Study on the Future Structure of the Trade and Investment Relationship Between South Africa and the United States of AmericaThe US-South African bilateral relationship has garnered significant attention over the last decade, starting with former US President Barack Obama’s notice to South Africa that the country’s benefits under AGOA could be suspended should it continue to impose barriers to US trade. While both countries remain engaged in discussions on topics of mutual interest and have fairly open diplomatic channels, the relationship remains strained. More recently South Africa’s eligibility to AGOA has been under review due to its import restrictive policies on bone-in chicken portions originating from the US and proposed amendments to the Copyright Bill and the Performers’ Protection Amendment Bill.

This is partially a continuation of the US’s big stick diplomacy, where the terms of the relationship is often set by the US and beneficiaries countries are expected to meet set criteria, but for South Africa this approach has limited the policy options available to address unique domestic issues while trade terms and conditions between the two countries are essentially dictated by the US. The terms are not necessarily bad, but they are still dictated, furthermore, entrenched US commercial interest in beneficiary countries like South Africa acts as a ballast for radical unilateral responses on the US side.

This study contextualises the relationship between the US and South Africa, noting defining events over the last decade, and provides a set of positions that South Africa can take in future engagements as the relationship evolves over the coming decade.

Over the next decade several key events will shape the US-South Africa trade and investment relationship. It can either develop towards a relationship that is comprehensive, mutually beneficial, and reciprocal or the current programmes and schemes can run their course without new initiatives enacted to replace them, seeing South Africa and the US drift further apart.

The following is a summary of the recommended strategy for BUSA:

- Seek a mandate from BUSA members to actively support the preliminary engagement between SACU and the US on a bilateral trade agreement to replace the unilateral preference schemes of GSP and AGOA, possibly using the TIFA framework.

- Confirm that these engagements should be based on the current trading arrangement between SACU and the EU under the SADC-EU EPA, including the identification of any areas where the tariff offer to the US or other provisions should be differentiated.

- Present the BUSA position to the DTIC for consideration and discussion.- Undertake strategic communication activities to demonstrate the value of a reliable and

reciprocal trade partnership with the US, in line with South Africa’s priorities for economic growth, job creation and industrialisation.

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IntroductionBoth the US and South Africa are members of the WTO, since its formation in 1995, including the 2005 protocol amending the TRIPS Agreement and the 2014 Trade Facilitation Agreement 1. These commitments form the basis of what can be considered the bilateral trade and investment relationship together with US unilateral preference schemes that afford South African exports preferential access to the US market. These preferences are domesticated in US law and South Africa does not offer the US reciprocal terms. These layers are critical to note as the unilateral preference schemes have shaped the bilateral relationship and have become the primary focus of US – SA trade relations. This is however likely to change in the coming years as the US has indicated that it is seeking a more reciprocal trade partnership with SA.

Trade and investment relations are currently directed through US domestic policies notably the Generalised System of Preferences (GSP) and the African Growth and Opportunities Act (AGOA). Other frameworks, like the Trade and Investment Framework Agreement (TIFA) and the Trade, Investment, and Development Cooperative Agreement (TIDCA) with SACU, have also been signed but are forums for dialogue rather than trade agreements per se.

Due to the unilateral structure of the trade and investment relationship, South African domestic policies often have an impact on trade preferences afforded by the US as it seeks to leverage the preferential market access provided. The unilateral structure has another implication; actors outside of official channels can have a significant impact on South Africa’s trade preferences and affect bilateral relations with the US, as is the case of the latest review of South Africa’s GSP eligibility that was instigated at the request of pressure groups in the US.

Unlike trade and investment relations, US-South Africa diplomatic relations are founded on a strategic partnership of mutual interests. The relationship revolves around a broad base of collaboration in the areas of health, education, the environment, security, digital economy, human rights protection and the elimination of illicit trafficking in narcotics. The US also has broader regional and continental strategies with South Africa as the cornerstone. These subjects of mutual interest are unlikely to suffer significantly from disputes of commerce between the states but trade concerns are rarely completely set aside.

A note on the USTRRelevant actors in the US administration include the Office of the United States Trade Representative (USTR), with the head of the office also serving other critical agencies. For example, the USTR is the vice chairman of the Board of Directors of the Overseas Private Investment Corporation (OPIC), is on the Board of Directors of the Millennium Challenge Corporation, is a non-voting member of the Export-Import Bank Board of Directors, and is a member of the National Advisory Council on International Monetary and Financial Policies.

The current USTR is Robert E. Lighthizer. He is a Cabinet member who serves as the president’s principal trade advisor, negotiator, and spokesperson on trade issues with his South African counterpart being the minister of Trade, Industry and Competition (DTIC), Ebrahim Patel. There are some important differences between the two offices, most notably the overtly inward (domestic) focus of the DTIC compared to that of the USTR.

