South Africa is the largest, most diverse and most sophisticated country in Africa with a Gross Domestic Product (GDP) three times that of Nigeria or Egypt. South Africa’s economic infrastructure dominates Africa though it covers less than 4% of the continent and accommodates less than 6% of its population. South Africa provides more than half of the electricity output of Africa, moves more tonnage through its ports, has more air transport facilities than all the other countries of Southern, Central and East Africa together. The number of motor vehicles at nearly 5 million in that country is more than half of those in the rest of Africa. South Africa has also the advantage of a developed and systematic banking system.
South Africa along with Lesotho, Swaziland, Botswana and Namibia has formed the Southern African Customs Union (SACU) with a common custom tariff policy. Since most of the imported goods enter the sub-region through South African ports, a system of custom revenue sharing is in place. South Africa and India are members of the Indian Ocean Rim Association for Regional Cooperation. South Africa is a member of the World Trade Organisation and has also finalised a free trade and development agreement with European, which provides for gradual liberalisation of the two way trade between South Africa and European Union. South Africa has also signed a Framework Agreement for the creation of a Free Trade Area with Southern Common Market (MERCOSUR).
The level of bilateral trade between India and South Africa is quite low at present. South Africa is not a major export destination for India; neither is the latter figuring in the list of principal trading partners of South Africa. The market share enjoyed by either of them in each other’s market is quite insignificant. Less than one per cent of India’s exports go to South Africa. However, in the last few years bilateral trade between the countries has recorded a double-digit growth rate. During 1998-1999 to 2002-2003, India’s imports from South Africa increased by more than 54% per cent, while exports increased by more than 22 per cent.
The proposal for a bilateral Preferential Trade Agreement between India and South Africa came up for discussion during a meeting between the then Commerce & Industry Minister of India and the Minister for Trade & Industry for South Africa during the latter’s visit to New Delhi in January, 2000.
Following this meeting, Indian Institute of Foreign Trade (IIFT) was assigned to conduct a desktop study for ascertaining the feasibility of entering into a Preferential Trade Agreement (PTA)/Free Trade Agreement (FTA) between India and South Africa. The study found that more than 50% of India’s exports are subjected to a tariff of less than 10% in South Africa and only 33% are facing a tariff rate of more than 20%. On the other hand, 55% of imports from South Africa face high tariffs of more than 20% in India. Only 34% of imports from South Africa are subjected to low tariff of 10% and below. The weighted average tariffs in India and South Africa are 22.89% and 16.35% respectively.
The study concluded that even though the tariff rates are higher in India, the revenue loss that would result from bilateral elimination of tariff is greater in South Africa. The revenue loss in South Africa is projected to be 1.4 times the revenue loss in India. The study also suggested that as South Africa has a moderately large import market, an Agreement with South Africa prima facie is of importance because of its geographical location and membership of sub-regional trade agreements. The study has further suggested that a Free Trade Agreement with South Africa might also include preferential terms for bilateral investments, which may further help in promoting India’s exports in whole of Southern Africa, most of which is landlocked.
Following a bilateral meeting held between Indian and South African delegations in New Delhi in July, 2002, an in principle decision was taken to enter into the negotiation of a Preferential Trading Arrangement (PTA) with a view to deepen the mutual trade and investment flows, between the two countries.
Later on, South Africa sought confirmation whether they can include other partners of SACU for negotiating a Comprehensive Trade Agreement. This suggestion was examined in consultation with the Ministry of External Affairs and the mandate was given to negotiate with SACU as a group and not South Africa individually.
A Joint Working Group was set up to initiate negotiations for a Comprehensive Framework Agreement. The first meeting of the JWG took place in Pretoria on 17-18 th December,2002 and the third meeting of the JWG took place in Windhek, Namibia on 6-7 th September,2004 and the text of the Framework Agreement was finalized. The Framework Agreement provides for a limited tariff concession in the first stage and later on graduating to a Free Trade Arrangement. The negotiations for PTA are to be completed by the end of December, 2005. There is no time frame for initiating the negotiations on FTA. The necessary mandate in this regard will be sought from the cabinet very shortly.
