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India-Brazil-South Africa: The southern trade powerhouse makes its debut

Council On Hemispheric Affairs

Monitoring Political, Economic and Diplomatic Issues Affecting the Western Hemisphere

Wednesday, March 15, 2006


India-Brazil-South Africa: The Southern Trade Powerhouse Makes its Debut

- New alliance of regional giants slowly gains strength
- India, Brazil, and South Africa (IBSA) spearheads south-south co-operation
- IBSA presses issues of poor nations’ development in WTO and UN debates
- Economic cooperation remains the largest challenge
- Only another elite debating society?

In the face of mounting pressures to develop an alternative option to globalization-one that emerges from a developing world perspective and prioritizes egalitarian advancement, technological cooperation, and an end to global marginalization of the poor nations-there has been a new push to redefine political and economic arrangements springing from Bretton Woods. One component of these many recent initiatives is the idea of south-south cooperation. This southern perspective, while not a new concept, has by no means even been partially realized.

The fostering of transatlantic links between South Africa and Latin America began in the post apartheid period with the creation of the Zone of Peace and Cooperation in the South Atlantic (ZPCSA) in 1986, and recently, steps have been taken to vitalize this incipient southern alliance. The foundation for this was set when the leaders of three regional goliaths, India’s Vajpayee, Brazil’s Lula, and South Africa’s Mbeki spearheaded a new approach to south-south cooperation at the 2003 UN General Assembly Forum, resulting in a trilateral India-Brazil-South Africa agreement.

These countries have initiated a dialogue based on mutual enrichment for the developing world, and are increasingly prioritizing the entrance of developing countries into the competitive world market through loosening their bonds with the U.S. and other rich nations, while forging stronger ties amongst themselves. Yet, IBSA is still merely an infant body that has yet to even fully tally up its objectives. Although, politically it boasts the outline of a bold international stance, IBSA’s future viability relies on its reaching beyond moral and symbolic congruencies to enter into bold trade and technological cooperation ventures among themselves and other developing societies.

Conceptualizing IBSA
A trilateral agreement seems like a logical step for countries that are preparing to go beyond merely committing themselves to amplifying their emotional, political and historical relations. South Africa and Brazil had shared similar histories of racial tension, inherent inequality, and abnormally high Gini indexes (Brazil is currently sitting at 59.7 [2004 est.] and South Africa at 59.3 [1995 est.], based on a scale from 1 to 100, with 100 marking the most economically unequal society). South African and Indian relations date back at least to Mahatma Ghandi’s work for the rights of indentured Indian laborers sent to South Africa a century ago, India’s support of South Africa’s long struggle against apartheid, and the development of the Indian National Congress, with its important solidarity links to the African National Congress (the dominant South African party today). Furthermore, an existing bilateral preferential trade agreement between the South African Community (SACU) and South America’s MERCOSUR (which is now being expanded to encompass liaison connections between India and MERCOSUR), along with a strong legacy of trade between South Africa and India, make for an increasingly important partnership.

IBSA as a Political Cause
The initial purpose of IBSA was to create a loose alliance that could present a cohesive voice at the bargaining sessions anticipated for the Doha Rounds, and which would exert pressure on the rich nations in order to achieve common positions in UN Security Council deliberations. IBSA has further amplified its presence in an annual dialogue involving the foreign ministers of India, Brazil, and South Africa to discuss the development issues and the possibility of joint approaches in dealing with the Eight Millennium Development Goals, which the IBSA members actively support.

The foreign ministers of India, Brazil, and South Africa attended the first IBSA Dialogue Forum, held in New Delhi on March 4 and 5 of 2004. Issues addressed included social development, disarmament, infrastructure, health care, sustainable economic development, and poverty alleviation. The ministers supported the integration of bilateral preferential trade agreements among the three members into one trilateral agreement, stressing the goal of mobilizing multilateral processes in the globalizing world that could be seen as sympathetic to the south.

The second IBSA Dialogue Forum, held in Cape Town on March 10 to 11 of 2005, reaffirmed the issues presented in the first dialogue and focused on IBSA’s potential influence on the global political and economic scene. At Cape Town, the ministers discussed the need for UN reform, equitable WTO treatment of developing nations, south-south political cooperation, development, and economic integration. Environmental issues such as sustainable development and mobilizing an integrated response to issues such as climate change were revisited, as were geopolitical factors such as the non-proliferation of weapons of mass destruction and terrorism. Poverty alleviation also remained of great concern for the ministers, who pledged to donate modest contributions to the IBSA development fund to support projects aimed at improving living standards. And while the financial heft of this fund remains relatively inconsequential, its symbolic meaning, following the trend of IBSA itself, is quite substantial. The third meeting was scheduled for this month, and its outcome will hopefully give a clearer indication of the organization’s future path.

