In assessing the future trade policy options for SACU, China and India’s dramatically increasing role as trading giants on the world scene has to be taken into account in these considerations. The focus in this paper is on how the SACU trading relationships with both China and India may be advanced by the adoption of free trade agreements between SACU (that includes South Africa and the BLNS – Botswana, Lesotho, Namibia and Swaziland) and China and SACU and India. To assist with this analysis the internationally accepted benchmark Global Trade Analysis Project (GTAP) database and the associated general equilibrium model will be used as the analytical tool.

The results for a SACU-China FTA show that both Botswana and the rest of SACU (Lesotho, Namibia and Swaziland as one ‘region’) gain modestly in terms of enhanced welfare. In trade, the direct effects are of less importance than the indirect effects as Chinese imports in particular replace those from South Africa and other sources. For the rest of SACU, the increases in production are greater but they are spread unevenly across sectors. Gains in the production value of ‘other agriculture’, ‘other meats’, textiles and non-ferrous metals (NFM) are recorded, while exports overall decline to South Africa but increase to both China and the rest of the world. Overall imports into the rest of SACU increase by more than exports, with big increases in textile imports from China leading the way.

For the Indian FTA we find that a simulation of comprehensive tariff reform in India is dominated by the massive effects on South Africa’s gold sector, and given the implausibility of this, we have opted for an alternative simulation that holds the Indian non-ferrous metal (gold) tariffs at their initial value. The welfare results are a decline in real GDP of 0.12% in Botswana but a marginal increase of 0.04% in the rest of SACU. For Botswana there are minor declines in output for many sectors but larger declines for apparel, vehicles and their parts, and especially services. Botswana’s import profile shows modest increases from India and the rest of the world that more than displace South African imports. Changes for trade in the rest of SACU are even more modest, with slightly increased exports to India and a richer South Africa just ahead of declines to the rest of the world. For imports, the Indian displacement of South African exports (around $40 million in each case) paves the way for increased imports of $6 million from the rest of the world, giving the final modest increase of $7 million overall. The direct effects of these FTA results are modest, with most of the changes coming about as the BLNS trade with South Africa changes at the margin.

---

Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.

A feature of world trade over the last ten years has been the dramatic growth of China’s trade with the world, and this paper examines the agricultural component of that trade. During the first six months of 2007 agricultural imports were 3.8 percent of total Chinese imports, a figure down from the 6.6 percent during the last six months of 1996. By value, total agricultural imports were US$ 16,459 million during this six-month period, up from US$ 5,030 million in the final six months of 1996. By product the main imports were soybeans (US and Brazil), cotton (US and India) and palm oil (Malaysia and Indonesia).

This paper examines Chinese agricultural imports and provides the profile of selected import sources. It starts with global imports, and then moves sequentially through imports from South Africa, New Zealand, Australia, Chile, Argentina, Brazil, India, US, EU and ASEAN. The reports on the aggregate position for each of these sources, followed by an analysis of the top 15 agricultural products (and then the top-ten fisheries products), and for the individual sources a common template is used whereby data is presented for the first year (ending September 1996) and the last two September year along with their MFN (i.e., non TRQ) tariff rates, market shares, variability of the imports and the main competitors and their market shares. The emphasis of the paper is upon placing the position of South Africa's agricultural trade with China in perspective.

---

Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.

This book presents the output of a tralac project focusing on the trade agenda of South Africa and the Southern African Customs Union (SACU) of which South Africa is a member. The proliferation of Free Trade Agreements (FTAs) is very much part of SACU and specifically South Africa’s trade agenda, since FTAs are negotiated collectively by SACU member states.

The aim of the analysis in this book is twofold. First, the implications of different FTAs that are either being negotiated or being considered, are assessed in the context of the current Doha Round of multilateral trade negotiations. Second, the book presents a sober assessment of trade modelling exercises, noting the value as well as the limitations of these exercises in the making of trade policy choices and negotiating trade agreements.

“This book raises many fascinating policy questions. The authors have systematically built a series of policy scenarios for South Africa and its Southern African Customs Union (SACU) trade partners in order to see what the welfare consequences might be of preferential trading arrangements. The simulations are not only limited to situations in which South Africa and SACU enter into variously configured free trade agreements (FTAs), but they also consider what would happen to these countries if third parties from outside the region were to establish FTAs among themselves.

“We have known for a long time that trade liberalisation will throw up winners and losers, both within countries and, in some circumstances, among countries. Where winners and losers are located within the same jurisdiction, it may be argued that governments have a chance to mitigate the adverse effects of trade liberalisation on disadvantaged groups through the use of various adjustment-related and social policies. But what happens when the winners and losers are different countries? These distributional outcomes may often prove more delicate and difficult to deal with. Multilateral trade liberalisation can have these effects, especially through adverse terms of trade effects associated with reductions in subsidies. One of the things that the preferential trade liberalisation scenarios simulated in this book suggest, however, is that such distributional consequences are likely to occur more frequently under discriminatory trade liberalisation. No easy answer exists to this particular policy challenge, but it is not difficult to see that this may be one reason why we observe ‘herd’ behaviour and burgeoning regionalism around the world.

