The Role of Trade in the Economy of South Africa

Since 1994 and the end of Apartheid regime in South Africa, This country has been rapidly integrated into the Global Economy. South Africa's trade and Industrial policy has been increasingly moving away from a highly protected economy toward an internationally competitive economy capitalizing on its comparative advantages. One of the major reasons behind this growing openness can be lifting of several sanctions and boycotts imposed by international society as a means to end apartheid.

South Africa is the second largest producer of Gold and is the world's largest producer of Chrome, Manganese and Platinum. Its is also one of the world's largest coal producers and has a large Agricultural sector.

Principal International trading partners of South Africa are African countries and countries like : Germany, the United States, China, Japan, Spain and the United Kingdom.

The gains from globalization are not equally distributed and whereas some industries and consumers have benefited from higher output or lower prices, others have lost out to more competitive foreign industries or lost their jobs. These trends are likely to continue. Tariffs and other forms of trade protection will come down, exports and imports will rise, and there will be further adjustment costs and benefits.

South Africa began an ambitious set of tariff and trade policy reforms in the mid-1990s. This included substantive multilateral liberalization through the WTO, the elimination of quotas and most import surcharges, the replacement of most formula, specific and mixed tariffs with ad valorem duties, and new bilateral agreements with the EU and South African Development Community  (SADC). The tariff structure has also been simplified through a substantial reduction in the number of tariff lines and some reduction in the number of rates levied.Almost 90% of South Africa's exports to rest of Africa go to the SADC economies. South African exports to the rest of Africa are predominantly of value-added goods. The country's investment stock in Africa has increased from Rand14.7 billion in 2001 to Rand121 billion in 2010, amounting to 21% of its total outward Foreign Direct Investment.

 As a member of the Southern African Development Community, South Africa has signed-up to an ambitious program of regional integration, which is supposed to culminate in the launch of a customs union by 2010 and a common monetary area just 6 years later. In addition, South Africa continues to grapple with implementation problems arising from the new SACU (Southern African Customs Union) Agreement and as a participant in the SADC Economic Partnership Agreement (EPA) block of countries, is also involved in complex bilateral negotiations with the EU. 

China-ASEAN Relations

The Association of Southeast Asian Nations, or ASEAN, was established on 8 August 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration) by the Founding Fathers of ASEAN, namely Indonesia, Malaysia, Philippines, Singapore and Thailand.

Brunei Darussalam then joined on 7 January 1984, Vietnam on 28 July 1995, Laos and Myanmar on 23 July 1997, and Cambodia on 30 April 1999, making up what is today the ten Member States of ASEAN.

As set out in the ASEAN Declaration, the aims and purposes of ASEAN are:

1. To accelerate the economic growth, social progress and cultural development in the region through joint endeavors in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian Nations;
2. To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region and adherence to the principles of the United Nations Charter;
3. To promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields;
4. To provide assistance to each other in the form of training and research facilities in the educational, professional, technical and administrative spheres;
5. To collaborate more effectively for the greater utilization of their agriculture and industries, the expansion of their trade, including the study of the problems of international commodity trade, the improvement of their transportation and communications facilities and the raising of the living standards of their people.
6. To promote Southeast Asian studies; and
7. To maintain close and beneficial cooperation with existing international and regional organizations with similar aims and purposes, and explore all avenues for even closer cooperation among themselves.

Since the Beginning of its activities, ASEAN has always been concerned about its relationship with two major Powers, the United States and China. Some members of ASEAN like Thailand and Philippines have traditionally been allies of the United States. Indonesia, Vietnam and Singapore have also supported the US while Laos, Cambodia and Myanmar are considered China's allies.

Because one of the major principles of ASEAN is "Neutrality" in their diplomatic relations with other nations and in order to eliminate the polarized environment within the ASEAN, the members have agreed to have an effective relationship with both China and the United States based on Neutrality and mutual respect. In fact, ASEAN members do not want to sacrifice their interest in siding with one of these two Super Powers in their struggle for power and influence in South East Asia. 

In the Case of China, because of China's strong presence in South East Asia, ASEAN has been tirelessly trying to improve their relationship with China through different Agreements. These Free Trade Agreements (FTA) have been signed by the trade authorities of both sided in order to remove trade barriers between ASEAN members and China. The FTA uniquely positions ASEAN countries to take advantage of China’s rapid growth. The rising middle class of China, with its high consumption pattern and future potential, provides ASEAN members with a market for its products and services. This market includes consumer electronics, food products, tourism, health and education services. China has already surpassed Japan as the largest consumer of luxury goods.

