There is no doubt that the African Growth and Opportunities Act (AGOA) dominated the trade relationship between South Africa and the US in 2015. While many of us were enjoying the summer slow down in South Africa, work continued behind the scenes to ensure that 2016 would see uninterrupted access for agricultural exports to the US under AGOA. It is worth revisiting some aspects of this issue as it is still not fully resolved and provides insight into South Africa’s broader trade policy.
For the first half of last year there were engagements on the renewal of AGOA itself. AGOA is a legislative act of the US Congress that is intended to contribute to the economic development of qualifying African countries by providing duty and quota free market access for some exports. It is often confused with trade agreements but it is worth remembering that it was not negotiated between the US and African states. The market access preferences are provided by the US if an African country meets certain criteria that are set out in the AGOA legislation. It is not given in exchange for any reduced tariffs on American exports to the continent.
South Africa qualifies for AGOA preferences and has been the most successful African beneficiary in terms of the amount of products it has been able to export to the US over the past 15 years. During that time China has overtaken the US as a trading partner, but it remains amongst the most important markets for South African exports. This is especially the case for manufactured products or those with greater value addition than commodities. For example, the US is a key market for motor vehicles assembled in South Africa. There is no doubt that it is more difficult to compete in China, India and other Asian markets when it comes to such products.
When it came time for AGOA to be renewed in 2015, questions were raised about whether South Africa should continue to be eligible. Some in the American legislature argued that South Africa did not need AGOA for its development, and that as an ‘emerging economy’ it should no longer qualify for preferences. South Africa’s conclusion of an extensive free trade agreement with the European Union was also noted by the US and raised concerns about the competitiveness of American exports to the South African market.
South Africa overcame this hurdle, through some impressive economic diplomacy by Minister Rob Davies and his team in Washington. However, there were signs that the US is now prepared to use the leverage that AGOA provides to address some long-running concerns in their trading relationship with South Africa (such as access for poultry, pork and beef products). This leverage was also raised against broader concerns voiced by American business about the direction of economic policy in South Africa and the impact on the investment environment of draft legislation and regulations (the private security industry reforms, for example).
So it should not come as a surprise that the out of cycle review that South Africa has been through under the new AGOA legislation has not been an easy process. The US has seized the chance to place considerable pressure on South African officials to focus on and progress technical trade issues that have been brushed aside for some time. And the strategy worked, especially when the Americans announced that the consequences of failure would be to remove the preferences for agricultural exports from South Africa. The latest communication from President Obama gives South Africa until 15 March 2016 to not only address the concerns at a policy level but to ensure implementation of the changes through a requirement to see products on shelves.
Leaving aside the technicalities of the AGOA process, it is worth highlighting some broader lessons. First, communication is critical. The South African Department of Trade and Industry has chosen to down-play the risks and to put up an optimistic front throughout. Minister Davies has provided numerous assurances that the process is on track and that there will be a positive outcome for South Africa. It was unfortunate that on a number of occasions this message was undermined by distinctly anti-American rhetoric from other politicians, the governing party and members of the governing alliance. It is one thing for the Trade Minister to recognise the importance of AGOA preferences but another for there to be wider buy-in to the broader partnership between South Africa and the US. These mixed signals are reflected in the degree of mistrust the Americans have shown by insisting on full implementation of any agreement on imports of poultry.
Second, there is specific need for communication and mutual understanding between the government and the private sector on economic issues like AGOA. Even if it is decided to maintain a positive spin in public, government officials need to be open and honest with the business community about the status of the negotiations in regular, closed briefing sessions. These can’t just be with a select group of people but must reflect the key stakeholders who will be impacted by any changes. The constraints of having an institutional platform (like NEDLAC) that is not operating as optimally as possible make this more difficult than it should be if there were effective channels for public-private dialogue in South Africa.
Finally, the AGOA review process has highlighted the challenge of entering into a trade negotiation where one party holds all the cards. South Africa’s current trade policy approach is built on a reluctance to consider broad based free trade agreements, with even those discussed with African neighbours being of limited scope. If South Africa were more open to the idea of a negotiation with the US (among others) then the issues under consideration currently would be part of a broader agenda that would enable a range of different trade-offs to play out in pursuit of a mutually satisfactory outcome. It is time for South Africa to take a fresh look at its stance on trade negotiations and take advantage of the opportunities that exist for trade to contribute to the development and growth of the economy.