SACU-EU FTA Removal of EU tariff barriers vis a vis Botswana SACU-EU FTA Removal of EU tariff barriers vis a vis Botswana Jonathan Munemo and David Kay

Outline Motivation Motivation South Africa-EU and SACU-EU liberalizations compared South Africa-EU and SACU-EU liberalizations compared ClosureClosure ShocksShocks Results Results Conclusions Conclusions

Motivation EU could negotiate FTA inclusive of all SACU countries under Economic Partnership Agreements (EPAs) EU could negotiate FTA inclusive of all SACU countries under Economic Partnership Agreements (EPAs) It is useful to evaluate the potential trade and welfare effects to see whether the impacts on Botswana and the rest of SACU would be significant It is useful to evaluate the potential trade and welfare effects to see whether the impacts on Botswana and the rest of SACU would be significant

Closure No change from SA-EU case Fixed trade balance Fixed trade balance Unemployment allowed (Africa,ROW) Unemployment allowed (Africa,ROW) Mining (diamond) world price and quantity of Botswana’s exports are fixed Mining (diamond) world price and quantity of Botswana’s exports are fixed Quantity of Botswana’s meat exports to EU are fixedQuantity of Botswana’s meat exports to EU are fixed Most agricultural/crop exports from Botswana are fixedMost agricultural/crop exports from Botswana are fixed

Experiment EU liberalizes imports from Botswana in the same degree that it does for SA (the rest of SACU) EU liberalizes imports from Botswana in the same degree that it does for SA (the rest of SACU) Method:we replaced set for Rest of SACU with SACU in all shocks Method:we replaced set for Rest of SACU with SACU in all shocks

Results - Welfare

Botswana’s Change in Exports (qxw), SA and SACU Experiments

Botswana’s Changes in Value Added SA and SACU Experiments

Conclusions Botswana is not as badly harmed in terms of welfare when EU tariffs are reduced (inclusion in the EU-SACU FTA) Botswana is not as badly harmed in terms of welfare when EU tariffs are reduced (inclusion in the EU-SACU FTA) Most of this improvement is due to better terms of trade effects Most of this improvement is due to better terms of trade effects Botswana’s exports of livestock and textiles increase, but from a small base (minor import changes only) Botswana’s exports of livestock and textiles increase, but from a small base (minor import changes only) Since minerals (diamonds) are the only sector in which Botswana’s exports are large, and diamond exports are fixed, Botswana has few opportunities to expand exports except in small sectors Since minerals (diamonds) are the only sector in which Botswana’s exports are large, and diamond exports are fixed, Botswana has few opportunities to expand exports except in small sectors