A more open and liberal regime of trade between the two is benefiting ASEAN’s rapid trade growth (26.4 percent per annum between 2003 and 2008), as well as greater inflows of investment into manufacturing and resource and energy-rich sectors. It has also increased access to the large consumer base in China. In the last few years, the strong trade growth between the two has propelled China to become ASEAN’s third largest trading partner, while ASEAN is well on its way to becoming China’s third largest trading partner in 2012.

International Sugar Agreement

International Sugar Agreement (ISA) is an agreement among sugar producing countries in order to stabilize world sugar prices and have cooperation in sugar production. Major sugar producing countries in the world that at the same time, the largest traditional consumers of sugar are :

• Brazil
• EU
• India
• China
• USA

Since 1953 there have been various attempts to raise and stabilize the global sugar price through this agreement. The latest agreement in 1977 established exports  quotas for its parties in order to withdraw sugar from the market when prices were low. like previous ones, this agreement ended in failure due to the fact that the European Union refused to sign the agreement.

The organization representing this agreement is called "International Sugar Organization" (ISO) which is an intergovernmental organization, based in London, United Kingdom. This Organization was established by the International Sugar Agreement of 1968, as the body responsible for administering the agreement.

The ISO has the role of promoting the sugar industry, particularly in developing countries, and improving the transparency of the market by publishing statistics on sugar production and trade and world market analysis.

US-China Trade War

Most analysts characterize current US-China relations as complicated and multifaceted. The United States and People's Republic of China are usually neither allies nor enemies. The US government does not consider China an adversary , but a competitor in some areas and a partner in others.

The United States always refused to maintain a relationship with the  Communist Regime of China Until in midst of the Cold War, the China-Soviet split provided an opportunity for the US to establish ties with mainland China. As of 2012, the United States has the world's largest economy and China the Second .

One of the controversial events in the history of trade between the two countries happened in 2009. Newly elected President Barack Obama, despite his predecessor's policies in trading with China, announced that he would impose a 35% tariff on automobile and light-truck tires imported from China. A decision which was applauded by the "United steelworkers" , the union that represents American steel workers.

This was the first time the United States would invoke a safeguard provision that was a part of its agreement to support China's membership in the World Trade Organization in 2001. Under the safeguard, American workers or companies harmed by imports from China , can ask the government for protection.

The International Trade Commission had already decided that Chinese tire imports were disrupting $1.7 billion market and recommended that the President impose new tariffs. High rate of American imports of Chinese tires caused four American tire factories close down in 2006 and 2007 and several others set to close down in near future. As a result, Thousands of American Workers lost their jobs.

China, on the other hand, was antagonized by President Obama's decision and decided to kind of "Retaliate" that by imposing a high rate tariff on imported American chicken feet. Chicken feet are considered a delicacy in China and  there is a huge demand for them in Chinese market. The demand is too high that China can not produce enough chicken feet for domestic consumption and as a result, they have to import from the United States.

Following President Obama's decision, China's ministry of commerce announced it would begin imposing anti-dumping tariff ranging from 43.1% to 105.4% on imports of chicken parts from the United States. The China Animal Agriculture Association asked for an investigation into chicken prices in August 2009, after its members complained of being undercut by American imports.

American poultry producers say the fact that chicken feet sell for much higher prices on the Chinese market compared to the US market, proves that they are not being dumped or sold below cost.  A claim which seems to be rational in my opinion.

I personally believe , China's decision to impose high tariffs on US chicken parts was a political decision in reaction to President Obama's decision to increase tariff rates on Chinese tires and not necessarily a decision to protect domestic poultry industry.
                                     

Unintentional Trade Barriers

If we walk into a supermarket in Boston and are able to buy Indian spices, Colombian coffee and Ecuadorian Bananas , we are experiencing the effects of International trade.

International trade allows us to obtain products we need in our day to day life from other countries and with a lower cost and also to sell our products to them. International trade is the reason why we  can choose between driving an American car , a Japanese car or an Italian car. As a result of International trade there is a greater competition in the market and therefor more competitive prices which allows people with different purchasing powers to find goods and services that best fit their needs.

Trading internationally gives consumers the opportunity to obtain goods and services not available in their own countries, or available, but very costly. Today, pretty much every kind of product and service can be found on the international market : Food, clothes, jewelery etc and also services like : banking, consulting, tourism and transportation.

