Proposed legislation related to limitations on foreign ownership in the security industry in South Africa: AGOA matters
by Eckart Naumann, tralac Associate
The opening line of Public Law 106–200 of May 2000, known more commonly as the (original) AGOA legislation, reads: “To authorize a new trade and investment policy for sub-Saharan Africa…”. While the focus on trade preferences, market access and trade-related development has always been very obvious, less clear perhaps has been the focus on the legislation’s investment pillar, notwithstanding this representing a perpetual theme at the annual AGOA Forums held annually in Africa or Washington.
It’s worth revisiting the fact that AGOA is a non-reciprocal unilateral trade Act forming part of United States national law, and can be amended and or extended through Congressional action. The legislation is currently set to expire towards the end of 2015, unless its term is extended or it is replaced by another Act. Much has happened within the US political climate since the legislation was originally passed into law, and the bi-partisan and relatively non-controversial support that the legislation received at the time, is a thing of the past. Over the years, the US has become more hawkish regarding its trade-related policies, and more focused on prioritizing initiatives that ultimately also lead to the creation of local US jobs, and indeed an investor-friendly trade climate. This follows painful experiences relating to the financial crisis in 2009-2010, poor job creation numbers, a generally swelling trade deficit and so forth. Even in the AGOA legislation, the link between an investment-friendly climate and trade and development is often emphasized. The AGOA legislation also includes a finding relating to US interests in that the “reciprocal reduction of trade and investment barriers in Africa will enhance the benefits of trade and investment for the region as well as enhance commercial and political ties between the United States and sub-Saharan Africa”.
In terms of the AGOA eligibility requirements, these are likewise set out within the legislation and make direct references to investment. Countries must meet, or make continued progress towards meeting, a number of objectives. Some investment related provisions are noted below:
Sec 104 (a)(1)
(A) …market-based economy that protects private property rights, incorporates an open rules-based trading system, and minimizes government interference in the economy …
(C) the elimination of barriers to United States trade and investment, including by:
(i) the provision of national treatment and measures to create an environment conducive to domestic and foreign investment;
(iii) the resolution of bilateral trade and investment disputes…
Sec 104 (b)
Continuing Compliance: If the President determines that an eligible sub-Saharan African country is not making continual progress in meeting the requirements described in subsection (a)(1), the President shall terminate the designation of the country made pursuant to subsection (a).
The United States International Trade Commission (USITC) was last year tasked by USTR Ambassador Michael Froman to conduct four investigations around AGOA, informed in part by public hearings (transcripts here). At these hearings, the position of South Africa within the broader AGOA context was often in the spotlight, with various US stakeholders strongly and sometimes jointly opposing South Africa’s continued eligibility post-2015 unless it reduced certain trade barriers. These are voices that the politicians in Washington cannot easily ignore. South Africa is, in the three months to March 2014, the largest beneficiary of AGOA preferences and also has the most diversified export palette with respect to US exports. It remains important to understand the broader context and background to South Africa’s AGOA status when looking at the proposed legislation, which would place restrictions on the foreign ownership of investments and assets relating to the South African security industry (see an earlier tralac Discussion).
While the legislation was passed by the South African parliament, it has yet to be signed into law and may yet be rejected by the President, or sent back to parliament for adjustment to be made to the text. Given the large investments held in the security sector by foreign firms, notably American firms, there has been a strong backlash against these proposals. The Security Industry Association (SIA) in the US has written to the chairman and ranking member of the Senate’s finance committee (which is the committee that inter alia reviews, advises, considers and prepares relevant legislation for the Senate), protesting the South African government’s proposed legislation in the context of being (re)considered for AGOA renewal or any replacement programme. According to media reports, opposition to the legislation has also come from other quarters, domestically, and from the European Union.
While AGOA’s eligibility criteria were drawn up by US lawmakers, and individual countries’ eligibility will ultimately be adjudicated again by US lawmakers, on the face of it these measures – which are very broad in their scale and scope, and imply at least partial divestment from the industry – clearly place South Africa at odds not only with its international obligations, but also with the requirements (in the form of eligibility criteria) of the AGOA legislation. It is quite apparent that South Africa does not appear to have fully considered the implications of proposed laws and policies that will have deeper and longer-term impacts with regard to its own international trade and investment regime, and preferential access to foreign markets. South Africa needs AGOA, and the US needs South Africa to remain in the fold, for economic and political reasons. Every trade transaction has benefits for both sides – the exporter and the importer, and all sides have much to lose. But the timing of these proposed measures, in the overall context of more recent US trade and investment policy prerogatives, and the renewal debate currently going on in Washington and elsewhere (with South Africa’s ongoing status already somewhat precarious), could not really have come at a worse time.