South Africa is collateral damage as USA looks inwards

Last week, the US declassified SA as a developing country for the purposes of receiving certain special and differentiated treatment. The move sent ripples of alarm through the country, which claims preferential treatment on exports of R36bn to the US a year.

However, trade experts say there is no need to panic. SA has not lost the preferential market access it enjoys under the Generalised System of Preferences (GSP) or the African Growth & Opportunity Act (Agoa).

The declassification simply lowers the threshold at which the US may trigger trade-remedy investigations against — and possibly sanction — countries such as SA that export subsidised goods to the US.

Other affected countries include Brazil, China, Colombia, Hong Kong, India, Indonesia, Malaysia, Thailand and Vietnam.

In a separate process, the US trade representative (USTR) is reviewing SA’s compliance with GSP eligibility criteria, following aggressive petitioning by the International Intellectual Property Alliance (IIPA).

One of the criteria for eligibility is that a country must provide effective protection over intellectual property rights.
SA is just one small country among many being caught in the crossfire. [The IIPA petition] is almost akin to trying to pull the rug out from under SA’s entire preferential market access to the USA
Eckart Naumann
The IIPA argues that SA’s new Copyright Amendment Bill, which has sat unsigned on President Cyril Ramaphosa’s desk for 10 months, poses a risk to US intellectual property rights.

Academic experts say this is nonsense — the various exceptions the bill adopts commonly appear elsewhere. For example, the exception to excerpts of work for teaching can be found in more than 70% of countries in Latin America and Africa.

Sean Flynn, who heads the programme on information justice and intellectual property at American University Washington College of Law, regards the IIPA’s complaint as "tenuous" and believes the chances of SA being sanctioned are slim.

"SA has a full panoply of intellectual property rights statutes that meet the requirements of all relevant international treaties," Flynn told the USTR review hearings. "As such, sanctioning SA for these laws would violate World Trade Organisation rules."

Eckart Naumann, an independent economist and associate of the Trade Law Centre, agrees that the bill constitutes insufficient grounds for removing SA’s preferential treatment. He describes the IIPA’s petition as "almost akin to trying to pull the rug out from under SA’s entire preferential market access to the US".

Fortunately, there was much support for SA at the review hearings in Washington two weeks ago from various international organisations, US parties and academics.

Though it seems unlikely that IIPA’s challenge will succeed, if it does it could also end SA’s participation in Agoa, as beneficiary countries must also meet GSP eligibility requirements.

Agoa builds on the GSP, widening the trade preferences the US gives to SA on a nonreciprocal basis. It is set to expire in 2025, but US law was changed recently to allow any party to lobby to have a country’s participation reviewed at any time.

Trade experts think Agoa is unlikely to be renewed in its current form, given the US’s shift in focus towards reciprocal trade agreements. This shift has made SA vulnerable to losing its preferential market access. In fact, SA nearly lost it in 2015, when a few members of congress used the renewal of Agoa as leverage to get preferential market access to SA for chicken, beef and pork.

In 2018, SA exported R126bn worth of goods to the US, of which about R36bn worth claimed Agoa or GSP preferences. This is, therefore, at risk. But because tariffs are, in the first instance, borne by the importer, their imposition would not automatically lead to a cessation of this trade.

"Of course, the argument could go that there would be increased pressure on the SA exporter to absorb some of this cost [but] it depends on many factors," says Naumann.

Most important, he says, is the ability of the importer and the exporter to absorb the extra cost. This, in turn, depends on the dynamics of the particular sector and product, value chain dynamics, and who holds the power and leverage in the transaction.

SA has not lost is its duty-free access to the US market despite being de-classified as a developing country
In SA’s case, the most vulnerable sectors include agriculture, as about 75% of trade occurs under Agoa/GSP preferences, and the automobile and transportation equipment sector, for which the figure is 50%.

Within SA’s metals and engineering sector, iron and steel products would be the hardest hit, as they accounted for almost 60% of the R28.4bn of products the sector exported to the US last year. However, the US market absorbs only about 11% of the sector’s exports.

So, is this all SA’s fault for not meeting the US halfway? Or is the US just a bully looking for any flimsy excuse to ratchet up its tariff walls?

The truth is perhaps rather more nuanced. Yes, says Naumann, the US is looking for excuses to act — but the issue is not about these tariffs as such, but rather a more rational attempt to use every lever possible to reduce its trade deficit and produce more at home.