Home to roost

It’s common to hear people who should know better call the African Growth and Opportunity Act an agreement. It isn’t. It’s a one-way grant of preferential access to the American market for African countries that meet certain criteria. The recipients made no binding concessions of their own to secure these preferences. The donor calls the shots. That’s life.

The US wanted to negotiate a free trade agreement with South Africa after AGOA went into effect.  The negotiations failed in 2006 leaving a sour taste in Washington’s mouth. South Africa says they failed because the US was asking for more than its South African Customs Union partners — Namibia, Botswana, Swaziland and Lesotho — felt able to give. That’s not an excuse that’s universally accepted on the US side. The feeling here is that South Africa preferred to keep getting without giving.

Now come the consequences. What’s given unilaterally can also be taken away unilaterally. The US is threatening denial of AGOA benefits to get what it wants. That includes a share of the SA market for frozen chicken legs and wings.  SA says US exporters were dumping their surpluses on SA at less that the cost of production before punitive duties were imposed in 2000.

Were it so inclined, the US government could take SA to the World Trade Organisation over those duties. Why hasn’t it? Two reasons. One, success is by no means certain. Two, Washington has another tool to work its will: the threat of dropping SA from AGOA.

Now, as a result of the chicken dispute, it looks likely that the US Congress will renew AGOA with a clause obliging the US Trade Representative (the person, Michael Froman, and the agency he runs) to launch a review of South Africa’s eligibility within 30 days of the the renewal legislation becoming law.

The legal language mandating the review calls for it to be conducted with reference to a specific subsection — highlighted in italics below — of AGOA’s section 104:

Eligibility requirements

(a) In general

The President is authorized to designate a sub-Saharan African country as an eligible sub-Saharan African country if the President determines that the country-

(1) has established, or is making continual progress toward establishing-

(A) a market-based economy that protects private property rights, incorporates an open rules-based trading system, and minimizes government interference in the economy through measures such as price controls, subsidies, and government ownership of economic assets;

(B) the rule of law, political pluralism, and the right to due process, a fair trial, and equal protection under the law;

(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;

(ii) the protection of intellectual property; and

(iii) the resolution of bilateral trade and investment disputes;

Congress is not asking USTR to consider whether SA is making “continual progress towards…the resolution of bilateral trade and investment disputes”, the question raised in the chicken dispute. It is directing USTR to look at core SA government policies and programmes, including  B-BEEE and  proposed restrictions on foreign ownership of land and certain businesses.

Relevant here is USTR’s 2015 Foreign Trade Barriers report, release at the start of this month.  It raises a number of matters that would be covered by subsection (A). Examples:

The pending Investment Promotion and Protection Act redefines the term “expropriation.” The proposed bill states that if the government takes property or an investment, not for its own use but instead for transfer to a third-party, the taking would not qualify as expropriation and the government need not compensate the owner. Analysts suggest that this new definition is unconstitutional, and the Act is currently under review by an interagency working group before being resubmitted to South Africa’s parliament.

Another concern for investors is the Private Security Industry Regulation Act Amendment Bill, which, if signed, would require 51 percent local ownership in private security firms. The bill gives foreign-owned firms only one month to comply with these provisions after they go into effect. Local analysts note that passage of the bill would probably result in “fire sales” of shares at rock bottom prices as firms seek to comply within the tight timeframe, and would amount to a virtual government seizure in violation of the constitutional protection of property clauses.

Separately, the AGOA renewal bill allows US businesses to petition the trade representative to deny benefits to SA and other countries whose tariffs discriminate against US goods as a result of their trade agreements with the European Union:

The President shall establish a process to allow any interested person, at any time, to file a petition with the Office of the US Trade Representative with respect to the compliance of any country listed in section 107 of the African Growth and Opportunity Act with the eligibility requirements set forth in section 104 of such Act and the eligibility criteria set forth in section 502 of this Act.

“This Act” is the 1974 Trade Act, as amended. Its section 502 (a) 2 C declares ineligible for benefits under the US Generalised System of Preferences, and by implication AGOA, any country that

affords preferential treatment to the products of a developed country, other than the United States, which has, is likely to have, a significant adverse effect on United States commerce.

From the Foreign Trade Barrier Report:

U.S. exports face a disadvantage compared to EU goods in South Africa. The European Union-South African Trade and Development Cooperation Agreement (TDCA) of 1999 covers a significant amount of South Africa-EU trade. Tariffs for EU imports on TDCA-covered tariff lines average 4.5 percent based on an unweighted average, while the general tariff rates, which U.S. imports face, average 19.5 percent for TDCA-covered lines. Key categories in which U.S. firms face a tariff disadvantage include cosmetics, plastics, textiles, trucks, and agricultural products and machinery.

This finding is based on a classified study, “EU-South Africa FTA: Impact on US Exports to South Africa” by the US International Trade Commission completed last year at USTR’s request.

Bumpy times ahead for for the US-SA relationship, especially on the trade front.

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