Efforts to engage with DIRCO and USA counterparts on AGOA

Meeting report

Department of Economic Development and Tourism (DEDAT) Presentation
Mr Rashid Toefy, Acting Head of Department (HOD), DEDAT, reported that the Department had just completed the process of setting targets for the next 12 years, with a focus on exports. A key element of the strategy is the opening of trade routes. The relationship with the USA is critical and AGOA is considered a crucial agreement.

Ms Ilse van Schalkwyk, Chief Director: Economic Sector, DEDAT, stated that exports were identified as a priority focus area. The Western Cape export strategy is being finalised to address export constraints and improve the export performance of the province. Trade challenges include the current uncertain global economic position due to the Russian invasion of Ukraine, the slow growth in the Chinese economy, post-Covid-19-related uncertainties, and uncertainty about AGOA. The Western Cape recorded exports to the value of R162 billion in 2022, which is a marginal increase from R146 billion in 2021. Imports increase slightly by R30 billion to R144 billion in 2022.

Wesgro Presentation
Ms Karen Bosman, Head: Strategy and Advocacy, presented on behalf of Wesgro. AGOA grants duty-free access to certain products exported to the USA by qualifying sub-Saharan African countries. The agreement builds on a generalised system of preferences (GSP), i.e. countries need to qualify for GSP to be part of AGOA. The agreement expires on 30 September 2025. The Western Cape province contributes and benefits significantly from AGOA/GSP preferences. In 2021, five of the top ten AGOA exports from SA to the USA were from the Western Cape, representing a share of more than 89%.

Discussion
Mr I Sileku (DA) said there was no doubt about the benefits AGOA holds for African countries and the Western Cape in particular, therefore, the political threat of not renewing AGOA was of concern. He asked the Department to share the implications and effects on businesses and vulnerable communities should SA not be part of AGOA. He enquired about the Department's actions to remedy the situation beyond 2025. The Department identified the issue of the provincial government not being part of trading interventions as one of the challenges. He asked if the Department was lobbying to secure a seat at the table to have a voice in what might happen.

The Chairperson requested more information on the Wesgro survey on businesses and the impact on employment. She asked for an expansion on the GSP requirements for SA and what specific provisions under AGOA the Department and Wesgro would want to be expanded. The Department explained that a more differential approach and greater support for other industries were needed, other than the focus on agriculture.

Mr Toefy undertook to share the survey results in writing.

Ms van Schalkwyk said the impact of exports to the USA would be difficult to determine and more research needs to be done. Businesses would have to absorb the additional costs, resulting in reduced profit margins, which was not the best situation for exporters. The Department started working with the DTIC and collaborating with other provinces. A provincial forum on exports meeting is scheduled for July 2023 to raise concerns. The DTIC is engaging directly with exporters and not with provincial governments. Work has been done on future trade agreements and removing trade barriers. An export strategy is being drafted to explore new markets and expand the export base through diversification. The medium to long-term goal is to achieve the target of tripling exports.

Ms Bosman said the implications would be more acute in certain sectors, e.g. the automotive industry would be affected nationally while the agriculture sector in the Western Cape would be impacted. Industries will have to diversify to other markets if the market becomes less competitive. She explained that the entire GSP programme was not renewed due to general USA trade policy positions and that it was not specific to SA. But SA was under review for GSP qualification in terms of copyright issues but the investigation was halted because the GSP had lapsed. New Bills are currently before the USA Congress to authorise the GSP programme. It was important to consider the continental context because AGOA supports regional trade. Since it was implemented, AGOA made it easier to create value chains across Africa.

Mr Toefy sought clarity on whether the impact of not having AGOA would mean that trade would become more expensive with possible job losses but the USA market would not be lost to South African exporters.

Mr Sileku asked if there was a potential of businesses closing down and jobs being lost if the preferential discounts offered by AGOA were not renewed. He wanted to know what the extreme challenges were.

The Chairperson asked which opportunities under AGOA would be considered for expansion. The Minister and the Premier were visiting the USA to discuss AGOA. She asked about the objective of their mission. She wanted to know if the Department would lobby for free trade agreements with the USA.