The USTR publishes annual reports on South Africa in their National Trade Estimate report on Foreign Trade Barriers (NTE), assessing South Africa’s import policies, policies relating to government

1 https://www.wto.org/english/tratop_e/dda_e/negotiating_groups_maps_e.htm?group_selected=GRP026

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procurement, intellectual property rights (IPR) protection, services barriers, investment barriers, electronic commerce, and other barriers. Additional reports are also prepared by the USTR on Sanitary and Phytosanitary Measures, Technical Barriers to Trade and a host of topics of interests to the US.

Given the unilateral nature of the trading arrangements the views held by the US (and the USTR in particular) are carefully considered in this study. This study will make heavy use of US sources not only to catalogue the trade and investment sentiment among the countries from 2010 to 2019, but also to capture specific events that had an impact on the relations.

Assessment of US – South Africa trade and investment relationship: 2010 – 2019The following table summarises key events shaping the bilateral relationship between South Africa and the US over the last decade. More detail on the specifics of the trade and investment relationship, and relevant engagements, are set out in Annex 1.

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A chronicle of defining events that shaped the bilateral relationshipYear Notable Occasion Highlights

2010

Nuclear Non-Proliferation Treaty (NPT) Review Conference

Signing PEPFAR partnership framework

United States and Africa: Partnering for Progress

U.S. - South Africa Strategic Dialogue

South Africa Joins BRIC, forming BRICS

A series of working-level bilateral meetings took place in December on law enforcement, trade, transportation, human rights, health, and agriculture, followed by out-briefs of goals and accomplishments, including:

- The PEPFAR Partnership Framework

- Project Phidisa, a ground-breaking clinical research collaboration

- The Clinton Climate Initiative, 5000-megawatt solar park in the Northern Cape

- NTP Radioisotopes Ltd., delivered the first patient use approved shipment of the medical isotope Mo-99

2011

Launched Open Government Partnership (OGP)

State visit from First Lady Michelle Obama

United States-South Africa TIFA Council

State Department sponsored Young African Leaders Innovation Summit and Mentoring Partnership; connects young African leaders with mentorship opportunities in the United States.

The Obama Administration using bilateral investment treaties (BITs) as one of many tools to assist reform-minded African countries and generate foreign investment appetite. Published model BIT in 20122

Notable increase from the US EX-IM bank to support U.S. company exports to SSA and notable increase in the Overseas Private Investment Corporation (OPIC) support in private-sector investments in Sub-Saharan Africa.

After allegations of corruption, President Zuma reshuffled his Cabinet in October to remove some ministers who were under investigation.

2012

US National Export Initiative

Signing of the amended US-South Africa Trade and Investment Framework Agreement (TIFA)

Dialogue to discuss transfer of ownership of PEPFAR’s care and treatment programmes to South Africa

Increase in bilateral goods and services trade by 21% over the previous year

US Ex-Im Bank and South Africa IDC sign a US$2 billion declaration of intent to stimulate development

2 https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2012/april/model-bilateral-investment-treaty

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Launch of the Africa Regional Media Hub

South Africa-United States Strategic Dialogue

U.S.-South Africa Energy Dialogue

U.S.-South Africa Business Partnership Summit

US sanctions on, and determinations to, reduce oil purchases from Iran

UN General Assembly resolution condemning Syria and the Assad regime

of South Africa’s renewable energy sector

Global Disease Detection Center established in South Africa, co-directed by the U.S. CDC and South Africa’s NICD

USAID credit guarantee facility to make up to R1.2 billion (US$150 million) in funding available for SMEs

Launch of the School Capacity Innovation Program (SCIP)

Collaboration between USAID, the U.S. Federal Trade Commission and the Competition Commission of South Africa, to provide capacity building assistance to competition agencies in the Southern Africa region

2013

Annual Bilateral Forum

World Economic Forum in Cape Town

South Africa hosts BRICS summit

PEPFAR 10th Anniversary

State visit by President Obama and his family

WTO Trade Facilitation Agreement

Launch of Trade Africa, a partnership that seeks to increase internal and regional trade within Africa, and expand trade and economic ties

Launch of Power Africa, an initiative aiming to double access to power in sub-Saharan Africa. $20 million in project preparation, feasibility and technical assistance grants to develop renewable energy projects. U.S. - Africa Clean Energy Development and Finance Center (CEDFC) based in Johannesburg

First acknowledgement of intention to renew AGOA post 2015 under Obama administration; AGOA 2.03. This was also when the matter of graduation from AGOA was raised, considering whether it should be at a country level or sectoral level. Initiation of AGOA review process.

New generation of trade issues entered the discussion. For African markets key were questions of trade facilitation, customs harmonization, and infrastructure development to reduce the cost of trading.

201 SADC-EU EPA negotiations After years of dialogue, South Africa’s Cabinet issued (for public comment) a national intellectual 3 https://ustr.gov/Froman-AGOA-Forum-on-The-Future-of-US-Africa-Trade-and-Economic-Cooperation

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South African General Elections

U.S.-Africa Leaders’ Summit

U.S.-Africa Business Forum

property strategy which proposed changes to all IP laws in an effort to better protect public welfare and enable development.

