Conducta posterior a la compra

The objective of this study has been mainly to look at the concerns of SA if it were to scrap the TDCA and join the free trade arrangement of the SADC EPA along with 5 other South African neighbours. Since the SADC EPA is likely to come into force the issue is whether there are any serious economic costs to SA of

staying outside the SADC EPA. Our analysis of traditional trade creation and trade diversion effects of FTAs indicates that the economic costs are likely to be limited. In particular, SA trade with its SADC5 neighbours is largely vertical in that SA exports industrial goods to these countries in return for inputs like energy, cotton and precious stones. Hence, expansion of SA trade with the EU could actually boost its regional trade subject to supply constraints.

In its trade with the EU, SA faces little competition from the SADC5 countries. The SADC5 countries mainly export minerals, precious stones and agricultural products like fruits and sugar to the EU. It is only in Aluminium that SA exports are in competition with Mozambique. However, the EU market is large enough to accommodate both countries exports and SA could actually benefit from the tariff advantage in the SADC EPA.

There are some possibilities of trade diversion for SA as the EU gets better access to its markets under the SADC EPA. It could therefore end up importing from EU what it was earlier importing from the rest of the world at lower cost. However, our study shows that two commodities where these fears are reasonable are medium sized vehicles and parts of such vehicles. These could easily be accommodated under the exclusions permissible under preferential agreements.

There are some fears in SA of market disruption as EU gets access to its domestic market. However, this is also true for the tariff reductions for SA under the TDCA which are backloaded to the end of the transition period of the TDCA. In any case, under the SADC EPA the transition period for the SADC5 countries

ends between 2020 and 2023. Hence, SA could benefit from the SADC EPA by postponing its tariff reduction commitments under the TDCA from 2012 to a later date.

In general, the traditional economic costs of SA switching to the SADC EPA are very limited. Our analysis of the economic benefits to SA indicates that the main tariff benefits in switching to the SADC EPA seem to lie in agricultural exports to the EU. However, here supply constraints in SA are crucial and it is probably necessary to look at less land intensive products. One must also keep in mind that the SADC EPA is unlikely to offer the same benefits to SA as to the other SADC5 countries. Such similar treatment is likely to be resisted by the agricultural producers in Europe. However, our analysis also indicates that there is not much economic basis for such differential treatment as there is little competition among the SADC 5 countries and SA in agricultural products which cannot be accommodated by the EU market without serious market disruption.

The study of the rules of origin of the two agreements indicates that the differences in the two are limited to cumulation. The SADC EPA goes beyond diagonal cumulation to allow for cumulation for non-originating products. This is closer to full cumulation. However, this is probably necessary to accommodate the smaller economies like Lesotho which otherwise might never be able to satisfy the origin critieria. In addition, the SADC EPA also extends to overseas territories of the EU which is not the case in the TDCA.

Third, a simple econometric exercise of SA’s exports to the EU indicates that the TDCA per se has not been of any specific advantage to SA’s main exports which seem to be constrained more by supply side issues in SA and demand factors in the EU. The tariff advantages of the TDCA thus seem limited.

The main SA concern seems to lie in the political costs. Of this an important cost lies in Article 28(7) of the SADC EPA which restricts SA’s freedom to conclude other FTAs with non-EU major trading countries defined as those with share of world merchandise trade of more than 1 percent. This would certainly constrain SA’s ability to conclude agreements with countries like Brazil, Russia, China and India. SA’s partnership with these countries has become an important part of the political economy of multilateral agreements at the WTO and more recently in multilateral climate negotiations.

The main benefit of a switch to the SADC EPA seems to lie in enabling SA to proceed with its regional trade agenda. This has an important political dimension. However, here either the TDCA would have be harmonized with the SADC EPA (and thus become irrelevant) or rules of origin would have to be so defined to make regional FTAs difficult to implement.