India is giving renewed attention to establishing a trade deal with the South African Customs Union (SACU) as its merchandise exports decline due to weakened demand in Western markets. This trade deal could potentially boost the exports of pharmaceutical products and automobiles.
Key Points:
- India’s Ministry of Commerce revealed that there have been five rounds of negotiations for a potential India-SACU preferential trade agreement.
- The first round of discussions began in 2007 but stalled in 2010. However, in 2020, both sides agreed to revive the talks.
- Trade experts emphasize the need for export diversification since 40% of India’s export orders come from just seven countries, making them more susceptible to external shocks.
- Currently, nearly one-third of India’s merchandise exports are directed towards the US and Europe, driving outbound shipments in the past decade.
- Indian exports have experienced a decline for four consecutive months, with goods exports falling by 10.30% to $34.98 billion in May 2023 compared to $39 billion in May 2022. Imports also decreased by 6.57% to $57.1 billion in May 2023 compared to $61.12 billion in the same month last year, resulting in a trade deficit of $22.12 billion, the highest in over five months.
- Global demand slowdown has contributed to the decline in overall exports, with international crude prices sharply lower and petroleum exports being affected during FY23.
- In April, petroleum products exports saw a significant 23% decline compared to the previous month.
- A World Bank report highlighted South Africa’s sharp deceleration in growth in early 2023, attributed to policy tightening and the impact of an intensifying energy crisis. The country’s power utility, Eskom, has been struggling to meet the post-pandemic rebound in electricity demand due to chronic unprofitability and lack of maintenance.
About the South African Customs Union (SACU):
- Established in 1910, SACU is the world’s oldest customs union.
- Member countries include South Africa, Namibia, Botswana, Lesotho, and Eswatini (formerly Swaziland), with its headquarters in Windhoek, Namibia.
- It was initially administered by South Africa through the 1910 and 1969 Agreements.
- The customs union collected duties on local production and customs duties on imports from outside SACU, with the revenue allocated to member countries based on a revenue-sharing formula.
- Negotiations to reform the 1969 Agreement began in 1994, leading to a new agreement signed in 2002 and ratified by SACU Heads of State.
- The economic structure of the union creates a single tariff and eliminates customs duties between member states.
- Member states form a single customs territory with no tariffs or barriers on substantially all trade between them for products originating within SACU, and a common external tariff applies to non-members of SACU.