South Africa, together with China and India, voiced concerns over the US proposal to the WTO Subsidies and Countervailing Duties committee (SCM committee) to include deadlines for the submission of written answers to Article 25.8 questions.

US Ex-Im Bank announced that it will commit $563 million in financing to support the sale of General Electric locomotives to Transnet, South Africa.

USAID announced that it will launch the Africa Private Capital Group in South Africa to mobilize private sector investment in key sectors.

USTR Michael Froman testified before the Senate Finance Committee on the African Growth and Opportunity Act. Suggested that mechanisms for countries’ eligibility criteria allow for partial and more immediate withdrawal to drive positive changes in beneficiary countries and that AGOA be updated to include a more comprehensive compact (consider moving from unilateral preference programme, to reciprocal trade agreements4)

President Zuma reshuffled his cabinet in May 2014 to remove some ministers who were alleged to have engaged in corrupt activities.

2015

Trade Winds – Africa 2015

South Africa as non-permanent member of the UN Security Council

Paris Climate Change Conference

AU Summit President Bashir attends

SACU Trade Policy Review

Announcement of a 10-year extension of AGOA which includes an out-of-cycle review of South Africa’s eligibility.

South Africa agrees to allow 65,000 tonnes of chicken portions -- boned chicken portions - to be imported from the US.

US president sent notifications to Congress and to South Africa indicating that he intends to suspend benefits to South African agricultural products under AGOA for failure to meet the eligibility requirements of the Act5 Also contingent on meeting benchmarks on elimination of barriers to U.S. poultry, pork, and beef.

4 https://ustr.gov/about-us/policy-offices/press-office/speeches/transcripts/2014/July/USTR-Froman-Senate-Finance-Committee-Testimony-on-AGOA5 https://ustr.gov/about-us/policy-offices/press-office/press-releases/2015/november/us-suspend-african-growth-and

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Amended TIFA Agreement South Africa Protection of Investment Act signed into law

2016

CITES COP 17

EU-SADC EPA enters provisional application

Publication of the Beyond AGOA Report considering whether AGOA, in its current form, will continue to support US objectives.6

Evaluation of the United States-Africa Clean Energy Finance Initiative

2016 United States presidential election. Republican nominee Donald Trump wins.

2017

WTO ministerial Conference

NAFTA renegotiations

South Africa ratifies the WTO Trade Facilitation Agreement (TFA)

President Trump’s Working Lunch with African Leaders; stated his desire to promote prosperity and peace in the region through a range of economic, humanitarian, and security activities as well as to extend economic partnerships to countries that are committed to self-reliance.

USTDA awards a $800,000 grant to the Green Cape Sector Development Agency for the Western Cape Integrated LNG Importation and Gas-to-Power Project

2018

USMCA Concluded

G20 Ministerial in Argentina

Cyril Ramaphosa becomes President of the ANC and country

Eswatini regains AGOA eligibility

Assistant secretary Bureau of African Affairs, Tibor Nagy, reaffirms US commitment to PEPFAR, Power Africa, AGOA, Feed the Future, and YALI

2018 Trade Policy Agenda and 2017 Annual Report7 notes the WTO’s lack of criteria on designating a country as developing, cites South Africa as an example of a more advanced country.

At 2018 AGOA Forum USTR Robert Lighthizer announced the Trump Administration’s desire to negotiate a model free trade agreement with a sub-Saharan African country.

ITAC and the Department of Agriculture, Forestry and Fisheries (DAFF) announced intention to review the poultry TRQ guidelines.

2019

South Africa National elections Amended poultry TRQ guidelines finalized, not taking into account US Government comments, governing the 2019/2020 quota year.

US and the AU intend to jointly identify subject areas related to the ongoing negotiation and implementation of the AfCFTA. Possibility of technical assistance and capacity building.

6 https://ustr.gov/sites/default/files/2016-AGOA-Report.pdf7 https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018%20Annual%20Report%20FINAL.PDF

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U.S. Ambassador to South Africa Lana Marks arrives in South Africa.

U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctions Ajay Gupta, Atul Gupta, Rajesh Gupta, and Salim Essa for their involvement in corrupt schemes with government officials and employees in state-owned enterprises.

Tibor Nagy, Assistant Secretary of State for the Bureau of African Affairs at the U.S. Department of State, notes that over 500 American companies are active in South Africa, indicating that an estimated 100 companies have left.

Congress passes the BUILD act, which doubles the U.S. government’s investment capital from $29 billion to $60 billion and enables the US government to make equity investments in African companies.

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US-SA: Declining TradeKey trade trends between South Africa and the US:8

Two-way trade with the US increased from $7.1 billion in 2001 to a peak of $16.3 billion in 2011, but steadily declined to $12.3 billion in 2019.

