TRALAC - Trade Law Centre

Renewal of AGOA a benefit to both US and Africa

Wednesday, 13 August 2014 Published: | Rob Davies guest column (Minister of Trade)

Source: Business Day (South Africa)

Following the conclusion of the US-Africa Summit in Washington DC last week, it is opportune to reflect on some of the outcomes for SA and Africa.

On the eve of the summit, ministers of trade from those African countries that are eligible for the trade preferences under the African Growth and Opportunity Act (Agoa) called upon the US to seamlessly and timeously extend Agoa for at least 15 years, without conditions.

This message was reiterated in the Agoa Ministerial Forum, where the African trade ministers had an opportunity to engage with US Trade Representative Michael Froman and convey the importance of Agoa for Africa’s growth, industrial development and regional integration.

SA therefore welcomes President Barack Obama’s announcement during the US-Africa Business Forum, and earlier by Froman during the Agoa forum, that the administration will work with Congress for a long-term renewal and enhancement of Agoa. It was therefore also gratifying that during the Agoa forum, members of Congress indicated that there was wide bipartisan support for the renewal of Agoa, and it was simply a question of "when" and "how".

Following their comprehensive review, we are encouraged that the US is considering expanding product coverage under Agoa to include other products of export interest to African countries. The US will also be working to identify ways to provide greater flexibility in the rules of origin under Agoa to "encourage regional integration and development of regional value chains, and to incentivise more US-Africa trade". The US government has also indicated that it will be reviewing Agoa’s eligibility criteria.

There is recognition that tariff preferences alone are not sufficient to boost trade. In order to maximise Agoa utilisation, the US agrees that Agoa must be linked to a comprehensive trade, investment and development strategy aimed at overcoming supply-side constraints to trade in Africa, building trade and human capacity, improving the private sector enabling environment and driving demand.

Agoa benefits both the US and Africa. For SA, more than 90% of our exports to the US enter duty-free through a combination of access under the most favoured nation (MFN) treatment, the Generalised System of Preferences (GSP), and Agoa.

Last year, Agoa and the GSP together accounted for 44% of SA’s exports to the US. One estimate indicates that 62,000 jobs were created in SA due to Agoa.

Our analysis also shows that about 75% of US exports to SA enter duty-free under our MFN regime. SA remains the largest market for US exports in Africa. In his address at the Agoa forum, Froman indicated that Agoa exports supported 120,000 jobs in the US.

Although SA runs a small trade surplus with the US, benefits flow both ways. About 70% of SA’s exports to the US are manufactured goods and 30% are raw material or intermediate inputs. Exports of manufactured goods support jobs and industry in SA.

With industrialisation comes the need for greater investment in infrastructure. For its part, SA invested more than R1-trillion in infrastructure over the past five years and plans to invest a further R2-trillion, and US firms will have many new opportunities to participate profitably.

Agoa exports create both the demand for infrastructure and the liquidity to pay for it. One notable example was the award to General Electric to supply 300 locomotives to SA as part of our effort to upgrade rail infrastructure.

Agoa can also support regional integration in Africa by helping to build regional value chains. For instance, some companies in neighbouring countries supply the leather that goes into the cars made in SA that are exported to the US under Agoa. Similarly, in the clothing industry, SA exports zips, buttons, thread, wadding, tapes and elastic to our neighbours, which, in turn, produce clothing for export to the US under Agoa.

All trade relations encounter friction from time to time, and the US and SA have established the Trade and Investment Framework Agreement as a platform where such issues can be taken up and addressed. It is on this platform that we propose to address US concerns regarding exports of beef, poultry and pork.

Despite such problems, it is important not to lose sight of the fact that bilateral trade and investment relations have widened and deepened — and will continue to do so.

Davies is trade and industry minister.


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