This summary was prepared by Whitehouse & Associates for the African Resource Network.

The European Union is South Africa’s largest trading partner, accounting for 47% of South Africa’s imports in 1999 and 31% of South Africas exports. The bulk of this trade, 57%, is with Britain and Germany. Nearly two-thirds of South Africa’s exports to the EU consist of raw materials and agricultural products, whilst the import basket consists largely of machinery, appliances, chemicals and other inputs that are used in the manufacturing process.

Following South Africa’s first democratic election in 1994, a new trading era with the EU was ushered in. South Africa was granted Generalised System of Preferences (GSP) status by the EU in response to the country’s transition to a multiparty democracy. This was seen as an interim measure whilst a more permanent arrangement was sought. Following four years of negotiating, a Free Trade Agreement was eventually signed in October 1999. Essentially the agreement liberalises substantially all trade over a period of 12 years. The agreement will see virtually all of South Africa’s non-agricultural exports entering the EU duty-free within three years. Exclusions include textiles and ferro-alloys. Certain sensitive industries such as textiles and agriculture are covered by separate protocols.

The implications of the FTA for South Africa should not be over-estimated. South Africa’s trade regime in general, and with the EU in particular has been substantially liberalised over the last five years in any case. The benefits are not likely to become apparent immediately, and continued EU farm subsidies under the Common Agricultural Policy (CAP), will still impact negatively on South Africa’s competitiveness in lucrative third markets such as the US and Far East. Current dynamics within the EU, and between the EU and her major trading partners such as the US, could see the dilution of the Common Agricultural Policy over the next six years, with possible benefits for South Africa.

Non-agricultural imports from the EU can largely be divided into two categories – machinery and manufacturing inputs, and consumer goods. The former, under South Africa’s World Trade Organisation (WTO) commitments and industrial policy, are largely duty-free already, thus providing only limited savings to South Africa’s manufacturing sector. Consumer goods could benefit from reductions in duty by up to 20%, but the volatility of the rand against major currencies including the euro is unlikely to result in substantial consumer savings once the goods have passed through the import chain. The net effect could be to delay the increase in prices rather than actually lowering prices.

The impact of the FTA on southern Africa is likely to be felt most immediately by the SACU countries. They stand to lose substantial amounts of revenue from the common customs pool, although South Africa is negotiating a new deal at present that would compensate these countries for their losses. It is also possible that countries in southern Africa in general will lose market share in South Africa to cheaper European goods, but it is not possible to quantify this at present. One positive aspect is that they are likely to benefit from cheaper goods, both consumer and industrial, assuming benefits are passed on.