SA exports to the US increased from $4.3 billion in 2001 to $10 billion in 2008, and then declined to $7.6 billion in 2019.

SA imports from the US increased from $2.8 billion in 2001 to a peak of $7.1 billion in 2012. Since then, SA imports have declined to $4.6 billion in 2019.

Over the period 2001 – 2019, SA mostly enjoyed a trade surplus due to dominance of commodities in exports to the US (platinum, diamonds and gold).

South Africa’s use of preferential market access to the US (under GSP and AGOA) has also shown some decline in 2019 from a peak in 2014. There are currently 6,900 product lines covered by AGOA and South Africa has traditionally been the biggest user of the preferences among the 38 eligible African countries.

SA exports under MFN accounted for 79% of SA total exports in 2001, dropped to 56% in 2013 and rose again to 74% by 2019. (NB. It is worth noting that only 3% of products exported to the US are subject to import duties as the remaining 97% are either covered by

8 This information was presented to NEDLAC Teselico on 20 July 2020 by the Department of Trade, Industry and Competition.

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GSP, AGOA or are duty free under WTO commitments by the US. In the case of South Africa, the products attracting the most duties are steel and aluminium exports.9)

The share of SA exports under AGOA & GSP (combined) was 20% in 2001; 44% in 2014 (the peak); and 26% in 2019.

Top exports under GSP are: chemicals, iron and steel, precious stones, metals, machinery, plastics and automotive components.

AGOA exports rose from 9% in 2001 to a peak of 31% in 2013, but declined to 16% of total exports in 2019.

Top exports under AGOA include: autos, iron & steel, fruit and nuts, organic chemicals, and beverages and spirits.

Key sectors benefitting from AGOA preferences include automotives (motor vehicles and components), citrus and wines.

Rules of origin are a critical aspect of AGOA. The basic requirement is for 35% of the value of the product (materials and direct cost of processing) to originate from AGOA beneficiary countries or up to 15% from US materials.

South Africa does not qualify for the exception allowed for third country fabric to be used in the manufacture of apparel in some AGOA beneficiary countries. As a result, South African clothing must be made from local or regional originating fabric that is in turn made from American or African yarn. The apparel must also be process (Cut, make and trim) in South Africa.10

There has been a decline in the value and share of value added manufactured products to the US under both AGOA and GSP. The DTIC explain the decline in South African exports to the US by weak economic conditions, low demand and protectionist US trade policy as well as the growing uncertainty of preferential market access for South African exports to the US.

Review of peer country relationsOver the next decade several key events will shape the US-South Africa trade and investment relationship. It can either develop towards a relationship that is comprehensive, mutually beneficial, and reciprocal or the current programmes and schemes can run their course without new initiatives enacted to replace them, seeing South Africa and the US drift further apart.

While the US will certainly be receptive to bilateral dialogues and exchanges with regards to trade and investment concerns and developmental policies, the current administrations’ posture suggests that the US will aggressively engage to ensure that they benefit directly and proportionately from a new trade framework. However, while the US position on trade and investment policy might change over the next decade - with elections scheduled for 2020, 2024 and 2028 - it’s unlikely that the developmental narrative of the early 2000s will maintain its influence on the American approach towards South Africa and other African countries.

US stance on emerging marketsOne of the clearest signals the US has sent with regards to its re-positioning on trade and investment relations is the negotiation of the United States–Mexico–Canada Agreement (USMCA). On January 29, 2020, President Trump signed legislation implementing the USMCA - with amendments enforced

9 https://agoa.info/images/documents/15718/southafricaagoanaumann112019.pdf

10 Ibid.

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on 10 December 2019. This agreement seeks to “modernize and rebalance U.S. trade relations with Canada and Mexico to benefit American workers and businesses and reduce incentives to outsource…”11. This was done primarily through the inclusion and enforceability of labour and environmental protections, innovative rules of origin, and revised investment provisions in the agreement.

The presidential trade policy agenda for 2020 provided further comments on USMCA gains. It was noted that the new agreement had been able to affect change in the partner states’ domestic policies to align with the agreement obligations - “Mexico has agreed to overhaul its system of labour justice so that workers have the right to secret ballot votes to elect union leadership, challenge union leadership, and approve new and existing collective bargaining agreements”12. The presidential trade report also said of the USMCA that it is the new gold standard for U.S. trade agreements going forward.

The USMCA and MexicoThe key improvements of USMCA compared to NAFTA, as noted by the USTR, includes advanced provisions on intellectual property and digital trade, provisions to combat ‘non-market’ practices like subsidies and currency manipulation, transparency with respect to new geographical indications (GIs)13. However, the USMCA also tightened Rules of Origin on automobiles and components (from 62.5% to 75%); and included specific labour provisions with regards to automobile manufacturing, requiring 40% to 45% of automobile parts to be made by workers who earn at least $16 an hour by 202314. In addition to the automobile specific requirements on labour standards, the USMCA also includes a ‘Rapid Response Mechanism’15 in the dispute settlement chapter that will provide for facility specific monitoring and expedited enforcement of labour rights in Mexico. USMCA also increased the terms of copyright protection from 50 years beyond the life of the author to 70 years, while also including provisions on prohibiting duties on things like music and eBooks with protections for internet companies to limit liable for content their users produce16.

