Implications of AGOA out-of-cycle review for South Africa
Willemien Viljoen, tralac Researcher, discusses the implications of a new provision in the AGOA Extension and Enhancement Act of 2015 for out-of-cycle reviews
On 14 May 2015 the United States (US) Senate approved the African Growth and Opportunity (AGOA) Extension and Enhancement Act of 2015. This approval is the first step in extending AGOA for another 10 years. This is a welcomed turnaround from the beginning of April when the extension was in question due to an ongoing battle between the US and South Africa over anti-dumping duties on US chicken imports (see previous discussion note). Although the chicken issue is yet to be resolved, South Africa, for now has been included as a beneficiary under the AGOA extension. But for how long? This is due to a new provision in the AGOA Extension and Enhancement Act allowing for out-of-cycle reviews.
Out-of-cycle reviews have been included under Section 105 of AGOA which relates to the monitoring and review of the eligibility of beneficiary countries. According to the subsection a review can be initiated at any time to determine whether a beneficiary sub-Saharan African country still meets the eligibility criteria set out in Section 104 (a)(1). The eligibility requirements state that countries should make ‘continual progress towards establishing’ inter alia a market-based economy, an effective legal dispensation, an effective labour law system and eliminate barriers to US trade and investment. According to Section 104 (a)(1)(C) ways in which barriers can be eliminated include the provision of national treatment and the creation of a conducive environment for foreign and domestic investment, the protection of intellectual property and an effective dispute resolution process.
Furthermore, Section 105 (4)(E) allows for out-of-cycle reviews for specific countries to be initiated within 30 days of the enactment of the subsection. South Africa is the first country to undergo this review due to concerns raised about South Africa’s compliance with the eligibility criteria. However, the subsection also mentions that any other country concerns have been raised about will also be subject to a review within the first month of enactment. South Africa being chosen as the first country subject to review is linked to numerous barriers to trade and investment concerns in the South African market raised by the US private and public sector. These include:
The Private Security Industry Amendment Bill of 2012 which requires majority local ownership of security companies (see discussion note)
South African anti-dumping duties on US chicken imports that have been in place for the last 15 years and the inability of the producer organizations to reach an agreement on a rebate on the anti-dumping duty.
Inability to enforce copyright and trade mark rights leading to losses due to counterfeiting and piracy.
Various other trade barriers experienced in the South African market. According to the 2014 National Trade Estimate Report on Foreign Trade Barriers there has been a significant increase in the barriers faced by US exporters and investors in the South African market. These include US exports of cosmetics, textiles, trucks and agricultural products being disadvantaged compared to goods exported by the European Union (EU) due to preferential tariffs under the EU-South African Trade And Development Cooperation Agreement (TDCA); import permit requirements for controlled and uncontrolled goods; excessive regulation; unjustified standards and sanitary and phytosanitary measures; government procurement policy and requirements; scrutiny of merger and acquisition-related foreign direct investment and stringent work permit requirements for skilled foreign employees.
This list of concerns is likely to raise questions regarding South Africa’s eligibility to remain a beneficiary under AGOA. If the review finds that South Africa falls short of meeting the eligibility criteria it can lose its status as a beneficiary or the duty-free market access for its products can be withdrawn, suspended or limited. Although this built-in flexibility to evaluate the compliance of any sub-Saharan country at any time has been welcomed by the US private sector, it has also been described as a battering ram by numerous African countries. This is due to the potential detrimental effects it can have on African economies, especially in terms of transparency, predictability and continuity of AGOA benefits. African countries will have to ensure they comply with the eligibility requirements at all times; any misstep can result in a review which can lead to loss of AGOA preferences.
Business Day (www.bdlive.co.za);
2014 National Trade Estimate Report on Foreign Trade Barriers (https://ustr.gov)