Subtitle: Presenter: Date: The Benefits of Africa Growth and Opportunity Act (AGOA) to South Africa Evans Chinembiri 30 April 2013

Outline  Background  Objectives of the Study  Methodology  Key findings  Desktop research  Agriculture and Agro-processing  Textiles and apparels  Automotive

Background  African Growth and Opportunity Act (AGOA)- a unilateral trade policy concession governing US - Africa trade and investment relations.  AGOA enhances U.S. market access for 40 Sub-Saharan African (SSA) countries.  Came into force in 2000 → Expiring in 2015  Threats:  AGOA may not be extended;  AGOA extended - with South Africa’s benefits as adjusted i.e. curtailed.

Objectives 1.Assess the impact of removing South Africa from AGOA on the region 2.Identify and discuss the benefits to USA of providing AGOA to South Africa 3.Identify and discuss challenges in the following sectors  Agriculture and Agro-processing Identify the obstacles that South African producers face when exporting to USA under AGOA, such as stringent Sanitary and Phyto-Sanitary (SPS) requirements, and other non-tariff measures (NTMs)

Objectives (2) Identify and discuss challenges in the following sectors  Textiles and Clothing Identify textile and apparel tariff lines to lobby for inclusion in the third country fabric provision. Thereafter, identify tariff lines that are not in competition with Lesotho and Swaziland.  Automotive and components Assess and discuss the impact of AGOA on value chains

Objectives (3) 4.Examine whether South African sectors may have under-utilised AGOA as well as the reasons why this may be the case. In addition, the study should propose ways and means to increase AGOA utilisation in South Africa, and also assess and discuss the potential impact of increased utilisation of AGOA by these sectors.

Methodology  Desktop literature review research  Stakeholder engagement  Interviews  Electronic questionnaire  On site visits  Empirical analysis to estimate the impact of AGOA  Gravity Model estimation for the Automotive sector  Expert review process.

Desktop Study Findings

Desktop Findings: Trade Trends  SA represented the biggest market and largest trading partner in SSA (excluding oil exporters)  US. SA maintained a positive trade balance over the period SA-US Bilateral Total Trade Trends

Desktop Findings: Trade Trends  SA mining exports: World ↑ 11 percentage points; US ↓ 3 percentage points.  Agric exports: World ↑ 1 percentage point; US ↓ 1 percentage points.  Basic Processing: World ↓ 4 percentage point; US ↓ 3 percentage points.  Advanced manufacturing exports declined by 7 percentage points. World ↓ 7 percentage points; US ↑ 6 percentage points. SA-US Bilateral Aggregate Trade Trends

Desktop Findings: Trade Trends US-SA trade trends (Section Level)

Desktop Findings: Trade Trends SA-US Export Share Growth Matrix (Section Level)

Desktop Findings: Trade Trends Intra-industry trade (5 Digit End use code) 2011 Gubriel Loyd Index (GLI Measure of level of Intra-Industry Trade)

Desktop Findings: Trade Trends AGOA Tariffs Analysis: Applicable To South African Exports (HS 6 )

Desktop Findings: Trade Trends South Africa Preference Margins Under AGOA (HS2)

Desktop Findings: Trade Trends South Africa Preference Margins Under AGOA (HS 6)

Sector Specific Key findings Agriculture and Agro- processing

Sector Specific Key findings:  Key export earners in Agro-processing industries in both the world and United States markets were wine and citrus.  Indicative potential in a number of fresh and preserved fruits – Avocado, Grapefruit and Pears.  Products with a case for inclusion in AGOA: Canned apricots, peaches and mixed fruit

Agriculture and Agro-processing Sector Specific Key findings:  Possible reasons for the under-utilization of AGOA.  Perceived complexity of United States market.  Price competitiveness- South Africa competing with South American countries that are closer and are cost efficient  Length of time taken to grant fresh fruit produce eligibility into the United States market  Legislative uncertainty surrounding AGOA

Agriculture and Agro-processing Sector Specific Key findings:  SPS measures limiting exports to United States under AGOA  Citrus: Citrus Black Spot excludes certain regions of South Africa from exporting to the United States.  Citrus: False Codling Moth – South African exports subjected to an extra 2 days cold treatment.

Lobbying Points to Note Sector Specific Key findings:  Recommendations  South Africa should engage the United States for the extension of AGOA on a longer time horizon  Engagement with the United States on reducing the time taken to grant product export eligibility.  South Africa engagement with the United States on need for prompt resolutions concerning disputes related to SPS matters, in the spirit of trade facilitation.

Agriculture and Agro-processing Sector Specific Key findings:  Recommendations  South African producers need to seek ways that improve price competitiveness of South Africa’s agricultural exports through seeking and employing cost saving, energy efficient technology in the production process.  Engagement with key service providers to improve efficiency and provide services at prices that enable South Africa exports to be price competitive (Transnet, and Eskom)

Sector Specific Key findings Textiles and Apparel

Sector Specific Key findings Textiles and Apparel  Textile is a declining sector (its in the low growth quadrant).  At its peak in the mid-1980s, South Africa’s textiles and apparel industry used to employ an estimated 150,000 → in 2010 declined to between (1.2% direct employment- 9% indirect employment)  Textiles contribute 1% of exports.  South Africa’s potential benefits have not been realised owing to South Africa not qualifying for the 3rd Country fabric provision, as well as the more stringent non-tariff measures (NTMs) that are exclusive to South Africa.

