Reflections on Approaching an FTA Negotiation with Mercosur: A Review of Key Issues

This report by the South African Institute of International Affairs evaluates the potential for a free trade agreement (FTA) between the Southern African Customs Union (SACU) and Mercosur. It argues that while static economic gains from tariff reduction are limited and may reinforce South Africa's reliance on primary product exports, significant dynamic opportunities exist through intra-industry specialization, institutional collaboration, and the disciplining of dominant domestic firms to benefit downstream manufacturing.

• Static economic analysis suggests that an FTA would provide limited gains and likely reinforce South Africa's existing comparative advantage in capital-intensive primary products, basic metals, and basic chemicals. This pattern is viewed as contrary to government employment goals, as South Africa would likely increase imports of higher value-added products from Mercosur.
• The report identifies a significant risk in the motor vehicle sector, where South Africa could become a 'periphery location' to Brazil's 'core'. The removal of tariffs could undermine the Motor Industry Development Programme (MIDP) by removing incentives for local production and encouraging firms to relocate to Brazil's larger market and attractive state-level investment incentives.
• An FTA could provide efficiency gains for South African downstream manufacturing by introducing competition to discipline dominant upstream producers of steel, aluminium, and basic chemicals. Currently, these upstream firms maintain high prices despite low production costs, which hinders the competitiveness of labour-intensive downstream activities like plastics and metal products.
• Dynamic gains are possible through intra-industry specialization and the exploitation of specific niches. Key opportunities for South Africa include mining equipment, aircraft components, and luxury motor vehicles, provided there is a common industrial policy approach to influence the location decisions of transnational corporations (TNCs).
• Beyond trade, the report emphasizes the value of institutional collaboration and learning between South Africa and Brazil due to their similar development challenges. Potential areas for cooperation include small business development (referencing Brazil's SABRAE), development finance (BNDES), and competition policy (CADE).
• The report notes that non-tariff barriers in Mercosur, including sanitary and phytosanitary regulations and complex administrative procedures, are more significant impediments to trade than tariffs. Transparency regarding these restrictions is identified as a primary negotiating concern for South Africa.

APA

Roberts, S. (2004). Reflections on Approaching an FTA Negotiation with Mercosur: A Review of Key Issues. South African Institute of International Affairs. https://saiia.org.za/wp-content/uploads/2013/06/6-Mercosur-Trade-Report-Final-Layout-Trade-Report-No-6.pdf

Chicago

Roberts, Simon. Reflections on Approaching an FTA Negotiation with Mercosur: A Review of Key Issues. South African Institute of International Affairs, 2004. https://saiia.org.za/wp-content/uploads/2013/06/6-Mercosur-Trade-Report-Final-Layout-Trade-Report-No-6.pdf.

Wikipedia

{{cite report |last1=Roberts |first1=Simon |title=Reflections on Approaching an FTA Negotiation with Mercosur: A Review of Key Issues |publisher=South African Institute of International Affairs |date=November 2004 |url=https://saiia.org.za/wp-content/uploads/2013/06/6-Mercosur-Trade-Report-Final-Layout-Trade-Report-No-6.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{roberts2004reflections, author = {Roberts, Simon}, title = {{Reflections on Approaching an FTA Negotiation with Mercosur: A Review of Key Issues}}, institution = {South African Institute of International Affairs}, year = {2004}, month = nov, url = {https://saiia.org.za/wp-content/uploads/2013/06/6-Mercosur-Trade-Report-Final-Layout-Trade-Report-No-6.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }