JB Cronjé, tralac Researcher, comments on the outcome of the out-of-cycle review of South Africa’s continued AGOA eligibility

On 5 November 2015 United States President Obama notified the House of Congress and South Africa in terms of the Trade Preferences Extension Act (TPEA) of 2015 of his intention “to suspend the application of duty-free treatment to all AGOA-eligible goods in the agricultural sector for the Republic of South Africa 60 days after the date of this notification”.

The TPEA was signed into law by US President Obama on 29 June 2015. The TPEA provides for the extension of duty free treatment for certain products from beneficiary Sub-Saharan African countries under the African Growth and Opportunity Act (AGOA) of 2000 and Trade Act of 1974.

The AGOA authorises the President to designate Sub-Saharan African states for preferential duty free treatment for additional products and textile and apparel articles not included for duty free treatment under the Generalised System of Preferences (GSP) as provided for in the Trade Act. A country may be designated as a beneficiary country if the eligibility criteria in section 104 of AGOA and section 502 of the Trade Act are met. In other words, the AGOA grants unilateral and non-reciprocal trade preferences to Sub-Sahara African countries provided they meet certain qualifying conditions. As with schemes of this nature, the US can remove and add products and beneficiary countries from duty free treatment under AGOA and GSP. For example, at the beginning of 2015 Madagascar was reinstated as AGOA beneficiary after its return to democratic rule and Swaziland’s eligibility was withdrawn due to a lack of progress on the implementation of internationally recognised worker rights. Similarly, from 1 January 2017 the Seychelles will be removed from the eligible GSP country list after it has recently surpassed the GSP income threshold. It is a precondition for Sub-Saharan African countries to be eligible for GSP in order to qualify for AGOA trade benefits.

Sub-Saharan African countries can, of course, make their trade relations with the US more secure and predictable through the conclusion of Free Trade Agreements under the rules of the World Trade Organisation (WTO). South Africa, as part of the Southern African Customs Union (SACU), once attempted but failed to conclude a Free Trade Agreement with the US. In July 2008, the parties managed to conclude only a Cooperative Agreement to foster Trade, Investment and Development (TIDCA). In a recent statement by the US Trade Representative at the WTO Trade Policy Review of SACU, Ambassador Michael Froman expressed the wish that the TIDCA should be used “as an effective vehicle to discuss the future of the U.S.-SACU trade and investment relationship based on a more mature, permanent, and reciprocal relationship”.

Nonetheless, the TPEA provides the President should conduct annual reviews about the eligibility of beneficiary countries and initiate an ‘out of cycle’ review for South Africa not later than 30 days after the date of its enactment. During the law-making process, several concerns were raised regarding South Africa’s compliance with the AGOA eligibility criteria. The main concerns relate to the application of import restrictions on US poultry, pork and beef and proposed restrictions on foreign ownership and investment in the private security industry. This placed a question mark on South Africa’s continued participation under AGOA and led to the ‘out of cycle’ review that was initiated on 21 July 2015.

Following the ‘out of cycle’ review and after engagement with South Africa at both technical and political level, the US has now reached the conclusion that the country has failed to resolve the issues in a timeous manner. Consequently, in the letter of 5 November, President Obama stated “that South Africa is not making continual progress toward the elimination of barriers to United States trade and investment as required by section 104 of AGOA”. The letter states in conclusion that he “will continue to assess whether South Africa is making continual progress toward the elimination of barriers to United States trade and investment in accordance with AGOA eligibility requirements, as well as whether this suspension of benefits is effective in promoting compliance with those requirements”. Although the suspension can be lifted at any time before or after the end of the 60-day notice period, it is clear that further steps will be considered if South Africa fails to comply.

South Africa has been the leading exporter of non-oil products under AGOA. For example, in 2014 South African exports represented 61 percent of the total non-oil and non GSP AGOA-eligible trade to the value of $1 75 billion. These exports consists largely of motor vehicles (75 percent of total), iron and steel products (10.6 percent), fruit and nuts (5.4 percent) and beverages and spirits (3 percent). The total value of the country’s agricultural exports during the same period was $174.7 million (read more in a Working Paper by Eckart Naumann). For example, in 2014 the country’s main agricultural exports were oranges ($41 million), wine ($33 million) and macadamia nuts ($31.8 million). None of the 45 agricultural products that are currently exported to the US under AGOA will qualify for duty-free treatment under the GSP programme. As a result, all agricultural products could from 5 January 2016 revert to Most-Favoured-Nation (MFN) level of treatment. It means that South African agricultural exports will lose all preferential treatment into the US market and will from that date attract tariff duty rates. These products are currently exported duty-free but will attract MFN tariff duties as indicated in the table below.

The warning from the US regarding the possible suspension of duty-free treatment for South Africa’s agricultural exports under AGOA should not be dismissed because it will negatively affect all agricultural exports. In fact, in a recent statement the US Ambassador to South Africa confirmed that they “will consider, no later than March 1, 2016, further action to limit, suspend or withdraw duty-free treatment for additional AGOA-eligible products from South Africa beyond those in the agricultural sector” if compliance with AGOA eligibility criteria is not met.

Table: South Africa agricultural exports to US (Customs Value 2014 for AGOA (excluding GSP))

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