Considering the US’s stance on Mexico specifically, the USMCA seeks to address enforcement against counterfeiting and piracy, ‘camcording’ of movies, satellite and cable signal theft, transparency with respect to new geographical indications, copyright protection, enforcement in the digital environment as well as disciplines on data localization measures for services providers and financial services providers, and reforms on Mexico’s telecommunications and energy sectors.

In the 2020 NTE the US expressed concern with regards to Mexico’s use of import licensing; customs administrative procedures -particularly for express packages; TBT measures -related to compliance with Official Mexican Standards for a number of products; SPS measures -for potatoes and stone

11 https://ustr.gov/sites/default/files/2020_National_Trade_Estimate_Report.pdf12 https://ustr.gov/sites/default/files/2020_Trade_Policy_Agenda_and_2019_Annual_Report.pdf13 https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/fact-sheets14 https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/fact-sheets/rebalancing15 The mechanism allows an independent, three-person panel chosen by both Parties to request on-site verifications in any of our three countries when there are good faith questions about whether workers at a particular facility are being denied key labour rights. But those verifications will be conducted by the independent panellists not by the labour attachés.https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/december/ustr-responds-mexico-usmca16 https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/fact-sheets/modernizing

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fruit; and product approval, registration, and testing requirements -specifically for medical devices, supplies, and pharmaceuticals.

The US further raised concerns with regards to transparency of Mexico’s new centralised government procurement policies, also citing that Mexico is not party to the WTO Agreement on Government Procurement nor an observer to the WTO Committee on Government Procurement. Issues on local content requirements with regards to investment in the hydrocarbons industry, limitations on the freight industry and geographic limitations on real estate investments, as well as domestic provisions that restricts the ability of foreign investors to use international arbitration to resolve certain types of disputes with the government were cited as ongoing concerns. With regards to Mexico’s telecommunications industry, the US commended reforms to remove all caps on foreign investment; the institution of a new, strengthened, and independent regulator; the creation of a specialized telecommunications courts; and implementation of asymmetric regulations to curb the dominance of any company with more than a 49 percent market share.

The Indo-Pacific strategy: Philippines and IndonesiaSimilar to US-South Africa bilateral relations, US Indo-Pacific relations revolve around regional trade, security, and engagements through TIFAs. However, the US-Indo—Pacific relations have a much stronger focus on US commercial interests, countering China’s economic influence, reciprocity and reducing the US trade deficit. This is due to the progress on regional integration in ASEAN and the increasing linkages with China, the sordid history of WTO arbitration between the US and Indonesia, and the regions proximity to China. A direct comparison of interests and bilateral relation ambitions is therefore not possible but some lessons can be learnt with regards to the US response to challenging partnerships.

Of the two ASEAN members the Philippines are the closer comparator for South Africa, given the country’s GDP and population, but its preferential and free trade agreement network is slightly more limited. No major concerns were sighted for the Philippines in the2020 presidential trade report, however, several issues were noted in the 2020 NTE; including relatively high tariff rates (MFN and unbound rates), high-in quota tariffs under the MAV system17, customs barriers and trade facilitation concerns, numerous SPS issues, IPR protection related to patents and the use of GIs, a long list of services trade barriers, investment barriers like limitations on foreign equity participation and trade related investment measures.

Parallels can also be drawn between US concerns with Indonesia’s trade and investment policy, but the list of concerns are much longer and policy reform responses have not been forthcoming for many years. For example, the US continued to review Indonesia’s Generalized System of Preferences (GSP) eligibility due to compliance issues with the GSP market access criterion and the GSP services and investment criterion. Furthermore, Indonesia has been included in the USTR Special 301 Report since its inception and is currently on the Priority Watch List of countries that deny adequate and effective protection for intellectual property (IP) rights or deny fair and equitable market access for persons that rely on IP protection. Beyond these larger concerns, several other issues plague US-Indonesia relations; including relatively high tariff rates (WTO MFN rates), a complicated and cumbersome tax system from an FDI perspective, import licensing requirements, frustration of market access for pharmaceuticals, local content and processing requirements for certain products, state trading, customs administration, state subsidies, government procurement policy, IPR protection, a laundry list of services trade concerns, investment barriers (specifically energy, mining,

17 The Philippines’ tariff-rate quota (TRQ) program, known as the Minimum Access Volume (MAV) system. The Philippines imposes a TRQ on numerous agricultural products under the MAV

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medical devices and pharmaceuticals),data localization requirements and other digital trade barriers.

