South Africa: Selected Economic Issues

This Selected Economic Issues paper examines economic development in South Africa during 1995–96. The paper highlights that in 1995, the economy of South Africa grew by 3.3 percent, the third consecutive year of economic growth, and it is expected to grow between 3½ and 4 percent in 1996. Some aspects of the unemployment problem are addressed in this paper. The paper also focuses on the implications for policy of the steps taken in 1994 and 1995 to establish an outward-oriented economy, after many years of effective autarky.

Abstract

This Selected Economic Issues paper examines economic development in South Africa during 1995–96. The paper highlights that in 1995, the economy of South Africa grew by 3.3 percent, the third consecutive year of economic growth, and it is expected to grow between 3½ and 4 percent in 1996. Some aspects of the unemployment problem are addressed in this paper. The paper also focuses on the implications for policy of the steps taken in 1994 and 1995 to establish an outward-oriented economy, after many years of effective autarky.

IV. A Free Trade Arrangement with the European Union

1. Introduction

The European Union (EU) has recently offered South Africa a free trade area (FTA) arrangement, involving a reciprocal reduction in tariffs on “substantially all” bilateral trade. This chapter discusses the implications of the offer for trade policy, including its implications for exports to the EU, for South Africa’s trade relations with the Southern African region, its implications for the budget, trade diversion, and for growth, and its implications for the program of import liberalization already underway under the auspices of the Uruguay Round (see Chapter III).

It suggests that the principal economic benefit to South Africa of the FTA is not the preferential access it provides for exporters to the EU market—useful though that is—but its potential role in strengthening the program of trade reform that is already underway. The implications of the FTA for the members of the Southern African Customs Union (SACU) are different from those for the members of the Southern African Development Community (SADC), and specific suggestions are offered to address the different issues raised in each case.

2. Background

The EU has traditionally been the largest market for South African exports. 1/ South Africa’s nongold exports to the EU accounted for about 45 percent of total exports in the 1980s and early 1990s. Major products exported to the EU in 1994 included basic manufactures, foods and beverages, crude materials, and mineral fuels (Table 9). Similarly, over half of South Africa’s imports originated in the EU in the 1980s and early 1990s. 2/ A half of total imports from the EU recorded in 1994 consisted of major machinery and transport equipment (Table 10).

Table 9.

South Africa: Composition of Exports 1970–94 1/

(In Percent)

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Source: TARS data base.

Figures are averages.

Table 10.

South Africa: Composition of Imports 1970–94 1/

(In Percent)

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Source: TARS data base.

Figures are averaged.

Though the EU granted South Africa concessional access to its markets under the Generalized System of Tariff Preferences (GSP) in 1994, the concessions were more limited for agricultural than for manufactured products, reflecting the special concerns of EU agricultural interests. Nevertheless, in January 1995, eligibility of GSP benefits were extended for both industrial and agricultural products, raising the share of all South Africa’s exports—including mineral products—that enter the EU markets duty-free to about 80 percent.

Following the EU’s rejection of South Africa’s request for eligibility under the Lomé Convention in June 1995, 1/ negotiations proceeded on two tracks: bilateral trade negotiations on the one hand, and partial accession to nontrade and aid protocols of the Lomé Convention on the other. In these discussions, South Africa has sought an agreement with the EU that would contain benefits similar to those of the trade charter of the Lomé Convention—complete access to GSP benefits—while the EU has offered a FTA. In March 1996, EU foreign ministers granted a formal mandate to the EU Commission to commence negotiations.

The mandate envisages that the FTA would be phased in gradually: the EU would reduce tariffs on eligible South African exports rapidly over some three years, while South Africa would lower its tariffs on eligible imports from the EU over 10 years, or 12 years in exceptional cases. Once fully phased in, it is envisaged that some 90 percent of total bilateral trade between South Africa and the EU would be free of all duties. The products to be excluded from the FTA (the remaining 10 percent of bilateral trade), and the precise phasing-down of tariffs on goods that are covered by the FTA are subject to negotiation, but the commission mandate envisages that 38 percent of South Africa’s current agricultural exports would be excluded from the FTA. The exclusion of commodities from the FTAs is covered by rulings from the WTO. These issues are discussed in Annex I.

