2009-12-09 tralac Newsletter

2009-12-09 tralac

News > Newsletters

Hotseat Comment

Sean Woolfrey 

Sean Woolfrey, a tralac Researcher, comments on the SACU-MERCOSUR Preferential Trade Agreement.

In April this year, Ministers from the Southern African Customs Union (SACU) – comprising Botswana, Lesotho, Namibia, South Africa and Swaziland – signed a preferential trade agreement (PTA) with the Common Market of the South (MERCOSUR), the customs union comprising Argentina, Brazil, Paraguay and Uruguay. This PTA replaces an earlier agreement signed by the two blocs in 2004.

The SACU-MERCOSUR PTA establishes fixed preference margins between the parties on a number of goods. MERCOSUR’s offer to SACU, contained in Annex I of the agreement, includes 1051 product lines, while SACU’s offer to MERCOSUR, contained in Annex II, includes 1064 product lines. The agreement also contains annexes covering rules of origin, safeguard procedures, dispute settlement, sanitary and phytosanitary measures and customs cooperation.

The PTA is unlikely to lead to significant increases in trade flows between the two regions however, as the products covered by the respective offer lists do not account for a particularly significant portion of either party’s exports. SACU in particular is unlikely to see a surge in exports to MERCOSUR, as exports of the goods included in MERCOSUR’s offer list represent only around 16% of the value of South Africa’s exports to MERCOSUR in 2008 and just 7% of the value of the country’s total goods exports in that year (The vast majority of SACU’s exports originate from South Africa and thus South African external trade data is used here as a proxy for SACU trade data.) 

In addition, South Africa’s exports of the goods included in MERCOSUR’s offer list are dominated by coal, which accounts for around three-quarters by value of South Africa’s exports of these goods to MERCOSUR and over 80% by value of South Africa’s total export of these goods. This is particularly notable as MERCOSUR does not currently levy an MFN duty on coal imports. The preference being offered on South Africa’s major export to MERCOSUR does not therefore provide any meaningful benefit. Furthermore, it is a general feature of the PTA that the preference margins offered by each party are either minimal, or pertain to goods which are subject to insignificant MFN duties, or which are not heavily traded by the two regions.

This does not mean that the PTA itself is worthless. It was never meant to be anything more than a limited agreement, and its major value lies not in its ability to induce significant increases in bilateral trade, but rather in the fact that it represents an important first step in the creation of a SACU-MERCOSUR free trade area.

A more comprehensive free trade agreement (FTA) would likely prove significantly more beneficial to both parties and to SACU in particular. MERCOSUR, the fourth largest trade bloc by GDP after the EU, NAFTA and ASEAN, represents a potentially attractive market to SACU exporters. It is also dominated by Brazil, one of the most important emerging economies in the world today. A comprehensive deal with the region could therefore provide SACU’s exporters with significant opportunities in a number of niche markets. Furthermore, despite some growth in recent years, trade between SACU and MERCOSUR remains at a relatively low level.

Negotiations toward a more exhaustive deal are likely to prove quite difficult however, especially given the fact that SACU and MERCOSUR produce similar products including motor vehicles, electrical equipment and agricultural products such as sugar. Because of these similarities in production, protectionist sentiment is likely to play a prominent role in further trade negotiations, thereby limiting the scope for an exhaustive agreement.

Other factors which could hamper further negotiations include the difficulties associated with negotiating trade agreements as blocs rather than as individual countries and the potential distraction of other issues, such as those stemming from the recent Economic Partnership Agreement negotiations between SACU members and the EU. In addition, while the inclusion of provisions on services and investment is important in order to maximise the benefits of a full FTA, concluding deals on these issues is likely to prove more difficult than concluding a deal focusing exclusively on trade in goods.

In addition to being an important first step in the creation of a free trade area, the PTA is significant in establishing closer ties between SACU and MERCOSUR, both of which are important players on their respective continents. The agreement can be seen as part of an effort to further so-called ‘South-South’ cooperation between developing countries. Initiatives such as the India-Brazil-South Africa (IBSA) dialogue forum are seen as important way for developing countries to reduce their reliance on traditional trading partners in the developed world, to climb value chains and to present a stronger front at multilateral trade negotiations.

In this regard, the SACU-MERCOSUR PTA could serve as an important building block for a mooted India-MERCOSUR-SACU regional trade arrangement. In addition to the potential benefits of increased trade that could stem from such an arrangement, a strong alliance between these parties would strengthen the leadership role played by South Africa, India and Brazil in the G20 developing country bloc at the WTO.

