Picture: BLOOMBERG
Picture: BLOOMBERG

The year 2016 will certainly go down as a big one for trade agreements.

Two major agreements were implemented in October: on October 10, the Economic Partnership Agreement (EPA); and on October 21, the Southern African Customs Union’s (Sacu’s) preferential trade agreement with South American bloc Mercusor.

A preferential trade agreement provides preferential duties on specific products identified in the agreement. Although a preferential trade agreement may result in elimination of duties on some products covered, it typically results in duties being reduced.

Mercusor is made up of Argentina, Brazil, Paraguay, Uruguay and Venezuela. However, it should be noted that Venezuela was not a member of Mercusor when the preferential trade agreement was negotiated and therefore does not benefit from the preferential tariffs in the agreement. An additional protocol will have to be negotiated for Venezuela to be party to the preferential trade agreement. At this stage it is not clear when or whether this will happen.

The preferential trade agreement is a step in the right direction in strengthening trade relations particularly between SA and its Brics counterpart, Brazil, which is also SA’s largest trading partner in the Mercusor bloc: it accounted for 66% of SA’s R88.2bn of imports from Mercusor during the period 2012 to 2015, while Argentina accounted for 31%. The two countries collectively account for 97% of the value of imports from the trade bloc into South Africa.

Top products imported from Mercusor during the past four years include soya oil cake, used in making animal feed; vehicles; components for motor vehicles and tractors; wheat and meslin; sugar; iron ore and concentrates.

But only two of these high-volume imports are given preferential tariffs under the agreement: soya oil cake; and wheat and meslin. The wheat and meslin tariff preference is only for imports from Paraguay and there is no restriction on the quantity eligible for importation at the preferential tariff.

This is good news for industry and means Paraguay will likely become a more viable alternative source of wheat imports, given the current large duty on imported wheat.

The wheat tariff preference is in addition to the duty-free quota of 300,000 tons that can be imported from the EU under the newly implemented EPA. These preferences will likely assist in reducing the cost of wheat imports and possibly the cost of basic food products like bread.

SA’s exports to Mercusor, at R36bn over 2012-15, are less than half the value of what is imported from the bloc. The bulk (95%) of the exports were destined for Brazil (73%) and Argentina (22%), while the rest is spread out across the rest of Mercusor members.

SA’s top export products to Mercusor are motor vehicles; vehicle parts and accessories; coal; chemical products; and plastics; aluminium plates and sheets. Forty products account for 76% of the total export value.

The preferential trade agreement provides scope to diversify exports as local products are able to enter the Mercusor bloc at preferential duty rates. Products granted preferential access include fish; meat products; numerous agricultural products such as avocados, mangoes, raspberries, cranberries, ginger, green tea, various seed products, vegetables and mixtures of vegetables, mixtures of juices; sea and table salt; various chemicals; corrugated sheets; and telecommunications equipment.

In fact, products classifiable under approximately 1,000 tariff lines are covered in the agreement.

For companies that have been importing from Mercusor, it is important to note that although implementation of the agreement has just started, it is being implemented retrospectively. This means importers are able to apply for refunds from the South African Revenue Service (SARS) on import duties paid since April 1 2016. The refunds are payable if a duty was paid on a product not attracting a duty or if a duty was paid that is more than that prescribed by the agreement.

The Mercusor-Sacu agreement provides local exporters with the opportunity to tap into this market of more than 280-million people.

Paradza is a consultant with XA International Trade Advisors.

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