TRALAC - Trade Law Centre

South Africa’s Agoa eligibility likely to come under pressure before 2025, trade expert warns

Wednesday, 17 May 2017 Published: | Terence Cremer

Source: Engineering News (South Africa)

A leading trade expert is urging those South African businesses currently benefiting from preferential market access to the US under the Africa Growth and Opportunity Act (Agoa) to begin to “wean” themselves off such benefits, owing to the increased risk of those preferences being revoked ahead of Agoa’s official expiry in 2025.

In fact, Peter Draper, who is a member of World Economic Forum’s Global Future Council on Trade and Investment, cautions that scrutiny of South Africa’s eligibility is likely to be intensified under President Donald Trump, who has adopted far more protectionist stance under his so-called ‘America First’ policy.

South Africa is the continent’s largest non-oil beneficiary of Agoa, exporting a wide-range of products, including automobiles, mining and chemical products, as well as agricultural goods such as citrus, wine and macadamia nuts.

In 2014, South Africa exported $1.7-billion to the US with the support of Agoa, which offers duty-free access across 6 000 tariff lines to eligible African countries.

All beneficiary countries are subjected to yearly eligibility reviews, which assess the democratic climate and whether sub-Saharan African recipients are making progress in becoming market-based economies with “open, rules-based trading and minimal government interference”.

In 2015, South Africa became the subject of a further ‘out-of-cycle review’ after several US lawmakers raised questions about whether the country was still meeting the Act’s eligibility criteria. The dispute centred on the so-called “three meats” issue, relating to market access for American chicken, pork and beef.

South Africa’s eligibility was eventually affirmed only after an eleventh-hour deal struck on January 6, 2016, whereby South Africa agreed to a yearly quota for bone-in chicken imports from the US.

Speaking at a trade and investment seminar organised by Herbert Smith Freehills, Draper said that South Africa was unlikely to be included in any further extensions of Agoa. However, beneficiaries should also be prepared for the possibility of an early termination either as a consequence of the Trump administration’s comprehensive trade assessment, or should any American firm raise questions about fair treatment.

Speaking from the same platform, Herbert Smith Freehills partner and Africa co-chairperson Peter Leon said the reference made by State Security Minister David Mahlobo in his Budget Vote to the Private Security Industry Regulation Amendment Bill could be just such a trigger for retaliation.

In his address Mahlobo described as a “problem” the continued provision of security services at national key points and strategic installations by private security companies that were foreign owned. “It is essential that these strategic installations are protected by South Africans, as a means to secure our sovereignty. It is our conviction that the Private Security Industry Regulation Amendment Bill will assist in resolving some of these challenges, including the transformation imperatives.”

Leon said the comments were likely to “create a very irate reaction in Washington” and likened it to a “red rag to a bull”. Besides the three-meats issue, the Private Security Industry Regulation Amendment Bill was also highlighted as an area of concern for the US during the 2015 out-of-cycle review.

“As I understand it, an out-of-cycle review can kick in at any time,” Draper said, adding that should there be any suggestion that South Africa was prejudicing American business interests the retaliation could be swift.

Draper was also not confident that South Africa and the US would be able to transition seamlessly to a reciprocal free trade agreement (FTA). He noted that the US and the Southern African Customs Union abandoned FTA talks in 2006, despite the fact that circumstances were more supportive then than they are today for negotiating a deal.

He argued that the “negotiating templates” of South Africa and the US had since diverged even further, which would make it “very difficult to conclude an FTA even if we wanted one”.

“Therefore, I’m not optimistic about the future of our preferences with the US at all. Whoever is exporting under Agoa, my advice to them is to wean yourself off that preference, it’s going.”

 

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