Ms Bosman confirmed that the market would not be closed to SA but trade would become less competitive. Tariffs could be a bit higher on some products and much higher on others. For example, the wine industry would be heavily impacted because wine carries a high tariff. USA importers might consider more competitive markets with which they have free trade agreements and are closely located in the USA. Other aspects that might impact market competitiveness are input costs, transport and energy costs, and the price of manufacturing. In terms of expansion, she replied that product-specific opportunities are being explored with various sectors that have the potential to export to SA. AGOA tariffs only apply to goods. SA does not have agreements on services and digital trade with the USA. She agreed that a bit more research was needed to determine the impact of AGOA not being renewed.

Ms van Schalkwyk stated that research on product complexity mapping was commissioned in terms of goods but data on services was not accessible. The research presented a view of opportunities and export conditions to other parts of the world in the short term. In the medium term, there is potential to increase production where SA has a competitive advantage. A wide range of aspects need to be in place to ensure that businesses are export ready. Wesgro was also considering other trade agreements in addition to AGOA. The research was in the second phase of mapping products to different markets around the world and positioning the Western Cape for the next 15 years. The reason for the Western Cape Government delegation’s visit to the USA was to lobby for trade and secure confidence in business relations from an investment perspective, not just on AGOA but also on other programmes such as tourism. The Department would continue lobbying the DTIC on trade negotiations. Minister Wenger involved specific actions in increasing awareness about the impact of AGOA on businesses.

Mr A Van der Westhuizen (DA) sought clarity on the tariffs charged by the USA. He wanted to confirm the price elasticity in terms of the export market for competing on the international market and what a small change in import costs would mean for businesses. He enquired about the costs of shipping products to the West Coast of the USA, which is the biggest market for South African goods in the USA.

Mr Toefy replied that price elasticity varies depending on the type of product. Exporters might find it acceptable to pay extra for wine but are less inclined to pay extra for other products. He was unsure about the aspect of shipping costs.

Ms van Schalkwyk agreed that shipping costs depend on various factors. She undertook to provide feedback about the costs per container for different routes.

The Chairperson said detailed written responses would be welcomed.

Department of Agriculture Presentation
Ms Bongiswa Matoti, Director: Agricultural Economic Services, Western Cape Department of Agriculture, highlighted some concerns and considerations about losing AGOA eligibility. South African exports to the USA have been increasing since AGOA was extended in 2015. AGOA expires within 18 months and extension of the agreement is not guaranteed. Should the agreement not be extended, the Western Cape is more at risk compared to the rest of the country. The total value of the USA top agri imports from SA is $570 million. The Western Cape share equals 51% ($289 million). The total value of SA's top agri exports to the USA is R8.3 billion. The Western Cape share equals 46% (R3.8 billion). AGOA discussions should be contextualised within the current economic climate. The biggest risk is market closure and the oversupply of alternative markets in case of market closure.

Discussion
The Chairperson thanked the presenters for doing their work so passionately and expressed appreciation to the Departments and Wesgro for taking this matter seriously. It will have serious repercussions on the Western Cape economy and on a number of jobs if the agreement is not renewed.

Mr Van der Westhuizen drew attention to a graph depicting a recent sharp trade growth with the USA. He stated that it takes a number of years to establish stakeholder relationships but it has a snowballing effect once in place. He asked if the sharp growth was in jeopardy should AGOA not be renewed.

Ms Matoti agreed that a number of issues are at play at the beginning stage to build trust with the market. It takes a while for exporters to comply with protocol requirements. The graph would climb higher if AGOA is extended.

Mr G Brinkhuis (Al Jam-ah) asked how a layperson in Mitchells Plain could be part of the lucrative import/export processes. He wanted to know how his community could participate because normal people are unaware of the processes.

The Chairperson wanted to know how Seychelles managed to graduate out of AGOA and what they have achieved to restore eligibility. She asked if the potential number of jobs impacted in Western Cape agribusinesses were directly linked to exports.