The discussion above raises a couple of interesting questions. Firstly, to what degree should South Africa (and SACU as a whole) focus its attention on bilateral or regional trade agreements rather than multilateral negotiations? In a region where negotiating capacity is ultimately limited, it is possible that focusing on one level of trade negotiations could weaken the region’s ability to push for meaningful progress at other levels. Secondly, if bilateral agreements are the best way forward, with which countries should SACU attempt to conclude such agreements? Should SACU focus on traditional trading partners such as the US and Japan, or are emerging giants like China, India and Brazil/MERCOSUR the ideal candidates for future FTAs?

Finally, a proliferation of bilateral and regional deals risks further complicating the ‘spaghetti bowl’ of legal arrangements that exporters already have to negotiate. In light of this, it is important that efforts are made to seek convergence in the plethora of various bilateral and regional trade agreements that already exist, and to ensure that future agreements cohere as much as possible with pre-existing ones. By doing so, countries and regions of the developing world will ensure that South-South cooperation leads to meaningful benefits for their citizens, and for their firms. 
  
Tell us what you think...

top ↑

Special Features

Monitoring Trade and Climate Change

tralac is monitoring the United Nations Climate Change Conference currently taking place in Copenhagen, Denmark.   

Holiday Season

Please take note that tralac's last Newsletter for 2009 will be sent out on Thursday 17 December 2009.  Daily news will not be published on our website between 21 December 2009 and 8 January 2010. The first Newsletter for 2010 will be sent out on Wednesday 13 January 2010.
  

tralac Media Library

Weekly Customs, Excise, Tariff and Trade Remedy Summary Notification

top ↑

News

Poor demand more from rich to unlock climate talks
Developing nations demanded deeper emissions cuts from rich countries, particularly the United States, at the United Nations climate change talks in Copenhagen, Denmark on Tuesday, as a study showed that 2009 is the fifth warmest year on record.

African trade blocs face acid test as review of merger kit starts
The proposed merger of three regional economic blocs (RECs) in Africa is soon expected to face an acid test when member states give views on recently released work plans that seek to guide the process.

Avoid crisis interventions that undercut poor-country industrialisation – Davies
Governments across the globe should avoid the risk of unfairly placing the burden of the economic downturn on the poor and vulnerable who themselves did nothing to cause the crisis in the first place, South African Minister of Trade and Industry Dr Rob Davies said on Monday.

Doha: Developing countries approve of SA’s developmental approach
Developing nations were “pleasantly surprised” by the pro-developmental position adopted by South African Minister of Trade and Industry Rob Davies at last week’s ministerial meeting of the World Trade Organisation (WTO).

Aid for Trade crucial in development
Aid for Trade is crucial in addressing supply side constraints, human and institutional capacity building, and trade-related infrastructure for developing countries, Swazi Minister for Economic Planning and Development Prince Hlangusemphi has said.

Politics and trade go hand-in-hand with EPAs
The Economic Partnership Agreements (EPAs) should be geared to enhance development, decrease dependence, and create a business and legal environment to attract foreign investment, European Commission’s João Aguiar Machado, Deputy Director-General of the Directorate of Trade (DG TRADE) of the European Union (EU), has said.

Brazil wins cotton war but US cuts no subsidies
A recent ruling by the World Trade Organisation (WTO) that will allow Brazil to retaliate against a range of US goods and services has placed the estimated US$5 billion (R37 billion) in subsidies provided each year to American cotton producers under threat.

Developing states cut tariffs on South-South trade
Twenty-two developing countries agreed on Wednesday to cut tariffs on manufactured goods in a bid to boost South-South trade in the absence of progress in the Doha Round.

top ↑

Events

Updated: tralac Annual Conference 2009

The tralac Annual Conference 2009 Report and audio recordings of speakers' presentations are available.  Click here to access the Annual Conference 2009 page on tralac's website.

top ↑

Publications

The World Trade Organisation: an African Perspective, more than a decade later

New book:  The World Trade Organisation: an African Perspective, more than a decade later:   The current Round of trade negotiations is the first 'Development Round.'  Given the challenges of addressing development issues in the context of trade negotiations in the WTO, which is not a development institution, it should not be surprising that the current negotiations are proving extremely difficult.  The WTO remains however the core of the rules-based system of international trade governance, providing also the rules for RTAs that are still growing rapidly, both in number and in scope and coverage.  The WTO was established in 1995 as the institutional anchor of the multilateral trading system.  Since then significant developments have taken place, on the trade agenda as well as in the participation of developing countries in the WTO.  This collection of papers provides an African perspective on the first decade of the WTO.  Substantive trade issues such as agriculture remain, despite their declining importance in terms of overall economic activity even in African countries, of key importance to Africa.  Key issues on the agriculture agenda are not addressed on the Regional Trade Arrangement (RTA) agenda and so the WTO remains the only forum within which to address these.  Africa is still engaging at the margins of the international economy and this collection of papers explores some of the challenges as well as prospects for Africa within the WTO.  Download the book from this webpage...

