US-South Africa negotiations for a FTA will prove challenging

US-South Africa negotiations for a FTA will prove challenging
South African parliament, Cape Town

Although South Africa is eligible for special benefits under the 1999 US Africa Growth and Opportunity Act (AGOA), South Africa's clothing exports to the US were increasing more rapidly before AGOA than after AGOA, University of Cape Town Professor David Kaplan has said.

Speaking at the Trade & Industrial Policy Strategies (TIPS) conference, the former Department of Trade & Industry (DTI) chief economist said South Africa's share of the US market has been declining post-AGOA, while the share of other African countries that are eligible under AGOA are rising rapidly.

"Concomitantly, despite AGOA, there have been very few new investments into South Africa — particularly on the part of large integrated clothing firms focused on the US market. There has also been little new investment on the part of existing export-oriented clothing firms. By contrast, other African countries have attracted significant new investments in clothing and, more recently, in some countries, notably Lesotho, in textiles as well," Kaplan said.

"AGOA represents a singular window of opportunity for the expansion of the South African clothing industry. If this opportunity is not exploited, there are potentially serious adverse consequences for the future of the industry," he said.

In his view, the fault for the lack of progress lay with a deadlock between the textile and clothing industries.

"The textile industry will not invest in more capacity as they think that clothing manufacturers will not be able to expand after quotas are withdrawn in 2005. Clothing manufacturers cannot source all the fabric they need from South African textile producers. That means they cannot expand their exports to the US due to the stringent rules of origin.

He added that where South African clothing producers did not have access to the requisite fabric — man-made fibres and wool, in particular — there had been significant export growth and South African producers had been expanding their share of the US market.

By contrast, in the case of cotton apparel, exporters have had major difficulties in sourcing the requisite fabric locally and the consequence has been a significant decline in cotton-based apparel exports.

"Prior to AGOA, cotton apparel constituted more than 90 percent of South Africa's apparel exports to the US, and it is cotton apparel that has accounted for the comparatively poor performance of South African clothing exporters to the US.

Moreover, this decline is unique to South Africa.

"Recent producer price indices for textile inputs are very revealing. Textile and particularly spinning and weaving manufacturers were able to increase their prices very significantly early in 2002. While for total manufacturing and clothing prices also increased with the sharp depreciation of the currency, the increases were far larger in respect of textile products. Moreover, the rate of increase of manufacturing and clothing prices begun to decline thereafter."

Kaplan said, however, that as AGOA came into effect, textile product prices maintained their rate of price increases, which was strongly suggestive of considerable fabric shortage and the power of fabric producers.

In his view there was scope for industrial policy to ensure that both sectors expanded at the same time, so there would be no bottlenecks at either end.

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