South Africa Will Caution Trump on ‘Premature’ Trade Review

(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. 

South Africa’s government will tell President Donald Trump’s administration that its review of a preferential trade agreement that could put as much as $2.4 billion in exports at risk is premature and potentially damaging for both economies.

The U.S. Trade Representative will start public hearings on Thursday to review the nation’s duty-free access to the U.S. market under the so-called Generalized System of Preferences, its oldest and largest trade-preference program for the world’s poorest economies.

That’s after it accepted a complaint from the International Intellectual Property Alliance -- a private-sector group that represents 3,200 U.S. companies including the makers and distributors of books, films, music and video games -- that alleges South Africa’s Copyright Amendment Bill and Performers’ Protection Amendment Bill fail to “provide adequate and effective protection of U.S. copyrights.”

According to the pre-hearing brief filed by the South African Embassy in Washington D.C., senior officials in the Department of Trade and Industry will argue that the IIPA’s concerns are “at best speculative and certainly premature” as the proposed bills are not yet in operation and undergoing a review by President Cyril Ramaphosa. Xavier Carim and Evelyn Masotja will make the representations.

To qualify for GSP benefits, a country must meet the criteria established by Congress and the extent to which the country provides adequate and effective protection of intellectual property rights may affect its eligibility.

This is not the first time that South Africa’s actions put it at risk of losing preferential trade access to the U.S. In 2015, the U.S. warned that changes to legislation that would limit foreign ownership of private security companies in South Africa may affect the country’s inclusion in the African Growth and Opportunity Act. The bill was passed by parliament, but was not signed by the president.

If the outcome of the review is negative, South Africa could lose its preferential market access under the GSP and AGOA, which together allow most sub-Saharan African countries duty-free access to the U.S. market for almost 7,000 products. This could deepen the malaise of an economy stuck in the longest downward cycle since World War II.

Trade in goods and services between South Africa and the U.S. was $18.9 billion in 2018, with $2.4 billion of exports from Africa’s most industrialized economy that happened under the two preferential programs, according to U.S. government data.

Oranges and Aluminum

South Africa’s agricultural sector has the “greatest exposure” to a potential loss of preferential market access relative to total sectoral exports, according to Eckart Naumann, an independent economist and associate at the Stellenbosch-based Tralac Trade Law Centre. That’s ahead of the automotive sector, which ships more in nominal terms. About 75% of U.S.-bound farm exports, which is equivalent to $304 million, was cleared under duty-free preferences in 2018, he said.

The country is the second-largest source of imported oranges in the U.S. It also ships table grapes, litchis and macadamia nuts to the world’s biggest economy and is in the process of adding avocados to that list. The viability of South Africa’s local fresh-produce industry, which supports more than 300,000 jobs, could be affected by a loss of access to AGOA, Anton Kruger, the CEO of the Fresh Produce Exporters’ Forum South Africa, said in his submission.

The South African and U.S. minerals and metals industries could be affected by a negative review, even though only 15% of the $4.75 billion in U.S.-bound freight used GSP and AGOA preferences last year. Hulamin Ltd., a Johannesburg-listed aluminum semi-fabricator that supplies the U.S. with metal used in the production of beverage cans, vehicle manufacturing and construction, estimates that a loss of these benefits would increase the price at which it delivers aluminum sheet and plate products in the U.S.

“This could ultimately have profitability implications for companies that are importing aluminum for further processing,” the company said in its submission to the U.S. Trade Representative.

There will be no change to South Africa’s GSP or AGOA benefits during the review process, a U.S. Embassy official in Pretoria said.

To contact the reporter on this story: Prinesha Naidoo in Johannesburg at pnaidoo7@bloomberg.net

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Ana Monteiro

©2020 Bloomberg L.P.