US-SA trade dispute risks $1.7bn of exports

South Africa is fighting to retain duty-free access for exports to the US.
South Africa is fighting to retain duty-free access for exports to the U.S. worth as much as $1.7 billion a year in a dispute that pits farmers in the two nations against each other.

The U.S. is reviewing South Africa’s status as a full beneficiary of a preferential trade pact known as the African Growth and Opportunity Act, which eliminates import levies on more than 7,000 products ranging from textiles to manufactured items. AGOA, as the accord is known, was renewed in June for another 10 years, benefiting 39 African nations.

At the heart of the dispute are American chicken and cattle farmers who want South Africa’s government to remove trade restrictions imposed to protect the local industry from a flood of cheaper imports. While Trade and Industry Minister Rob Davies said on Sept. 29 that South Africa had done all it can to retain access to AGOA, the U.S. government says there are still major unresolved issues.

“South Africa needs to take concrete steps towards eliminating barriers to U.S. trade and investment, a key criterion to be eligible for AGOA trade benefits,” Trevor Kincaid, a spokesman for the office of the US Trade Representative in Washington, said in an e-mailed response to questions on Wednesday.  “Ultimately, South Africa’s AGOA eligibility is in South Africa’s hands.”

No sooner had the two countries reached an agreement over American chicken imports to South Africa in June, a new dispute emerged relating to import restrictions following an outbreak of avian flu in the U.S. Veterinary experts from the two nations met last month to discuss health concerns around the shipment of chicken, beef and pork to South Africa.

The risk of South Africa losing its AGOA benefit is not “based so much on the realistic assessment of the value of the South Africa market, it’s more about politics in America,” Christopher Wood, a researcher in the economic diplomacy department at the South African Institute of International Affairs, said by phone from Johannesburg. “The chicken caucus within the U.S. Congress is particularly strong.”

Kevin Lovell, chief executive officer of the South African Poultry Association, said by phone on Wednesday he expects the U.S. government and farming industry to “adopt a more equitable and reasonable approach.” The U.S. embassy in Pretoria said on Sept. 16 that eliminating barriers on American poultry and beef exports will address concerns raised by the industry.

AGOA has enabled South Africa to more than double its exports to the U.S. since 2000. Shipments under AGOA accounted for more than a fifth of the nation’s exports to the U.S. last year, according to data compiled by the Tralac Trade Law Centre, based in Stellenbosch, near Cape Town.

Agriculture products and vehicles, such as the BMW 3-Series manufactured at Bayerische Motoren Werke AG’s plant at Rosslyn outside the capital, Pretoria, benefit the most from the trade accord. Transportation equipment made up 75 percent of South Africa’s $1.7 billion shipments under AGOA to the U.S. in 2014, the Tralac Trade Law Centre’s data shows.

Eliminating barriers

To remain a beneficiary of AGOA, African countries are required to, among other things, eliminate barriers to U.S. trade and investment, operate a market-based economy, protect workers’ rights and implement economic policies to reduce poverty.

South Africa is accused of restricting U.S. businesses with plans to cap foreign ownership of private-security companies at 49 percent. If the law is passed, ADT Corp., based in Boca Raton, Florida, will be required to relinquish control of its South African unit.

African nations that no longer qualify as beneficiaries under AGOA include the Democratic Republic of Congo, Gambia and South Sudan. Swaziland lost its access in January because of an alleged lack of protection of workers’ rights, while Zimbabwe and Sudan aren’t eligible.

“South Africa is the key player under AGOA and neither side would want to see South Africa graduated out of the program — the economic and political fallout would be big,” Eckart Naumann, an independent economist and associate at the Trade Law Centre, said in an e-mailed response to questions. “There is a decent chance that South Africa may just scrape through.”

©2015 Bloomberg News


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