Agoa access to the US: a “nice to have”, but look to other markets as well
28 Jul, 2023

Meluleki Nzimande, Partner & Chandni Gopal, Partner from Webber Wentzel

 

Next month’s African Growth and Opportunity Act (Agoa) Forum in South Africa will discuss renewals, exports, new memberships and exits, with input from governments and the private sector

 

South Africa benefits enormously from the US African Growth and Opportunity Act (Agoa). It is estimated that the total value of South African goods exported to the US under the auspices of Agoa totalled almost R60 billion in 2022. Agoa is significant in US-South Africa trade relations and, in the wider geopolitical context, has brought with it increased scrutiny of South Africa’s relationship with the US on the one hand, and Russia and China on the other.

 

South Africa’s hosting of joint maritime military exercises involving China and Russia, allegations that South Africa provided arms to Russia, and South Africa’s obligations under the Rome Statute in view of the arrest warrant issued against Russian President, Vladimir Putin, have played out publicly in recent months.  Some commentators have sought to use these events to point to a rapture in the US-South Africa relations.  The efforts of the South African government, political parties, civil society, and business leadership to allay the concerns of their US counterparts have highlighted the value they place not only on bilateral relations with the US but also on the preferential market access which goods originating from South Africa enjoy under Agoa. These efforts will hopefully facilitate amicable and productive discussions at the upcoming Agoa Forum taking place in South Africa next month and improve the chances of South Africa retaining its status as one of the Agoa beneficiaries, well into the future.

 

Regular reviews

 

Agoa is a law passed by US Congress providing various Sub-Saharan African countries that meet certain eligibility criteria, including South Africa, with preferential access for over 1,800 specified items to the US market. This access is only provided to goods that pass an “origination test”, requiring that the goods are wholly produced or substantially transformed in an Agoa beneficiary country. In 2023, 36 African countries were Agoa beneficiaries.  South Africa has been an Agoa beneficiary since the act was first passed.

 

The first iteration of Agoa was passed in 2000 and had an initial 15-year life span which was extended for a further ten years.  The second iteration is due to expire in 2025. The fate of Agoa post-2025 will depend on the outcome of the End-of-term Review due to commence shortly.

 

In the second iteration of Agoa, the US Congress introduced two types of reviews: the Annual Review and the Out-of-Cycle Review. The latter may be undertaken by the US President at any time, or pursuant to a request to the Office of the US Trade Representative, in which an interested party alleges that a beneficiary country has breached Agoa eligibility conditions.  A beneficiary country found to have breached the eligibility conditions may be subjected to various forms of penalties, including the limitation, suspension, or termination of benefits.

 

Quality, not just quantity, of trade is important

 

In May 2023, according to SARS figures, South Africa’s top-three trading partners were China, Germany, and the US. The significance of the US market is that it buys many South African value-added goods and processed minerals, and not merely raw materials, which obviously benefits the South African manufacturing sector as well as other Sub-Saharan countries that sell inputs to South Africa. The main exports that benefit from Agoa include motor vehicles, agriculture (fruit and nuts), articles of jewellery, ferroalloys, beverages, and spirits.

 

It is important to appreciate, however, that goods exported under Agoa account for under one-third of South Africa’s exports to the US. That means that if the country lost its Agoa beneficiary status it could continue to export to the US market, but all items would be subject to normal import duties.

 

Agoa is one of four key international economic relationships to which South Africa is a party for South African companies seeking access to bigger markets. The other three are the Economic Partnership Agreement (EPA) with the European Union (and post-Brexit, a separate EPA with the UK), the Agreement Establishing the African Continental Free Trade Area (AfCFTA) and BRICS. Trade with BRICS countries is not on preferential terms.  However, qualifying South African goods traded under the EPAs, AfCFTA and Agoa are eligible for duty-free benefits.

 

Agoa complements the AfCFTA, which is intended to stimulate both intra-African trade and exports. The rules of origin established under the AfCFTA will help to grow African industries, ensuring that the products being exported by the continent are likely to meet the origination requirements prescribed in preferential trade arrangements concluded with countries/territories outside Africa.

 

At the upcoming Agoa Forum in August, the parties are expected to discuss renewal, exports, potential new members, and potential exits. The business sector – which is ultimately the most important element – will have an opportunity to give input.

 

Create a resilient business

 

Given the strenuous efforts South Africa has made to foster renewed confidence in US-South Africa relations, the risk of the country losing its Agoa benefits solely as a result of geopolitical tensions is generally considered to be low.  In many respects, South Africa remains highly eligible for Agoa status.

 

Firstly, one of the primary objectives of Agoa is to promote increased trade and investment between the US and Sub-Saharan African countries. This would be undermined if South Africa were stripped of beneficiary status. There would be only two other mature African economies on the list (Nigeria and Angola – both oil exporters) that remain able and incentivised to use raw materials from other beneficiary countries to achieve Agoa’s primary objectives. Secondly, South Africa meets most of the criteria, which include having market-based economies, following the rule of law and political pluralism, eliminating barriers to US trade and investment, protecting intellectual property, and taking steps to tackle corruption, provide health care and education and protect human rights. Thirdly, with an unemployment rate above 30% (or over 40%, depending on the definition), it is clear that South Africa is still in need of the trade opportunities that Agoa provides to stimulate economic growth and development.

 

Agoa was always intended to have a limited lifespan and South Africa could graduate out of Agoa status in the foreseeable future. This, together with the risk of global economic uncertainty, means that it is in companies’ best interests to consider the risks and opportunities in the international trade arena and have an appropriate strategy to respond. Companies should certainly take advantage of duty-free access to the US market for qualifying products, but they should also consider how to adapt their pricing, if the loss of preferential tariffs under Agoa materialises, and consider other avenues for trade under the EPA, AfCFTA and BRICS. In an economic climate characterised by uncertainty, it is prudent for South African exporters to create more resilient businesses by improving their competitiveness and diversifying their export portfolios.

 

ENDS

 

 

Author

@Meluleki Nzimande
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@Chandni Gopal
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