The growing protectionist stance of the current US administration has potentially negative implications for trade welfare in many African countries including South Africa. The potential loss to South Africa of trade benefits under the current African Growth Opportunity Act (AGOA) of 2000, which will expire in 2025, would be devastating for many sectors that have benefited under the Act, with profound social impacts.  

South Africa’s wine exporting industry, for example, which has direct links to the country’s tourism in regions including the Western Cape, has enjoyed the largest export growth both to the European Union (EU) countries under the Economic Partnership Agreement (EPA) and the US under AGOA. Losing AGOA benefits would have a direct negative impact on this sector which is estimated to have directly contributed around R32.7 billion to GDP in 2018 (according to the World Travel & Tourism Council).  As many as 310 000 jobs of mostly unskilled and semi-skilled workers would be endangered, and in effect a market estimated at more than R100 million would be lost.

What is the AGOA?
The African Growth Opportunity Act (AGOA) is a developmental market access preferential trade programme that is enshrined in US legislation under the Trade and Development Act of 2000. It is non-reciprocal in nature currently afforded to 49 sub-Saharan African countries, including South Africa.  The main aim of AGOA is to promote two-way trade flows between qualifying sub- Saharan African countries and the US.   In the absence of AGOA or any other agreement, South African exports would face reciprocal tariffs in the US as laid down by the World Trade Organisation (WTO) in the form of Most Favoured Nation (MFN) tariffs.

Challenges and threats
South Africa’s eligibility for AGOA preferential treatment was previously challenged in 2015 when the country’s meat producers and the South Africa government were threatened with an ‘out of cycle’ review by the US congress. This came about when concerns were raised by US producers of poultry, pork, and beef who protested that South Africa was violating AGOA by blocking US meat imports. To avoid such a review, the South African government addressed the US congress concerns by, for example, removing anti-dumping quotas for US meat products.  These developments illustrate that AGOA benefits to South Africa are not in any way guaranteed and can always be reviewed, driving home the urgency for policy makers and the public to plan for possible future trade scenarios.  Further to this there is an increasing ‘protectionist’ rhetoric from the current US administration that poses an additional threat. AGOA benefits are not included in any negotiated trade agreement between the US and any of the AGOA countries and essentially forms a part of the developmental aid to sub-Saharan Africa.  Its sustainability relies mostly on decisions made by the US government.

Recently President Trump succeeded in withdrawing the US from the 12-nation Trans Pacific Partnership (TPP) agreement, which covers 40% of the world economy, citing that its terms were unfair to US producers. Mr Trump has also called for a six-month review of all US trade agreements and arrangements. He has threatened to terminate US participation in the Northern American Free Trade Agreement (NAFTA), while negotiations on its continuation are ongoing.  Additionally the US and Korea trade deal has been classified as a ‘’horrible deal’’ by his administration. Most sub-Saharan African leaders should be alert, if not concerned, about the sustainability of AGOA benefits. It is reported that the US administration has also raised questions concerning the US’s African developmental policy.

A sizeable value share
Among many other products, the growing SA wine exporting industry enjoys zero tariff rates in the US because of AGOA benefits.  As mentioned, without AGOA benefits, South African wine exporters would face MFN tariffs.  The value share of wine exports to the US from South Africa currently stands at around 10% (USD 59 009 000) of total US imports of wine from the rest of the world.  Given the high level of competition in the sector, the share is not marginal. Although the share of South African exports to the US is lower than South Africa’s wine exports to the rest of the world (by about 8%), it is interesting to note that the value of South African exports to the rest of the world is higher than that of total imports from the rest of the world to the US.  By implication, South Africa is not small in the US in terms of wine imports.

An assessment of impact
To ascertain the impact of losing AGOA benefits, a partial equilibrium simulation exercise was conducted to estimate the potential trade effects of an increase in the import tariffs on wines as applied by the US on South African wine exports.
In 2017 South Africa exported wines estimated at the value of $58 874 000 (R824 236 000) to the US, at an equivalent ad valorem tariff of zero because of AGOA benefits. A loss of some of this annual revenue to South Africa because of a rise in tariffs in the US would be a direct blow to the wine industry, specifically in the Western Cape where 300 wineries are situated along the tourist ‘wine route’ and thus additionally negatively affecting the travel and tourism industry and other related sectors.

