AGOA: South Africa's real chicken and egg problem
- J Brooks Spector
- 20 Apr 2015 01:02 (South Africa)
Almost everybody agrees the African Growth and Opportunity Act (AGOA) has had a substantial, positive impact on the South African economy – and a significant impact on a number of other African states as well. Now, however, a game of chicken between poultry producers in the US and SA threatens progress on a new version of AGOA. However, problems in the US Congress over South Africa’s continued participation in a new AGOA may just be part of a larger downward spiral for South Africa’s international reputation. J. BROOKS SPECTOR takes a long look.
Fifteen years ago, President Bill Clinton first proposed what became the African Growth and Opportunity Act (AGOA). That it eventually fell to President George W Bush to sign it into law, once it passed both the House of Representatives and the Senate, effectively made it a bipartisan, broadly supported bit of US law, widely heralded in government as well as other circles.
In a report by Eric Tamarkin for the SA Institute of International Affairs, prepared just prior to the US-Africa Leaders Summit in August 2014, Tamarkin described AGOA in these terms: “First enacted as part of the Trade and Development Act of 2000, AGOA is a nonreciprocal trade preference programme that provides eligible sub-Saharan African countries with duty-free access for certain exports into the US market. AGOA expands the number of these products beyond the Generalised System of Preferences, which covers approximately 4,600 items, to more than 6,400. The law requires the US President to determine which countries can take advantage of these benefits based on whether they meet certain criteria, including progress towards the establishment of a market-based economy; rule of law; elimination of barriers to US trade and investment; economic policies to reduce poverty; efforts to combat corruption and bribery; and protection of internationally recognised worker rights. Accordingly, the purpose of AGOA is to expand US trade and investment with sub-Saharan Africa, stimulate economic growth, and encourage sub-Saharan Africa’s economic integration. AGOA, described by US and African officials as the cornerstone in the foundation of US–Africa trade and economic co-operation, will expire on 30 September 2015. African stakeholders who seek stability and certainty in their planning are anxiously awaiting action on its reauthorisation.”
Since it came into operation, AGOA has had significant, positive consequences for South Africa – and for many countries throughout Africa as well. Of course, the then-predominant narrative of Africa (certainly as seen from the West, typified by that cover story in the Economist back in 2000) as the place was as the damned-near-hopeless continent served as part of the original intellectual inspiration for AGOA.
As a result, anything that could change that hapless set of circumstances was worth trying – even if there was relatively scant likelihood of success. But, by most measures, AGOA actually has been one of those rare birds, an actual policy success, generating job and income growth in many places. As a result of the community of support for the policy, in the ensuing years, it has been extended twice in five-year increments. However, it is now about to expire as a US law at the end of the current fiscal year in the US on 30 September 2015, and a new version must be proposed, debated, voted on and signed into law by the president. This means, among other things, that it has to compete for attention in Congress with many other domestic policy questions as well as higher priority international questions.
Historically, AGOA fitted closely with a view increasingly being held by many development and economic specialists that – dollar for dollar - trade could be much more effective than most foreign aid efforts in developing societies and growing their economies. At its core, the argument ran that trade creates a direct, virtuous circle of generating income for workers and employers; encourages further investment for further production; and that, in turn, generates yet more growth in income as exporting businesses – and the businesses they, in turn, deal with – all grow. Trade becomes that rising tide that increasingly raises all the boats. (For now at least, perhaps we can park any debates about economic distortions that derive from some forms of trade and some types of investments.) By contrast, the contra-argument for foreign aid went something along the line that, too often, aid primarily ends up benefiting a donor nation’s contractors and an army of development specialists and exporters from the donor nation; this whenever it isn’t siphoned off or stolen by corrupt government officials and their friends and relatives.
Ultimately, of course, the basic argument for trade as a crucial development tool reaches right back to Adam Smith’s explanation of absolute advantage, in addition to David Ricardo’s insight about comparative advantage a few decades later – those two stalwarts of introductory economics classes worldwide. At its heart, AGOA could help demonstrate the essential truth of the magic of the markets, the centrality of interest in increasing stability in the African nations participating in AGOA, as well as supporting the growth of democracy in them, thereby making pretty much everybody in the US Congress reasonably happy with such a piece of legislation.
The core of AGOA was to give African nations significantly enhanced entry to American markets for thousands of product lines of their exports, via special tariff-free access to American markets. This would make those products measurably less expensive and therefore more likely to be imported into America, as long as the exporting African countries could meet basic standards of transparency and democratic values in the way they managed their economies.
