Impact of Climate Change on South Africa’s Future Trade Relations Dr Brendan Vickers Chief Director: Research and Policy – ITED Department of Trade and Industry Presentation to the Portfolio Committee on Trade and Industry, Cape Town 11 November 2011

Trade and Climate Linkages Climate change physically affecting trade (patterns and volumes). Trade affecting climate change: Directly: international transport contributing to GHG; Indirectly: trade-induced growth affecting production and policy priorities. Climate change policies affecting trade. Trade policies as mechanisms to address climate change.

Context for UNFCCC Negotiations Trade not formally part of UNFCCC agenda. But UNFCCC, KP and Bali Action Plan (1b-vi) on economic and social consequences of response measures to mitigate climate change, i.e. measure to address climate change may imply changes in the conditions for trade. Not only an issue for oil-exporting economies, but all developing countries. Shifting global competitiveness from North to South is the appropriate context to understand the response measures debate (same as WTO’s DDA).

Climate Policies Affecting Trade Border carbon adjustments (to prevent “leakage” of trade to more carbon-intensive economies). Subsidies (affecting production costs of climate-friendly technologies; allocating free allowances in emissions trading schemes). NTBs (public and private) – technical regulations and product carbon footprint (PCF) standards. Bunker fuels (aviation and maritime).

Challenge 1: Carbon-intensive Exports  R a n k Product Proportion Growth 2010 Name %Total 2009-2010 1 Basic non-ferrous metals 39.40% 43.19% 2 Basic iron & steel 13.02% 23.75% 3 Motor vehicles, parts & accessories 10.27% 9.19% 4 Machinery & equipment 7.03% 9.91% 5 Basic chemicals 5.73% 11.34% 6 Food 3.67% 4.03% 7 Other industries 3.39% -2.13% 8 Coke & refined petroleum products 2.55% -8.67% 9 Paper & paper products 2.24% 8.03% 10 Other chemicals & man-made fibers 1.95% -3.70% Source: Quantec, 2011

Challenge 2: Geography (i.e. trade-weighted distance) EU ETS for Aviation, 2012 6

Case 1: South Africa and BCAs No current BCAs, although proposals in OECD: America Clean Energy and Security Act (ACESA); EU 3rd Phase ETS: 164 sectors covering 80% of its imports; BCA pressures in Canada, Australia, Japan… But country/sector caveats to ACESA: Multilateral treaty with USA-equivalent economy-wide binding targets for emissions reduction; LDCs (e.g. Lesotho); Bilateral or plurilateral sector agreements with USA; Sector > GHG intensity than USA.

South African Exports of Sensitive Products to the EU, 2007-2009

Impact on EU-SA Trade? TDCA, GSP means lower trade barriers into EU market Raises trade barriers relative to our competitors. Impact on current trade negotiations (e.g. EPA)? Targets: mining and beneficiated minerals, manufactured goods, food and tobacco. ICTSD: 28.1% of our exports to the EU will attract taxes, with 30.75% of exports destined for EU. SARi: potential cost of EU/USA BCAs to SA exporters could rise to over US$720 million per annum based on current exports. Most affected are gold, platinum, iron and steel.

Case 2: South Africa and PCF Standards PCF standards focus on the amount of carbon (GHGs) emitted in the life-cycle of a product to control trade in “embodied carbon”. Unlike BCAs, cover consumer goods, not commodities. Predominantly food items and textiles. SARi: value of trade estimated to be at risk of loss as a result of private carbon labels is US$63.3 billion, largely in food products to the EU. Wine exports: bulk exports risk job losses and R400 million revenues for packaging/upstream industry by May 2012.

Towards COP17/CMP7? Adopt work programme and establish Forum on Response Measures. Build “mutual supportiveness” between the UNFCCC and WTO regimes. Advance SA’s position on the above matters.

QUESTIONS? bvickers@thedti.gov.za