Following a comprehensive examination of the most recent merchandise trade flows between the relevant countries, this paper uses a computer model to look at the possible economic results from removing all merchandise 

tariff barriers between the three partners of India, Brazil and South Africa/SACU (IBSA). We have ignored the political complication of Brazil also belonging to a Free Trade Agreement (FTA) and we have not modelled the estimation and removal of non-tariff barriers, services trade or some of the more sophisticated but speculative gains from technological change or other dynamic effects. Recent research, some of which is cited in the paper, has highlighted that most of these more elaborate assumptions are misleading to policy makers.

The IBSA agreement is potentially good for all major parties with similar welfare gains of between one to one and a half billion dollars at 2015, but with this translating into larger gains for South Africa when measured as a percentage of real GDP since South Africa has a smaller economic base to work from. The gains to South Africa are spread across the contributing factors of allocative efficiency, labour’s contribution, capital and the terms of trade gains from both (a) better relative prices between exports and imports and (b) more efficient use of capital. The biggest loser in dollar terms is the EU, with all other countries/regions except Nigeria losing. Unfortunately these losers include both Botswana and the Rest of SACU or the model aggregation of Lesotho, Namibia and Swaziland combined, although these losses are not high and may be misleading given that intra-SACU trade and therefore any changes in this trade will not be picked up in the model’s database in view of the poor quality of this trade data.

Another feature of the analysis is that we have used as our base for the simulation a trade picture that includes all the known global updates, and this includes simulating the effects of the Trade, Development and Cooperation Agreement (TDCA) with the EU in such a way that it enables us to isolate these effects from the base. Results from this TDCA simulation suggest that a full and comprehensive IBSA FTA is of greater value (in fact, about double the welfare gains) to South Africa than the partial TDCA as it now stands. This is mainly because (a) South Africa faces manufacturing tariffs that are modest, thus the preferences are not that significant, and, more importantly, (b) South Africa gains little preference into the highly protected European agricultural market from the TDCA. Conversely, for IBSA, South Africa is deemed to have gained comprehensive access into the relatively highly protected Indian market, thus gaining a considerable advantage over global competitors in both agricultural and non-agricultural goods.

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