The partial equilibrium simulation measured four different products, namely:
•    sparkling wines;
•    wines in 2-litre containers or less;
•    wine of fresh grapes in containers ranging in size between 2 and 10 litres; and
•    wine in containers holding more than 2 litres. 

It was found that with a loss of AGOA benefits, sparkling wines would move from a zero applied tariff to an MFN tariff of 4.14%. The analysis reveals that about 8.7% of trade would be lost immediately to South African exporters. With adjustments in the medium to long term, 6.2% of SA exports may be diverted to alternative markets while 2.5% would be a total loss from an action that limits international trade. Compared to sparkling wines above, wines in 2-litre containers have a much bigger market. Around 6.8% of trade would be lost immediately to South African exporters. With adjustments in the medium to long term, 5.0% of South African exports would most likely be diverted to alternative markets and 1.7% would be a total social loss from an action that limits international trade. The wine of fresh grapes in containers between 2 and 10 litres forms the smallest value of South African exports to the US.  However, the potential losses in percentage terms from these products are highest of all related export products because the applicable MFN tariffs for this product at 10.89% are also the highest in the group.  Nevertheless, in absolute value, South African losses stemming from losing AGOA benefits in this market would be marginal (at 0.05%).

Finally, wine in containers of more than 2 litres would have the applicable MFN rates of 9.03%. The total trade effect from this product line would be highest of all products with as much as 56% of potential total losses stemming from increased tariffs facing South African wine exports to the US.

The affects of MFN tariffs
The partial equilibrium analysis of trade impacts clearly illustrates that the effects of increasing US import tariffs on wine products from South Africa would lead to overall losses in South Africa both in terms of negative trade creation in South Africa and trade diversion to global competitors of wine exporters to the US, e.g. France in Europe and Argentina in South America. More specifically, South Africa would, at least in the short run, lose a wine products market worth about USD 8 079 000 or ZAR 113 106 000 if AGOA benefits were to be replaced by MFN tariff rates. This is 14% of the current value of South African wine exports to the US, which is worth USD 59 009 000 or ZAR 826 126 000. A loss of ZAR 113 106 000 would be a large direct blow to the wine sector and its associated industries, including wine tourism, especially in the Western Cape. Given the interconnectedness of the wine production sector and the tourism industry, the losses of over R 100 million would have rippling (or multiplied) negative effects inter alia on the employment rates in wine production and other related sectors, including for example tourist attraction activities and accommodation.

Conclusion
To protect the growing wine exporting and tourism industries it is important for South African policy in the short term to protect AGOA benefits from any out of cycle reviews, including those presented by challenges from meat imports from the US.   Beyond 2025 it is important to design and put measures in place now that will mitigate against any potential trade loses when the AGOA agreement expires. Finally, it is critical that the South African government makes sure that the country remains eligible for future developmental support, like AGOA from the US, and preferential treatments (e.g. Economic Partnership Agreements) from the EU. Given that the EU is the biggest market for many South African exports, including wines, the EPA would serve as a potential buffer to any trade losses from unfavourable trade with the US. Beyond the US and the EU regions, South Africa should begin engaging in negotiations to expand its export markets through trade deals with other developed and developing countries. In this regard the recent signing of the African Union Free Trade Agreement is a positive development. There are also positive reports on how South African wine brands promotions are gaining traction, for example in Canada, Thailand and also China. These efforts, however, need more direct and deliberate public policy and private sector support to grow.

The full article was published “African Journal of Hospitality, Tourism and Leisure”, Volume 8 (3) - (2019) ISSN: 2223-814X and is available at the following link: https://www.ajhtl.com/uploads/7/1/6/3/7163688/article_37_vol_8_3__2019.pdf

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