Despite these deep and long held concerns, the US continues to engage Indonesia and Philippines through the ASEAN and bilateral TIFAs, through WTO dialogues, and both these countries continue to hold eligibility for the US GSP programme. However, no indication was made as to whether the US intends to pursue deeper economic integration with their states.

The US model Africa trade agreementBased on the statement18 made by Robert Lighthizer at the 2018 AGOA forum, the US was seeking to roll out a model FTA with African states, indicating that it is likely to follow a template once an FTA is established. Kenya has agreed to enter into negotiations of a reciprocal FTA with the US, despite its membership of the East African Community customs union. During the 17 June 2020 hearings of the House Ways & Means trade subcommittee19, USTR Lighthizer’s comments confirmed that the ambition is for the US-Kenya FTA to become such a model agreement. Therefore, proceeding on future negotiations of the US-Kenya FTA have to be followed closely to develop a negotiating position and strategy for South Africa.

The US and Kenya began engaging in a first round of negotiations in August 2020 and the process is expected to take 2 years to complete. The US has released its objectives20 for the initiation of US-Kenya negotiations. In broad terms the US is seeking to negotiate a reciprocal trade agreement, that can also promote regional integration, promote good governance, and the rule of law. The more specific objectives are summarised in the following points:

Trade in Goodso Ensure fair, balanced, and reciprocal tradeo Increase transparency in import and export licensing procedureso Discipline import and export monopolies to prevent trade distortionso Secure duty-free market access for US goods (industrial, agricultural,

remanufactured) Expand market access for remanufactured goods exports by ensuring that

they are not classified as used goods that are restricted or bannedo Secure commitments with respect to greater regulatory compatibilityo Phase in for sensitive products

Eliminate non-tariff barriers SPS and TBT issues

Establish an active SPS Chapter Committee Establish an active TBT Chapter Committee

TRQ administration Trade Facilitation

o Provide for the use of electronic customs forms and electronic signatures and authentications to promote and facilitate small business trade

o Provide for automation of import, export, and transit processes

18 https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/july/statement-ustr-robert-lighthizer-019 https://www.c-span.org/video/?c4888280/user-clip-lighthizer-kenya-fta 20 https://www.tralac.org/documents/resources/external-relations/us-agoa/3626-united-states-kenya-negotiations-summary-of-specific-negotiating-objectives-may-2020-ustr/file.html

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o Provide for both administrative and judicial appeal of customs decisionso Provide for online publication of and electronic payment of duties, taxes, fees, and

charges Rules of Origin

o Could have stringent RoO to ensure “genuinely made” products benefito Incentivise production in the territory (promote regional integration)o Streamline the certification and verification of rules of origin

Increased regulatory transparencyo Ensuring transparency and accountability in the development, implementation, and

review of regulations, including by publication of proposed regulationso Providing meaningful opportunities for public comment in the development of

regulations Services trade

o Secure commitments on rules that prohibit discrimination against foreign services suppliers, number of suppliers and local presence

o Narrow exceptions listo Telecommunication and Financial Services are a priority

Digital Trade in Goods and Services and Cross-Border Data Flows Establish rules that reduce or eliminate barriers to US investment in all sectors Promote adequate and effective protection of intellectual property rights Retain the ability to support SOEs engaged in providing domestic public services

o Establish rules requiring that SOEs accord non-discriminatory treatment and act in accordance with commercial considerations with respect to the purchase and sale of goods and services

o Establish strong subsidy disciplines applicable to SOEs, beyond the disciplines set out in the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement)

Trade remedieso Preserve the ability of the United States to enforce rigorously its trade laws,

including the antidumping (AD), countervailing duty (CVD), and safeguard lawso Promote cooperation between trade remedies administrators, particularly with

regard to the sharing of information that would improve the ability of administrators to effectively monitor and address trade remedies violations

Government Procuremento Increase opportunities for U.S. firms to sell U.S. products and serviceso Ensure reciprocity in market access opportunities for U.S. goods, services, and

supplierso Establish fair, transparent, predictable, and non-discriminatory rules to govern

government procurement, mirroring existing U.S. government procurement practices

Dispute Settlemento Establish a dispute settlement mechanism that is effective and timely, and in which

panel determinations are based on the provisions of the Agreemento Have provisions that encourage compliance with the obligations of the Agreement

Beyond the Kenya negotiations, the US could also attempt to negotiate an FTA with the whole continent, through a US-AfCFTA type agreement, but this is unlikely since the US prefers to engage

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via a bilateral hub-and-spoke approach to ensure its interest are protected. Furthermore, the disparate approach the US would have with each one of the AfCFTA’s members and getting consensus on a single agreement would make negotiations very difficult and could result in a ‘shallow’ FTA.

Negotiations on reducing tariff barriers for a SACU-US FTA21 would already be a difficult and challenging process seeing as South Africa uses tariffs as a tool of industrial policy and continues to protect strategic sectors. However, the prospect of completing tariff negotiations seems much more attainable than the prospect of coming to an agreement on the majority of the other issues outlined in the US-Kenya FTA negotiating objectives.