The FTA proposal raises four sets of issues: (i) the impact on South Africa’s access to the EU market; (ii) tariff reductions on EU products imported by South Africa; (iii) the impact of the FTA arrangement on the South African economy; and (iv) South Africa’s trade relations with its neighboring countries. These issues are discussed in the following four sections.

3. Access to the EU market

The FTA would raise the share of South Africa’s duty-free exports from 80 percent to 90 percent or more, with the increases likely to be concentrated in manufactured exports and in some agricultural commodities. Under WTO rules, the negotiators may determine the exact product mix to be covered by the FTA, subject to the constraints that no principal sectors may be completely excluded, and that the overwhelming bulk of bilateral trade is covered.

The EU prefers offering duty-free rates to a broader range of industrial products and will likely seek to increase duty-free coverage for these goods to near complete coverage. In contrast, there is considerable resistance to extending duty-free status to South Africa’s agricultural products, in part because of the precedent such an agreement with South Africa would set in other FTA negotiations already underway involving the EU and other countries.

Given these considerations, the benefits from increased preferential access to EU markets for South African exporters are broadly as follows:

  • The share of South African manufacturing exports to the EU that would enter duty free would rise by some 20 percent. As the EU is targeting a reduction in its tariff for industrial products under the WTO framework—originating from anywhere in the world—to 4 percent, the FTA proposal would exempt a substantial portion of actual and potential South African exporters from this tariff. This benefit would not accrue to those South African products that already enter the EU market duty-free, notably traditional exports—such as precious stones, metals (e.g., gold and platinum), and minerals (e.g., copper and coal)—which account for one half of total South African exports to the EU. 1/

  • As concerns agricultural commodities, the EU foreign ministers agreed to increase the duty-free coverage of agricultural products from a current level of 27 percent to 62 percent. Despite this increase, it is unfortunately clear that the EU is seeking to minimize this access. The scope for doing so is considerable, within WTO rules, because these goods have not been exported to the EU in the past—due largely to the protective regime maintained by the EU. The WTO rules require that the FTAs cover substantially all “actual” trade as opposed to substantially all “potential” trade. This reduces the obligation on the EU to concede preferential access for agricultural goods that were traded in the past under its FTA proposal. For example, maize products, which account for about 45 percent of total field crop area cultivated and about 75 percent of total grain production, are not exported to the EU. In addition, the EU intends to exclude certain agricultural products that have been imported from South Africa. The precise exclusions will be determined in negotiations.

Thus, the FTA proposal as it currently stands will provide additional preferential access to EU markets for some South African exports, notably some manufactures and specified agricultural exports. This access may be enlarged through successful negotiations by the South African officials.

4. Protection against imports from the EU

The FTA would also affect the current trade reform process that began in 1994. It would commit the authorities to further reductions in protection to 2006—if implemented in 1997—whereas the current trade reform set a pre-determined path of tariff reductions until 1999 for most industrial products, 2000 for agricultural products, and 2002 for products in “sensitive” industries.

The FTA is also likely to accelerate tariff reductions on industrial products—particularly manufactured products, as compared with the current trade reform. Under this reform, the import-weighted tariff rate, including zero-rated tariffs, would be reduced from 4 percent in 1995 to 2 percent by 1999 for mining products, and from 12 percent in 1995 to 8 percent in 2002 for manufactured products. These rates would fall under the FTA, particularly in the agricultural sector. Some of the authorities’ targets in this area remain prohibitively high—e.g., 160 percent for bovine boneless meat—and these would fall substantially under the FTA arrangement.

The FTA may also impact arrangements for the “sensitive” industries under the current trade reform, though these could be minimized by scheduling tariff reductions for them toward the end of the 10-12 year phase-down period if they were brought into the FTA process. Imports of textiles and clothing accounted for about 2 percent of total imports from the EU in 1994 while those of motor vehicles and parts recorded about 11 percent of total imports from the EU. Since imports of these products from the EU exceed 10 percent of total imports from the EU, they cannot be entirely excluded from that process. And though they could be excluded in large part, a good case could be made to incorporate them into the agreement to accelerate the restructuring process for those industries.

