Giraffe in city street [News]For observers of international relations and trade policy issues there was not much to catch the attention in the State of the Nation Address in February 2015. Four months later, however, it is interesting to note that President Zuma may have been in on a secret when it comes to African relations with the United States.  President Zuma said at the time “The renewal of the African Growth and Opportunity Act [AGOA] beyond September 2015 and a pledge to support African-led peace initiatives in the continent are among the significant outcomes of the United States (US)-Africa Leaders’ Summit held in the US last year.”

Back in February this was not an accurate statement. At the US-Africa Leaders’ Summit in 2014 there was an expression of support for the renewal of AGOA from the Obama Administration but no decision was taken. AGOA is enacted through legislation, which must be prepared and adopted by the US Congress, and is out of the direct control of the American President.  This process is well understood by South Africa’s trade officials and diplomats so it is likely that the mistake in the SONA was simply a result of editing as the text passed through many hands on its way to the President.

Nonetheless, since that portentous reference there have been significant developments and the Trade Preferences Extension Act of 2015 has overcome its first major hurdle in being passed by the US Senate. There is still some way to go before the next phase of AGOA is guaranteed but the adoption of this bill should be welcomed by South Africa and viewed as an important victory. South Africa has been included in the 10-year extension of AGOA despite a tense bilateral relationship and ongoing challenges in resolving market access issues. At various times over the last year commentators have predicted that South Africa could be graduated or removed from the list of AGOA eligible countries. Alternatively there was talk of a mere 3-year extension for South Africa. Neither of these damaging scenarios eventuated, in part due to the effective lobbying by South African Trade Minister, Dr. Rob Davies, and his team.

So why then was the reaction of Minister Davies to the Senate decision such an unhappy one? He even went so far as to suggest that the benefits of AGOA to South Africa might soon be outweighed by the costs. At face value the advantages seem clear and the costs less so. South Africa has been able to take advantage of the tariff preferences offered under AGOA to export a range of products, including cars and some processed agriculture goods. These exports have directly attributable employment benefits and contribute to the national development priorities of South Africa. In an assessment of the value of AGOA, the question would be if these exports would take place if the legislation was no longer there or would South African goods remain competitive despite losing the preferential access (which in some cases is lower than 2.5{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}).

To date there has been no cost for AGOA to beneficiaries. It is a unilateral trade preference arrangement that is offered by the US to some African countries and there is nothing requested in return by way of trade concessions. This has changed for South Africa however and maybe the reason for the frustration expressed by Minister Davies. First was the ‘chicken war’ between the two countries that only saw some level of resolution over the weekend following industry talks in Paris. This was a battle around the anti-dumping duties applied by South Africa on imports of poultry from the US and it was well documented by industry representatives and other commentators. Here South Africa has offered additional market access to the US (reportedly a quota of 65,000 tonnes). This was clearly a price extracted by certain interest groups in the US for South Africa’s ongoing participation in AGOA.

Of broader interest is the second factor, the out-of-cycle review provision that was included in the bill passed by the Senate. This is specific to South Africa and requires an assessment of the openness of our market to US products to be done within 30 days of enactment of the legislation. The review will be broad in scope and is expected to reflect on a number of irritants in the bilateral relationship that have found political interest among US lawmakers who are seeking to use AGOA preferences as leverage to resolve them, such as changes to the black economic empowerment codes and immigration regulations. These include complaints from US companies that are reflected in the 2014/2015 national trade estimate of the US Trade Representative as well as more recent developments, like proposed reform of the security industry and intellectual property rights policy.

Whether the out-of-cycle review clause will survive consideration of the bill by the House of Representatives remains to be seen but South Africa is clearly not impressed by the prospect of having its trade and investment climate subject to scrutiny by the US. This is likely to be a challenging process that will raise some uncomfortable issues for the government. Approaching it defensively and negatively is however likely to make it much worse. The truth is that the economic relationship between the two countries has been tense for a number of years now and there is a certain degree of inevitability that it would reach a tipping point sooner rather than later. Both parties need to embrace the review as an opportunity to clear the air and to reassess their interactions on trade and investment issues. If South Africa is to remain open to business then listening carefully to the concerns raised by the US and responding constructively has the potential to set us on a positive new course with an important economic partner. The reality is that trade preferences (such as AGOA) are meaningless unless South Africa takes the necessary steps to improve its industrial base and increase the competitiveness of its producers.

Tutwa will shortly be publishing a more detailed briefing note on AGOA and other aspects of US-Africa relations.