Sector Specific Key findings Textiles and Apparel  246 textile and apparel product lines at HS6 level for which South Africa obtains significantly higher tariffs under AGOA than its SACU counterparts  26 apparel products are not in competition with Lesotho and Swaziland. These include tents, camping goods, sails – essentially niche products that are not price demand driven  However, these product lines are not sufficient in terms of value added tariff lines to create any degree of interest in a lobbying effort  Only one apparel product whose exports are greater than US$1 million per year - H panty hose and tights of cotton

Sector Specific Key findings Textiles and Apparel  It should be noted that the tariff lines produced by Lesotho and Swaziland are exactly where South Africa should be pushing for inclusion.  Experts argue that to exclude these products will practically eliminate South Africa’s interest in participating in the textile and apparel lobby.  It can be successfully argued that, the inclusion of South Africa in all the textile and apparel benefits of AGOA including the third country fabric provision will enhance the competitiveness of the entire region which the industry players feel will ultimately benefit both Swaziland and Lesotho.

Lobbying Points to Note Textiles and Apparel  South Africa does not compete to any significant degree with its neighbours in terms of exports to the USA because it cannot compete on price for basic merchandise.  The poor in South Africa are as much in need of the employment that textiles and apparel can offer as any other poor country in Sub Saharan Africa despite the fact that South Africa is not a Least Development Country.  The South African Textile and Apparel industry is mature and, for the most part, compliant with internationally accepted social and environmental standards.  South African textile and apparel industrialists have the technological and innovative abilities to drive the growth of the industry throughout the region.

Lobbying Points to Note Textiles and Apparel  South African industrialists are already manufacturing in countries that enjoy the full benefit of AGOA including Lesotho, Swaziland, Mozambique, Botswana and others.  South Africa could act as a coordinating hub for the planned cooperative growth of the textile and apparel value chain throughout the region. Already apparel manufactured in neighbouring states by South African industrialists is consolidated in South Africa and sold throughout Sub Saharan Africa.  Granting all countries in the region, that are compliant with basic human rights and standards of governance, equal trading access, will act as a stimulus for integrated growth and sustainable value chain development.

Lobbying Points to Note Recommendations from the industry are:  Lobbying for full AGOA inclusion in the first instance including the 3rd country fabric provision.

Sector Specific Key findings Automotive Sector

Sector Specific Key findings  Automotive Sector  Automotive sector is a key export sectors → 6.8% of GDP and 11.8 % of total exports US$7.1billion in exports (62% vehicle exports and13 % motor vehicle parts)  The industry consists of a diversity of manufacturers of light passenger and light, medium and heavy commercial vehicles as well as over 200 component manufacturers.  The vehicle manufacturing directly employs people.  South Africa exports 54 %of Motor Vehicles (H8703) to the US, thus US market the largest export destination of SA motor vehicle exports.

Why the US Market?  USA accounts for 37% of South Africa’s light vehicle exports  USA accounts for 54% of SA’s total automotive exports  The single biggest country market  South Africa takes up only 1.3% of the US market  NAFTA single Biggest regional market (outside of the EU)

Summary of Automotive Trade

Summary of Trade Potential

Sector Specific Key findings Automotive Sector (1)  US exports mainly concentrated in exports of whole made vehicles (H8703)  Export equation of South African exports to the USA shows the following results:  Income and Market Size: has a positive and significant effect on export growth  Preference Margins: has a positive and significant effect on export growth  Every unit increase in the preference margin will lead to a 2% increase in exports  The MIDP : Has a positive and significant effect on exports  AGOA: Has a positive and significant effect on exports

Sector Specific Key findings Automotive Sector (2)  Exchange rate: has a positive effect BUT is not significant  Supports industry view that short term Exchange Rate fluctuations are not key driver of motor vehicle exports – due to significant sunk investments  Key point: AGOA has a very strong influence in motor vehicle exports to the USA.  But what is its impact?.

Lobbying Points to Note Automotive Sector (3)  What we know:  Employment in the motor vehicle manufacturing sector supports 10 other jobs in downstream autos industries  Auto’s contribution to GDP grew by 0.6% between  Key drivers are AGOA and the MIDP (now APDP)  So what can we say about AGOA?

Simulation of AGOA vs. No AGOA

Impact of AGOA if it was removed  The model reveals that exports to the US could drop by as much as 92% in the first year without AGOA.  By 2019, exports will be 57% below what could be produced under AGOA  Motor vehicle exports drop to pre-2001 (pre-AGOA) levels.  Removing AGOA makes motor vehicle exports to the USA unviable  AGOA is therefore crucial!  The APDP is also going to be critical in augmenting exports

Thank you