Ms Matoti replied that AGOA is important for imports and exports. Chicken prices would be higher without AGOA, which will affect the layperson in lower living standard measure (LSM) categories in terms of affordability and food security. Agri-businesses, which mostly employ lower LSM people, use fertilisers in production processes. Some people in Mitchells Plain are employed in sectors that benefit from AGOA. She would supply more information in writing on how Seychelles managed to graduate out of AGOA. She confirmed that the more than 136 000 jobs that could be impacted are all linked to export commodities but it did not mean that all the jobs would be lost.

Mr van der Westhuizen stated that international trade drives prices down. If one can earn more money from exports then you produce more and in the process, local consumers will benefit from excellent by-products. On the prices of chicken, he said the South African Poultry Association does not welcome the competition which it referred to as dumping. Jobs would be affected and food prices would increase without incentives for exports. Food prices might increase further and would affect lower LSM consumers far more.

The Chairperson asked if the Department of Agriculture would want to expand or amend any provisions regarding the challenges related to AGOA.

Ms Matoti replied that chicken imports have always been the biggest area for expansion from an agricultural perspective. Allegations of dumping without evidence would not be taken seriously. It had been a struggle to prove that dumping was taking place. The concerns about AGOA are a highly political issue in the media. She remained hopeful that with successful lobbying, SA would remain in AGOA. The province does not have the competency to negotiate but the Western Cape Government can play an advocacy role. It will be very costly to trade without the benefits of AGOA. She was hopeful that the political climate would change for the better.

Mr Tshepo Morokong, Senior Agricultural Economist, Western Cape Department of Agriculture, responded to the question about the Seychelles. He stated that an increase in the GDP per capita led to the Seychelles’ graduation out of AGOA. SA should expect to graduate if the GDP increases.

Ms Matoti added that the GDP was not the only indicator for graduating out of AGOA. Other factors might lead to SA graduating sooner.

The Chairperson appreciated the engagement on the important issues of the economy and jobs. SA was hit hard by Covid-19 and inflation and needed to work hard to recover the lost jobs.

Committee Resolutions and actions
Mr Van der Westhuizen expressed his appreciation to both Departments and Wesgro for the presentations which addressed the importance of AGOA for job creation and food prices affected by international trade. The more than 136 000 impacted jobs in the agriculture sector were a serious concern that the Committee and the Western Cape Government needed to highlight. He appreciated the hard work of the producers and exporters to grow the market. It must be recognised that it takes years to establish trust in the quality of products and the reliability of supply, therefore, it was important to extend the agreement.

Mr Sileku noted that DIRCO and the DTIC did not attend the meeting. He proposed that the DTIC be reinvited to brief the Committee on their lobbying efforts.

The Chairperson commended the Minister and Premier for their mission to strengthen friendships and maintain ties to the USA. The relationship is strained due to incidents such as the Lady R, military exercises in Durban, and South Africa’s unclear position on the war in Ukraine. She was also concerned that DIRCO did not attend the meeting. The Minister submitted an apology and said the Department should be invited but later advised that the DTIC would attend. The Committee was then informed that the DTIC would not be attending the meeting and that matters of national importance should be referred to the NCOP. She stated that the Committee has the right to have a briefing on the matter, especially by the DTIC. It was unacceptable not to get information but to be referred to different levels of government. She proposed to write to the NCOP and the DTIC to include Committee Members with the same right to ask questions about AGOA. She had subsequently received correspondence from the National Assembly (NA) indicating that the matter was going to be debated at the NA level. This should not discourage the Committee from writing to the DTIC and NCOP to be included. She expected a response to this request.

Mr Sileku agreed that the Committee has a responsibility to hold departments accountable because the matter was affecting the lives and livelihoods of citizens.

Mr Van der Westhuizen said the Committee had always agreed to briefings by national departments in the spirit of cooperative governance. He called on other national departments to work with the Committee, similarly to the annual briefings by National Treasury, because they have important information to share that would strengthen the role of the Committee. He requested to be provided with information on the price elasticity and tariffs that would become applicable should AGOA be scrapped. Furthermore, he asked for a breakdown of export costs, of the five biggest export products from different categories, that the USA is charging outside AGOA.

The Chairperson requested to be provided with the results of the survey conducted by Wesgro. She was interested to see the employment numbers that they had identified. She thanked Members for participating in the meeting. She found the information shared in the meeting helpful.

The meeting was adjourned.