China FTA demands careful analysis

Costs to the region’s production capacity must be weighed ALAN PEAT THE PROSPECT of a free trade agreement (FTA) between China and the Southern African Customs Union (SACU) region is one that is creating a lot of interest and discussion, according to Ron Sandrey, an associate of the Trade Law Centre for Southern Africa (tralac). “This marks a shift in the emphasis of SA’s FTA policies,” says Sandrey. “To date, these have concentrated upon the European Union (EU) and the US, both developed countries with markets into which the region already enjoys preferential access, or with developing countries with trade policies similar to SA’s – like Brazil and India.” The former have higher labour costs in their manufacturing sector, while the latter are not internationally competitive in most sectors. But, Sandrey added, China is different, in that it is the world’s benchmark supplier of lower cost manufacturing merchandise. “As always, he said, “in a negotiation there are trade-offs. “This time these are between the enhanced efficiency and dynamic gains that providing preferential Chinese access to the SACU region for manufactured goods will offer, and the similar gains to the region from better access to the Chinese market. This side of the equation is the positive factor. “The negative is the costs to the region’s production capacity and subsequent losses of employment and tariff revenues.” This balance needs to be carefully analysed and fully understood by all parties, according to Sandrey, and the FTA pursued only when the net welfare gain in the form of the positives outweighing the negatives can be demonstrated. For imports, he told FTW, the clothing and textile and the motor sectors are the two remaining sectors that enjoy considerable protection in SA. “China,” he said, “will not pose a significant threat to the auto industry in the short- to medium-term. “But the same cannot be said for textiles and clothing production, where a rationalisation would occur that – while refocusing the sector - will have employment implications. “For the remaining sectors with low or medium protection Chinese exporters are already active in the region.” For exports, SA’s access to the Chinese market is already relatively liberal. Several of the main export lines of mineral or precious metal products are currently facing low or even zero tariffs into China. “Surprisingly, for a Cairns Group member,” said Sandrey, “SA has limited agricultural trade with China, and it is in this sector that others negotiating FTAs with China see benefits from better market access. “Another important export is steel products. But these are trading in a global environment that is very distorted and at best an FTA with China would provide SA with medium-term gains.”