[Opinion] AGOA, going, gone

Mr Trump puts forth that his administration, “will work strenuously to counter non-reciprocal trading arrangements with trading partners by determining the equivalent of a reciprocal tariff with respect to each foreign trading partner.  This approach will be of comprehensive scope, examining non-reciprocal trade relationships with all United States trading partners”.

Of particular importance and concern for South Africa is that the following will be examined: “(b) unfair, discriminatory, or extraterritorial taxes imposed by our trading partners on United States businesses, workers, and consumers, including a value-added tax; (c) costs to United States businesses, workers, and consumers arising from nontariff barriers or measures and unfair or harmful acts, policies, or practices, including subsidies, and burdensome regulatory requirements on United States businesses operating in other countries; (e) any other practice that, in the judgment of the United States Trade Representative, in consultation with the Secretary of the Treasury, the Secretary of Commerce, and the Senior Counselor to the President for Trade and Manufacturing, imposes any unfair limitation on market access or any structural impediment to fair competition with the market economy of the United States.”

Global trade volatility

Such a large injection of global trade volatility is a golden opportunity for South Africa to objectively assess its trade and investment policies, their consequences, and whether they can still be considered fit for purpose (from a growth and job-creation point of view). A driving intention for the Trump administration is that it has now opened the door to ongoing trade negotiations with various countries. The jolt of uncertainty and urgency that this EO adds to numerous other EOs already signed can spur countries to adapt and respond to US concerns, or to pursue alternative trade and investment routes. Regardless, Mr Trump has shifted the burden to other countries in choosing how they want to engage with the US in trade matters.

What should be of keen interest for South Africa is the mention of “nontariff barriers”. These are considered barriers or restrictions to trade, other than taxes (or tariffs). South Africa presents a comprehensive (non-exhaustive) list: dysfunctional ports and railways, inefficient border operations, high rates of crime impacting on goods security, Localisation Master Plans, and BEE as well as other forms of local empowerment and equity programmes. Mr Trump’s executive order provides ample reason to examine and pluck at least some of this low-hanging fruit.

The AGOA Act itself holds that a country is eligible for participation if it “has established, or is making continual progress toward establishing – (A) a market-based economy that protects private property rights, incorporates an open rules-based trading system, and minimizes government interference in the economy through measures such as price controls, subsidies, and government ownership of economic assets”, and, “(C) the elimination of barriers to United States trade and investment, including by – (i) the provision of national treatment and measures to create an environment conducive to domestic and foreign investment”. Can South Africa credibly claim to have made substantive progress in at least these highlighted areas?

Serious doubt

If South Africa’s continued participation in the Africa Growth and Opportunity Act (AGOA) was not already in serious doubt following comments on South Africa by Trump administration representatives and the President himself, this particular executive order indicates the country’s AGOA participation is almost at an end, when the programme itself comes up for renewal in September of this year (indeed, if not sooner). A new form of AGOA could well be offered. (Should the government and business decide to put most of their eggs in the AGOA basket, and to engage with Washington with that in mind, the removal of nontariff barriers should be pursued in any case, as doing so would make the South African trade space more attractive and globally competitive).

However, South Africa’s future trade and investment relations with the US would be much better served – and will portray the country in a positive light as an active and serious player, not only for the US but other trading partners – if it focuses on pursuing bilateral trade agreements.

By no means do I wish to undermine the importance of AGOA, especially for select sectors in the economy. Should South Africa lose its AGOA access, the automotive and agriculture sectors in particular would be hurt. But an overbearing focus by both the government and business on retaining AGOA benefits  places South Africa firmly in the position of supplicant; a recipient deserving of attention and economic investment, rather than an active partner taking charge of its domestic challenges and looking to assert itself in its geographic region. South Africa should, with the resources and policy options that are within its choice to change, be planning and investing in trade infrastructure and legislation such that a loss of AGOA benefits would not spell doom for the economy.

Weather shocks better

Increased global trade uncertainty is no longer a question – it has been confirmed repeatedly. Countries that accept and deal with this reality can set themselves up to weather shocks better, or some, such as South Africa, can hobble themselves by leaving trade infrastructure in a state of decline and pursuing policies that are not conducive to capital formation.

Rallying around the flag can provide short-term succour for hurt feelings. But hurt feelings – and expressing such – are not any kind of meaningful long-term planning and investment strategy. Should the various US domestic and global policy and country-relationship changes that the Trump administration is effecting hold, the next five years and beyond will be a different world from what it was before 2025. South Africa’s choice is to take the harsh but clear signals on board, and implement ideas and policies that strengthen the country’s trade infrastructure and encourage capital formation and business activity, or alternatively continue to tell ourselves we’re more important than reality indicates, singing a merry tune as the world passes us by.

Article originally appeared here.