1. The economic growth outlook in South Africa at present does not make for the rosiest picture. It was not more than a week ago that Standard and Poor’s (“S&P’s”) decided, thankfully, to hold off on downgrading South Africa’s long-term debt status from its current ‘BBB–’ rating to ‘junk’, i.e. below investment grade. The International Monetary Fund’s latest forecast of our economy’s growth outlook for this year is at 0.6 percent (with some forecasting even less than this), and global trade has experienced a considerable slow-down.
2. The news from S&P’s is certainly welcome. But it does not mean absolution for South Africa. Indeed, it is at best only a reprieve – S&P’s does its next assessment of South Africa in 6 months, and the ‘word around the water-cooler’ is that, at that point, the spectre of ‘junk status’ will become real.
3. The accuracy of these prognostications will be revealed in time. But, for the present, it may bear pondering the legal and policy implications if the doomsayers are proved right. Because in the unhappy circumstance that we do fall into the economic abyss, the best next step for us would, surely, be a co-ordinated (and relatively effective) response.
4. The form that South Africa’s response may take will be shaped by South Africa’s legal obligations in international trade. The bulk of these obligations arise from South Africa’s membership of the World Trade Organisation (“WTO”). The idea of international economic cooperation was conceptualised in the final stages of World War II, and the WTO’s inception, which arose as a result of the Marrakesh Agreement of 1994 (“GATT 1994”) is a sequel to the General Agreement on Tariffs and Trade of 1947, which GATT 1994 replaced. The provisions under the GATT 1994 are centred around two fundamental principles: the “substantial reduction of tariffs and other barriers to trade” and the “elimination of discriminatory treatment in international commerce”.
5. The treaties that fall under the auspices of the WTO (“the WTO Agreements”) require South Africa, as a member state, to “ensure the conformity of its [municipal] laws, regulations and administrative procedures” with South Africa’s WTO-related obligations. Thus, as a general matter, member states of the WTO are required to permit open access to, and competition in, their own respective economies. The economic theory asserts that the more that nations engage in reciprocal free trade, the better it is for all of us.
6. The prospect of free trade and harmonious international economic cooperation between nations may seem idealistic. But, if it is, then it is fortunate that the structure of the WTO Agreements is not without a sense of realism. Perhaps in an acknowledgment of the vicissitudes that necessarily arise in a system based on economic interdependence, the multilateral system does permit for one or two relevant exceptions.
7. Under the WTO Agreements, “exchange action” and “Security” are two such exceptions. When used in tandem, the exemptions permitted under the former (viz. “exchange action”) is magnified by the latter (viz. “Security”):
7.1. “Exchange action” under South Africa’s municipal law will be regulated by South Africa’s system of exchange control. Exchange control is a measure that is used principally to control capital movements and, particularly, to prevent the potentially destabilising effect of substantial capital outflows. In South Africa, it is a not-entirely-transparent system of regulation (overseen by the Minister of Finance, the South African Reserve Bank and certain appointed “Authorised Dealers”). It was born of the Great Depression – a time when South Africa was (understandably) concerned about the economic effects of diminished direct investment and capital flight – the same concerns that would arise in the event of a sharp downturn in South Africa’s economic performance.
7.2. In international trade terms, the extent to which exchange control can be used as a policy instrument is ordinarily limited to “exchange action[s]” that would “frustrate the intent” of the GATT’s provisions and its principle of free trade (GATT 1994 Article XV:4). Importantly, however, when it comes to questions of “essential security”, GATT 1994 Article XXI (“Article XXI”) permits for a far broader and more far-reaching exemption.
8. ‘This is all well and good’ – a free-trade proponent might say – ‘but, don’t these measures violate against the spirit of the system of multilateral trade?’. The proponent might say something like: ‘Sure, these measures might technically be allowed, but surely they are not allowed to be used in this way?’.
9. Under the WTO’s regime, the answer to these questions may be ‘yes and no’. In fact, it may even legitimately be ‘yes, but so what?’. GATT 1994 legitimises answers such as these because, liberalised trade notwithstanding, where South Africa’s “essential security” is concerned, Article XXI suggests that the the ‘normal’ free-trade prohibitions and restrictions against protectionism (such as, for example, that a trade measure may not act as a disguised restriction on trade) do not apply at all.
10. But if protectionist measures like these can be rendered permissible under the WTO framework (as they can), then this begs a far more important question, which is the following. Given that these measures may arguably be permitted, would the implementation of such measures, protectionist though they might be, be in South Africa’s overall long-term economic interests?
11. There is an easy answer to this question from an economic-theory perspective. Protectionist or ‘beggar-thy-neighbour’ policies are almost universally accepted by economists as having exacerbated the effect of the Great Depression. The answer to the broader and more important would thus be an unsurprisingly and unequivocal ‘no’. In fact, the theory, as I mentioned further above, says the reverse.
12. But, without doubting the correctness of this theory, it bears observing that it only holds true where every international player adheres to the free-trade ‘rules of the game’. The principle will self-evidently not apply where access to markets is lopsided (and, of course, even less so where it is one-sided). And although reciprocity of access is precisely what the WTO agreements are intended to guarantee, it might be remiss not to note that all three of the remaining candidates for the presidency of the United States, the largest economy in the world, appear, to some extent at least, to be singing from similar protectionist hymn-sheets. If the ultimate winner of the race carries through on this political rhetoric, it will lend credence to an argument that free trade, whilst the ‘right answer’ for South Africa from a long-term economic perspective, may not be the ‘right’ answer for South Africa’s economy ‘right now’.
13. If not, then exchange-control mechanisms and other similar protectionist measures may, at least at the South African municipal level, find their way back in vogue. If they do, then the importance of co-ordination and calibration cannot be overstated. Among other things, a protectionist response that falls foul of the rules will allow the victims of South Africa’s rule-breaking an opportunity, lawfully, to retaliate. And it need hardly be said that the impact of economic retaliation in circumstances where South Africa’s economy is severely constrained will likely be a consequence that the country can ill-afford.
14. The Minister of Finance, in the immediate aftermath to S&P’s recent junk-status reprieve, described the outcome as being “demonstrate[ive] that South Africans can unite, especially during difficult times, to achieve a common mission”. Who knows, with a little more unity, maybe everything will be alright.
10 June 2016
 The exception pertaining to “essential security” under GATT 1994 is not limited to issues of exchange control. Although exchange controls in South Africa have been gradually relaxed since 1996, unlimited outward transfers of capital are not permitted at this stage.
 In Sweden – Import Restrictions on Certain Footware, GATT Doc. L/4250 (Nov. 17, 1975), Sweden introduced a global import quota system for certain footwear on the basis that the “decrease in domestic production” had become a “critical threat to the emergency planning of Sweden’s economic defence as an integral part of the country’s security policy”.