In addition to setting more ambitious targets for trade reform, the FTA would substantially diminish the degree of discretion in the trade reform process by making a much higher portion of tariff lines subject to ceilings agreed in a formal agreement with an external bilateral partner. Finally, the FTA arrangement would eliminate the tariff escalation implicit in both the WTO and the authorities’ own targets for tariffs.

5. Impact on the South African economy

The Free Trade Agreement (FTA) with the EU would have a number of effects on the South African economy. This section discusses these effects, notably on the budget, on trade diversion, and on economic growth and employment.

a. Loss of fiscal revenue

This agreement with the EU is likely to have a limited impact on South Africa’s fiscal position. In 1995/96, taxes on international trade yielded some 1.2 percent of GDP, or some 5 percent of total revenue and grants. The contribution of these taxes to total revenue will fall in future, irrespective of the FTAt as the current trade reform process unfolds. So the additional loss of fiscal revenue consequent upon the FTA agreement would not be substantial. Nevertheless, this revenue loss will need to be replaced.

b. Trade diversion

The prospect of trade diversion derived from the FTA is probably a more significant economic issue for South Africa than is the question of its fiscal impact. Given that the EU supplies around half of South Africa’s imports, as trade barriers are reduced for EU exporters to South Africa relative to other suppliers, the trade-diverting effects would likely be substantial in South Africa. However, the trade-diverting effects would, of course, be negligible if South Africa phased down its tariffs on non-EU suppliers at the same pace as those facing EU suppliers in the context of the FTA.

c. Impact on economic growth and employment

The current program of trade reform reflects, in part, a consensus that the pre-existing trade regime was impeding growth and employment by protecting inefficient industries, encouraging inward-oriented investment, discouraging nontraditional exports, and by inflating skilled wage rates (see Chapter I). The reform program is deliberately phased so that firms have time to adjust, but seeks to address this fundamental constraint to growth.

The FTA agreement would contribute in two ways to strengthening the impact of the current trade reform on employment and growth. First, as discussed in Chapter III, the high degree of discretion inherent in the current program of trade reform may be increasing the employment and output losses occurring while the trade reform is being implemented. It does this by generating a “wait-and-see” attitude in the affected industries and among potential investors. By reducing this element of discretion, the FTA may reduce these transitional adjustment costs.

However, this reduced discretion still allows for an appropriate phasing of tariff reductions to permit weak industries time to adjust. The protection for those sectors that are ready to face EU competition could be eliminated early in the 10- to 12-year phase-in period, while protection for weaker industries could be eliminated later in that period. But because the phase-down timetable is agreed as part of a bilateral arrangement with an external party, the EU, those industries scheduled later in the process would be more certain that their protection was going to be removed. Hence, these industries would have incentives to commence the necessary adjustment process earlier. Under the current trade reform, such industries may instead have incentives to delay adjustment, and then to resist the scheduled fall in protection. In this way, the FTA would anchor the process of the current trade reform more firmly.

Second, the FTA embodies more ambitious targets for liberalization, albeit phased in over a longer period, than the authorities’ own targets (see Chapter III). Since effective protection will remain considerable in many industries under the authorities’ targets, it will continue to constrain growth and employment through the mechanisms described on page 51, namely, high remuneration of skilled workers, excessive capital intensity in production, and weak export competitiveness. Thus a more ambitious trade reform would raise growth to levels adequate to begin to reduce unemployment.

6. Regional trading arrangements

The implementation of an FTA with the EU would have to be reconciled with South Africa’s various trading relationships with countries in the region, not least in regard to the trade diverting effects of the FTA noted above.

a. Southern African Customs Union (SACU)

South Africa forms SACU with four smaller countries (Botswana, Lesotho, Namibia, and Swaziland). SACU is a customs union established in 1910, which provides for the free movement of goods and the right of transit among member countries. Under SACU, South Africa administers duty collection and distributes shares of the common revenue pool to the four countries according to a revenue-sharing formula.

