logo logo

Jury still out on costs and benefits of SA trade deal with China, amid fears of severe job losses

Business Day, South Africa, 22 June 2006

Jury still out on costs and benefits of SA trade deal with China, amid fears of severe job losses

Carli Lourens

Trade and Industry Editor

A FREE trade agreement with China would have a drastically negative effect on the clothing and footwear sectors in SA - but the overall economic effect would be positive, says one of the first of a series of studies.

Some of the studies, expected to be released over the next few months, will be commissioned by government.

Clothing imports would increase about 23% while local production would decline 20%, if a free trade agreement that eliminated all tariffs was implemented, says the first study.

It also finds that imports of leather goods, mainly shoes, would increase 40% while local production would fall about 14%. Imports into China from SA totalled $3,4bn last year, a 16,5% increase over 2004. Chinese imports into SA jumped 37%, to $4,9bn, comprising mainly commodities

According to the study’s findings, by nonprofit group Trade Law Centre of Southern Africa (Tralac) in co- operation with the Danish Food and Resource Economics Institute, a free trade agreement “will lift economic growth and welfare in SA modestly”.

The comparable gain to China would also be positive, although relatively small in terms of China’s overall economy.

A number of studies into the effects of a trade pact with China were launched last year after local business raised alarm about potential negative effects of such a deal.

SA and China agreed to negotiate a free trade deal more than two years ago, but talks have yet to start.

In a summary of the study, which is yet to be released publicly, Tralac’s Ron Sandrey maintains that with a full free trade agreement, South African global exports to the world would increase 1% while global imports from the world would increase 2,1%.

Not all are convinced that the overall effect will be a positive one, however, with some saying it could push SA towards deindustrialisation as it would entrench the current colonial trade model of SA sending commodities to China and buying value-added goods from that country.

Duncan Bonnett, a partner at trade consultancy Whitehouse & Associates, says: “At this stage, I don’t think the South African economy overall, in terms of its manufacturing base and job creation, stands to benefit as much as it stands to lose from a free trade agreement with China.”

South African Clothing & Textile Workers’ Union general secretary Ebrahim Patel suggests the effect could be worse than that suggested by the Tralac study.

“The results for the clothing and textiles sectors seem out of line with empirical data,” he says.

“Even without the removal of tariffs, imports from China jumped 110% in 2003, about 107% in 2004 and around 40% last year.”

Patel says Chinese imports also had a severe effect in other sectors, “wiping out” most local production of electronics.

“Growing trading relations with China has had a net loss effect on SA on an employment and social index. Modelling often gets the result spectacularly wrong.”

Trade consultant Danie Jordaan, who is also involved in a series of studies for government, says it is premature to assume there will be job losses as a result of a trade agreement.

“Government has yet to decide whether this will be a free trade agreement or a preferential trade agreement, or whether the clothing and textile sectors will be included at all.”

The findings of the Tralac study, which is a quantitative analysis using the Global Trade Analysis Programme, are based on the complete removal of tariffs on Southern African Customs Union (Sacu) imports from China and Chinese imports from Sacu.

It assumes no liberalisation of trade in services.

Sandrey says that a free trade agreement would have a substantial effect on the local clothing and footwear sectors, but there would be compensatory reductions in the market price of clothing and footwear for consumers.

The study found that there would be little, if any, effect on SA’s automotive sector. But the model is based on current figures and does not count on the likelihood that Chinese car production will rise substantially.

In an earlier report on trade with China, however, Sandrey noted there may be potential areas where SA could export to China and where a free trade agreement could help.

“By value, the main potential export items from SA may be motor cars and aircraft as these are both massive imports into China.” Other products include apples, apricots, pineapples, avocados, chocolate, processed fish and meats, agricultural goods, and titanium oxide.

On the other hand, Sandrey says a feature of Chinese imports is their domination in areas where they compete.

 source: Business Day