Since its inception in 2003, IBSA has progressed from a loose partnership constructed mainly to address political issues in macro terms, to a functioning alliance that seeks to discuss and resolve specific worldwide questions prevalent among developing countries. These include the growth of democracy, disarmament, environmental sustainability, and maritime ties that have emerged as some of the principle agenda items for discussion among the three nations. Garth le Pere, Director of the Institute for Global Dialogue, and Lyal White, Latin American researcher at the South African Institute for International Affairs (SAIIA), claim that the “common challenges of poverty alleviation, economic development and social equity” hold the coalition together. In fact, soon after its inception, IBSA partnered with the UNDP to develop a trust fund to financially back the goal of worldwide poverty alleviation. Meanwhile, we are witnessing the slow but very important institutionalization of that body.

IBSA’s three members are universally seen as being the principle powers in their respective parts of the world and are, therefore, in a position to comprehend their weaker neighbors’ needs in current trade deliberations. Although IBSA’s goals are similar to those of organizations like the G20 and G77, it has the potential to act more effectively, as decisions will be debated among three countries, rather than twenty, or even seventy. In an interview with COHA, Derek Moyo, Deputy Chief of Mission at South Africa’s Washington DC embassy, stressed that IBSA is a much more efficient body than larger forums, and may have a greater capability to impact the UN Security Council by playing a balancing role against that body’s five permanent members-the U.S., China, France, the Russian Federation, and the U.K.

Barriers to a Single Market
IBSA, as a unifying factor in the international community, has performed well in the political arena, effectively negotiating at various trade summits. However, the trilateral agreement has yet to achieve critical mass in the institutionalization process. While IBSA possesses substantial symbolic heft, more concrete achievements must be made in its future. Although India, Brazil, and South Africa share bilateral trade agreements amongst themselves, binding trilateral free trade arrangements between the countries are not an option at the present time because of previously signed multinational agreements involving their neighboring nations. Organizations such as SACU and MERCOSUR prohibit individual members from forming a free trade agreement with any outside nation without extending the newly expanded free trade area and its benefits to other existing members.

Existing restrictions on imports and tariffs are quite high; for example, Brazil imposes a flat 60 percent tax on all manufactured imports. Additionally, Argentina, a MERCOSUR partner, is apprehensive of South Africa’s wine industry flooding the South American market. In Moyo’s opinion, opening up trade within IBSA would be beneficial overall, but would require a long and intricate process of targeted negotiations to reassure the security of existing business interests within each nation. If, in the future, the IBSA countries decide to create a broadened free trade agreement, it may come to fruition in the form of a multilateral SACU, MERCOSUR, and ASEAN agreement. According to the SAIIA, IBSA encompasses a total population of 1.3 billion people and an economy of $1.26 trillion. The above numbers would be only a fraction of the potential combined population and economy that would come into existence if current regional blocs were incorporated into one gigantic grouping. However, at this time, the foundations for such a move are shaky at best, and it appears unlikely that a larger south-south alliance will be permitted to emerge at this point.

Impediments to Bloc Building
There have been no trilateral free, or even preferential, trade ties among the three members. In fact, South Africa’s trade with Brazil comprises only 2 percent of its total foreign trade. One research institute from each country-the SAIIA, the Indian Consumer Unity and Trust Society (CUTS), and the Brazilian Institute for International Trade-have been entrusted with the responsibility of conducting research and compiling reports for their upcoming summit addressing the benefits and repercussions associated with openly linking the members’ economies into a single market. This project has included a survey of public and private sector responses to a possible trade pact. Some claim that there is a lack of communication between public and private sectors with respect to IBSA’s ability to significantly affect the current markets. Moyo explains that, when discussing a trade arrangement, there are always certain sectors that will protest relaxed trade barriers for self-serving reasons. For IBSA to expand into complex trade relationships, business sectors located in the three countries will have to be prepared to cooperate with each other in creating rationalized trade arrangements that could prove mutually beneficial.