The level of market access the US is seeking with regards to public procurement, trade in services and regulatory compatibility, for example, would prove very challenging as South Africa has developed long term economic growth strategies, such as the NDP and IPAP, that depend on retaining strict regulatory control over these areas. As critical as bilateral trade and investment is for both countries, it is difficult to imagine that South Africa will consider entering into negotiations on such terms, but proposals on reducing regulatory control on a limited set of sectors could provide some momentum for engagement.

Looking ahead: options for US - South Africa trade and investment policyThe next phase for US-South Africa trade and investment relations is unclear. There are three possible scenarios:

- an extension of unilateral preference scheme(s).- bilateral free trade agreement with SACU.- a return to trade governed by multilateral rules.

Continued unilateral preferencesSouth Africa is already on notice that it will likely no longer be able to access AGOA preferences after the expiry of the current scheme in 2025. There are a number of scenarios in this regard – AGOA itself may not be extended or replaced or South Africa may be excluded from the new arrangement for African countries. The fallback could be retained GSP preferences for South Africa but that is not guaranteed. The US could carefully craft the eligibility criteria of its preference scheme to require that South Africa conform, broadly, to envisioned US FTA reciprocal terms or through very stringent eligibility criteria - that South Africa will struggle to meet - gradually reduce South Africa’s preferences to AGOA and GSP schemes to a level that can be expected under a reciprocal FTA. This scenario seems unlikely as it would negatively affect embedded US interests in South Africa.

21 With South Africa as a member of SACU, the US cannot negotiate an FTA with South Africa alone. Per Article 31 of the 2002 SACU Agreement the establishment of a Common Negotiating Mechanism (CNM) is envisaged and an in-principle decision was taken by the SACU Council, that all trade negotiations with third parties must be conducted with SACU as a whole. Therefore the US would have to negotiate with SACU as a whole, but the agreement can contain certain provisions pertaining only to South Africa, granting the provisions does not afford more preferential treatment to South Africa than to the rest of the members.

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A US-SACU FTAThere are strong US commercial, diplomatic and security interests vested in South Africa that should outweigh arguments for a phasedown of bilateral relations. Some key South African sectors, including agriculture and automotives, also continue to value opportunities in the US market. What this implies is that first prize for the US and South Africa would be a more sustainable, predictable and binding framework for future relations that can effectively address long standing concerns.

It remains a possibility that AGOA could be extended for another 5 to 10 years albeit in a different shape; this is regardless of the next administration’s stance as the programme enjoys bipartisan support in congress; but positioning from both parties indicate that the intention is to progress towards a more consistent, predictable and practicable relationship than what the US has under its unilateral preference schemes. While AGOA has been extended until 2025, it is not a guarantee that South Africa will remain eligible for the full duration and it is likely that South Africa’s preferences might change over the remainder of its eligibility.

With the objective of progressing towards an FTA the US could revoke South Africa’s eligibility to AGOA and the GSP schemes -or eligibility to parts of it - to pressure South Africa to join the negotiating table for an FTA. Again, this is unlikely as it would disrupt US-South Africa trade flows and could jeopardise progress made on a number of trade and investment issues that benefit US trade and FDI in South Africa. A much more likely outcome is for the US to appeal at bilateral dialogues, like TIFA, for the terms it is (or will be) seeking under an FTA with SACU.

In pursuing an FTA with SACU the US would first seek resolutions to some of its longest standing concerns with South Africa’s trade and investment policies as these would naturally be included in the terms of an FTA. This approach would also be in line with the negotiating priorities of the Kenya FTA. South Africa is unlikely to adjust its tariffs without an FTA, since the tariffs reflect South Africa’s MFN rates, but early demands for an FTA would revolve around trade protective measures like antidumping duties, tariff rate quotas (not just for specific items but also concerns on ITAC transparency), investment issues around equity equivalent provisions on B-BBEE and industry charters, as well as domestic policy issues related to IPR protection. These have all been long standing issues that will burden FTA negotiations but are certainly not insurmountable considering US patience with other emerging market relations.

The points will likely be the points of interest for bilateral engagements on any progress in trade and investment relations going forward:

Preference erosion Easing of quantitative restrictions IPR protection Transparency on trade protective measures and administration Cooperation on TBT and SPS measures Transparency with respect to geographical indications (GIs) More competitive means of investing and contending for public procurement contracts

As pointed out on several occasions during US-South Africa TIFA’s over the last decade, South Africa’s preferential tariffs for products originating in the EU - under the TDCA and subsequently the EU-SADC EPA - have eroded relative US import competitiveness. Changes to South Africa’s tariff regime for US products, currently under WTO MFN rates, can best be addressed through the establishment of a SACU-US FTA, which would allow South Africa, and SACU, to negotiate preferential market access for US goods on a reciprocal basis. This will not be possible solely through

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an extension of the unilateral preference programmes. Furthermore, the tariff schedule in this type of agreement can take several forms that will allow recognition of the differences between the parties e.g. asymmetrical, phase-in with a concessional exclusion list for other SACU members. At a minimum, it is expected that the US will insist that South Africa’s tariff schedule at least match the EU EPA. It can be assumed that tariff negotiations would involve the following industries; cosmetics, plastics, chemicals, textiles, motor vehicles, steel, and agricultural products and machinery.

