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Demands could violate international trade rules
Demands could violate international trade rules

SA risks breaking WTO rules over Walmart

RETAILER NEWS

Fin24 - May 27th 2011, 08:07

Johannesburg - South Africa is unlikely to impose local supply targets in its upcoming ruling on Walmart's R16.5bn bid for retailer Massmart Holdings because such demands could violate international trade rules. 

The Competition Tribunal is likely to decide by Monday on whether to allow the world's largest retailer to buy a 51% stake in Massmart, a deal both the government and unions have said would squeeze local suppliers and lead to job cuts.

Walmart, which relies on its global network to source goods at lower prices than competitors, has said it would agree to conditions on job cuts, but not local procurement.

The deal is seen as a test case for major foreign investment in South Africa. Home to the continent's deepest capital markets, South Africa is also a country where unions hold enormous political influence.

That influence, however, may not trump global trade agreements.

"If Walmart's entry into the South African market is denied, or if there is discrimination against Walmart in any form or measure, South Africa will be violating its international commitments," said Paul Kruger, a researcher at the Trade Law Centre for Southern Africa.

As a member of the World Trade Organisation (WTO) and signatory of the General Agreement on Tariffs and Trade (GATT), South Africa is not allowed to demand that a company would buy certain products from domestic sources as a condition for approval of an investment.

A WTO official declined to comment, as did officials for the Competition Tribunal.

No way out

Under "national treatment" rules outlined in trade agreements, governments are not allowed to discriminate between imported and locally produced goods.

"GATT obligations like national treatment are mandatory, they're not discretionary," said Daniel Crosby, partner at law firm King & Spalding in Geneva.

"There's no way to schedule around GATT rules for purposes like this."

Because South Africa's parliament has endorsed the trade agreements, breaking them would be the equivalent of breaking its own rules.

"This is first and foremost an issue of South Africa law, and there could even be constitutional issues of government compliance with international treaties ... so I don't see any way out of this," Crosby said.

South Africa has made voluntary commitments to the WTO through the General Agreement on Trade in Services (GATS), which extended the free-trade agreement into the service sector, including retailers.

The Tribunal will find it hard to justify a decision that appeases unions without the trade rules and putting Walmart at a competitive disadvantage to other South African retailers, such as Shoprite.

"With investment related matters, in terms of world trade rules, you must treat all people equally," said Mike Schussler, an economist at Economists.co.za.

"If you were to say Walmart has to have import restrictions when they enter South Africa, you'll have to place the same restrictions on Shoprite Holdings, Pick n Pay Stores and Spar Group."  

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