SACU, China and India: the implication of FTAs for Botswana, Lesotho, Namibia and Swaziland (BLNS)
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.
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