TalkClassic Business

JOHN FRASER:  It’s always useful to get an update on what’s happening on the trade front, particularly in tough times when protectionism is rearing its ugly head, when there are new regimes in very important countries for the trading world - like Barack Obama in the US, and slightly less important countries like Jacob Zuma in South Africa. To get an update on what’s happening we welcome two experts in the field of trade - Peter Draper the head of the Trade Project at the South African Institute of International Affairs and Dr Razeen Sally, co-director of the European Centre for International Political Economy. Doctor Sally, first of all welcome back to South Africa - what are you here for?

DR RAZEEN SALLY:  I was here for a gathering and also for an event which Peter is organising and hosting in Pretoria tomorrow morning on emerging protectionism and all that.

JOHN FRASER:  Is protectionism a bad thing? Sometimes countries invoke protectionist legislation or put up the barriers to protect vital industries.

DR RAZEEN SALLY:  It’s generally and in nearly all circumstances a bad thing because not only does it hurt the foreigner - foreign competition - it hurts taxpayers and above all it hurts consumers at home, and that’s what protection of so-called “vital” industries, which are usually infants that never grew up, does.

JOHN FRASER:  And to what extent are you seeing that the global economic downturn, the tsunami of economic misery which is sweeping across the planet - to what extent is that stoking the fires of protectionism at the moment? Is it worse now than it was a year ago?

DR RAZEEN SALLY:  Yes, it is. It’s not as bad as it was in the 1930s, it’s not that kind of replay, but the kind of interventions we’re seeing at home, for example through fiscal stimulus packages, are actually seeping over into protectionism abroad. So it’s gathering pace and it is very worrying because it does threaten to make the present crisis somewhat worse and compromise any prospects for healthy recovery.

JOHN FRASER:  Now Peter it’s very early days indeed for our new Cabinet but we do have a new Cabinet and various ministers have been giving interviews and giving some insight into the way they see the future. We have a strong trade union constituency in the new government - we have Jacob Zuma’s power base among people who are a bit to the left and therefore traditionally more protectionist than maybe what has come before. Have you seen any shifts yet - either in potential dangers in terms of personnel in various ministries or indeed in any of the statements being made so far?

PETER DRAPER:  On the personnel front the major shift obviously has been the appointment of Rob Davies at the Trade and Industry ministry and also Ebrahim Patel, and I think that is clearly is leftward shift. The big question is whether that will be translated into macroeconomic policy but I think there we’re on relatively safe ground. What I anticipate is more intervention, more protection on the trade policy front led by those two individuals in particular.

JOHN FRASER:  Now we’ll be talking a lot about the Vodacom listing and attempts to sabotage it over the weekend - sabotage is maybe a strong word, everybody has a democratic right to go to court. But were you puzzled or worried or perplexed by the fact that a regulator which had approved the deal - a week into Jacob Zuma’s new Presidency decided it no longer approved the deal and wanted to hold fresh hearings and so on. And there have been suggestions in some of the reports today that somebody was leaning on the regulator - that’s protectionism and that’s worry that a foreign entity, in this case Vodafone, was getting an extra slice of our mobile phone network, Vodacom.

PETER DRAPER:  On one level it was very puzzling - it came out of the blue as it were. On another level it’s not surprising because we know what Cosatu and the SACP’s position on this has been. But it also reflects global trends - if one looks at the emerging world there is a rise in investment protectionism as well as trade protectionism.

JOHN FRASER:  Dr Sally, I suppose one of the more graphic industries, one of the more naked areas of protectionism is in the automotive sector. We saw it in the United States, we’ve seen it in France, we’ve seen it elsewhere - suggestions that we may come to the aid of your industry but only if you keep factories in our country open - to what extent have gatherings like the G20 managed to diffuse that rather naked protectionism and remind people that they still work within a global regime where this sort of activity is frowned upon?

DR RAZEEN SALLY:  The extent is zero, is the simple answer to your question. G20 gatherings have had no palpable effect, WTO gatherings have had no palpable effect either on these bail-outs at home which are implicit or explicit subsidies against foreign competition and of course when the United States does it with the Detroit majors, it sends signals for the Europeans to do it, for the Chinese to do it and for others to do it. And you end up with an international zero sum game. The amount is not insignificant - we’re talking about $50billion already spent on car bail-outs around the world.

JOHN FRASER:  And am I right - is the automotive sector one of the most striking examples of the upturn in protectionism and if so, are there others?

DR RAZEEN SALLY:  It’s the headline example in manufacturing but of course it sends the signal to other inefficient domestic companies to stand in the queue for government bail-outs and protection against foreign competition. But perhaps the headline example in services is financial services and particularly the bank bail-outs. So what we are seeing is also an upturn in financial mercantilism with governments bailing out banks, also with nods and winks if not explicit contracts, to lend at home at the expense of lending abroad. And we’ve seen a big withdrawal of bank funds - for example, Western European banks taking funds out of their Eastern European subsidiaries in order to shore up lending at home but not lend abroad.