South Africa’s FTA accord with the EU would impact these countries in a number of ways. It would have negative consequences for them in three respects. First, these countries would lose fiscal revenue—in addition to the losses already inherent in the current trade liberalization process (Table 11). Given these countries’ heavy dependence on SACU customs revenue, the fall in the common revenue pool caused by the FTA would be substantial.

Table 11.

SACU Receipts as a Share of Total Revenue and Grants, and as a Share of Tax Revenue (shown in brackets)

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Estimates or preliminary outcomes.

Based on budget.

Second, these countries are members of the Lomé Convention. South Africa has not enjoyed the preferential access to EU markets accorded by the convention, and so the SACU countries enjoyed a comparative advantage over South Africa as an investment location on this basis. Once the FTA is in place for South African exporters, this source of comparative advantage for the SACU members would be largely eliminated. Finally, these economies would also be directly affected by the increased competitive pressures following the phase-down in import tariffs under the FTA.

At the same time, however, there are substantial benefits for these countries from South Africa’s prospective FTA with the EU. To the extent that the FTA stimulates South African growth, they would benefit from the strength of their principal export market, and from its increased absorption of their migrant labor. In addition, they would benefit from the reduced costs of imports as trade barriers are reduced, and would also become increasingly competitive under the influence of the competitive pressures the arrangement induces.

The FTA arrangement is likely to create significant net gains to these four countries in the long run, but will also; entail short-run adjustment costs. Accordingly, in the context of the negotiations over the revenue-sharing formula, it would be useful to consider how such adjustment costs could be alleviated, including through adjusting the phase-down of tariffs under the FTA.

b. Southern African Development Community (SADC) 1/

SADC was originally established in 1980, with the goals of developing investment coordination in key productive and infrastructural sectors, and reducing economic dependence on South Africa. These goals were transformed in 1992 to a closer and wider economic integration in areas including monetary and fiscal policies, exchange rate and trade regimes, and mobility of capital and labor.

The impact on the (non SACU) SADC countries of the FTA with the EU is different from that on SACU in key respects. In particular, it would have no direct bearing on their own import liberalization programs, or fiscal positions. However, the impact on SADC countries is similar to that on SACU in two respects: namely, the loss of their comparative advantage as an investment location due to their status under the Lomé convention, and the gains to them if South Africa grows more rapidly.

The gains for SADC countries could be substantially enhanced if the FTA occurs in parallel with tariff reductions facing all exporters to South Africa, including those from SADC. The Trade Facilitation Protocol drafted in February 1996 envisages an FTA among SADC member countries with reciprocal tariff reductions, eventually leading to a customs union. Clearly, this process would be strengthened by a South African FTA with the EU, as South African growth rates are stimulated by its wider trade reform program under the auspices of the FTA with the EU.

6. Conclusion

The trade reform under the auspices of the Uruguay Round was substantially motivated by a consensus that protection was impairing South Africa’s competitiveness, and impeding its access to international markets. However, as noted in Chapter III, the reform program leaves considerable room for concessions and discretion, reducing its credibility and effectiveness, and is irrevocably committed to relatively limited goals. Both of these factors may be slowing the adjustment process, and increasing its employment and output costs.

An FTA arrangement between South Africa and the EU, if implemented, could strengthen the current trade reform program. It would reduce the degree of discretion inherent in the reform while still accommodating the variety of needs of different sectors for protection in the phase-down period, and would target more ambitious goals. The former is likely to reduce the adjustment and unemployment costs inherent in the current trade reform program, while the latter will increase its benefits.

By strengthening the competitiveness of South African producers, it will contribute directly to enhancing their access to export markets worldwide. Though EU resistance to wider preferential access for South African agricultural exporters to its markets is highly regrettable, the larger benefit from the FTA is its potential role in increasing access for all South African exporters to worldwide markets by strengthening their competitiveness.

