This is not the first time that South Africa’s actions put it at risk of losing preferential trade access to the US. In 2015, the US warned that changes to legislation that would limit foreign ownership of private security companies in South Africa may affect the country’s inclusion in the African Growth and Opportunity Act.
Presidential Proclamation to take Certain Actions Under the African Growth and Opportunity Act and for Other Purposes
AGOA 31 JANUARY 2020
Cabinet approves start of free trade talks with the USThe Cabinet has approved the commencement of talks with the United States of America to establish a free trade arrangement between the two countries. The meeting chaired by President Uhuru Kenyatta acknowledged that negotiations once concluded will ensure Kenyan goods have smooth access to the expansive US consumer market especially as the preferential African Growth and Opportunity Act pact comes to an end.
The president also had some time for South African race politics this week when he waded into the issue of ‘South Africa land and farm seizures and expropriations..
Watch Trump’s full speech to African leaders
South Africa’s export industry is set to take strain from the US’s decision to revoke trade benefits under the World Trade Organisation (WTO) general system of preferences for developing nations as it hits on a long-standing bilateral export market. US President Donald Trump on Monday narrowed that nation’s internal list of developing and least developed countries to reduce the threshold on whether the imports harmed US industries with unfairly subsidised exports. The US is South Africa’s third-largest trading partner.
The revoking of the trade benefits could see the manufacturing sector losing billions of rand in revenue. It will make it easier to penalise a number of developing countries, such as China, India and South Africa, which the US views as not befitting the “developing nations” status.
The two countries do brisk trade in machinery, healthcare, minerals and metals, electronic products, footwear, energy related products, agricultural industry implements and produce as well as textiles and apparel amongst others.
It would also attract higher import duties and levies to the US market. The National Association of Automobile Manufacturers of South Africa (Naamsa) said the move was a tragedy for the industry and economy as all preferential treatment was crucial.
“The US has been one of South Africa’s top export destinations and trading partners for the past three decades. In 2019, a total of 12 437 vehicles were exported to the US along with automotive components to the value of R4.8 billion,” said executive manager Norman Lamprecht.
The General System of Preference (GSP) allows for the bulk of local automotive components to enter the US duty-free, while the African Growth and Opportunity Act (Agoa), an extension of the GSP bestowed towards 39 African countries, including South Africa, allowed for duty-free access of manufactured vehicles exports.
The revoking of the GSP treatment was especially poignant for South Africa, because there are strong indications that its extended programme (Agoa) would likely not be renewed in 2025. “If we lose preferential treatment, we lose an important export market,” Lamprecht said.
Steel and Engineering Industries Federation of Southern Africa economist Michael Ade said the revoking of special preferences would make it difficult for South Africa to implement countervailing duties. Ade said the WTO rules required governments to terminate their countervailing duty investigations if the amount of foreign subsidy was de minimis, which is normally defined as less than 1 percent ad valorem. He said a different standard for so-called developing nations that requires investigators to terminate duty investigation if the amount of subsidy is less than 2 percent ad valorem applies. “This is a travesty from our perspective,” Ade said. “The challenges of high inequality, high unemployment, low growth and others mean that South Africa has every right to be declared a developing nation. Maybe China and India can live with that status, but here we have a Gini coefficient of 6.3 percent, which is very high.”
South Africa’s government will tell President Donald Trump’s administration that its review of a preferential trade agreement that could put as much as $2.4bn (R35bn) in exports at risk is premature and potentially damaging for both economies.
The US Trade Representative will start public hearings on Thursday to review the nation’s duty-free access to the US market under the so-called Generalized System of Preferences, its oldest and largest trade-preference program for the world’s poorest economies.
That’s after it accepted a complaint from the International Intellectual Property Alliance – a private-sector group that represents 3 200 US companies including the makers and distributors of books, films, music and video games – that alleges South Africa’s Copyright Amendment Bill and Performers’ Protection Amendment Bill fail to “provide adequate and effective protection of US copyrights.”
According to the pre-hearing brief filed by South African Embassy in Washington DC, senior officials in the Department of Trade and Industry will argue that the IIPA’s concerns are “at best speculative and certainly premature” as the proposed bills are not yet in operation and undergoing a review by President Cyril Ramaphosa. Xavier Carim and Evelyn Masotja will make the representations.
To qualify for GSP benefits, a country must meet the criteria established by Congress and the extent to which the country provides adequate and effective protection of intellectual property rights may affect its eligibility.
This is not the first time that South Africa’s actions put it at risk of losing preferential trade access to the US. In 2015, the US warned that changes to legislation that would limit foreign ownership of private security companies in South Africa may affect the country’s inclusion in the African Growth and Opportunity Act. The bill was passed by parliament, but was not signed by the president.
If the outcome of the review is negative, South Africa could lose its preferential market access under the GSP and AGOA, which together allow most sub-Saharan African countries duty-free access to the US market for almost 7 000 products. This could deepen the malaise of an economy stuck in the longest downward cycle since World War II.
Trade in goods and services between South Africa and the US was $18.9bn in 2018, with $2.4bn of exports from South Africa that happened under the two preferential programs, according to US government data.
South Africa’s agricultural sector has the “greatest exposure” to a potential loss of preferential market access, according to Eckart Naumann, an independent economist and associate at the Stellenbosch-based Tralac Trade Law Centre. About 75% of US-bound farm exports, which is equivalent to $304m, was cleared under duty-free preferences in 2018, he said.
The country is the second-largest source of imported oranges in the US and also ships table grapes, litchis and avocados to the world’s biggest economy. The viability of the local fresh-produce industry, which supports more than 300 000 jobs, could be affected by a loss of access to AGOA, Anton Kruger, the CEO of the Fresh Produce Exporters’ Forum South Africa, said in his submission.
The South African and US minerals and metals industries could be affected by a negative review, even though only 15% of the $4.75bn in US-bound freight used GSP and AGOA preferences last year.
Hulamin, a Johannesburg-listed aluminum semi-fabricator that supplies the US with metal used in the production of beverage cans, vehicle manufacturing and construction, estimates that a loss of these benefits would increase the price at which it delivers aluminum sheet and plate products in the US.
“This could ultimately have profitability implications for companies that are importing aluminum for further processing,” the company said in its submission to the US Trade Representative.
There will be no change to South Africa’s GSP or AGOA benefits during the review process, a US embassy official in Pretoria said.
This was already said in October 2019
South African exports to the US are at risk pending a review of the country’s eligibility for a preferential-trade programme.
The US Trade Representative lodged the review of the nation’s duty-free access to the US market under the so-called Generalized System of Preferences, its oldest and largest trade-preference program for the world’s poorest economies, due to concerns with copyright protection and enforcement.
Trade in goods and services between South Africa and the US was R275bn in 2018, according to US government data. Failure to comply with US could see South Africa lose preferential market access under the GSP and the African Growth and Opportunity Act, which allows most sub-Saharan African countries duty-free access to the US market for more than 6,000 products.