Sacu expects deal with India by end of year

But agreement ‘unlikely’ to have major effect on trade in its current form, writes Nick Hedley

NEGOTIATIONS between the Southern African Customs Union (Sacu) and India on a preferential trade agreement have “gathered momentum” and a deal is expected by the end of the year or early next year, according to Indian high commissioner to SA Virendra Gupta.

Mr Gupta made the remark at a trade exhibition in Midrand two weeks ago.

SA is waiting for the implementation of a Sacu trade agreement with Mercosur — a bloc representing South America’s largest economies. The agreement was signed in 2009 but is still awaiting ratification by some members.

However, the agreements were nothing to get overly excited about, according to Catherine Grant, programme head of economic diplomacy at the South African Institute of International Affairs. She says it is “very unlikely that there will be any significant impact on trade” if these agreements are put in place in their current form.

A 2009 estimate showed that only about 12% of trade with Mercosur countries would be covered by the agreement, Ms Grant says, adding that SA is “missing an opportunity to address the real issues” on trade with India.

Ms Grant says the lengthy time involved in ratifying the SacuMercosur agreement could make SA’s agreement with India even more significant.

Although India

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SA’s services and investment industries have shown strong interest in trading, the preferential trade agreement does not account for them, Ms Grant says.

Some local industries will also find challenges in trading with India as it is a “highly regulated” market, and reducing tariffs will not address these concerns.

On the other hand, SA is a more open market and more easily accessible to Indian companies.

“It would be misleading to say the agreements will have any real significant economic impact,” Ms Grant says.

Where SA would benefit, however, was in closely looking at and learning from other countries’ trading regimes, she says.

The preferential trade agreement with India has already met with opposition from SA’s chemical sector. In May, Chemical and Allied Industries Association chairwoman Laurraine Lotter said chemical imports from India and China were a growing problem for the local industry, which employed half of the workers in SA’s manufacturing sector.

Dr Lotter said these countries often dumped the tail-end of their products at low prices into smaller markets like SA.

SA’s trade balance with India has turned into a deficit over the past year.

In the first four months of last year, which was the period before SA’s first Brics summit, the country exported R331m more than it imported from India. But, over the same period this year, SA has recorded a trade deficit of R2.5bn with the country.

Over the past year, SA has signed a number of trade agreements and more negotiations are still under way.

The government concluded a trade agreement with Thailand to establish a new export market for citrus fruit, effective from the end of May. SA also signed a bilateral trade agreement with Switzerland last month.

But in November last year, the Cabinet rejected Turkey’s proposal for a free trade agreement because of the fragile state of SA’s clothing and textile industry, saying the agreement would not be mutually beneficial but instead encouraged “destructive competition”.

Local wine producers have urged SA to consider a trade agreement with China.

Perfect Wines of SA chairman Hein Koegelenberg said at a wine exhibition in Hong Kong in May that this would allow SA to make inroads into one of the fastest growing wine-consuming countries.

SA has a free trade agreement with the other Southern African Development Community (Sadc) members, and a free trade agreement with the European Union (EU). A review of the agreement with the EU has been under way for some time under the economic partnership agreement negotiations taking place between Sadc and the EU, and is aimed at “broadening the scope of product coverage”, according to the Department of Trade and Industry.

Sacu is implementing a free trade agreement with the European Free Trade Association that includes Iceland, Liechtenstein, Norway and Switzerland.

A tripartite free trade area agreement involving 26 countries is also being negotiated by the Sadc countries, the East African Community, and the Common Market for Eastern and Southern Africa.

A trade, investment and development co-operation agreement between Sacu and the US is also being negotiated.