Taapano Paradza

On July 1, 2013, Croatia officially became the twenty-eighth member of the European Union (EU). Despite Croatia’s accession into the EU, it is yet to become party to the Trade, Development and Cooperation Agreement (TDCA) between South Africa and the EU. Much of this may be directly related to South Africa’s failure to speedily ratify the accession of Croatia into the TDCA.

While the EU and South Africa signed a protocol extending the TDCA to include Croatia, only the EU ratified it. The South African Parliament is yet to ratify it. Considering that a period of about 25 months has elapsed since Croatia became an EU member, it is not clear when Parliament will ratify Croatia’s inclusion in the TDCA.

The consequence of this is that the South African Revenue Service still treats imports from Croatia as originating outside of the EU and levies duties at the same levels as for other countries that are not party to the TDCA. Croatian exporters and South African importers alike are yet to benefit from the low duties and, in most cases, duty-free entry of Croatian goods into South Africa.

Whereas the purpose of a free-trade agreement, such as the TDCA, is to enhance trade between the trade partners, it appears that the inclusion of Croatia in the EU has not yet had a marked effect on trade between the two nations.

Looking at trade patterns, total imports from Croatia increased from R202-million in 2011 to R228-million in 2012. In 2013, the year in which Croatia became an EU member, trade more than doubled to R516-million and then declined to R389-million in 2014. During the first six months of 2015, imports from Croatia were valued at just more than R96-million.

Most of the products imported from Croatia relate to machinery and equipment, with liquid di-electric transformers accounting for 53%, hydraulic turbines 9%, motor vehicle switches 5%, mineral or chemical fertilisers 4% and tyre-moulding machines 3%. Numerous products account for 26% of the trade value.
Liquid di-electric transformers, the largest product type by value, are currently subjected to a 10% import duty. Other products attract duties ranging from 10% to 20%, while some nonmachinery products attract duties of up to 45%; others are duty free. Virtually all these products would have been duty free if the TDCA was applied with regard to Croatia. This would have made these products much more competitive and could have increased trade significantly.

Since Croatia became an EU member, duties amounting to about R75-million have been levied on Croatian products, including those mentioned above. It is possible that once South Africa recognises Croatia as TDCA member, importers may apply for refunds in terms of Section 75 of the Customs and Excise Act.
Interestingly, South Africa’s exports to Croatia are not subjected to any duties other than those in place under the TDCA, that is, the EU has implemented the TDCA with regards to imports from South Africa into Croatia.

South Africa’s exports to Croatia consist mostly of iron-ore, granite and cuttlefish, although iron-ore appears to have been exported between September 2012 and December 2012, with no further exports since. The value of exports to Croatia is notably low and tends to fluctuate significantly from year to year. In 2011, the value of exports was a mere R71.8-million. This increased significantly in 2012 (to R220.1-million) and 2013 (R227-million) and declined to R144.2-million in 2014. Only R29.2-million worth of exports were destined for Croatia in the first six months of 2015.

It is clear that neither South Africa nor Croatia has benefited from the inclusion of Croatia in the EU. South African exporters, in particular, are yet to fully explore the Croatian market. The little or no duties under the TDCA potentially make South African exports into Croatia competitive.

There is significant scope to increase trade between the two nations. The recognition of Croatia as party to the TDCA is important in eliminating unnecessary costs in the form of Customs duties, incurred on products from Croatia.

* Paradza is a consultant at XA International Trade Advisors