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Understanding Indian Trade Policy: Implications for the Indo–SACU Agreement

Phillip Alves1


November 2004

South African Institute of International Affairs

Posted with permission from the South African Institute of International Affairs
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The Southern African Customs Union (SACU)2 and India plan to start trade negotiations before the end of 2004. South Africa and India have been in talks on and off since 2001, and managed to sign a framework agreement in 2002. But progress halted when it came time to renegotiate the SACU Agreement, a procedure that resulted in the other SACU countries expressing a desire to be involved. This and a number of other events, such as the two World Trade Organisation (WTO) Ministerials at Doha and Cancun, have meant that talks with India have been on hold since then.

SACU Ministers formally agreed in June 2004 to re-open negotiations with India. A new framework agreement was discussed with India in September in Windhoek, Namibia. Much like the original, it stipulates, inter alia, that the process will evolve in two stages. The first will comprise a preferential trade agreement (PTA) covering trade in goods; the second envisages a graduation of this PTA into a so-called ‘new generation’ free trade agreement (FTA), covering a much broader agenda3. The end of 2005 has been set as the provisional deadline for the conclusion of negotiations. This report aims to assess the likely form, depth, and structure of the final agreement.

For historical reasons explored later on, trade agreements (bilateral, regional, or multilateral) have never played an integral role in India’s development strategy. And in spite of ongoing reform efforts that began in 1991 (or perhaps because of them), trade and liberalisation remain highly controversial, politically sensitive issues. Because of this, India is not only relatively inexperienced at managing big bilateral deals, but is also less willing than most to bear the risks of a genuinely intrusive agreement. SACU, on the other hand, has had ample exposure to the costs and benefits of negotiating and implementing expansive bilateral deals (e.g. the Trade, Development and Co-operation Agreement (TDCA) with the EU, and the upcoming FTA with the USA). However, in India’s case, it isn’t clear that SACU would be after something similar. Moreover, even if SACU was interested in a comprehensive agreement, India’s conservative approach to previous bilateral negotiations suggests it wouldn’t get one.

Market access-related opportunities certainly do exist for exporters in both regions, but SACU and India are far from being natural trading partners. This on its own suggests a commercially shallow agreement. Combined with evidence from India’s aforementioned bilateral deals with other countries, there is even reason to doubt whether the first stage PTA will result in meaningful changes to the current volume and structure of merchandise trade between India and SACU, let alone open avenues for sectors where to date there has been little or no bilateral trade at all.

To explore these assertions, the report proceeds in the following manner. We begin with the general: India’s economic history and the reform process of the 1990s, and the dramatic effects both have had on the way in which Indian trade policymakers and strategists view the world. This lays the necessary foundation for all of the subsequent analysis.

We then narrow things down to the specific: what has India strived for in previous bilateral trade negotiations? Crucially, how extensive has the coverage of those agreements been, and how deep do the concessions and commitments go? And for issues India has not yet negotiated in bilateral settings, what has been its position in the WTO? From the answers to these questions, what can we realistically expect the architecture of an Indo-SACU agreement to be?


  1. Philip Alves is a trade research intern at the South African Institute of International Affairs (SAIIA), based at the University of the Witwatersrand, Johannesburg. He wishes to thank Peter Draper, Dipankar Sengupta, Willem van der Spuy, Suresh Goel, Julius Sen and Brendan Vickers for important comments on earlier versions of this report. The usual disclaimer applies.

  2. Botswana, Lesotho, Namibia, South Africa and Swaziland.

  3. ‘SACU states agree on a framework for FTA negotiations with India’, Tralac Newsletter, 14 September, 2004, available at

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