JOHN FRASER:  Peter, a while back we heard some words from the old regime, the pre-Zuma regime, that there could be specific help for specific sectors and running up to the election there was quite a bit of reporting on this - the IDC was going to become involved. Since the election it’s all gone a bit quiet. Do you think this is because the new ministers are reading their briefs and will be coming out with something soon or was all this just a bit of pre-election smoke and mirrors?

PETER DRAPER:  The interesting thing is that a lot of that was driven by Ebrahim Patel in the Nedlac framework. Now Ebrahim Patel does not yet have a ministry - he still has to set that up - so I think in order to get those kinds of policies enacted - well firstly does he have the mandate? A lot of that lies within the DTI’s terrain as well as the treasury of course, which brings Pravin Gordhan into the picture, and what is his view on these things going to be, but secondly he doesn’t have an organisation to back him up. If we look at the cases that did emerge before the elections, particularly bail-outs of certain clothing and textile firms, the IDC was pretty firm on the conditions which I think bodes well for the future.

JOHN FRASER:  Dr Sally, you seem rather cynical about what was said at the G20 meeting, but certainly it did give rise to a lot of debate, a lot of discussion, and some sort of undertaking that the leaders of the world wanted an agreement - the Doha round of WTO which is supposed to give great help and succour to the developing world. There seemed to be a bit of a political push, it’s also seemed to go a bit quiet since then - what’s your current take? Are we eventually going to get a Doha deal or is it a Doha dodo?

DR RAZEEN SALLY:  You’re right - I am cynical about G20 pronouncements. The first one made in November was soon followed by protectionism by key G20 members. The second one in April at the London summit paid even more laughable lip service to the completion of the Doha round. Will the round be completed? I suspect not for a while - there is a chance that there might be a sort of headwind towards the end of the year, it will still be difficult to get it done. Will it make any difference? I think not very much because what’s on the table is actually very weak, much of it is a damp squib, and it’s certainly not enough to contain the kind of emerging protectionism I was describing a moment earlier. So we shouldn’t look to the G20 for the central solution, nor should we look to the WTO for the central solution to this problem either.

JOHN FRASER:  Is it not important though to keep the WTO process going because at least it puts a brake on some areas of protectionism and at least keeps us stumbling forward in the right direction, even if it’s three steps forward and two steps back?

DR RAZEEN SALLY:  Of course. Multilateral rules are vital - it’s important that the WTO is functional and it’s important that multilateral rules are strengthened. The Doha round in its present form I think has a lot of rather unpleasant elements in it - something better could be done with it and the ground needs to be prepared for a post-Doha agenda that tackles real business, including the kind of emerging protectionism we’re seeing in the pipeline.

JOHN FRASER:  Peter, your views?

PETER DRAPER:  I think I agree with Razeen - it’s important to keep the multilateral process on the tracks as it were, but this will be a Doha light outcome, that’s very clear. The key question obviously is, if and when will the US come on board and in what form, and we wait to see.

JOHN FRASER:  Dr Sally, what about the big trends in global trade, in the global economy, the shift towards Asia - presumably you are monitoring that on a fairly regular basis and the world of five or 10 years ago in terms of trade, in terms of power, in terms of influence, is shifting quite dramatically at the moment.

DR RAZEEN SALLY:  I’m not sure about a dramatic shift. Yes, we are seeing a shift, the world is becoming more multi-polar, it’s becoming more Asian accented - China certainly has a more prominent role, but I think predictions of China taking the lead and Asia taking the lead as a substitute particularly for the United States, are much overblown. We are likely to see a different world economy emerging out of this crisis - a more turbulent one, one with less benign conditions than we saw up to 2007, but that’s true for many players around the world including players in Asia. What’s not sufficiently appreciated abroad is the limits to growth and leadership in China itself. So there are pretty severe constraints on China taking any kind of leadership role in the global economy as a substitute for, or even as a partner with, the United States and others.

JOHN FRASER:  Nonetheless Peter, from the South African perspective our first priority, certainly in foreign policy, is Africa - our doorstep - but globally our outlook is shifting a lot towards Brazil, India and China, not so?

PETER DRAPER:  That’s true. I wonder to what extent Africa will remain the key priority and certainly on the trade front Rob Davies said very early on that it was going to be South-South trade relations - by which he means Ibsa, particularly the India, Brazil, South Africa and of course China framework. But I worry to what extent that can supplant our relations with the established powers in the West - most of our trade and investment is still located there - and we compete with those countries in many activities so quite how this agenda would be constructed remains to be seen.

JOHN FRASER:  Dr Sally - your views on South-South cooperation?

DR RAZEEN SALLY:  Like apple pie and mother’s milk - it’s a good thing and yes, we need to see more South-South trade and investment. But I would see this very much as complementary to North-South trade and investment and any realist and pragmatist would look at the hard numbers. The situation for South Africa and for many other countries on the continent is that their key markets are in the West - that’s not going to change any time soon. They need to develop and extend relationships with other emerging markets in other continents but not at the expense of their central commercial relationships and any attempt to think of this in terms of a dichotomy, in terms of substitution effects, is I think very counterproductive.