“Overall, this book makes a valuable contribution to increased understanding of the consequences of various trade policy choices in southern Africa. The authors are to be commended. The real contribution of work of this kind is not so much in specifying what governments should do, but rather where to look for their options and what questions to ask before exercising them.”

Chief Economist, World Trade Organisation

---

© 2007 Trade Law Centre for Southern Africa and AusAid

Publication of this book was made possible by the support of the Trade Law Centre for Southern Africa (tralac) and the Australian High Commission (AusAid). The financial support of AusAid for this project is gratefully acknowledged. The views expressed by the authors are not necessarily the view of any of these institutions.

Readers are encouraged to quote and reproduce the material contained in these books for educational, non-profit purposes, provided the source is acknowledged. Please contact us to obtain authorisation for reproducing this material.

A feature of South African imports in recent years has been the increasing penetration of the market by China and the dominance of this market in sectors where China actively competes. This was vividly illustrated during 2006 when quotas were placed on the importation of Chinese textiles and clothing to protect a domestic section that seems unable to compete even behind significant tariff protection. Conversely, the reported South African exports to China (of mostly ores, steel and fuels) are lower, leading to a trade deficit with China of some $4.8 billion during 2006. This must be tempered, however, by the strong suggestion that exports are massively underreported when Chinese trade data is considered. This data shows a lesser deficit of $1.7 billion – still high, but more manageable.

This paper undertakes a computer simulation (using the Global Trade Analysis Project (GTAP) model) of a possible free trade agreement (FTA) where all the tariffs between Southern African Customs Union (SACU) and China are reduced to zero. This is a standard GTAP model, using the latest database information and a standard set of closure assumptions except in the case of the unskilled labour market. For this market, a closure is used whereby adjustments are made as a function of the unemployment rate in the individual country.

In South Africa, with its extremely high unemployment rate, this is a crucial closure assumption as some alternative closure assumptions show. In contrast with earlier tralac work, this model does not incorporate any non-tariff barrier reductions in the Chinese market, and this reduces the gains to South Africa by nearly half (but increases Chinese gains).

---

Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.

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.

---

Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.

Trade creation is new trade from a Free Trade Agreement (FTA) partner which would not have existed otherwise, and that, generally, is good. But often much of this may be just trade diversion away from other, non-preference partners, and that may be bad – bad in the sense that it has resulted from an artificial advantage under the FTA, meaning that one is not buying from the world’s lowest cost supplier.

Starting from 2005 imports and the 2006 Southern African Customs Union (SACU) tariff schedule and using the standard formulas for this type of analysis we find that the Trade, Development and Cooperation Agreement (TDCA) increases imports from the European Union (EU) into South Africa by some R4.3 billion, but R2.7 billion of this is trade diverted from other sources. Next, simulating the impacts of the Mercosur/SACU agreement as it now stands we found that it has limited impacts upon imports from Mercosur: trade creation of R93 million but diversion of R70 million for an overall gain of only R23 million.

We then sequentially applied the TDCA tariff preferences in turn to China, the US and then India, using the calculated post-TDCA trade flows from all the different import sources. Granting China these preferences increased Chinese imports by R4.1 billion, with R2.4 billion diverted and therefore R1.7 billion in new trade. Then, bringing a SACU/US FTA at TDCA preferences into operation increased the imports from the United States (US) by R0.7 billion, with R0.5 billion of this being trade diversion. Next, granting India the same preferences led to trade creation of R325 million but some R 260 million of this in trade diversion limited the overall increase to only R65 million.

Finally, to ‘level the playing field’ somewhat and examine what a moderate outcome from the Doha Development Agenda (DDA) of the World Trade Organization (WTO) may do we reduced bound tariff rates by 30 percent in all cases except heavy motor vehicles and applied these rates to the imports from all those import sources excluded from preferences to date. The trade creation here was another modest R453 million, but with only R58 million in trade diversion and therefore an overall import increase of R395 million. Thus, a Doha outcome would make limited difference to South Africa’s import profile under these conditions where much (64.75%) of the imports were already entering under preferences.

What is significant with respect to the SACU Customs revenue pool is that this revenue reduces by an estimated 29.7 percent from a non-preference base, and, given that Lesotho and Swaziland rely on this revenue for half or more of their total government revenues, this will have serious consequences for them. Otherwise, at the end of all this creating and diverting, the total imports into South Africa increase by only around one percent. There will, of course, be general welfare effects that ripple through the economy, and these are not considered. As always, several assumptions have been made, and there are limitations to the study that are acknowledged.

---

Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.

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.

---

Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.