subtitle: presenter: date: the benefits of africa growth and opportunity act (agoa) to south africa...

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 sectorsTextiles and ClothingIdentify 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 componentsAssess 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 2000-2011

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

Exports Imports

Share in 2011

AAG 2001-2011

Share in 2011

AAG 2001-2011

C01: Live Animals 1% 8% 1% 11% C02: Vegetable products* 4% 15% 2% 9% C03: Animal or Vegetable Fats * † 0% 19% 0% 23% C04: Prepared foodstuffs and tobacco † 3% 8% 2% 13% C05: Mineral products * † 25% 20% 8% 21% C06: Chemicals 5% 11% 12% 8% C07: Plastics 2% 14% 4% 10% C08: Leather 0% 1% 0% 2% C09: Wood Products 0% 2% 0% -7% C10: Wood Pulp and Paper 2% 5% 2% 5% C11: Textiles 1% 3% 1% 0% C12: Footwear 0% 7% 0% -8% C13: Stone and Glass 0% 7% 2% 9% C14: Precious Metals* 26% 15% 0% 7% C15: Base metals 14% 11% 2% 9% C16: Machinery* 8% 14% 29% 8% C17: Vehicles † 8% 14% 24% 13% C18: Scientific Equipment 0% 14% 7% 9% C19: Arms and Ammunition 0% -100% 0% -100% C20: Miscellaneous Manufactures 1% 4% 1% 5% C21: Arts and Antiques 0% 6% 0% 7% C22: Other unclassified goods 0% -25% 0% 6% C23: Special Classification: Vehicle Parts † 0% 11% 3% 17%

* Fastest Growing South Africa exports to the United States † South Africa’s fastest Growing imports form the United States

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

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


Description 2011

SA Exports to USA SA Imports from USA GLI 200969: Fruit juices 251,133 252,467 0.997 610610: Women’s cotton knit clothing 16,718 16,840 0.996 630299: Toilet or kitchen linen 11,942 11,829 0.995 100400: Oats 305 312 0.989 090620: Cinnamon and cinnamon-tree flowers 22,344 22,984 0.986 291719: Acyclic poly-carboxylic acids 34,780 35,793 0.986 940190: Parts of seats 3,952,933 4,068,750 0.986 732620: Articles of iron or steel wire 158,831 163,907 0.984 611595: Products of Cotton 10,990 10,544 0.979 940169: Seats with wooden frames 54,225 56,627 0.978 660199: Umbrellas 30,484 29,029 0.976 280800: Nitric acid, sulpho-nitric acids 1,584 1,669 0.974 391710: Sausage casings 79,992 84,502 0.973 690210: Refractory bricks 896,726 947,982 0.972 730690: Iron or steel tubes/pipes 245,629 260,125 0.971 830629: Statuettes and other ornaments 137,044 145,158 0.971 920890: Musical instruments 74,807 79,340 0.971 940520: Electric tables, desks, bedsides and floor lamps 40,896 38,327 0.968 410711: Leather ( after tanning or crusting 15,714 14,712 0.967 481720: Letter cards, plain postcards 37,042 34,637 0.966 Weighted Average of GLI for All South African Exports to the United States 0.099

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


AGOA Tariffs Analysis: Applicable To South African Exports (HS 6)

Tariff range No. of HS6

Lines US imports From

SA (US$ ‘000) Total US Imports

(US$ ‘000) % HS6 Lines

% Imports From South

Africa

% of US Total Imports

12%+ 264 14 682 1 131 228 5.2% 0.18% 0.05% 10%-11.9% 116 14 294 1 251 481 2.3% 0.18% 0.06% 8.0%-9.9% 172 3 563 3 210 782 3.4% 0.04% 0.14% 6.0%-7.9% 205 12 521 11 899 008 4.1% 0.15% 0.53% 4.0%-5.9% 421 668 308 12 456 713 8.3% 8.26% 0.55% 2.0%-3.9% 810 349 509 10 962 106 16.0% 4.32% 0.48% 0.1%-1.9% 760 1 102 676 28 273 500 15.0% 13.63% 1.25% 0% 2295 5 927 292 2 193 400 816 45.4% 73.24% 96.94% Total 5051 8 092 845 2 262 585 634 100.0% 100.00% 100.00%

Source: UN Comtrade (2012); ITC Trade Map (2012)

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

HS Code

Product Description Tariffs Preference

Margin AGOA MFN

H640110 Waterproof footwear,outer soles&uppers of rubber/plastic,metal toe-cap 0% 38% 38% H640411 Sports footwear, incl. tennis shoes, basketball shoes, gym shoes, training

shoes and the like, with outer soles of rubber or plastics and uppers of textile materials

