The welfare impact of a free trade agreement between SACU and Mercosur

Abstract A free trade agreement (FTA) between SACU and Mercosur would be significant globally, as it would be a truly “south-south” relationship between three of the developing world's emerging agricultural powers, namely Argentina, Brazil and South Africa. In this article, the GTAP database and the associated general equilibrium model is used to assess the potential welfare and trade gains from such an agreement. The results show that there are comfortable welfare gains for South Africa derived from a better use of land, labour and capital (enhanced allocative efficiency); increased net investment increasing the amount of capital employed in the economy; and a small contribution from increased labour employment. These gains are negated somewhat by terms of trade that go against South Africa. However, an FTA with Mercosur is not good for the South African agriculture sector. Imports of agricultural products increase dramatically, mostly in terms of increased imports of secondary (processed) agricultural products. Export gains are modest, but are largely from trade creation rather than trade diversion. Furthermore, there are marginal reductions in the prices of all agricultural products, which benefits consumers but harm producers. Overall, the FTA is bad news for South Africa's commercial farmers. Whether small-scale and emerging farmers benefit depends on whether they are food deficit or food surplus producers.

[1]  N. Vink,et al.  SOUTH AFRICA'S way ahead. Looking East. , 2009 .

[2]  C. Adjasi,et al.  Trade policies and development in Africa: The Doha Development Agenda, the EU EPAs and ECOWAS , 2008 .

[3]  L. Nilsson,et al.  The Economic Partnership Agreements (EPAs), services liberalisation and trade in goods: Examining the missing link , 2008 .

[4]  B. Dimaranan,et al.  The COMESA Customs Union: A Quantitative Assessment , 2008 .

[5]  Marco Fugazza,et al.  A South South Survival Strategy: The Potential for Trade Among Developing Countries , 2008 .

[6]  D. Laborde,et al.  An Impact Study of the EU-ACP Economic Partnership Agreements (EPAs) in the Six ACP Regions , 2008 .

[7]  T. Hertel,et al.  Impacts of trade reform: sensitivity of model results to key assumptions , 2008 .

[8]  E. Valenzuela,et al.  Distortions in farmer prices since the 1950s: South Africa in international perspective , 2007 .

[9]  J. Guilhoto,et al.  Who in Brazil Will Gain from Global Trade Reforms? , 2007 .

[10]  Marco Fugazza.  A new geography of preferences for Sub-Saharan African countries in a globalizing trading system , 2007 .

[11]  K. Anderson,et al.  Do Global Trade Distortions Still Harm Developing Country Farmers? , 2005 .

[12]  Antoine Bouët,et al.  A Consistent, Ad-Valorem Equivalent Measure of Applied Protection Across the World: The Macmap-Hs6 Database , 2004 .

[13]  T. Hertel,et al.  How Confident Can We Be in Cge-Based Assessments of Free Trade Agreements? , 2003, GTAP Working Paper.

[14]  T. Hertel,et al.  Disaggregating Labor Payments by Skill Level in GTAP , 1998, GTAP Technical Paper Series.

[15]  H. Kameyama,et al.  Impacts of free trade area (FTA) within Eastern and Southern Africa countries and unilateral tariff elimination by other regions , 2008 .

[16]  Marco Fugazza,et al.  A South-South Survival Strategy: The Potential for Trade Among Developing Countries , 2006 .

[17]  Robert McDougall,et al.  Global trade, assistance, and production : The GTAP 5 Data Base , 2002 .

[18]  T. Hertel,et al.  DECOMPOSING WELFARE CHANGES IN THE GTAP MODEL , 2001 .

[19]  J. Francois,et al.  Liberalization and Capital Accumulation in the GTAP Model , 2000, GTAP Technical Paper Series.

[20]  E Windisch,et al.  [South Africa]. , 1976, Osterreichische Krankenpflegezeitschrift.