Furthermore, South Africa significantly trails the other two countries in exports, especially those relating to value-added commodities. In fact, export flows from MERCOSUR to South Africa are five times larger than the reverse, and, specifically with Brazil, South Africa’s trade is at a disadvantage of one to four. Although South Africa’s per capita income tops India’s and Brazil’s, its economy is less than one-third the size of other two. Additionally, South Africa’s total trade at $70 billion is around $60 billion less than either India’s or Brazil’s. Moreover, South Africa faces other trade disadvantages with both of its partners, from an economic as well as an efficiency standpoint. However, Moyo claims that opening the borders of the three countries will help South Africa to catch up in its manufacturing sector. He acknowledges that “their export packages have more manufactured goods than ours...and ours is still predominantly made of minerals...[but] it is that dynamic that we want to change...because it’s companies that do business, not governments.” Some international business specialists maintain that South Africa has the greatest potential to benefit from the export of its agricultural products, auto parts, and chemicals. But as of yet, IBSA’s economic components have been built on existing bilateral agreements some at the encouragement of the three countries’ business sectors, which have met such integration prospects with enthusiasm.

Current Initiatives
While a preferential trade pact in the near future is still far from certain, IBSA nevertheless has made strides elsewhere. In the tourism industry, many are seeing the idea of IBSA’s existence as providing a compelling opportunity and a strong selling point. According to Nalini Gupta, head of the South African Airlines (SAA) branch in India, regional airlines are looking into tri-destination travel packages, and SAA is already expanding its flights among the three nations.

At the beginning of March, IBSA agreed to forge cooperation in the agricultural sectors and technology. The Indian daily, New Kerala, states that the two-day trilateral discussions held last month produced an agreement to work collectively on agricultural issues such as “germplasm exchange and enhancement; research and technology including plant breeding for sustainable food production; nutritional and environmental security; use of frontier technologies for livestock and poultry health management, and breeding quality improvement; efficient management of natural resources; technology transfer-capacity and competence building; fish augmentation of productivity and value addition through processing and small farm mechanization and agro processing tools and techniques.” At the meeting, a draft of an official agricultural cooperative agreement was circulated and will be voted upon by the three governments in this month’s annual IBSA summit.

Agriculture has always been a sore subject for developing countries, mainly because of Washington’s insistence on maintaining its federal subsidy program. Developing countries have suffered an estimated $100 billion in annual loses due to limited sales resulting from the developed countries’ agriculture subsidy programs. IBSA has helped to lead the fight against such inequalities, taking strong stances over the issue at WTO meetings. In negotiations last October, the U.S. for the first time, agreed to consider lowering its agricultural subsidies after years of pushing the EU to lower theirs. At an IBSA colloquium on October 2005, Satyabrata Pal, India’s High Commissioner to the organization, expressed IBSA’s potential ability to influence the path of the Doha Round. He claimed that “we were able to make [a] common cause in the Doha Round of WTO talks, and that made it impossible for the EU and U.S. to force on the developing world a deal cobbled together between them.” IBSA, along with the G4 (comprising India, Brazil, South Africa, and China) and the G20, has been instrumental in an effort to develop a “middle ground” on trade negotiations. And it seems to be determined to continue along this path, as demonstrated by Minister of State for External Affairs Anand Sharma’s visit to Brazil earlier last month to further discuss proposed UN reforms.

What does the future hold?
Unique as a transcontinental agreement among several far-flung members of the developing world appears to be, IBSA seems to have less common political ground than your average regional organization. However, the three countries have linked what they do have in common, namely socio-economic conditions and political positions within their respective regions, to promote their internal strengths. In order to tailor a mutually beneficial framework, IBSA can be effective if the organization focuses on commonly held issues and works to realize goals within spelled-out categories. IBSA has been, and will likely continue to be, an increasingly successful political format representing the interests of these three emerging regional behemoths with worldwide responsibilities.

Satyabrata Pal admonishes his listeners that IBSA should not be merely another “diplomatic debating society.” However, its expansion into being a transcending factor in global trade seems to be some distance off, as a preferential trade agreement will have to be negotiated, not just between the IBSA countries, but among their likeminded counterparts in other free trade relationships as well. Overall, IBSA has yet to discover its final identity, and this disclosure will go a long way to determine the future viability of global-south synergy as embodied in IBSA. Yet, the headway that these countries are making is quite impressive. By tapping into interdependency among the most capable states to be found in three southern geographic areas, IBSA is helping to lead relations between the new organization and other developing countries to be found within their respective geographical regions, while working to solve a variety of ills and socio-economic problems plaguing both their immediate and more distant neighbors.

This analysis was prepared by COHA Research Associate Kaia Lai

March 15, 2006

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 source: COHA