barack Obama as US President George Bush’s successor has been tempered somewhat by the realisation that the Democrats have not historically been overly keen on free trade.

By helping kill off the Doha round of global trade talks in September, America has already opted to put the interests of its farmers before the future of the global trading system. Under a Democratic administration there is every prospect of a rise in protectionism as the US slides into recession and unemployment bites.

Indeed, what little Obama had to say on the matter during the presidential campaign indicated that, if nothing else, the future of the multilateral trading system would have been brighter had John McCain won the popular vote.

There has been speculation that although Obama may be bad for the resurrection of the Doha round he could compensate, from SA’s point of view, by being more open to bilateral trade agreements with Africa.

Negotiations on a free trade agreement between the Southern African Customs Union and the US were suspended in 2006 by mutual consent after three years of talks, because the parties could not reach agreement on the scope of the proposed deal.

A trade, investment and development cooperation agreement has been put in place since then, and the US’s unilateral Africa Growth and Opportunity Act (Agoa) has helped fill the void by facilitating the export of a range of products manufactured in southern Africa to the US tariff-free.

A free trade deal would be the logical next step, and Obama’s special interest in Africa and frequently stated belief in allowing the continent to "pull itself up by the bootstraps", rather than being a passive recipient of aid, could be the grease that is needed to get the cogs turning.

It should never be forgotten, though, that such bilateral trade deals will always be the poor cousin to a multilateral one such as the World Trade Organisation was striving to achieve through the Doha round.

Multilateral trade deals are based on the "most favoured nation" principle, so any tariff cuts offered to one country must be offered to all. Regional deals lower tariff barriers between the signatories, which is clearly better than nothing. But, by definition, they discriminate against non-signatories and cause friction between neighbours. The economic partnership agreements the European Union is trying to negotiate with the members of the Southern African Development Community are a case in point.

Bilateral deals may create new trade between signatories, but this is often diverted from lower-cost producers that are not in on the action. That is clearly an inefficient way of doing things that should be avoided as long as a multilateral deal remains an option.

The above reference to Agoa brings me to the sad news of the sudden death last month of regular The SA Exporter contributor Mike Holmes. Mike was halfway through a two-part series evaluating the benefits SA has gained from Agoa, and the second part unfortunately goes with him to the grave. We’ll take up the subject again next year; in the meantime, our thoughts are with Mike’s wife and family, whose loss is immeasurably greater than ours.

Dave Marrs is editor of The South African Exporter and Cape editor of Business Day.

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