Why South Africa needs the US for its agricultural trade

The dispute between South Africa and the US over poultry products could harm relations between the two countries. Shutterstock

Relations between the US and South Africa have hit another low in a series of trade disputes that go as far back as 2003. While strengthening its relations with other countries, the US has threatened to suspend South Africa from its preferential trade programme for Africa due to its failure to comply with the latest terms of the African Growth Opportunities Act (AGOA).

AGOA enables preferential access to the US market for African countries that meet specific criteria. The US extended these benefits to 2025 for South African products while restrictions on US poultry imports were relaxed.

In South Africa’s defence for not complying, there were outstanding issues relating to sanitary and phyto-sanitary (animal health) measures to be considered following an outbreak of H5 Virus, or bird flu, in 21 US states.

Lately veterinary authorities of the two countries have signed another agreement that will allow poultry imports into South Africa from the unaffected states. This agreement is expected to defuse a potentially volatile situation and the US poultry imports will start coming into South Africa early in 2016.

The US has been an important trade partner for many years - in the lead up to South Africa’s democracy and afterwards. But this has changed. The US accounted for 13% of South African imports and 10% of exports in 1996. It was the second most important trading partner. But by 2014 the US had been overtaken by China as its share declined for both imports and exports to 7%.

Nevertheless the US is still one of the country’s top five main trading partners. And it is clear that the US has an interest in South Africa as it is by far its leading market in sub-Saharan Africa.

Why AGOA matters

AGOA offers diversification opportunities for agricultural products. It also provides access to an alternative and highly competitive market. These two factors - diversification and an alternative market - are important in the light of highly volatile markets and fast changing global demands. They help reduce the risk of market volatility.

South African products benefiting from AGOA include avocados, wines, nuts and citrus. The US is the most or second most important market destination for these products.

Since AGOA was inacted in 2000, exports of these products to the US has grown annually. These exports help industries such as citrus which employ more than 80 000 people directly, 40 000 indirectly and a further 100 000 in peak season. The wine industry employs more 300 000 people directly and indirectly.

The US also serves as a benchmark for global competitiveness in many areas. It makes it easy to sell products into other countries once they have been accepted by the US.

South Africa needs the US market for job creation as well as revenue generation. It is therefore important that the current trade disputes are resolved. The situation must be approached with a long term and broader view.

After all, trade relations are always complicated. Similar to other relations, they need to be maintained, nurtured and disputes need to be resolved.

Complicated and growing global trade

The US-South Africa case shows how complicated global trade can be. Agreements are there to facilitate trade and to ensure products get favourable treatment in foreign markets. But the world trading system is complex, costly, burdensome and time consuming.

In 1990 the value of global trade was $1.3 trillion. By 2014 it had increased to $17.1 trillion. Agricultural products contribute about 10% of this global trade.

The World Trade Organisation regulates global exchange of goods and services at a general level. But it is the responsibility of governments to simplify the system for companies that wish to participate in global markets.

Trade agreements serve as contracts under which trade will take place between members. In the process of moving products from one country to another, many regulations, border posts, insurance, inspections, ports, logistical arrangements and other issues are involved. These can complicate or facilitate trade, depending on the existence of trade agreement.

Types of trade agreements

Different types of agreements are signed to deal with the exchange of goods and to make products competitive. These differ by the level of complexity, ambition or integration involved. They include economic unions, which represent a high level of agreement. This allows or simplifies the movement of people and goods. It also includes the harmonisation of economic and monetary policies between members. The EU is an example of one such agreement.

In a customs union members have the same trade policies, tariffs and commit to moving towards common trade goals. Examples include the Southern African Customs Union and East African Community.

Then there are free trade areas which allow duty-free movement of goods for most traded goods.

Preferential trade agreements such as AGOA are not negotiated, but granted by one partner. They are unilateral and non-reciprocal grants, usually offered by a developed partner to a developing or least developed country to enhance economic development through trade participation.

New US trade agreements that will affect South Africa

The US is currently negotiating two main trade agreements involving goods and services. These are the Trans-Pacific Partnership (TPP) involving 11 countries in the Pacific Rim and the Transatlantic Trade and Investment Partnership with the 28 members of the EU. Agricultural products are included in both negotiations.

The negotiations will influence global trade and specifically South African trade. If concluded, the TPP will represent about 40% of global GDP and more than 30% of world trade. Once these negotiations are concluded, there will be direct and indirect effects on South African trade.

This is because some countries involved in the US negotiations have trade agreements with South Africa, such as the EU members. US and South African products will then compete in the EU market on terms that may be favourable to the US. Others, including Chile, are competitors to South Africa in the US market.