1 Running head: South African Wine Industry Name: Course: Institution: Professor: Trade barriers These are policies and business practices that make trading difficult. The main aim of trade barriers is to protect the home economic market from the international market. The main way of enforcing trade barriers is by imposing high taxation or hiking prices of imported goods to make locally produced more competitive. Types of barriers Tariffs They are mostly used by governments by imposing heavy taxation on importation of goods as a result the international companies end up raising their cost for a return on investment making locally produced product affordable. Non-tariff barriers These are barriers that do not involve putting taxations on imported goods. Non-tariff barriers can be imposed in three major ways. Running head: South African Wine Industry 2 Subsidies- this is where governments support local businesses with financing and technical assistance to make them competitive with other foreign companies. Quotas-this is where governments limit importation of goods to exact standards or quantity. Laws and regulations which include standards that is hard to meet by foreign countries. Trade barriers in South African Wine Industry Little or no wine subsidies These are government policies that include programs which support and finance certain aspects of the industry. The wine industry in South Africa although it benefits from some of forms of policies there is so much more that can be done compared to other players in the industry. Countries like the United States have levied heavy measures to importation of wine to also improve their local market they have put high taxes in the exportation of wine to other countries apart from Canada. If South Africa could borrow a leaf from china and the US in investigating better ways to offer the wine industry relief in terms of taxation and other forms of incentives it will do a great deal in ensuring sustainability of the market. Most competitors from Europe enjoy subsidy. European wine producers received $1.3 billion in subsides from the European Commission in 2009. This gives them an upper hand in market competition, as they are able to operate at a lower cost. Preferential Market access from competitors This is the capability of South African wine industry to sign deals to either remove tariffs of trade with markets that consume their wine products in exchange for free trade. This helps Running head: South African Wine Industry 3 reduce taxation in imports and exports and hence tolerate cohesive growth. Bilateral agreements help markets to grow and this is the same to the wine industry. Competition between countries that produce the same product is reduced since free trade is in place and hence the cost of the wine is highly reduced. Countries like the USA and Canada enjoy such privileges and thus make it hard for a country like South Africa to penetrate such a market. Tariff Barriers South Africa is facing a great challenge in this area from all sides of its wine market. These challenges include established wine markets that have wine production such countries include Italy, Spain and France. With such competition South Africa cannot afford to be blocked by restrictions in trade barriers and other government related competitions. With the shift in most countries that produce wine geared towards preferential trade agreements to gain advantageous access to the wine market around the world, South African wine industry should perhaps pull their forces together in negotiating similar tariff reduction agreements to allow the export of its wine and remain competitive. Import tariff on USA wine (25%) helps domestic companies by reducing competition. Waive export tariff to European union, SADC and BRICS allows ease access of external markets, thus boosting domestic wine industry. Strict licensing requirements by major players in the industry The wine market is greatly covered by the idea of standards from packaging, quality control, laboratory testing and wine labeling rules. This are factors that directly affect south African market since some countries like the united states and Canada have signed exclusive deals in 4 Running head: South African Wine Industry wine trade and thus making it hard for wine from south Africa to be imported in such countries. The monopoly of such countries reduces the market share that South African wine can capture. Differences in wine composition Some players in the industry require specific quality which requires laboratory testing and certification. This makes it difficult to meet all market demands since different markets expect different outcomes. Impact of free trade This is a statistical model build by BFAP (bureau for food and agriculture policy) in South Africa. Wine Tariffs for a few countries COUNTRY WINE BOTTLES WINE BULK China 14% 20% USA 0.73% - Angola 30% 30% The Tripartite trade agreement This was an agreement between SADC, SACU and COMESA and is currently in effect. Participating countries however are not constant while others like Angola and Namibia are yet to take up the agreement. To put on the effect of complete tariff bargains with country participation that are fully complying within the region, tariffs on wine were removed. As shown in table above. 5 Running head: South African Wine Industry The outcome brought about eight hundred and seventy thousand liters increase in wine exports in 2016 in relation to the baseline,0.19% of the total wine exports which reduced significantly to seven hundred and thirty thousand liters an increase from the baseline, 0.13% in 2024 .Over the next nine years projections are said to be 8.6million liters. Recalculation The bases of these recalculations are based on theory created in my arguments above. Export tariff to Import tariff Quota Subsidy(Present EU and SADC from USA EU and SADC in competitors) Current value 0 25 0 0 in SA An Increase 5 30 5 5 A decrease n/a 20 n/a n./a (All current data for 2012) A. Calculate the effect of the change of a tariff on your particular industry. Illustrate the change visually in a chart. Here, a decrease in export tariff increases quantity of wine exported, e.g. to European countries due to waived tariff following an agreement with European Union. 6 Running head: South African Wine Industry An increase in import tariff on wine imported from USA leads to decreased quantity of wine imported to South Africa, reducing competition. Wine importation tariff e.g. 25 % on wine from USA, positively affect domestic production Effect of import tariff on domestic wine production in L 22500000 22000000 21500000 21000000 Effect of import tariff on domestic wine production in L 20500000 20000000 19500000 19000000 30% tariff 25% tariff 20 % tarrif Export tariff negatively affect domestic production 7 Running head: South African Wine Industry Wine produced in L 21200000 21000000 20800000 20600000 20400000 Wine produced in L 20200000 20000000 19800000 19600000 19400000 0% tarrif 5% tarrif B. Calculate the effect of the change of a quota on your particular industry. Illustrate the change visually in a chart. Quota will limit amount of wine exported and thus quantity produced. Currently there is no quota on South African wine in European Union and SADC. This is a positive factor towards increased production of wine in SA. Quota negatively impact domestic production 8 Running head: South African Wine Industry Quantity of wine prodused in Litres 21200000 21000000 20800000 20600000 20400000 Quantity of wine prodused in Litres 20200000 20000000 19800000 19600000 19400000 0% quota 5% quota C. Calculate the effect of the change of a government subsidy on the overall GDP. Illustrate the change visually in a chart. Subsidy will, if accepted by the SA government, allow for the wine industry to operate at a relatively lower cost making them competitive. The competitors from Europe and Canada for example, enjoy the added advantage of subsidy. 9 Running head: South African Wine Industry Subsidy positively impact domestic production wine production in lt 23500000 23000000 22500000 22000000 wine production in lt 21500000 21000000 20500000 20000000 0% subsidy 5% subsidy Subsidy will increase production of Wine in SA. Wine contributes 1.3 % of SA GDP. It is thus an important contributor of country’s revenue and an increase of its production via subsidy will positively impact GDP. Running head: South African Wine Industry 10 %contribution to GDP 1.42 1.4 1.38 1.36 1.34 %contribution to GDP 1.32 1.3 1.28 1.26 1.24 0% subsidy 5% subsidy . Works Cited 1. Akinkugbe, O. (2000). The European Union‐South Africa Free Trade Agreements and the SADC Region*(1). South African Journal of Economics, 68(4), 282-292. 2. Nations, U. (1987). Africa recovery. New York: United Nations. 3. Ponte, S., & Ewert, J. (2009). Which way is “up” in upgrading? Trajectories of change in the value chain for South African wine. World Development, 37(10), 1637-1650. 4. South Africa, 2013. (2013). Place of publication not identified: Oxford Business Group 5. Spahni, P. (2000). The International Wine Trade. Woodhead. Running head: South African Wine Industry 11 
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