International trade allows countries to use their resources (land, labor, technology and natural resources ) more efficiently and focus on producing products and providing services that they are better in doing them or their resources allow them to produce. If a country can not produce a product efficiently, it can obtain that item by trading with countries that are better in producing that specific product.

But trading internationally is not always easy. There are rules and regulations which have to be followed and sometimes these regulations get over-complicated for different reasons and act like barriers for Free trade. These barriers , however, are not always intentionally created by governments to protect the domestic producers but can happen unintentionally and because of an unpredictable event.

For example, after 9/11 and beginning of "War on Terror" by the United States and Allies, America's share of world exports has decreased significantly . The number of export related American jobs has declined. In order to counter terrorism, random number of ships, airplanes and trucks have been constantly inspected which has caused the delay in delivery of goods. 9/11 was an unpredictable event which had  inevitable effects on the international trade.

The other example can be fluctuations in the price of crude oil in past few years because of political tension between the Iranian government and Western governments on the issue of Iran's nuclear program. In response to a possible attack on Iran's nuclear facilities, Iranian government threatened that they would block the strategic strait of Hormuz , a narrow strait  between the Gulf of Oman and Persian Gulf  through which a significant portion of world crude oil is delivered.
This threat led to an immediate rise in the price of oil which subsequently increased the prices of oil-related products including Gasoline. A blockade, not only effects Western countries economies,but it would punish , China , Iran's most important oil customer and a major consumer of Persian Gulf oil. China has invested heavily in Iranian oil fields and besides Russia, has opposed Western countries efforts to sanction Iran over its nuclear program.

Effects of Globalization on U.S Auto Industry

The 2008 Financial crisis had a huge negative impact on the American auto industry . Not being able to meet their obligations, the Big Three ( Chrysler, Ford and General Motors ) asked Federal government for help. In December 2008, they asked the government for a $34 billion bailout to avoid bankruptcy claiming that their failure would create a 3 million layoff in about a year and plunge the economy further into recession.

In January 2009, the Federal government used $24.9 billion from $700 billion bank bailout fund to help the big three and it was paid as follows:

• $17.4 billion for Chrysler and GM
• $6 billion for General Motors Acceptance Corporation (GMAC)
• $1.5 billion for Chrysler Financial   

Ford, On the other hand, decided to use "Term asset backed securities Loan Facility (TALF) ", a government program for auto, student and other consumer loans.

Many opposed the bailout. Critics said the Federal Government should let the Big 3 go bankrupt to  benefit from the concessions they would be given under the chapter 11 of Bankruptcy law which is about "Reorganization" of the struggling companies filing for bankruptcy.
Chapter 11 gives the debtor a fresh start, subject to the debtor's fulfillment of its obligations under its plan of reorganization. For Automakers , the benefits of using chapter 11 would be great.They could gain the power to reduce their long term liabilities, restructure their dealership network, get rid of unnecessary brands and reform their obligations to retirees. Out of bankruptcy law, The automakers wouldn't be able to enjoy these concessions since they do not have the legal authority to do so.

Many critics blamed the big three's lack of innovation in an energy efficient era where almost all the big automakers all over the world are trying hard to come up with new models which are energy efficient and attractive to consumers. The fact is, for a long time the Big 3 had dominated the American auto market and they would dictate to American consumers what to drive. They were confident that American consumer would buy their product anyway and that led to a kind of laziness in working on new technologies. As soon as European and Asian cars came to the American auto market, Consumers found these newly arrived models very attractive and that's where the trouble began for American auto makers.

The new rivals were so innovative and their models were so attractive to the American consumers that the Big 3 almost failed to compete with them. So, we can mention the "Lack of enough  Innovation and creativity" as one of the most important factors in the downturn the American automakers are facing today besides the worldwide financial crisis.

How open to openness are you?

We are living in a world that is increasingly becoming smaller and smaller. Political, cultural, religious and economic borders do not fence people in anymore and tremendous technological advances and the free flow of information enable people from different backgrounds to interact with one another at anytime. In order to survive and be able to live successfully in such a world, One needs to be open to the changes which happen almost everyday and keep themselves up to date and try to learn more and more about these changes and instead of resisting, try to adjust themselves with them. In my opinion, the most successful people are not necessarily those who are economically stronger, but they are the ones who are most adaptable and responsive to changes.