Finance minister Trevor Manuel and cabinet colleague Mandisi Mpahlwa, the trade & industry minister, clearly have different views of tariff reform.
Last week Manuel appeared to recommend wholesale reduction of SA industrial tariffs and duties - unilaterally, if necessary - to boost economic growth. This week Mpahlwa dismissed the idea in favour of sectoral action. Blanket tariff reform, he told a media briefing, is "not particularly useful".
During his mini-budget presentation last week, Manuel said SA could not afford to wait for the current round of World Trade Organisation (WTO) talks - the Doha round - to deliver trade gains. "Doha is stuck," he said. "If we're waiting on the Doha round, then we're going to sell ourselves short in the area of competitiveness because... other countries... are moving. So we should not be waiting for Doha to be finalised. We should be taking a view on competitiveness ourselves, we should be moving ourselves."
Manuel's surprise comments seem to herald a second wave of broad-based tariff reform. As such they appear to mark a shift from the sector-by-sector and product-by-product approach envisaged by the department of trade & industry (DTI).
They also appear to contradict the DTI's approach to the Doha talks where SA, as head of the Nama-11 group of major developing countries, has been resisting steep tariff cuts.
Last month, the FM asked WTO deputy DG Alejandro Jara whether SA was shortsighted in resisting the cuts. He replied: "If SA has concluded a free-trade agreement with the European Union (EU) in which most tariffs will come down to zero sooner or later, what's your problem doing likewise on a more limited basis in Doha?"
He might well ask. SA's trade policy is not clear. SA began a bold programme of trade reform and tariff reduction in the early 1990s. Since then, the average tariff on manufactured imports has fallen from 23% to 8%. On imports from the EU it is below 5% and on Southern African Development Community (SADC) imports, close to zero.
In all, 54% of imports enter duty-free while the average tariff on inputs is 5,4%.
However, since 2000 progress has stalled. Significant tariff peaks still exist and effective rates of protection have actually increased in some sectors.
The average tariff on final consumption goods remains about 20% with high rates of protection in textiles, leather, footwear, clothing, motor vehicles, parts and accessories and food processing.
Liberalisation sceptics point to the under performance of SA exports as evidence that the trade liberalisation of the 1990s has failed. They see trade as a threat and fear domestic producers won't be able to compete without protection.
SA Institute of International Affairs (SAIIA) research fellow Peter Draper worries that the unilateral impulse is disappearing in SA. "The smart countries reform unilaterally," he says. "China and India have been unilaterally reforming their tariff regimes. We haven't."
This reluctance is not unique to SA.
Razeen Sally, of the European Centre for International Political Economy, observes that globally there is less appetite for further liberalisation than in the heyday of the Washington Consensus in the 1980s and 1990s. The pendulum is swinging back towards policies that promote government intervention and protect infant industries.
"Governments are more sceptical and defensive about further liberalisation and there has been little in the way of second-generation reforms (in domestic trade-related regulations and institutions) to underpin external liberalisation and boost competition," he says.
This, he argues, ignores the fact that trade liberalisation, as part of broad market-based reforms, has worked: countries that have become more open to the world economy have grown faster and become richer than those that have opened up less or remained closed.
In SA, evidence consistently finds that much of the aggregate productivity growth during the 1990s can be attributed to trade liberalisation.
In a paper commissioned by national treasury to underpin the Accelerated & Shared Growth Initiative (AsgiSA) process, University of Cape Town associate professor Lawrence Edwards and Prof Robert Lawrence of Harvard University show that the policy, by reducing both input costs and the relative profitability of domestic sales, also encouraged a rapid rise in non commodity, manufactured exports and boosted job creation.
"This suggests further liberalisation could be part of a strategy to enhance export diversification and shows how important it is to afford SA firms access to inputs at world prices," the paper concludes.
Manuel, in his medium-term budget statement, stresses the importance of a diversified, export-orientated manufacturing base and accepts this requires competitive input costs and open markets.
But with SA's real burst of trade liberalisation behind it, can gains still be wrung from further tariff cuts?
Lawrence says consumption gains, export gains and gains from simplifying the tariff structure could still be achieved. He feels SA's tariff book is too complex and lacks coherence. In the early 1990s government committed to reducing the number of tariff bands to six. There are still more than 100.
There is also a strong business case to pursue tariff reform. SA's tariff regime may be comparable with other middle-income countries, but SA's small size and distance from global markets means it must work harder to boost competitiveness and make the conduct of trade easier, argues Draper.
The DTI's new national industrial policy framework (NIPF) takes note of SA's disappointing export performance and acknowledges many of the problems inherent in the existing tariff structure. It appears to support the simplification of the tariff book, the elimination of tariffs of 5% or lower, the removal of tariffs on capital equipment not made in SA, and a review of tariff peaks.
This would appear to favour a second wave of broad-based tariff reform but the NIPF goes on to argue that SA's future lies in non traditional exports and that tariff policy should be "dictated by the needs and imperatives of sector strategies". Trade economists take this to mean reduced tariffs on inputs into strategic sectors but protection for goods produced in these sectors.
Lawrence is critical of this approach. "Reducing tariffs on inputs alone actually increases protection for the industries that use these inputs," he argues. "This would be a continuation of a strategy in which sector-specific policies are guided by industrial rather than national interests and under which apparent tariff liberalisation actually increases rather than decreases effective protection."
A danger in this approach is that it is subject to capture by industry lobby groups. "If the DTI is set on the sector-based approach, its reviews should be conducted on the basis of rigorous cost-benefit analysis subject to public scrutiny," argues Draper. "This underpinned Australia's tariff reform process and led it to abandon sector approaches when it realised what these were costing the fiscus."
The tension between treasury and DTI reflects tension between the two approaches to tariff reform. "The real question is not whether tariff reduction will happen," says Draper, "but which approach will dominate."
Mpahlwa this week did not deny a difference in perspective but emphasised that the DTI's industrial plan of action and the NIPF - which were the product of "extreme intra-governmental consultation" - make it clear a sectoral approach will be followed.
Mpahlwa says blanket tariff reform has failed to diversify SA's export basket sufficiently. "Indeed, SA's strongest export performance has been in products that have built up through past and present industrial policy," he says.
The department insists it is not being protectionist or talking import-substitution. It accepts tariffs will be phased down.
The NIPF has reintroduced cautious liberalisation into the policy sphere. But it may take Manuel to turn the vision into something bolder.
Trevor Manuel Impatient
WHAT IT MEANS
 Manuel calls for faster tariff reduction
Blanket liberalisation not on the cards
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