TRALAC - Trade Law Centre

After AGOA: South Africa must prepare for two-way free trade agreements with US

Sunday, 18 June 2017 Published: | Peter Fabricius

Source: Daily Maverick (South Africa)

US Commerce Secretary Wilbur Ross says America’s relationship with Africa “has to continue its transition from being ‘AID-based’ to ‘TRADE-based’”.

“To that end, having two-way trade agreements, not just temporary trade preferences, would create long-term, sustainable improvements to quality of life on both sides of the Atlantic,” Ross told the Corporate Council for Africa’s business summit in Washington on Thursday. [See a transcript of the speech further below]

The temporary trade preference he was referring to is the African Growth and Opportunity Act (AGOA) which, since 2000, has given eligible African countries duty and quota free access to the US market, without having to reciprocate. In 2015 it was extended to 2025 but it is not clear that it will be extended again.

South Africa has benefited more than other African countries from AGOA but experts on US-SA relations said Ross’s speech signalled that South Africa had better start negotiating with the US soon for a two-way free trade agreement to replace AGOA.

Ross said that bilateral trade agreements, rather than large, multilateral ones, could be very effective tools in meeting the long-term interests of the partners involved.

“And studies show that developing countries with liberalised trade tend to grow faster than those that don’t.”

Meanwhile the US must ensure countries currently benefiting from trade preferences granted by AGOA continued complying with its eligibility requirements, Ross said.

He added that the African countries which met these requirements would include the continent’s major success stories in the future.

“They are the countries that have opened their economies – not restricted access to their market. They are the countries that have: fought corruption, promoted good governance and business ethics, and sought to enforce intellectual property protections. All of which are critical for generating growth and innovation,” Ross said.

He noted that when President Donald Trump had met African leaders in Italy at the G7 meetings, he said, “Africa is a place of opportunity.”

And Ross recalled that at his confirmation hearing, he himself had said that the US could not ignore “such a large, dynamic and vital part of the world.

“This year, six African nations are on pace to be among the top 10 fastest growing countries in the world. Visitors to African cities see cranes dotting the skyline and investors arriving from all over the world.

“Visitors also notice web-based apps, such as Hello Tractor – an Uber-Like platform that allows rural farmers to access tractors. Over the next five years, 19 sub-Saharan African countries are expected to achieve average growth rates of 5% or higher.”

 CCA 2

Address by Secretary of Commerce Wilbur Ross at the US-Africa Business Summit, 14 June 2017

I am honored to welcome President Nyusi, African Development Bank President Adesina, and the many other ministers and dignitaries here with us today…

And welcome to the esteemed group of business leaders participating in the summit.

When President Trump met with African leaders in Italy for the G7 meetings, he said, “Africa is a place of opportunity.”

And as I said during my confirmation hearing, we cannot ignore such a large, dynamic and vital part of the world.

We have received great feedback from American companies and members of our Advisory Council on Africa regarding the economic landscape of the continent.

This year, 6 African nations are on pace to be among the top 10 fastest growing countries in the world. Visitors to African cities see cranes dotting the skyline and investors arriving from all over the world.

Visitors also notice web-­based apps, such as Hello Tractor – an “Uber-­Like” platform that allows rural farmers to access tractors.

Over the next five years, 19 sub-Saharan African countries are expected to achieve average growth rates of five percent or higher.

And over the last five years combined, Ethiopia’s growth rate has been second highest in the world.

Africa is moving steadily on a trajectory of economic growth and increasing self­‐reliance – a vision this Administration supports.

In realizing that vision, African and international efforts to promote peace and implement economic reforms are bringing a new generation into a new consumer class.

Studies by McKinsey estimated that, by 2025, an additional 90 million African households will enter the consumer class, contributing to a total household purchasing power of $2.1 trillion.

This buying power is essential for sustained economic growth.

That growth is generating demand for new infrastructure, new machinery and equipment, and new consumer products and services.

The critical question that decision makers in Africa, including many of you, must ask is this:

As these upward growth trends continue, with what types of partners do you want to collaborate?

I believe that, the more African nations partner with U.S. businesses, the better off both the United States and Africa will be.

In 2016, U.S. exports to Africa were approximately $21.81 billion – nearly double the $10.96 billion in U.S. exports in 2000.

Total trade between Africa and the U.S. was approximately $48.3 billion last year, up nearly $10 billion since 2000.

And our trade deficit declined in that period from $16.7 billion to $4.7 billion.

All of these numbers are moving in the right direction, so let’s work hard to have those trends continue.

Through our dedicated Commerce representatives on the ground, we hear African customers are actively seeking out American goods and services.

This is not only due to the quality of American products – It is also because American businesses have a great reputation for local engagement and corporate responsibility.

Our trade relationship is vital to the security and stability of both the United States and Africa.

But our relationship with Africa has to continue its transition from being “AID-based” to “TRADE-based.”

To that end, having two-­way trade agreements, not just temporary trade preferences, would create long-term, sustainable improvements to quality of life on both sides of the Atlantic.

