Created: 1/1/1986

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Proposed Action: Revoke South Africa's Host Favored Nation Status

Impact on South Africa: Most South African goods would not be affected by Its loss of Host Favored Nation status which would have effects slnllarelected boycott of South African products. Our analysis of past trade boycotts against South Africa and other countries suggests that such actions are most likely to be effective when the goods involved are easily traceable to country of origin and substitutes are readily available at similar prices from other sources of supply. This would affect South African exports Such as coal, steel, agricultural products,and gold coins, but these goods account for less thanercent of total South African export earnings. By contrast, boycotting or, If Host Favored Nation status is revoked,igher price on South African gold bullion, diamonds, andaccount foran half of experte 'ifficult to enforce as they are readily na.-ketable, easily transshipped, and difficult toHn an effort to circuavent possible trade sancuoris^sone elf^rTersofaTrlerai conaodities already are laundering forwarding documents to disguise South African origin.

Impact on Region: Pretoria might respond with ninor econonic sanctions against neighbors, Including expulsion of sone foreign workers, rail slowdowns, and the like. South African companies probably would try to use neighboring states to disguise country of origin with some ninor benefits for those countries.

Impact on US and Allies: Pretoria probably would tighten foreign currency controls onividends and profits by for:-igr. iOBp-inias, which would affect the book value of foreign assets In South Africa. Pretoria might threaten to impose limited embargoes on strategic nineral sales to the West, but way be deterred fron taking action by fear of prompting tougher sanctions.



Proposed Action: Terminate South African Airlinesigh'.s

Impact on South Africa: Would reinforce South Africa's already strong sense of diplonatic isolation. Pretoria clearly anticipates further sanctions on Us civil aviation. The state-run South African Airlines (SAA) already is experiencing financial difficulties due to the ecession, the falling rand, inflation, and increased costs, and sanctions would further cripple its sinking revenues. SAA already is developing elaborate schenes to counter the effects of lost landing rights in the West by developing alternatives In Zaabia, Swaziland, and Mauritius. Obtaining agreeeentotal ban on SAA landing rights In Europe will be difficult since negotiations reportedly are underway with Olympic AirwayslitaliaabenaLM (Thend Uta (France) to increaseiber of 6rits tc * oith the provision that theypecial surcharge to SAA. Termination of landing rights byew countries would have only Halted tapact.

Impact on Region; Some countries in the region would stand to gain additional revenues due to increased international traffic through their facilities. However, South Africa is likely to retaliate for lost landing rights by restricting some rail transit in the region.

Inpact on US and Allies: Pretoria would likely retaliate by denying foreign carrier landing rights in South Africaubstantial loss of revenues to individual Uestorn air carrier*. For example, Prloe Minister Thatcher recently stated that stopping direct flights to South Africa could cost Britisn Airways about JiCO aillion in lost revenues. Loss of South African landing rights also would require significant re-routing of Western air traffic to the region. In addition, South Africa could retaliate by restricting access of sone Western ships to ports and refueling facilities. More0 ships of numerous registries call annually in Durban, Capo Town, Port Elizabeth, and other South African ports annually.

Proposed Action: Visa restrictions oncuth African Gcvf-rnnent and certain private citizens. I

Impact on South Africa: Would reinforce South Africa's already strong sense of diplomatic isolation by limiting highly valued diplomatic contact. Also restricts reporting capabilities of its diplomatic presence. Could sharpen divisions among unite South Africans by cutting access to potential haven for whites, especially professionals and English-speakers, seeking to eaigrate. BBBBBBHBBB|

Impact on region: Probably little as Pretoria likely to respondretoria could tignten border controls or introduce new regulations on visa requirements Tor individuals transiting through South Africa to neighboring countires.T)

tnpdcc.. and Awies: Almost certain retaliation in kind HaltingEuropean official travel to South Africa. Pretoria is not athe Vienna Consular Coventlon, which provides guidance onand it already has bent rules by cienandlng that newpositions be approved and the names of newlyiplomatic identity card is issued. This actionlimitations on the number of diplomatic

the five new personnel assigned to the new USAID group. Loss of US and Allied diplomatic presence probably exceeds that of South Africa because of West's relatively limited access to events and people inside South Africa, particuariy in the wake of nationwide declaration of emergency. Pretoria probably also would refuse again to grant travelropposition leaders, suth is Bisnop Tutu. IS NT)

Alternative action:. and Its Allies could demand descriptions of the duties of South African diplomatic personnel, as we do with Cuba and the Soviet Union, or limit renewals of visas for diplomatic personnel. Could be labelled as retaliation for South African moves and probably would lead to significantly reduced diplomatic presences, both ln South Africa and In the West. |

Proposed Action: No New Investment 7oin (nor-SC Cols) Signatories

on South Africa: Would have little econoaic impact since we expect little new foreign, investment In South Africa until the domestic unrest subsides, which Is unlikely in the near term. The recentoss of foreign confidence in Southindicates investor concern over domestic political and economic uncertainties. oreign investment in South Africa fell by nearlyillion as the result of disinvestment, loan repayment, and capital flight.

