AGOA review could be chance for South Africa to make good with US
For observers of international relations and trade policy issues, there was not much to catch the attention in President Jacob Zuma’s state of the nation address in February.
Four months later, however, it is interesting to note that Zuma may have been in on a secret when it comes to African relations with the US.
He said: "The renewal of the African Growth and Opportunity Act (Agoa) beyond September 2015 and a pledge to support African-led peace initiatives in the continent are among the significant outcomes of the US-Africa Leaders’ Summit held in the US last year."
Back in February, this was not an accurate statement.
At the US-Africa Leaders’ Summit last year, there was an expression of support for the renewal of Agoa from US President Barack Obama’s administration, but no decision was taken.
Agoa is enacted through legislation, which must be prepared and adopted by the US Congress, and is out of the direct control of the US president.
This process is well understood by South African trade officials and diplomats, so it is likely that the mistake in the state of the nation address was simply a result of editing as the text passed through many hands on its way to the president.
Nonetheless, since that portentous reference, there have been significant developments in the process and in the US the Trade Preferences Extension Act of 2015 has overcome its first major hurdle in being passed by the Senate.
There is still some way to go before the next phase of Agoa is guaranteed but the adoption of this bill should be welcomed by SA and viewed as an important victory.
SA has been included in the 10-year extension of Agoa despite a tense bilateral relationship and continuing challenges in resolving market access issues.
At various times over the past year, commentators have predicted that SA could be graduated or removed from the list of countries that are eligible to benefit under Agoa. Alternatively, there was talk of a mere three-year extension for SA.
Neither of these damaging scenarios came about, in part due to the effective lobbying by Trade and Industry Minister Rob Davies and his team.
So why, then, was Davies’s reaction to the Senate decision such an unhappy one?
He even went so far as to suggest that the benefits of Agoa to SA might soon be outweighed by the costs.
At face value, the advantages seem clear and the costs less so.
SA has been able to take advantage of the tariff preferences offered under Agoa to export a range of products, including cars and some processed agriculture goods. These exports have directly attributable employment benefits and contribute to SA’s national development priorities.
In an assessment of the value of Agoa, the question would be whether these exports would take place if the legislation was no longer there, or whether South African goods would remain competitive despite losing the preferential access (which in some cases is less than 2.5%).
To date, there has been no cost for Agoa to beneficiaries.
It is a unilateral trade-preference arrangement offered by the US to some African countries and nothing is asked in return by way of trade concessions.
This has changed for SA, however, and may be the reason for the frustration expressed by Davies.
First there was the "chicken war" between the two countries which saw some level of resolution only at the weekend following industry talks in Paris.
This was a battle around the antidumping duties applied by SA on imports of poultry from the US and was well documented by industry representatives and other commentators.
Here, SA has offered additional market access to the US (reportedly a quota of 65,000 tonnes). This was clearly a price extracted by certain interest groups in the US for SA’s continued participation in Agoa.
Of broader interest is the second factor — the out-of-cycle review provision that was included in the bill passed by the Senate.
This is specific to SA and requires an assessment of the openness of our market to US products to be done within 30 days of enactment of the legislation.
The review will be broad in scope and is expected to reflect on a number of irritants in the bilateral relationship that have found political interest among US lawmakers who are seeking to use Agoa preferences as leverage to resolve them, such as changes to the black economic empowerment codes and immigration regulations.
These include various complaints from US companies that are reflected in last year’s national trade estimate of the US Trade Representative, as well as other, more recent, developments.
Some of these involve the proposed reform of the security industry and intellectual property rights policy.
Whether the out-of-cycle review clause will survive consideration of the bill by the House of Representatives remains to be seen, but SA is clearly not impressed by the prospect of having its trade and investment climate subject to scrutiny by the US.
This is likely to be a challenging process that will raise some uncomfortable issues for the government.
However, approaching the issue defensively and negatively will probably make it much worse.
The truth is that the economic relationship between the two countries has been tense for a number of years and there was a degree of inevitability that it would reach a tipping point sooner rather than later.
Both parties need to embrace the review as an opportunity to clear the air and to reassess their interactions on trade and investment issues.
If SA is to remain open to business, then listening to the concerns raised by the US and responding constructively has the potential to set us on a positive new course with an important economic partner.
The reality is that trade preferences (such as Agoa) are meaningless unless SA takes the necessary steps to improve its industrial base and increase the competitiveness of its producers.
- Grant Makokera is a senior associate at Tutwa Consulting