Crucially, however, AGOA was not an international agreement, negotiated between various nations, and then ratified by their respective governments. It was a totally unilateral decision on the part of the US to offer new terms of trade to African nations. Interestingly, an alternative or complementary process, such as the proposed US-SACU Free Trade Agreement (FTA) treaty, never got off the ground when smaller SACU members apparently declined to participate in negotiations for such an FTA, claiming staff and expertise limitations. As a result, improved market access into the US for products from the African continent became fully dependent on unilateral US law – and therefore dependent on the feelings in Congress whenever such a measure would come up for renewal.
Over the course of AGOA’s lifespan, some of its greatest beneficiaries have been petroleum exporting African states such as Angola. However, when considering non-petroleum exporters, South Africa has been the most substantial beneficiary. In particular, the country’s automobile export sector has grown largely in response to the opening offered under AGOA. Overall, South Africa has gained export revenue of more $1.7 billion in 2014 alone.
Trade statistics indicate that, among various other commodities, automobiles, ferromanganese ores, industrial alcohol, oranges, wine, macadamia nuts, mandarins, citrus juice, pimentos, nuts and raisins have all entered the US duty free under AGOA from South Africa. The US Embassy noted in a recent media statement, besides the automobile industry, “Since 2000… South African agricultural growers have taken extensive advantage of AGOA. In 2014, the United States imported $55 million in fruits and vegetables including oranges, $51 million in wine and beer, and $48 million in tree nuts like macadamias. Moreover, U.S. government estimates show that the South African agricultural sector has the potential to expand their exports to the U.S. by over $175 million in the near term. As South African industry grows, the potential benefit of AGOA increases as well.” In a country where increasing employment is a national priority, export numbers like these should not be airily dismissed as unimportant.
A key part of this export revenue came out of a South African automobile industry, increasingly geared for export, and at least 30,000 workers were employed as a result of these exports. If one considers the impact on employment further along the supply chain, or the impact of the incomes of those workers on consumption of yet other goods and services, the overall number of affected employees is significantly larger.
Naturally, beyond all those South African workers building cars for export are the many subcontractors such as parts suppliers and logistics companies, as well as the rest of those supply chains that support the manufacture of complex items like automobiles in a modern international economy. And, of course, the employment in the auto industry doesn’t include the range of a growing list of other products exported under AGOA from South Africa, or the textile industry based in the neighbouring nation of Lesotho that has also gained a significant export toehold under AGOA. This industry also keeps many Mosotho employed who might otherwise be driven to try their luck in South Africa’s own increasingly troubled economy instead of staying unemployed in Lesotho, given the long tradition of migrant labour to South Africa from that nation.
Such developments also point to another idea underpinning the hopes for AGOA. This is that growing economies are presumed to be more stable ones than those wracked by economic privation, and stability on the continent matters in the broader calculations of US interest as well.
As it stands now, however, AGOA expires at the end of September this year and it will have to be renewed, revised or entirely rewritten by the various congressional committees and then signed into law by the president before that date or these trade privileges will simply expire. There are, however, several stumbling blocks standing in the way of a new AGOA measure – as well as South Africa’s right to benefit from it.
The first problem is the procedural matter of the schedule in a frequently conflicted US Congress, and the amount of work already on the respective agendas of its various committees concerned with trade, taxes and budgets. Many other such issues are – from the congressional perspective – more important or troublesome than AGOA. Not the least of these is the broad Trans Pacific Partnership (TPP) trade agreement proposed by President Obama.
With regard to the TPP, last week, on 16 April, the various congressional committees (and the two political parties) actually achieved a tentative deal to give President Obama’s administration what is called “fast-track authority”. That essentially means that the president’s team now has the go-ahead to negotiate a trade deal with the group of TPP counterpart countries around the Pacific Ocean littoral and that once a deal has been struck, Congress has limited itself to a simple for or against vote on the proposed measure, rather than a lengthy, detailed debate and amendment cycle of the proposed measure. However, even with the fast track authority in hand, the TPP negotiations will almost certainly capture intense congressional attention in each and every committee that deals with trade issues.
As a side issue, in the modern era, the Democrats have tended to be more reluctant about removing protections against lower cost competing imports – especially when such imports could have real implications for employment, unionised labour being a major component of Democratic Party support. This means that the president would need to attract significant Republican support for any trade measures being decided by Congress. In the 19th century, the Democrats were in favour of freer trade when the bulk of their electoral support came from largely rural, southern and western states that had little industrial production; while Republicans were generally protective of the new industries in the industrial heartland of the country. But things have changed radically since then.