Estimated Foreignlnvestnents in South Africa*

Country United Kingdom United States West ^ernany France Other


illionill tonillionillion

16 billion


Includes direct investment, foreign-owned shares on the Johannesourj Exchange, other types of equity investment and overseas debt.

on Region: Pretoria probably would respond with minor economic sanctions against neighbors, including expulsion of sone foreign workers, rail slowdowns, and the like. If part of comprehensive package, more severe punitive actions

Impact an 'JS apJ Allies: Pretoriaould retaliate by tightening foreign currency controls on the repatriation of dividends and profits by foreign companies, which would affect the book value of foreign assets in South Africa. Pretoria night threaten to impose limited embargoes on strategic mineral sales to the West, but may be deterred fron taking stiffer action by fear of pronpting tougher sanctions.

Alternative Option: Ban All New Foreign Investment and Loans: We believe that many studies overstate South African economic vulnerability to foreign restrictions on new investment and loans, although widespread investaentand loan restrictions would reduce long-run growth potential. South African investnent has not depended heavily on foreign funds: net capital inflows accountedferercent of domestic fixed Investaent3ccording to South African Covernaent data. apital outflows have exceeded capital inflows by an average0 aillion per year, and investment has been funded fron Internal corporate savings. ortion of these internally-generated funds have cone froa subsidiaries of foreign companies, but, to data, bans on new investment have not applied to reinvested profits, ^

Inpact on US and Allies:an on sales only to government offices is probably unenforcable, acquisition by South African business firms probably wouldor reduction in government demand, thus negating impact on US and Allies. I

Proposed Action: Extendingmuargo against military and police

Ispact on-Region: Probably none.

Impact on South Africa: Minimal. South Africa haa been operatingoluntary UN arns embargoade mandatoryhe result hasesilient, thriving arms industry, which already meets most domestic defense and security requirenents, with such exceptions as advanced aircraft, large naval vessels, and certain high technology electronics. Moreover, South Africa has extensive covert trade operations lnacons technology witn dealers In western Europe and Israel.

Impact on US Allies: v son- Uf lind eye to covert trade with South Africa. Enforcement would be difficult as country of origin labels on weapons and shipping manifests are easily altered. Moreover, dealing with dual use commodities has always been difficult. For example,ritish firm modified air traffic control radars sold to South Africa in, citing Pretoria's assurances that it was for civilian use only. We have since received special Intelligence indicating that those systems are now being used for military purposes at Uaterkloof Air Force Base.

Alternative Options: Further discourage purchase of South African-produced arms by third countries, such as Iraq, Taiwan, Chile, and Argentina. The UN General Asse-icly1onbiiwing resolution, requesting UN nember nations not to buy military equipment produced in South Africa. Despite South Africa's aggressive efforts to market its arms, actual sales are still fairly United and the loss of these markets would haveimited impact in South Africa.

Proposed Action: Stockpile

Impact on South Africa: Would reinforce South Africa's diplomatic isolation by signaling West's deternination to reduce longstanding dependence on Pretoria. Any significant Western stockpiling effort, however, undoubtedly would boost the price of South Africanaanganese. platinuo-group. aetals, andadd to foreign currency earnings,ercent of which com froa these ainerals. Over the long haul, however, higher prices would trigger accelerated recycling and substitution efforts, and encourage competing producers to gear up production. As the naln alternative supplier of these strategic minerals, the Soviet Union probably would profit.

iouth Africa

Minerals: Estinated World5 (Percent)


Chromium Manganese Platinum group Vanadium

Share of Western Production





Share of World Production




Share of World Production



SO 31

on Region: Would benefit Zimbabwe as producer ofercent of world chromium supplies, with negligible impact elsewhere. I

Impact on US and Allies: Aside from the cost of stockpiling and higher price of ainerals for current use, would have little iapact except in unlikely case Pretoria :nposedabargc cnirteral sales. Prttaria would fear that an en cargo would lower export earnings and could trigger reprissals against South Africa's export-dependent economy. The US has substantial stockpiles or reserves of all four minerals, West Europe has United stockpiles, but Japan is the aost dependent, receivingercent or mere of each of the four ainerals fron South Africa.

Alternative Option: Promote Substitution: An announcement that the US and its allies will push the developnent of alternative materials and sources of supply could have an important pyschological effect on Pretoria since it would signal the West's determination toongstanding dependence on South Africa. The immediate economic impact, however, would be negligible.

Proposed Action: Ban all jxfurts Lo lineovernment except medicine.

Impact on Southan on all sales to government offices couldignificant impact but is probably unenforcable. South African firms have developed considerable skill in evading end-use certification and probably could divert needed items to the government and gover.-iment-ownedoreover, we estlnate that09 Pretoria spent overillion building and maintaining nonmilitary strategic stockpiles and can weather even comprehensive import embargoes for several years. In addition, Pretoria has engaged in subtrefuge trade that has enabled it to circumvent all previous economic embargoes. I

Impact on the region: Pretoria probably would respond with minor econonic sanctions against neighboring states, including expulsion of some foreign

!wrs,liw.jh-ns, and thet partomprehensive package, more severe, punitive actions likely.j

Impact on the US and Allies:an on sales only to the government is probably unenforcable, acquisition by South African business firms would compensateeduction in government demand, thus negating impact on US and Allies!

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