Measuring the gains from currency union membership in southern Africa

New working paper:  Measuring the gains from currency union membership in southern Africa by Johan Fourie and María Santana-Gallego.  African countries have latched on to growing empirical evidence that creating a currency union may result in large trade gains. This is based on the belief that lower transaction costs would lead to large increases in intra-regional trade volumes, augmenting growth. Yet there is growing evidence that not all countries may benefit from entering a currency union. This paper is an attempt to measure the gains from trade that are realised when entering a currency union. Using a standard gravity framework, we find that countries that decide to give up their currency and adopt an existing one or create a new common currency area stand to benefit significantly from a shared currency. However, these benefits are greater for a select few and the gains in terms of trade will depend on how open the country is and the intensity of trade flows with the other members of the currency union.  Read more here...

Safeguards and trade remedies in the SADC and ESA Economic Partnership Agreements

New working paper:  Safeguards and trade remedies in the SADC and ESA Economic Partnership Agreements by Prof. Gerhard Erasmus, a tralac Associate.  This paper discusses the “Trade Defence Instruments” in the Economic Partnership Agreements (EPAs) currently being negotiated between the European Union (EU), on the one hand, and different configurations of ACP (African, Caribbean and Pacific) countries on the other. These “instruments” cover remedies against unfair trade practices (anti-dumping and countervailing measures) as well as safeguards. ACP concerns about infant industry protection, food security and agriculture are also on the agenda.   Read more here...

top ↑

AGOA.info

Trade data to September has been updated

All AGOA data has been updated on AGOA.info to include September 2009 trade flows. Data to October will be published this Friday. These statistics reveal that aggregate trade between AGOA eligible countries and the US has declined from $50bn to $24bn in the year to September, compared to last year. Much of the decline is due to much lower oil exports from Africa. However, even non-oil exporters like South Africa have seen a decline in US-bound exports, down 42% year-on-year to $1.8bn. While virtually all SADC countries have seen a contraction in exports, one country stands out: Malawi has more than doubled its exports to the US to $53mn. See aggregate export data here,  and AGOA exports at this link.

Other AGOA data includes disaggregated bilateral trade profiles for each AGOA country individually (as well as within various regional configurations), aggregate bilateral trade, preferential trade under AGOA / GSP and sectoral data from AGOA-eligible countries by value and as a proportion of US imports, as well as sectoral “new AGOA” and “GSP AGOA” data. Textile data is available by value and by volume. Clothing export data to August 2009 shows exports of clothing are down 12% year-on-year (clothing exports made from third country fabrics are 9% lower in the current year).  Export data is available at this link .

Bill 4101 

Proposed amendments to AGOA legislation
Bill 4101 was introduced by Sen. Bill McDermott a few days ago, and has been referred to the US Committee on Ways and Means. It is also known as the "New Partnership for Trade Development Act of 2009". Visit AGOA.info for further details.

The recently completed most recent quota period commenced in October 2008 and terminated in until September 2009. October 2009 should be published shortly (official release date is 13 November). Quota utilisation for the full year was 15.7%, and 30.5% under the LDC sub-quota (applicable to the use of third country fabrics). For the new quota year (October 2009 - September 2011, the fill rate for October was 1.2% and 2.33% under the LDC sub-quota. A new overall quota has also been set: details at this link.

Bilateral and regional trade profiles

Bilateral US-Africa trade profiles on a country-by-country basis have been updated. Follow this link  to individual country profiles as well as various regional country configurations. Examples include:
South Africa , Lesotho , Botswana , Namibia , Swaziland , BLNS , SACU , SADC , etc.

Trade acronyms and terminology

Visit AGOA.info's alphabetically-ordered database of trade-related acronyms and terminology

Latest AGOA news

Kenya: Experts fault tax incentives for EPZ companies
Madagascar: Further AGOA eligibility depends on political change

-----

top ↑

Published in: News > Newsletters