How can we reinvigorate global trade?

South Africa and the other BRICS nations need jobs, growth and greater competitiveness. Europe needs jobs, growth and greater competitiveness. The US needs much the same. Better trading terms are a key way to secure these goals for businesses and consumers. They can act too through a multiplier effect in a complex set of value chains and SME supply systems.

The World Trade Organization (WTO) plays a key role in the adjudication of multilateral trade agreements and their implementation and enforcement, but has been left playing a less dynamic role in recent years – with the failure so far of the Doha Round – in the negotiation of major multilateral deals. It secured the Bali trade facilitation deal recently with helpful customs progress, but even that was a somewhat tortuous process.

Bilateral, plurilateral and issue-specific deals are therefore filling the negotiations void left by the WTO. These are aimed at driving progress and helping to prevent any nascent protectionism. The EU and US have both concluded deals with Korea. And the EU with Canada and with Singapore and, on goods for example, with the East Africa Community (EAC).

The EU has embarked on a major bilateral programme including with the US (TTIP – a potentially landmark agreement, is going beyond tariffs into the depth of regulatory coherence and convergence), Japan, some ASEAN and Latin American nations, and potentially India. It has also started an investment agreement dialogue with China, and is now looking to overhaul its free trade deal with Mexico.

The US has done likewise, including its flagship Trans-Pacific Partnership (TPP) with 12 nations including Japan. The Chinese are looking too at regional East Asian partnerships, have signed a modest trade deal with Switzerland and have a very active infrastructure investment approach in Africa. Other dialogues include the 50+ nation Trade in Services Agreement (TiSA) dialogue, and those on Information Technology and on Procurement.

This is a very complex web of very complex agreements. The WTO might usefully play a role as repository, and as interpreter and adviser of how all this fits together. The trading system needs too to get to grips with effectively enshrining the principle of free and open trans-border data flows, underpinned by balanced data protection regimes. This is vital for commerce and society generally and globally, not just for companies in the ICT and cloud services sectors.

There are signs in some nations of nascent “data localization” laws, which run counter to the global trading system and could slow trade expansion, and hence impact jobs and growth detrimentally.

But where is South Africa in this torrent of trade dialogue? It seems to be taking something of a cautious approach, particularly to bilateral dialogue. It has not joined the TiSA dialogue in Geneva, and has seemed to put less emphasis on pursuing free trade agreements than some major emerging economy nations.

The current difficulty in achieving progress via the Doha Round may mean that South Africa needs to devote more resources to trade outreach, as do other BRICS and MINT nations. South Africa has intellectual capital and resources potential, some of which is being realized via innovative business models (including business process outsourcing) and some of which needs further support or market reform.

Stronger trade flows and FDI would add economic stability, help address employment and skills needs, and act to support stronger energy security. South Africa is a net importer of goods and services with, for example, a net trade deficit in 2014 of €5 billion with the EU.

EU-South Africa trade growth has been good since the 1999 Trade Development & Cooperation Agreement (TADC) – which gave significant both-way open access – at over 120% growth in goods trade and with FDI increasing over five-fold. But more could be done, especially in services market access and reform and via a more ambitious trade agenda, beyond the good progress on a plurilateral Southern Africa Development Community (SADC).

There is good scope to grow. For instance, the UK is a large bilateral trading partner for South Africa at around £10 billion per annum, but there are dialogues to extend this further. The UK also accounts for a very significant proportion of all South African FDI.

Look at the EU. I think an ambitious TTIP – and other EU free trade deals such as with Japan and India and the US-driven TPP – has the potential to give jobs and growth a real boost, including helping the desperately worrying Southern European youth unemployment situation with levels in some areas at 50% plus.

More mutually beneficial trade measures will help stop the rise of extremist parties in democracies playing on fears of immigration and so-called “benefits shopping”. The headline numbers are compelling, whatever you think of the various studies of the percentage points on GDP or multi-billion-dollar uplift on annual trade and investment flows – deliverable, for example, through TTIP.

OECD Observer tells us that one OECD study on TTIP estimates potential welfare gains to the EU and the US of as much as 3%-3.5% of GDP; others range from 0.5% to 3.5% of annual GDP. Another very optimistic report even sees gains as high as 13% of GDP for the US and 5% for the EU. It states: “With both economies facing a long-term need for fiscal consolidation alongside persistently high unemployment, these gains are considerable, all the more so because no additional spending or borrowing will be needed to achieve them.”

It continues: “None of these estimates captures the potential dynamic effects of trade and investment liberalization and resulting productivity growth. Many commentators believe that these are, in fact, the most important potential gains, but they have not been captured in any of the studies done so far.”

In this broad context, there is an important summit on 10 June 2015, where representatives from 27 member countries of Africa’s three regional trade blocs – the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Cooperation (SADC) – will meet in Egypt to sign the long-awaited tripartite free trade area (FTA) agreement.

Once endorsed by members, this free trade agreement (FTA) will stretch from Cairo to Cape Town, covering a combined population of over 600 million people with a GDP of $1.3 trillion, almost 60% of the continent’s total GDP. It would be the largest economic bloc on the continent, and could be transformative in terms of ramping up intra-Africa trade and, thereby, the continent’s share of global trade. This may also give Africa more clout during trade negotiations with the US, China and the EU.

The net benefits for South Africa – through trade outreach within Africa, within the BRICS structure and through a stronger reinvigoration of trade dialogues with the US and EU – would be potentially of immense value. They could also offer a multiplier effect, given the nature of intra-firm trading flows and the chain of value-added services and SME support services, potentially extending the benefits more broadly into communities. The US-South African agreement on 21 April 2015, to try to strengthen bilateral trade and investment ties, may be an additional step forward on the process to deeper and faster trade engagement. The EU and others might wish to follow suit quickly.

The World Economic Forum on Africa 2015 takes place in Cape Town, South Africa from 3-5 June. 

Author: Sir Michael Rake, Chairman, BT Group; Co-Chair of the World Economic Forum on Africa for 2015.

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