A second issue for any version of new AGOA legislation will be whether Congress wishes to continue to give any new authorisation for products made abroad to have an easy ride into American markets. Any such measure may be intensely problematic for some in Congress at a time when unemployment and a still-spluttering economic recovery will be part of election rhetoric heading into the 2016 general election.
While most products from the African nations eligible for AGOA’s provisions do not represent much of a threat to major sectors of the American economy, one potential exception to that rule is, of course, South Africa’s export of top-line automobiles that rather directly compete with analogous products made in the US by American workers. That, in turn, has generated the question of whether a new version of AGOA should contain a process through which countries graduate out of AGOA coverage, once they achieve a certain level of per capita income. Naturally enough, despite the vast economic disparities in the country, South Africa would seem to be a prime candidate for such a provision. There has even muttering about whether South Africa should still be included in the eligibility list for AGOA in the first place, given its current income levels. (The South Africans have probably not won many friends or done themselves any favours with the news they have apparently been rather obdurate about relinquishing that significant stockpile of highly enriched uranium, a material seen to be significantly at risk of being pilfered by thieves or international terror groups.)
Moreover, almost as if it were designed to draw attention to the circumstances of South Africa in the AGOA mix, there has been a long-running complaint by American poultry exporters about South African import barriers (tariffs of up to 100%) on American poultry exports. In brief, the argument is that Americans claim their chicken exports of (largely) thighs and drumsticks, as opposed to white meat breasts, are subjected to higher import duties than comparable chicken meat from other exporting nations such as the EU that check in at a much lower 37.5%. (To change the tariff applicable to the US would mean South Africa would have to end the special deal negotiated with the EU previously, giving their exporters that better deal.) But surely all this is chicken feed, one could say. How many American chicken drumsticks are awaiting delivery to the nearest ShopRite Checkers, anyway? And the South Africans charge that the American exporters are trying to dump their chicken parts exporters at less than the cost of production, something that would violate a range of international anti-dumping agreements.
Surely there is not enough meat in this to derail an entire act of Congress. Chicken imports from the US have grown significantly in the past decade, but American exporters believe the market in South Africa for their chicken meat could certainly absorb much more of their product, especially given its very cost-competitive production in world terms.
But that would not take into account the way constituency pressures can sometimes play out on the American Congress. In particular, two senators, Delaware’s Democratic Senator, Chris Coons and Georgia Republican Johnny Isakson represent states with significant poultry industries. As a result, American poultry growers in those states have been at considerable pains to press the two senators to get a resolution favourable to them over this long-time irritant. (One implied threat, of course, is that if such an eventuality does not happen, poultry growers might well make the respective senators’ electoral lives rather more complicated the next time they stand for election.)
The American poultry growers’ (and increasingly the government’s) position is that South African treatment of US chicken parts exports are a traducing of those anti-dumping provisions of international trade agreements in order to artificially restrict American market share. In response, the South African government’s (or perhaps, more truthfully, the SA Poultry Association’s) version of things is that Americans, with their cheaper chicken parts, are trying to run the domestic South African poultry sector out of business so they can have the market to supply chicken nuggets and supermarket braai pack contents all to themselves.
The nub of the problem is that the South African government seems almost to have surrendered what is an increasingly acrimonious conversation on this issue to the SA Poultry Association – rather than leading carrying the discussions forward in the broader national interest of international trade with the US. In effect, the South African government has been treating this problem as if it is an international negotiation subcontracted to the two nations’ respective poultry products federations, rather than coming to grips with it as an example of how constituency politics-American-style can affect national South African economic interests. If things go badly over this bun fight over chicken thighs, and despite ritual statements by all and sundry that a new AGOA is a worthy goal, Senators Coons and Isakson may yet feel compelled to drag their feet on supporting AGOA – or even blocking consideration of it for a time - before it expires this year, unless a satisfactory resolution to this international game of chicken is reached.
In a sense, South African government officials seem to acting as if American legislators are so strongly in favour of achieving an AGOA renewal (with South Africa as part of it) that the US Congress will go ahead and pass it, even if two prominent senators have serious problems with effects of the proposed law and how they adversely affect their back home constituents. And that, in turn, may be a misreading by South Africa’s trade officials of how significantly concentrated constituencies such as the poultry business relate to elected representatives in the US.
