Free Trade Agreements and the SADC Economies

Countries in southern Africa have engaged in a variety of trade liberalisation initiatives such as the European Union (EU)–South Africa Free Trade Agreement (FTA), the EU's ‘Everything but Arms’ (EBA) initiative to eliminate trade barriers against imports from the least developed countries and a potential FTA among Southern African Development Community (SADC) countries. In this paper we use a multi‐country computable general equilibrium (CGE) model to analyse the impact of trade liberalisation in the region. First, we analyse the FTA between South Africa and the EU. Then, we consider how the rest of southern Africa might respond: (i) by enforcing an SADC FTA; (ii) by exploiting the advantages of unilateral access to the EU in addition to an SADC FTA; and (iii) by entering an FTA with the EU and other SADC countries. The scenarios are ordered such that the SADC countries pursue increased trade liberalisation. We find that under all FTA arrangements the increased total imports from FTA partners exceeds the reduction in imports from non‐FTA partners — the FTAs examined are all net trade creating. Some SADC economies are slightly hurt by the FTA between the EU and South Africa, while others gain slightly. Overall, the agreement is not a beggar‐thy‐neighbour policy. We also find that unilateral access to the EU is more beneficial for SADC countries than an SADC FTA because the SADC countries trade more with the EU than with each other. However, reciprocal reforms under an EU–SADC FTA dominate unilateral access to the EU because they require more structural adjustment in the SADC countries. Finally, we find that South Africa is not large enough to serve as a growth pole for the region. Access to EU markets provides substantially bigger gains for the other SADC countries than access to South Africa.