BEE could run counter to WTO principles

‘Discrimination based on nationality is generally prohibited’ ALAN PEAT THERE IS potential conflict between the rules of the global World Trade Organisation (WTO) and those of SA’s black economic empowerment (BEE) programme, according to Jon Mortensen, a PhD candidate at the Danish Institute for International Studies (DIIS) and University of Copenhagen. BEE is intended to alleviate the historical racially-determined disparities in the distribution of the country’s wealth and income, he told the Southern African Trade Law Centre (tralac). “It aims, amongst other things, to increase the participation of black South Africans in the economy: more shareholding ownership by blacks; more black investors and entrepreneurs; and more formal jobs, preferably at management level, reserved for blacks. “To this end, BEE comprises a wide range of policy instruments aimed at domestic market regulation in favour of black South Africans.” However, in Mortensen’s estimation, some of these instruments are inconsistent with fundamental rules of international trade set out by the WTO. “A fundamental aspect of WTO rules,” he added, “is non-discrimination: favouring based on nationality is generally prohibited. But discrimination is a defining aspect of BEE – the policy favours black South Africans over not only other South Africans, but also non-South Africans. This sets BEE at odds with at least four WTO sub-agreements: GATT, GATS, TRIMs and SCM.” Mortensen feels that, since the conflict between BEE and WTO is fundamental, no easy fixes exist. This would mean that if SA wished to secure BEE from WTO scrutiny, it would either have to drop elements of the policy and water down its authority to enforce it – jeopardising the success of BEE – or rely on the goodwill of its WTO partners. The latter he defined as “a worrying prospect”. This, Mortensen added, raised the following questions: How should the SA government respond to the conflict between BEE and WTO? Should it secure BEE from WTO scrutiny by dropping elements of the policy and water down its authority to enforce BEE? Or should it “stand tall” and defend the policy against potential scrutiny? Is the conflict between BEE and WTO an example of multilateral trade regulations harming the development prospects of a member country? Or is it an example of multilateral trade regulations saving the population of a member country from ‘bad policies’? The DIIS working paper upon which Mortensen’s brief was based is part of a series of eight papers on BEE in SA. They can be downloaded for free at: http://www.diis.dk/bee The working paper on WTO and BEE can be downloaded directly from: http://www.diis.dk/sw29684.asp