Trade tussle with US is not the best idea

LAST week US President Barack Obama made the phone call to President Zuma to discuss his intention, long anticipated it needs to be added, to suspend South Africa’s duty-free export of agricultural goods to the US – a benefit that South Africa enjoys as a beneficiary of the US African Growth and Opportunity Act (Agoa).

The spat is primarily the result of South Africa’s refusal to import certain categories of meat, which includes pork, beef and particularly poultry, from the US. The reasons offered by South Africa focus on the risk of pathogenic forms of avian flu in certain US states, insisting that South Africa would not compromise its professional animal health standards in the face of US bullying. The cynics out there, however, argue that the US is merely looking for a market to “dump” its surplus of chicken wings, thighs and drumsticks – despite their retort that it is their favourite part of the chicken.

Agoa is US legislation that aims to assist the economies of qualifying sub-Saharan African countries as well as improve economic relations with the US by significantly enhancing market access for these countries. The criteria for eligibility are centred on improving labour rights and making progress towards a market-based economy.

Since the inception of Agoa 15 years ago in 2000, it has had a critical economic impact on African beneficiaries, including South Africa. Although Nigeria and Angola have been the largest exporters under Agoa, South Africa has been the most diverse.

The considerable quantities of manufactured goods exported dutyfree to the US by South Africa include an estimated 60 000 vehicles – which not only helped to turn a trade deficit with the US into a R12 billion surplus in 2014, but is reported to have secured an estimated 35 000 direct and 55 000 indirect automotive jobs in our country.

Other product exports have benefited significantly as well, including wine, citrus fruit, fruit juice, dried fruit, nuts such as macadamias and vegetables – with an estimated 85 000 jobs being created in the citrus industry alone. It is estimated that more than 98% of all South African exports are able to enter the US duty-free as a result of Agoa.

The significance of the intention conveyed by President Obama prompted a call by Westgro, the Western Cape’s Economic Development Agency, for quick, decisive action in order to protect the more than R780 million worth of Western Cape annual agricultural exports to the US that might be at risk.

Despite accusations that the strong-arm tactics by the US are aimed at extracting trade concessions from South Africa, the reality is that Agoa, like any other free trade agreement between countries, is aimed at trade gains for both parties to the treaty – faster and increased business between two countries which would equally benefit both. The theory is that each partner will specialise in the economic activity in which it has a comparative advantage, allowing the generation of more overall income. I am ignorantly and conveniently ignoring the complexities of some of the arguments; we will sell what offers more value.

Songezo Zibi observed in Business Day that the complaint in the poultry industry is not about surplus chicken, but about cheap foreign chicken. The healthy local demand for chicken has seen us importing 168 666 tons from Brics pal Brazil in the first eight months of the year or 51.6% of all poultry imports. In 2014 the Netherlands has exported just under 74 000 tons, both dwarfing the 65 000 tons per year agreed earlier with the US.

While treaties such as Agoa encourage certain types of industry, it obviously puts pressure on others. The balancing act is to ensure that the trade benefits are optimised, especially within manufacturing businesses that have a knock-on effect upstream, downstream and on adjacent job creating benefits, and that industries that are left vulnerable are supported, also from a policy point of view, to ensure that they are given the best chance.

Despite the political rhetoric from both the blue and governing corners, spoiling for a trade fight with a significant partner such as the US might leave us with the bloody nose.

Oelofse is chief executive of the iLembe Chamber of Commerce, Industry and Tourism.