AGOA – Chicken spat underscores need for a US-SACU Free Trade Agreement

bowman-gilfillanThe introduction of a bipartisan bill to renew the African Growth and Opportunity Act (“AGOA”) for an additional 10 years in the US Congress on 16 April 2015 indicates that the proposed extension of this unilateral preference scheme enjoys sufficient support in the US and will likely be passed into law in the near future. However, for South Africa the negative sentiment about its continued inclusion among AGOA beneficiaries found its way into the draft bill and sends a strong message that a better market access arrangement into the US is needed as a matter of urgency to ensure that it is not subject to the whims of the US law makers pandering to various domestic interest groups.

The challenges of depending on a unilateral preference scheme are illustrated by the “chicken war” that pitted the US and SA poultry industries during the course of negotiations for AGOA extension. The US poultry industry lobbied hard to make the inclusion of South Africa among the AGOA beneficiaries conditional on South Africa providing better market access to its chicken exports. The US has complained that South Africa imposed anti-dumping duties on imports of chicken from the US while at the same time favourable access was granted to the US market for a range of South African products without reciprocation. Though South Africa argued that the anti-dumping duties were imposed lawfully under the WTO rules, in order to ensure the extension of AGOA and as a compromise, the parties are in the process of resolving the issue through the introduction of import quotas for US chicken.

South Africa currently does not have a reciprocal trade agreement or arrangement with the US. Though a range of South African exports enter the US through unilateral schemes like the Generalised System of Preferences and AGOA, there is no contractual agreement to guarantee and extend current market access opportunities enjoyed by the former nor are there frameworks to regulate important issues in bilateral economic relations, especially investment and intellectual property rights. The US-SACU free trade agreement (”FTA”) negotiations which began in June 2003 had aimed to address this situation but reached a stalemate.

The proposed 10 year extension of AGOA, if passed, will provide some breathing space and an opportunity for South Africa and its SACU counterparts to seek to secure a contractual trade arrangement with the US. This is clearly time to re-open the stalled or failed US-SACU free trade negotiations.

The US sought to use the FTA to, inter alia, eliminate barriers to its goods and services exports in the SACU market; strengthen intellectual property rights; build alliances for the WTO negotiations; and to level the playing field vis-à-vis the European Union that benefits from the Trade, Development, and Cooperation Agreement (“TDCA”) they signed with South Africa. SACU on the other hand aimed to use the potential FTA as a means to achieve AGOA-plus liberalisation (by locking-in and possibly extending current market access); address non-tariff barriers affecting their US-bound exports; spur regional integration in SACU; and to strengthen relations with the US as insurance against possible failure of the WTO’s Doha round of multilateral trade negotiations.

The talks were initially scheduled to conclude by December 2004 but it became clear by April 2006 that an FTA was unlikely to be reached before the expiry of President Bush’s 2002 Trade Promotion Authority in July 2007. The US attributed the failure of the talks to, inter alia, the absence of harmonized trade and investment policies within SACU. SACU in turn blamed the US for being too inflexible with its comprehensive negotiating template which included many “new generation” trade issues like investment which they were not keen to engage on. Ultimately the parties had to agree to lower the ambition from that of attaining a comprehensive trade agreement immediately to merely establishing a Trade and Investment Cooperation Agreement which would hopefully provide building blocks for a fully-fledged FTA in the future.

The original motivations for the FTA negotiations still stand. The US requires a similar or better market access regime to the SACU similar to the one the EU enjoys under the TDCA. SACU (South Africa in particular) needs assurance that current market access will not be lost and that any trade disagreements are dealt with within the framework of a contractual arrangement. Lack of a contractual market access arrangement makes South Africa, as a preference receiver, particularly vulnerable in its negotiations with the US. For instance, it would not have been possible for the US to seek chicken import quotas as a remedy against an anti-dumping measure. Any disagreements in this regard would have been resolved through the WTO rules and procedures.

The US seems to be particularly upset that while it continues to provide South Africa with generous unilateral market access to its market it enjoys worse access conditions to the SACU compared to the EU. A clear indication that the US wishes to keep the pressure on South Africa post the current AGOA renewal is the inclusion of an ”out of cycle review” of South Africa within 30 days of the coming into force of the renewal legislation. While it is not yet clear whether the final version of the AGOA Extension and Enhancement Act of 2015 will contain such a provision, this proposal is a clear signal that South Africa may not be included in future US unilateral preference schemes as a beneficiary. 

Virusha Subban / Nkululeko Khumalo

Bowman Gilfillan Africa Group

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