0% 34% 34%

H640291 Footwear, outer soles/uppers of rubber or plastics, covering the ankle, nes 0% 29% 29% H640419 Footwear with outer soles of rubber or plastics and uppers of textile materials

(excl. sports footwear, incl. tennis shoes, basketball shoes, gym shoes, training shoes and the like, and toy footwear)

0% 29% 29%

H640199 Waterproof footwear, outer soles/uppers of rubber or plastics, nes 0% 28% 28% H640299 Footwear, outer soles/uppers of rubber or plastics, nes 0% 27% 27% H071220 Onions dried but not further prepared 0% 26% 26% H200911 Orange juice, unfermented &not spirited ,whether/not sugared /sweet, frozen 0% 22% 22% H200919 Orange juice, unfermented, whether or not containing added sugar or other

sweetening matter (excl. containing spirit, frozen, and of a Brix value <= 20 at 20°C)

0% 22% 22%

H640420 Footwear with outer soles of leather or composition leather and uppers of textile materials (excl. toy footwear)

0% 21% 21%

H070951 Mushrooms, fresh or chilled 0% 21% 21% H070390 Leeks and other alliaceous vegetables, fresh or chilled (excl. onions, shallots

and garlic) 0% 20% 20%

H070970 Spinach, N-Z spinach & orache spinach (garden spinach),fresh or chilled 0% 20% 20% H420219 Trunks, suit-cases, vanity-cases, executive-cases, brief-cases, school

satchels and similar containers (excl. with outer surface of leather, composition leather, patent leather, plastics or textile materials)

0% 20% 20%

H200929 Grapefruit juice, unfermented, Brix value > 20 at 20°C, whether or not containing added sugar or other sweetening matter (excl. containing spirit)

0% 20% 20%

H150710 Soya-bean oil crude, whether or not degummed 0% 19% 19% H200840 Pears, prepared or preserved, whether or not containing added sugar or other

sweetening matter or spirit, n.e.s. 0% 15% 15%

H240130 Tobacco refuse 35% 50% 15% H960310 Brooms/brushes of twigs/oth veg mat bound together,with/w/o handles 1% 18% 16% H810820 Unwrought titanium; titanium powders 0% 15% 15%


South Africa Preference Margins Under AGOA (HS 6)

PM>10% 10%>PM>5% 5%>PM>0% Total

Value of trade (2001-2011) 13 973 712 7 799 831 1 178 963 338 1 202 909 615

Number of lines that have a margin of preference over MFN

46 114 419 579

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


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


Sector Specific Key findings:SPS measures limiting exports to United States under AGOACitrus: 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:RecommendationsSouth 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.


Sector Specific Key findings:RecommendationsSouth 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)


Textiles and Apparel


Textiles and ApparelTextile 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 60 000 - 80 000. (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.


Textiles and Apparel246 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 drivenHowever, these product lines are not sufficient in terms of value added tariff lines to create any degree of interest in a lobbying effortOnly one apparel product whose exports are greater than US$1 million per year - H611595 panty hose and tights of cotton


Textiles and ApparelIt 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

.


Textiles and ApparelSouth 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.


Textiles and ApparelSouth 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.


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


Automotive Sector


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 36 000 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

Table 1: Sector Level T rade Potential between South Africa and the United States

HS Code

Product Annual % growth in value, 2001-12

SA exports to USA

USA imports from the world

South Africa’s Exports to the world

H8703 Cars (incl. station wagon) 24.4 0.8 9.4 H8708 Parts and access of motor vehicles 1.7 4.9 7.9 H8704 Trucks, vehicles for transport of goods (33.7) (3.4) 26.7 H8707 Bodies for motor vehicles (23.2) 5.4 17.5 H8702 Public-transport type vehicles 0.0 (4.2) 22.1

Source: Own Calculations based on ITC (2013) data

Summary of Trade Potential

Table 1: Automotive Trade Potential Summary Assessment

US Market

Growth Relative Trade

potential Average tariff applied by USA to South Africa

H8703 Cars (incl. station wagon) Positive High 0.68 H8708 Parts and access of motor vehicles Positive High 0.81 H8704 Trucks, vehicles for transport of goods Negative High 4.99 H8707 Bodies for motor vehicles Positive Low 0.65 H8702 Public-transport type vehicles Negative Low 1.00 Source: Own Calculations based on ITC (2013) data


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 growthPreference 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


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?

.


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 2010-2012.

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

subtitle: presenter: date: the benefits of africa growth and opportunity act (agoa) to south africa...

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