Regional trade agreements are becoming an increasingly popular trade policy tool in many countries, and SACU/South Africa is embracing this concept with a view to furthering its bilateral trade. However, the negotiating dynamics have become more complex following the introduction of the new SACU Agreement, as South Africa can no longer negotiate in its own right, as was the case with the EU TDCA, but only with the full cooperation and consent of fellow SACU members. This means that the wider SACU perspective needs to be considered in future FTA negotiations. The current study undertakes a close look at the potential bilateral FTA with China, a nation that is itself also enthusiastically embracing the ideas of bilateral FTAs although without actually consummating any; New Zealand became the first country to begin bilateral talks with China late 2004/early 2005, and these talks are still in progress; and in recognition of the need to be in conformity with the new SACU agreement the wider SACU perspective is considered.

The objective of this paper is to analyse the possible implications of this FTA for South Africa. Version 6 of the Global Trade Analysis Programme (GTAP) model has been used to simulate the FTA. The paper outlines the details on the model used and its associated database before providing and then discussing the results of a full FTA whereby all bilateral duties and some NTBs in China are abolished. A limited analysis of alternative scenarios is also considered: the partial FTA of a 50 percent cut in the FTA duties, but with NTBs in China remaining unchanged; a 30 percent cut across the board globally in all duties from Doha round outcome; and combinations of implementing both the full and partial FTAs taking into account this Doha outcome.

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The data analysis in this paper examines South African imports into China and Chinese imports into South Africa. Data through to December 2005 is sourced from the respective countries using the World Trade Atlas data.

During 2005 imports into China from South Africa totalled some US$3,444 million, a figure that increased by 16.5 per cent from 2004. In ‘real’ terms, this represented 0.52 per cent of Chinese global imports, a figure that has been relatively stable over the last ten years. By commodities, the main imports were iron ores ($967 million), precious metals and stones (($957 million), a particular Chinese classification of ‘small lines’ ($462 million) and iron and steel ($427 million). The average duty on these imports was calculated to be 3.45 per cent.

South African imports into China are highly concentrated, with the top ten lines at the HS 2 chapter level accounting for 92.5 per cent of the total trade, and in several of the main imports at the more detailed level (precious stones in particular) these imports held a major share in the Chinese market. Detailed analysis showed that both Australia and Brazil, two countries of potential ‘FTA (Free Trade Agreement) defensive interest’ into China, are major competitors in several important trade lines.

A look at revealed comparative advantage shows that aside from the spectacular growth a remarkable feature of Chinese imports is their domination of the market where they do compete, with most of the textile, clothing, footwear and leather chapters holding a market share of at least 50 per cent. Associated with this are the equally remarkable growth rates to achieve this dominance, as some 97 per cent of the individual HS 4 import lines have increased their market share over the last ten years.

‘Trade chilling’ suggests that there may be potential areas where South Africa could export to China and where an FTA could help. By value the main potential export items from South Africa may be motor cars and aircraft (duties of 15 and 5% respectively), as these are both massive imports into China. Other lines include apples, apricots, pineapples and avocados, chocolate products and processed fish and meats in agricultural goods, titanium oxide and other ores, and some lines of iron and steel and other manufactured products in general.

Finally, an analysis of the so-called intra-Industry trade between South Africa and China shows that, as expected between two developing countries, these index values are low at about the 6 (out of a 100) level. This index compares trade between partners in like-products, and is a feature of trade between developed countries. However, the more interesting feature is that these index values are steadily increasing from very low levels over the last ten years, suggesting an increasing sophistication in the trading relationship.