TRALAC - Trade Law Centre

AGOA compromises raise questions about goals

Wednesday, 03 February 2016 Published: | XHANTI PAYI

Source: Business Day (South Africa)

Industrialisation or re-industrialisation has been on the lips of politicians in the past few months, especially in the context of giving impetus to the rise of black industrialists and creating long-term jobs.

The fray over the US’s African Growth and Opportunities Act (Agoa) seems isolated, but it forms part of a rather disjointed debate about local industry, exports and the creation of work in decades to come.

We’ve often made the mistake of evaluating economic benefits in silos — looking at individual industries or sectors; even ministries and departments of government develop conflicting policies. The Agoa debate faces such a danger.

There is no doubt that South African firms have benefited under Agoa. Statistics show that the opportunity to export to the US under Agoa has resulted in billions of rand in revenue and thousands of jobs.

Looking ahead, though, does this mean that at the end of the new 10-year renewal period South African industry will be in a position to compete with and gain access to US markets without the need for a preferential regime?

Trade and Industry Minister Rob Davies correctly points out — and this has been evident in announcements from US President Barack Obama’s office — that the benefits under Agoa are diminishing. The US will continually seek reciprocity for the concessions it grants in terms of trade and investment. This is evident from the poultry debate, in which the US sought access to South African markets after granting access to South African products under Agoa.

It is also important to give consideration to history and context. Unlike Europe and even Asia, the US arrived rather late to the African trade and investment party. Agoa was its entry strategy, although this is not openly stated. It came with particular caveats that are important for both US economic and foreign policy.

For example, the US has set criteria for inclusion in Agoa, stating that a participant must have "established" or be "making continual progress towards establishing, a market-based economy that protects private property rights, incorporates an open rules-based trading system, and minimises government interference in the economy through measures such as price controls, subsidies and government ownership of economic assets".

This would include the "elimination of barriers to US trade and investment…."

Thus, the president of the US may terminate the designation of a country under Agoa if he determines that a country is not compliant or moving towards compliance. This was the case with regard to the poultry wrangling.

The requirements have gone further than just the elimination of trade barriers to US products, extending to a requirement for US products to be visible and accessible to South African consumers.

US trade representative Michael Froman remarked: "While we celebrate the progress we have made in resolving the outstanding technical issues, the true test of our success will be based on the ability of South African consumers to buy American product in local stores.

"We will be working to ensure that this final benchmark of entry of poultry is achieved, so that SA continues to have the advantage of full Agoa benefits."

This is interesting because Agoa has evolved from what many regarded as an aid or economic access programme into an instrument for the creation of markets for US goods. This is not objectively bad from the perspective of the US. But it does raise important questions about long-term industrial trade and industrial policy as implemented today by the government.

It has to be asked, in defending the benefits under Agoa, whether the government is making short-term choices rather than thinking long-term about developing domestic industry over time.

What effects will the concessions made by the government have on the long-term prospects of dometic industry and, thus, job creation?

More specifically, how will it affect budding enterprises in poultry, and especially black poultry producers so necessary in the Department of Trade and Industry’s ambitions to support black industrialists?

In the end, the trade agreements we sign and defend have to face not only scrutiny over costs and benefits, but their effects on developing industries that are strong enough to stand independently of "preferential" trade regimes.

The US with which we are negotiating is very clear about both short-and long-term benefits, addressing issues that are more comprehensive than just border access, and include access to the consumer.

 

• Payi is an economist and head of research at Nascence Advisory and Research

 

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