SA in a flap over suspension of AGOA trade benefits

16 November 2015

US President Barack Obama has chided South Africa for failing to comply with the conditions of the African Growth and Opportunity Act (AGOA). In a letter to the US Congress, Obama warned that South Africa could lose its trading benefits under AGOA, due to tariffs imposed on US poultry, pork and beef imports.^[1] SA has 60 days to comply with the notice issued by President Obama or face suspension from AGOA benefits.

AGOA gives African countries, including SA, preferential access to US markets (SA currently enjoys duty-free status on more than 6,000 products) in exchange for reciprocal trade obligations for US goods.^[2] However, in the recent 10-year extension of AGOA by US legislators, an amendment to review South Africa’s AGOA status was introduced.

The amendment compelled the US Trade Representative to SA, Michael Froman, to conduct an out-of-cycle review of SA’s AGOA eligibility. Froman’s review identified barriers to trade for US meat imports, and urged SA to take steps towards eliminating these barriers, failing which, AGOA benefits would be suspended.^[3] 

Losing the duty-free status afforded by AGOA would affect a range of South African agricultural exports to the US. Affected goods include citrus, which were valued at US$ 57 million through the first nine months of this year; macadamia nuts, worth US$ 43 million in 2014; and wine, worth US$ 33 million in 2014.^[4]

In a statement issued on 5 November, US Ambassador to South Africa, Patrick Gaspard, highlighted the work that had gone into retaining SA’s participation in AGOA, and stressed that the door was still open, subject to certain conditions being met:

“The US arrived at the decision to suspend certain AGOA benefits for South Africa only after many months of discussions. While the United States and South Africa have made significant progress in resolving outstanding issues, our trade in all three meats remains blocked,” Gaspard said.

These sentiments were echoed by US Senators on both sides of the political spectrum, including Georgia Republicans, Johnny Isakson and David Perdue, and Delaware Democrats, Tom Carper and Chris Coons. Citing a 100% tariff imposed on US chicken, the group of senators argued that "South Africa does not deserve to receive benefits under AGOA as long as they refuse to drop unfair trade policies that have effectively slammed the door on American chicken imports for over a decade."^[5]

SA’s failure to comply with AGOA conditions could have dire consequences for job creation. According to the US Embassy in Pretoria, since its inception in 2000, AGOA has contributed to over 85,000 jobs in the citrus sector; 35,000 direct (and 55,000 indirect) jobs in auto assembly; and all the other sectors combined have benefitted from the creation of at least 10,000 jobs. 8% of the SA wine industry’s production goes to the US, and it employs more than 300,000 people.^[6] Total annual revenue from AGOA-related exports amounts to R2,4 billion.

In a press conference held on 6th November, Minister of Trade & Industry, Rob Davies cited ongoing negotiations between veterinarians on both sides as a reason for the delays. “These issues are about animal health and are very complex — a balance has to be found between trade opening and animal health,” he said.^[7]

In response to the suspension, Democratic Alliance (DA) shadow minister for Trade & Industry, Geordin Hill-Lewis, requested the Speaker of the National Assembly, Baleka Mbete, to hold a special debate on the matter in parliament this week. At the time of writing, the Speaker had not responded to the DA’s request.

Writing in the Business Day on 16 November, ANC Chief Whip, Stone Sizani, dismissed the DA’s proposal as “opportunistic”. Mr. Sizane cited the avian influenza outbreak in 20 US states this year as the reason for the rigorous health inspections, and argued that the disease “has the potential to wipe out SA’s entire bird flock and harm human health if it is allowed to take hold.”^[8]

But are these health concerns legitimate or is the government cultivating alarmism to justify indirect trade barriers? In the same article, Mr. Sizane also stated that the negotiations “are about safeguarding our national interests, and SA’s negotiators have been doing just that.” This statement seems to speak to the protectionist agenda underlying SA’s bargaining position.

Where to for SA trade policy?

Minister Davies has stressed that SA is likely to meet the December 31st deadline to resolve the dispute and resume the import of US poultry into SA. However, even if the spat is resolved, relations with a critical trade partner are now severely strained.

Whether by willful neglect or design, if South Africa is suspended from AGOA the DTI’s actions will effectively protect local chicken producers from foreign competition at the expense of other export-driven industries (which rely on AGOA for their long-term sustainability).

The AGOA debacle is part of a broader shift in SA’s international trade policy towards protectionism and unilateralism. For example, SA has recently cancelled Bilateral Investment Treaties (BITS) with several European Union countries, including Germany, one of its largest trading partners.

At a time when the country is desperate to attract inward investment and boost flagging exports, these developments do not inspire confidence. Minister Davies should swallow his pride and lift the restrictions on US meat imports to ensure compliance with AGOA.

David Ansara is a delegate on the Bloomberg Media Initiative for Africa. He writes in his personal capacity.