Bilateral trade agreements, rather than large, multilateral ones, can be very effective tools in meeting the long-­term interests of the partners involved.

And studies show that developing countries with liberalized trade tend to grow faster than those that don’t.

In the meantime, we must ensure countries currently benefitting from trade preferences granted by our African Growth and Opportunity Act (AGOA) continue complying with the eligibility requirements established in U.S. law.

The Administration takes these congressional requirements very seriously.

And in applying our laws, we will vigorously protect the rights of U.S. companies and workers in the global arena.

Since its inception in 2000, AGOA has given duty‐free and quota­‐free access to the U.S. market on approximately 6,000 products from qualifying African countries.

And so, I would contend that the countries that meet the AGOA Eligibility Requirements will include the continent’s major success stories in the future.

They are the countries that have opened their economies – not restricted access to their market.

They are the countries that have: fought corruption, promoted good governance and business ethics, and sought to enforce intellectual property protections.

All of which are critical for generating growth and innovation.

One excellent opportunity that African countries currently face is the new WTO Trade Facilitation Agreement, or TFA.

This agreement streamlines customs operations, enhances transparency, removes red tape, and reduces costs to exporters and importers.

It came into force in February of this year.

U.S. business leaders engaged in Africa recently advised the President:

“Full implementation of the TFA is a ready‐made opportunity to support the changes that Africa needs to address administrative burdens that raise trade‐related transaction costs to unsustainable levels.”

And WTO estimates that, if the least developed countries fully implement this agreement, it would reduce costs and enhance competitiveness, generating a 35 percent increase in exports.

Trade facilitation already forms a key part of the reform agenda of African regional economic communities.

The TFA strengthens these efforts and provides avenues for technical assistance. I challenge the leaders in this room to fully implement the TFA.

This brings me to a broader point. As Commerce Secretary, I work to ensure American businesses face favorable operating environments in the countries they conduct business.

This is key to ensuring the current U.S.-Africa commercial relationship has a solid foundation for future growth based on mutual interests.

And so, I want to take a moment to speak directly to my colleagues from African governments.

It is important to make sure that U.S. companies are in the best position possible to enter new markets in Africa – and that those companies already there are successful.

I hope that when U.S. companies seeking to do business in your country encounter obstacles, you will give them the consideration they deserve and work constructively to resolve any issues.

As a former global investor myself, I appreciate how important an open and transparent business climate is to any company looking to operate in a given country or region.

Access to markets, recognition of truly international standards, due process in procurement and protection of intellectual property:

These are the factors that help foster mutually beneficial relationships between U.S. companies and African governments seeking to attract investment and create jobs.

To illustrate my point, the need for infrastructure development is huge. And the way projects are procured plays a major role in their success.

There have been many failed infrastructure projects that can be traced back to the procurement stage.

In many countries in Africa, and around the world, for that matter, procurement is decided on the basis of the lowest price.

But while many may think they are saving money, we have seen repeatedly that when life cycles and quality factors are not considered in the procurement process, projects frequently face large cost overruns, safety or performance issues, and delays.

In short, you get what you pay for.

And so low cost procurement has not always been good for Africa.

Nor has it been good for U.S. companies, who tell us they can’t or won’t enter markets where low cost procurement is the norm.

In all, I am encouraged about the U.S.-Africa economic relationship.

We’ve recently witnessed several very positive developments regarding our trade relationship with Africa that give us hope for the future.

Since January 2014, the Commerce Department’s Advocacy Center has helped American companies win 29 separate major tenders in Sub‐Saharan Africa.

The value of these “wins” was approximately $7.6 billion, with $2 billion in U.S. export content.

We have also seen an ever-increasing number of small and medium sized American businesses exporting to Africa.

U.S. firms are actively bidding on an additional 147 tenders in the region valued at more than

$44 billion.

We’ve witnessed more and more American businesses pursing projects across the entire continent – not just in a few targeted markets.

And we’ve started to witness a small but incrementally growing number of African companies investing and creating jobs in the United States.

For example, Sasol (SAH-Sole), the South African energy firm, is fast approaching completion of a $9 billion ethane plant in Westlake, Louisiana.

The project is creating more than 500 full-time, high-paying manufacturing jobs, more than 5,000 in construction, and thousands more support jobs in Louisiana and across the United States.

We all can benefit from more of these exchanges in both directions.

I hope you will consider the Department of Commerce and the numerous Africa experts on our team as a resource as you continue your great work.

We do everything from providing market analysis and research, to assisting firms in identifying local partners or customers.

Beyond that, I look forward to gaining further insight from our Advisory Council on Africa members – all of which are private companies successfully doing business in Africa and supporting job creation in the United States.

U.S. companies continue to make their presence known in Africa because American ingenuity, premium brands, life cycle support, and technology transfers are key differentiators that we bring to the table.

We are headed in the right direction, but there is always room to improve. I look forward to seeing what the future holds.

Thank you again for having me today.

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