WTO Rules on Regional Trading Agreements

The Most Favored Nation (MFN) rule, depicted in Article 1 of the WTO rules issued in April 1995, obliges each signatory country to extend equally to all other signatory countries any advantage, favor, privilege, or immunity affecting customs duties, charges, rules, and procedures originating in or destined for any other signatory country. Equal treatment of imports regardless of country of origin helps ensure that a signatory country is able to purchase imported products from lowest-cost foreign suppliers, thereby reinforcing the country’s comparative advantage in the world market and minimizing its cost of protection. Such a rule provides regularity, orderliness, and predictability by barring discrimination against imports from particular sources, thereby ultimately contributing to high trade and economic growth.

As the exception to the MFN principle, Article 24 of the GATT allows signatory countries to form customs unions and FTAs with the view that a removal of trade restrictions represents an important step toward free trade, similar to the process of integrating different provinces within a single country. The article provides two main conditions governing such arrangements: a “substantially-all-trade” requirement and a “not-on-the-whole-higher-or-more-restrictive” requirement, 1/

1. “Substantially-all-trade” requirement

The substantially-all-trade requirement aims at mitigating political resistance against tariff reductions and, at the same time, increasing the positive effect of trade creation. It requires participating countries in free trade accords to liberalize most of their mutual trade. 2/ Nevertheless, this requirement could be potentially ineffective provided a signatory country is able to impose duties or other trade restrictions by exercising special provisions as exceptions to the requirement. 1/

Significant differences of opinion exist among signatory countries with respect to the interpretation of the substantially-all-trade requirement. The main difference is whether the coverage of trade liberalization should be understood in qualitative or quantitative terms. Under the former, no major sectors may be excluded, whereas under the latter the percentage of a country’s export value that is free of trade restrictions determines how much the requirement is met.

2. “Not-on-the-whole-higher-or-more-restrictive” requirement

The not-on-the-whole-higher-or-more-restrictive requirement aims at mitigating the effect of trade diversion with a practice of compensation negotiations. Suppose the requirement is not met by participating countries because the level of common external tariff applied to third countries is determined in such a way that each third country’s bound tariff is raised; in this case, Article 28 requires participating countries of a customs union to negotiate with third countries, before a common external tariff is implemented, on a compensatory reduction in tariffs on other products.

However, the requirement does not necessarily achieve its goal of reducing trade diversion, since trade diversion may increase if tariffs on some products are raised in exchange for a reduction in tariffs on other products. If the requirement includes a reduction of external trade barriers, it could be said that the requirement is likely to reduce the scope for diverting efficient producers in third countries to inefficient producers in participating countries. Therefore a desirable requirement on customs unions and FTAs would be for customs unions to set the common external tariff to the lowest (or lower) tariff of any union participating country, and FTAs simultaneously to reduce external tariffs in line with internal trade barriers.

There are diverse views on the interpretation of the requirement. The common external tariff could be calculated by several different methods, such as simple averaging, trade-weighted averaging, or alignment at the lowest tariff. A related issue is whether it is necessary to examine the effect of increases in tariffs on a country-by-country and product-by-product basis, for the purpose of making a comparison between ex ante and ex post market access opportunities of third countries. For example, in the formation of the Treaty of Rome in 1957, third countries argued that participating countries in the EEC should not raise barriers to the trade of any individual third country. However, the EEC member countries used an arithmetic average by refusing to discuss the best method of calculation since they viewed that the requirement, was satisfied. They interpreted the requirement as applying to third countries as a group rather than individually, and as enabling the EEC to raise trade barriers in one sector provided those barriers are reduced in other sectors.

The Southern Africa Customs Union

In 1969, SACU revised its original agreement of 1910, as Botswana, Lesotho, and Swaziland (hereafter called BLS) became independent. The objective was to increase their shares of regional imports. The agreement was renegotiated again in 1979, and further negotiations are underway. Namibia, which had been administered by South Africa as part of SACU, joined the union as an independent country in 1990. Member countries of SACU are characterized by the substantial differences in the stage of economic development between South Africa and the four other countries, hereafter called BLNS countries (Table 12).

