Welfare, macroeconomic and trade effects of the hypothetical Southern African Customs Union-United States free trade agreement

Gabriel Mhonyera, Daniel F. Meyer

Research output: Contribution to journalArticlepeer-review

Abstract

Background: There is lingering uncertainty surrounding the renewal of the African Growth and Opportunity Act (AGOA), a United States (US) Trade Act enacted in 2000 and set to expire in 2025. However, the US is a traditional trading partner of the Southern African Customs Union (SACU), and all SACU members predominantly access the US market through AGOA. Aim: This article assesses the welfare, macroeconomic and trade effects of the potential Southern African Customs Union-United States Free Trade Agreement (SACU-US FTA). Setting: The expiry of AGOA and the uncertainty surrounding its renewal present trade policy challenges for AGOA beneficiary countries, particularly the SACU nations. Method: The article employs the Global Trade Analysis Project (GTAP)-Computable General Equilibrium (CGE) model to simulate a scenario where SACU and the US eliminate all import taxes and export subsidies in their bilateral trade. Results: The GTAP-CGE model simulation results reveal welfare gains of US$316.47 million for SACU and US$678.01 million for the US with favourable macroeconomic and trade effects for both parties. Net trade creation is estimated at US$3.06 billion. Conclusion: The US interest in the potential SACU-US FTA rests in enhanced access to a smaller, but highly protected market where the European Union (EU) has already concluded preferential trade arrangements. Correspondingly, SACU aims for enriched access to a much larger, though less protected, market. Contribution: While most studies on FTAs focus on distributional effects using CGE and partial equilibrium models, there is limited research on the welfare, macroeconomic, and trade impacts of the potential SACU-US FTA. This article, therefore, stimulates debate and navigate domestic policies on the welfare, macroeconomic and trade implications of the prospective trade agreement.

Original languageEnglish
Article numbera5814
JournalSouth African Journal of Economic and Management Sciences
Volume27
Issue number1
DOIs
Publication statusPublished - 2024
Externally publishedYes

Keywords

  • AGOA
  • CGE model
  • FTA
  • GTAP model
  • SACU
  • trade creation
  • trade diversion
  • trade negotiations
  • trade policy
  • US
  • welfare

ASJC Scopus subject areas

  • General Business,Management and Accounting
  • General Economics,Econometrics and Finance

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