Feasibility study looks into South American free trade pact

Alan Peat BACKING THE current talks on a free trade area (FTA) between the South American common market grouping, Mercosur, and the Southern African Customs Union (SACU) is a feasibility study currently being compiled by the Department of Trade & Industry (DoT&I). This FTA would form a link between the Mercosur member countries of Argentina, Brazil, Chile, Uruguay and Paraguay, and the SACU grouping of SA, Botswana, Lesotho, Namibia and Swaziland. A main player in the department's compilation of data on the FTA subject is Tsidiso Disenyana, research manager for regional trade relations and development who has just put out a request for private sector input for the feasibility study on two-way trade that is currently being worked on. Impact study But part of the database that is already in place is an impact study compiled by Matthew Stern (a former DoT&I employee) and Christopher Stevens Ð which Disenyana has released to FTW. "Although it was done in 2000," he said, "it still holds since most of trade dimension between SA and Mercosur (specifically Brazil in the impact study) hasn't changed. The two analysts used the database and general equilibrium model of the Global Trade Analysis Project (GTAP) of Purdue University in the US to evaluate the economy-wide impact of a number of different tariff liberalisation scenarios. "The model is a particularly useful one for comparing the relative effects of alternative scenarios," they said. The results suggest that SACU would achieve positive gains from bilateral trade liberalisation with Mercosur. Exports over a 2Ð3 year period would be of the order of 0.2%Ð0.4% higher than would otherwise be the case. "But the gains would be greater from unilateral liberalisation, an FTA with East Asia or even one with the rest of Africa," said Stern and Stevens. "Almost all of the increased trade resulting from bilateral liberalisation with Mercosur arises from the artificial diversion of demand away from favoured to less favoured suppliers - at the expense (in the case of SACU imports) of SA consumers, including producers using imported inputs." They conclude that both the GTAP results and the trade and tariff analysis suggest that the benefits of a free trade agreement Ð specifically with Brazil - are relatively modest. "Whilst a number of important SA export products appear under-traded in Brazil," said the report, "the economy-wide benefits of an FTA are relatively low." According to the analysts, the GTAP analysis raises questions about the priority to be attached to different regions as candidates for negotiating free trade agreements Ð "given that negotiating capacity is bound to be constrained". "The trade and welfare benefits," said the report, "arising out of the scenarios of autonomous liberalisation, free trade with East Asia, or even, in some cases, Africa, are higher than those involving Mercosur. "Moreover, almost all of the export growth to Mercosur is a result of trade diversion rather than creation - whereas in the other cases significant new trade may be created." However, if this FTA is to proceed, the analysts recommended that the following under-traded sectors "should be subject to further research to underpin the most intense negotiations". Amongst SACU imports they highlighted: vehicles and parts; agricultural goods; tobacco and cigarettes; seafood; footwear; wooden furniture; jewellery; and textiles and clothing. And in SACU exports: vehicles and parts; telecommunications equipment; industrial and electrical machinery; fertiliser; newsprint; rubber; plastic containers; and base metals. If you feel that you have something constructive which might make a contribution to the DoT&I feasibility study, you can contact Tsidiso Disenyana at: Tel Ð (012) 310-9935 or (083) 321-2752; E-mail: Tsidisod@dti.pwv.gov.za