Table 12.

Economic Indicators of Member Countries of SACU

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Source: Industrial Development Corporation, 1995; and World Development Report, 1995.

The 1910 SACU agreement stipulated that manufactured goods were freely transferred between South African and BLS countries. BLS countries received a fixed share of SACU customs revenue on the basis of a three-year average of customs and excise revenue shares of the respective countries prior to the agreement.

In the early 1950s South Africa adopted a policy of import-substituting industrialization and introduced a number of trade restraints. Under the 1969 SACU agreement, South Africa agreed to compensate smaller member countries by increasing the share of SACU duty revenue allocated to them by 42 percent. Compensation was based on the grounds that South Africa’s exclusive role in determining the common external tariff, through protecting South African industries, had polarized SACU member countries to the detriment of BLS counties. Compensation also took into account disadvantages of BLS countries, including price increases as a result of importing more expensive South African products, a loss of fiscal discretion because of South Africa’s retention of tariff-sharing power for the region, and South Africa’s use of nontariff barriers.

The revenue-sharing formula was modified in 1976 when a stabilization factor was introduced to counteract variations in payments, resulting from changes in South Africa petroleum tariff and excise policies. 1/ The stabilization factor was centered on a mean of 20 percent of imports, with a lower bound of 17 percent and an upper bound of 23 percent of the tax base, which was the sum of duty-inclusive imports (on a c.i.f. basis) and excise tax-inclusive value of goods produced in the union and consumed in a particular BLNS country.

Any member of SACU may leave the arrangement with 12 months’ notice. The consequences of an abrupt termination of the SACU agreement would, however, be serious for all of the BLNS countries because of their heavy reliance on SACU receipts as the main source of fiscal revenue.

The Southern African Development Community

Member countries (Table 13) of the SADC are diverse and stand in different stages of economic development. Gross- National Product (GNP) per capita ranged from US$90 (Mozambique and Tanzania) to US$3,030 (Mauritius). Mauritius and BLNS (listed in Appendix II) are relatively small in terms of population (1-2 million people), while their per capita incomes are higher than other member countries. South Africa is by far the dominant economy within SADC. South Africa accounts for 21.4 percent of total SADC area and 46.6 percent of total SADC population. Compared with other member countries in 1993, South Africa’s GNP was 4 times higher and its GNP per capital was 7 times greater (Holden 1995). South Africa’s relative prosperity as opposed to the dearth of development elsewhere has created large-scale migration flows to South Africa (approximately 350,000 permanent workers and another 1 million workers entering illegally or as temporary laborers in one year). 1/ South Africa’s fear of further massive migration explains in part its efforts to participate in regional economic development projects.

Table 13.

Basic Economic Indicators of Member Countries of the SADC

(excluding SACU member countries)

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Source: Industrial Development Corporation, 1995; and World Development Report, World Bank, 1995.

SADC is characterized by the fact that economic performance of SACU member countries has surpassed that of the rest of SADC, except Mauritius. The latter countries experienced prolonged economic recession with declining GDP per capita during 1980–93. Slow economic recovery of these countries suggests that the role of SADC in improving their economic performance has been limited because of their difficult problems, including macroeconomic fragility, large external debt, and balance of payments problems.

The Trade Protocol, which was drafted in February 1996, envisages a formation of an FTA. The Protocol aims at reciprocally reducing import duties and removing import controls. However, a number of articles allow member countries to suspend these obligations when a member country (a) wants to protect their infant industries (Article 16); (b) faces a sharp deterioration of balance of payments (Article 17), and (c) experiences a substantial increase in imports, causing serious injury to a domestic industry (Article 18). This draft Protocol was discussed by executive senior officials of SACU member countries in April 1996, and will be discussed by the SADC Council of Ministers at the end of June. The draft Protocol is planned to be finalized by the end of August 1996.

