India and the Southern African Customs Union, or SACU, signed terms of reference on Wednesday to begin negotiations for a preferential trade agreement, nearly two decades after the process was first proposed.
SACU comprises South Africa, Botswana, Namibia, Lesotho and Eswatini.
The proposed agreement will cover eight negotiating areas, including trade in goods, rules of origin, customs procedures, dispute settlement and sanitary and phytosanitary measures, according to the Economic Times.
Formal negotiations are expected to begin within one month. Both sides have set a one-year deadline, although Indian officials hope to complete the process earlier.
The agreement will not remove all trade barriers. Unlike a comprehensive free trade agreement, a preferential trade agreement generally reduces duties on a negotiated list of products.
That process will require both parties to determine which industries they are prepared to expose to greater competition.
India’s Commerce and Industry Minister, Piyush Goyal, said New Delhi would not pursue SACU’s sensitive sectors if the bloc gave similar consideration to sensitive Indian industries.
He said the initial negotiations should concentrate on “low-hanging fruits” where the two sides complement each other.
However, automobiles could prove difficult to classify as an easy concession.
India targets concessions for automobiles
India is expected to seek lower tariffs for automobiles and components, pharmaceuticals, industrial machinery, electrical equipment, chemicals and textiles, citing trade officials and industry representatives.
Automobiles and components were India’s second-largest export category to SACU after petroleum products in the financial year ended March 2026. Shipments were valued at approximately $1.7 billion.
India exported $7.5 billion in goods to SACU during the period and imported $9.2 billion, giving total trade of $16.7 billion.
The bilateral trade is placed at between $18 billion and $20 billion and said both parties believe an agreement could increase commerce by 50% to 60%. The difference from the Reuters figure could reflect the period or method used, so the estimates should not be treated as directly comparable.
South Africa dominates the relationship. It accounted for $7 billion of Indian exports to SACU and $8.5 billion of India’s imports from the bloc in the year ended March 2026.
Although India is negotiating with five countries, South Africa’s market and industrial policies will consequently shape much of the agreement’s commercial value.
India supplied more than half of South Africa’s imported light vehicles
India’s interest in automobile concessions comes after its factories supplied 219,796 light vehicles to South Africa in 2025.
That represented 56.2% of all light vehicles imported into the country, according to the 2026 Automotive Trade Manual published by naamsa, South Africa’s Automotive Business Council.
China ranked second with 91,326 vehicles and a 23.3% share. Together, the two countries supplied 79.5% of South Africa’s imported light vehicles.
India’s position is particularly strong in smaller and more affordable cars. Several global manufacturers use Indian factories as production centres for entry-level vehicles sold in developing markets.
South Africa’s imported light vehicles increased by 28.6%, from 304,175 units in 2024 to 391,287 in 2025.
Imports accounted for 69.1% of total light-vehicle sales, compared with 62.7% a year earlier. They also represented 82.8% of passenger-car sales.
South Africa considers stronger protection
South African officials said during a parliamentary briefing in January that the country had room to raise the import duty on fully built passenger vehicles from approximately 25% to the 50% ceiling permitted under its World Trade Organization commitments.
The government is reviewing possible measures to protect local manufacturers from rapidly growing imports, particularly from India and China.
No decision to introduce a 50% duty has been announced. The figure represents the maximum available under South Africa’s WTO commitments, not a new tariff already in force.
The timing creates a potential contradiction for the negotiations.
India wants improved access for vehicles made in its factories, while South Africa is examining ways to reduce the pressure those imports place on domestic assembly plants and component manufacturers.
South Africa must also consider consumers. Indian factories specialise in smaller vehicles that are generally more affordable than many locally produced models. A sharp increase in duties could therefore raise prices for entry-level buyers.
BMW South Africa CEO Peter van Binsbergen has warned that steep tariff increases could harm affordability and produce unintended consequences for local manufacturers that also rely on imported components.
The first major test of the proposed agreement
South Africa’s automotive industry exported a record R291 billion worth of vehicles and components in 2025. Vehicle exports reached 414,271 units, preserving an automotive trade surplus despite rising imports.
However, the industry remains dependent on export markets, government incentives and imported components. It is also under pressure to increase local content and prepare for the transition to electric vehicles.
India, meanwhile, is SACU’s second-largest supplier and already has companies operating in pharmaceuticals, information technology, automotive manufacturing and infrastructure.
Indian officials believe the agreement could help supply Southern Africa with affordable medicines and other manufactured products. SACU members will want improved access to India while protecting industries and products considered important to their own development.
The treatment of automobiles will be an early indication of where that balance lies.
Concessions could reduce vehicle prices and expand trade. But without corresponding investment and local production commitments, South Africa risks granting additional advantages to imports that already dominate its entry-level market.