US trade negotiators, after all, had brought similar tussles over chicken exports to China to a near-boil several years ago, and chicken exports to Russia have also featured in bilateral trade negotiations (as well as retaliation over economic sanctions against Russia by virtue of its Ukraine policy) as well. But, as noted earlier, AGOA is not an international trade negotiation. Instead it is essentially a US domestic political issue, but one that has obvious enormous international trade implications – the very purpose of the proposed measure. As a result, it would seem that now is the time for the South African government is to get its ducks (or chickens) in row so as to not imperil South Africa’s - or the entire continent’s - preferential access to the massive US market.
Thinking about this issue, the writer remains puzzled by another aspect of the question that is rarely mentioned. For South Africa generally, chicken meat forms a substantial portion of the protein intake of lower income (largely African) people, while the country’s large commercial poultry raisers remain substantially white. Given that, it would seem the South African government would be able to gain real street cred with the population as a whole if it quietly brokered a face-saving deal on US chicken imports in order to help lower the local price of chicken (perhaps incentivising support for new poultry raisers to enter into the market and also compete on price by virtue of their proximity to the domestic market).
A few days ago, the US Embassy in Pretoria noted, referring to this standoff over chicken, “The United States has made clear our consistent position that we want AGOA seamlessly renewed, and that we want South Africa included. Both the Administration and Congress, however, have also made clear that we want to resolve outstanding issues blocking U.S. trade, most notably on several agricultural products. A number of Congressmen have written several letters over the last two years, including a letter signed most recently by 13 Senators, noting their concern that South Africa has maintained an anti-dumping duty on U.S. bone-in chicken since 2001, and making their view clear that they believe 15 years is a reasonable amount of time to have resolved this dispute. "
But at present at least, it seems that the South African government has put the interests of a relatively small group of chicken farmers in a low value-added sector of the economy well above the many tens of thousands of jobs now dependent on AGOA-sanctioned access of the products they make into the US market, and in addition to the obvious desires of lower income people to be able to enjoy a less expensive chicken dinner.
Minister of Trade and Industry Rob Davies has been in the US now for discussions on another issue, a Trade and Investment Framework Agreement between the US and South Africa, as well as for discussions on AGOA renewal. Perhaps his delegation can take some time during this current visit to sort out a mutually satisfactory agreement over chicken exports while they are working at that other task, without getting any egg on their faces over a needless impediment to the renewal of AGOA.
They must move along on this one, especially since the most recent reports from Washington indicate that Congress is considering putting a clause into an AGOA measure for the future that would have a three-year probation period for countries with open trade disputes with the US. While it wouldn’t say so specifically it would be implicitly aimed at South Africa, during which they would have to resolve trade disputes with the US and open its domestic market further.
As veteran journalist Simon Barber reported from Washington over the weekend in Business Day, “A bipartisan bill to renew the African Growth and Opportunity Act (AGOA) for 10 years was on Thursday night jointly introduced by the chairmen of the Senate Finance Committee and the House Ways and Means Committee, presaging speedy passage well ahead of the September 30 deadline.” While the bill would apparently make no specific mention of South Africa, “a colloquy in the finance committee between senator Jonny Isakson and US Trade Representative Michael Froman made it clear that SA's continued enjoyment of AGOA benefits was by no means certain. Mr Froman, fresh from meeting Trade and Industry Rob Davies, said he would not oppose Mr Isakson’s proposal to place SA on a three-year probation to submit reports every six months on its meeting the act's eligibility requirements.”
According to Barber’s report, South African DTI Minister Rob Davies did not make a superb impression on Senator Isakson when they met last Thursday. The story went on to note that Isakson “had come away convinced SA was playing ‘rope-a-dope’ with the US on the chicken issue. But he said he was not willing to make the rest of Africa suffer because of the trade ‘violations’ of one country. The renewal bill makes it easier for the US trade representative to take action against countries that fail to comply with the AGOA eligibility criteria. Mr Froman assured Mr Isakson he would make use of this expanded authority in dealing with SA.” Hmm. Not exactly the fifteen-year AGOA extension Davies had been seeking, it would seem.
Given this serious lack of warmth towards South Africa as part of AGOA renewal, is it fair to add that such a response is simply one more part of a larger texture of South Africa’s sliding away from being a special story in the world? Now it is just another country, jostling for marginal trade advantages rather than a bright spot on the horizon. Protecting the market share of a relative handful of commercial chicken farmers may end up outweighing thousands of other highly skilled jobs in major industries. In all this, the real losers may be the employees (and their families) in industries whose exports may well shrivel, just when the country needs this kind of work the most. And all this comes just as the grim realities of the country’s newest round of xenophobic violence, killing and looting made it ever harder to see South Africa as the self-styled “rainbow nation” of the future – a nation worthy of special respect and admiration by other nations. DM
- J Brooks Spector