The FTA formation in the SADC is likely to accelerate trade expansion, which has become a prominent form of economic interaction within the community. While SACU member countries as a group have consistently been net exporters to the remainder of the SADC member countries, South Africa’s recent political transformation has increased SACU’s exports to the latter from R 1.8 billion in 1988 to R 7.2 billion in 1994. Consequently, SACU countries have become the most important source of imports for non-SACU, SADC member countries. In particular, Zimbabwe accounted for 34 percent of SACU’s exports to the rest of the SADC member countries in 1994, and Mozambique’s share was 24 percent after the end of its civil war. SACU’s major exports to other SADC member countries included capital products (27 percent) and consumer products (34 percent).

Although SACU’s imports from non-SACU, SADC member countries were less pronounced compared with export transactions, SACU member countries increased their imports from the latter from R 500 million in 1988 to R 1.5 billion in 1994. Zimbabwe has been the largest exporter to SACU, accounting for 77 percent of SACU’s imports from the non-SACU, SADC member countries. Major products imported by SACU in 1994 included intermediate products (59 percent) and consumer products (34 percent). SACU imported mainly manufactured products (69 percent), mostly from Zimbabwe and Malawi. Agricultural imports accounted for 30 percent, mostly originating from Zimbabwe and, to a lesser extent, from Malawi and Mozambique.

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1/

By contrast, the share of EU exports to South Africa accounted for only 0.5 percent of total exports in 1994.

2/

However, the share of EU nongold imports from South Africa recorded only 0.4 percent of total imports in 1994.

1/

Under this convention, the EU grants a number of preferential benefits to 70 African, Caribbean, and Pacific developing countries, as follows: unrestricted, non-reciprocal, and duty-free access for industrial products—including coal, steel, textiles, and clothing; duty reductions; and quantitative access for agricultural products. Compared with other forms of EU trade concessions, the Lomé Convention gives greater preference to agricultural products than to industrial goods, because most industrial goods had already been granted zero most-favored-nation tariff rates.

1/

At present, South African nonagricultural exports to the EU accounted for about 91 percent of total exports to that market.

1/

The members of the Southern African Development Community are: Angola, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Tanzania, Swaziland, Zambia, Zimbabwe, and South Africa.

1/

Other requirements include transparent rules of origin, liberal rules of access, and strengthened discipline on the use of anti-dumping action against third countries.

2/

Regional trading arrangements consist basically of four types of arrangement, with differences in the degree of cooperation (IMF 1994). An FTA entails the full elimination of tariff and nontariff trade barriers between participating countries, while each participating country’s trade barriers with third countries are left, in principle, unchanged. A customs union is an FTA that adopts a common external tariff against third countries. A common market is a customs union with provisions to liberalize regional factor movements. Finally, an economic union is a common market with provisions for the harmonization of certain economic policies, particularly macroeconomic and regulatory policies.

1/

Special provisions include Article 11 (quantitative restrictions), Article 12 (restrictions applied for balance of payments purposes), Article 13 (nondiscriminatory administration of quantitative restrictions), Article 14 (exceptions to the rules of nondiscrimination), Article 15 (exchange arrangements), and Article 20 (general exceptions).

1/

Customs duties refer to levies on imports from outside the union, while excise duties are levies on products produced within the union. The formula used for allocation of SACU duty revenues to BLNS countries is expressed as follows:

(1)r1=R/(M+P);(2)r2=r1*1.42(3)r3=0.2±0.5(0.2-r2)where0.17£r3£0.23(4)A=(m+p)*r3(5)St=At-2+(At-2-At-4)+(A*-At-3)

where R=customs and excise duties paid into the Consolidated Fund; M=duty-inclusive value of dutiable imports (c.i.f.) from outside the SACU; P=duty-inclusive value of dutiable domestic production consumed within the SACU; r2=compensated average rate of duty; r3=stabilized average rate of duty; A=accrued revenue share; m and p defined in the same way as M and P, although referring to a country concerned; St=actual revenue share in year t; A*t-3=actual share in t-3 using data available and At-3=the first estimate as calculated in t-1.

1/

See African Development Bank (1993).