Comparison of EU and US market access in South AfricaA duty comparison22 between South Africa’s applied MFN rates and the duties under the EU-SADC EPA shows that of the 3273 ad valorem dutiable products, 3227 face lower tariffs when entering from the EU as opposed to the US (MFN rates). According to 2020 data from the WTO Tariff Download Facility23, of the products that attracted AV duties, the highest average MFN applied rate was for preserved pineapples at 55%, tobacco products at 45% and apparel at 45%. Table 2 shows a comparison of South Africa’s simple average applied MFN AV duties and the EPA applied AV duties for corresponding product groups. In most cases the gap is substantial with at least two product groups having a 25% disparity between simple average applied AV duties.

The initial focus of potential negotiations on a SACU-US FTA would be to try and close this gap. However, South Africa would have to carefully consider the impact of a US FTA with regards to tariff revenue losses, trade creation and trade diversion. The alternatives, being no preference or partial preference schemes, would likely mean a decline in bilateral commercial interest with more companies and traders targeting other African ports that have the legal backing of an FTA assuming a comprehensive one can be negotiated with a willing country.

22 http://tao.wto.org/ExportReport.aspx?RT=DC23 http://tariffdata.wto.org/Default.aspx?culture=en-US

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Table 1: Applied Duties Comparison, Aggregation of all products, MFN and EU EPA, 2020

Number of Lines Simple Avg MFN Simple Avg EU EPA Abs Diff St Dev MFN St Dev EU EPA Min MFN Max MFN Min EU EPA Max EU EPAAll TL excl. NA 7627 8,03 2,16 -5,87 11,32 6,03 3 82 1 27MFN, Ad valorem dutiable 3273 18,72 5,04 -13,68 9,93 8,38 3 82 1 27

MFN = EU EPA 46 16,12 16,12 0 6,57 6,57 5 25 5 25MFN > EU EPA 3227 18,76 4,89 -13,87 9,97 8,3 3 82 1 27MFN < EU EPA

MFN, Duty-free 4354 0 0 0MFN = EU EPA 4354 0 0 0MFN < EU EPA

Source: Tariff Analysis Online facility provided by WTO, 2020

Table 2: South Africa simple average AV duties comparison, top 10 MFN and corresponding EPA, HS 2-digit level, 2020

HS 2-digit Code Description Average MFN Applied

AV Duty24Average EPA Applied

AV Duty25Average AV applied

duty gap61 Articles of apparel and clothing accessories, knitted or crocheted 41,24 23,24 18,00

62 Articles of apparel and clothing accessories, not knitted or crocheted 40,92 23,44 17,49

24 Tobacco and manufactured tobacco substitutes 38,06 0,00 38,06

42 Articles of leather; saddlery and harness; travel goods, handbags and similar containers; articles of animal gut (other than silk- worm gut)

26,63 17,66 8,97

57 Carpets and other textile floor coverings 26,59 15,95 10,64

63 Other made up textile articles; sets; worn clothing and worn textile articles; rags 26,35 11,33 15,01

66 Umbrellas, sun umbrellas, walking- sticks, seat- sticks, whips, riding- crops and parts thereof 25,83 0,00 25,83

64 Footwear, gaiters and the like; parts of such articles 24,80 14,59 10,22

19 Preparations of cereals, flour, starch or milk; pastrycooks' products 21,00 0,93 20,07

46 Manufactures of straw, of esparto or of other plaiting materials; basketware and wickerwork 19,09 0,00 19,09

Source: WTO Tariff Download Facility and author calculations, 2020

24 Top 10 HS 2-digit level products MFN Applied contains a total of 41 non-AV duties.25 Top 10 HS 2-digit level products EPA Applied contains a total of 4 non-AV duties.19

Recommendations for future engagementsThe current administration has undoubtedly influenced the US’s Africa strategy, focused more on commercial expansion of US interests and increasing its competitive developmental and diplomatic presence, but the intention to progress US-Africa and US-South African relations beyond unilateral preference schemes has been an objective since the renewal of AGOA in 2015. While there may be some shift in emphasis and approach if there is a change in administration following the November 2020 elections in the US, the following recommendations are based on an assumption that there will be a continued push towards reciprocal trade arrangements with African partners.

The following is a summary of the recommended strategy for BUSA:

- Seek a mandate from BUSA members to actively support the preliminary engagement between SACU and the US on a bilateral trade agreement to replace the unilateral preference schemes of GSP and AGOA, possibly using the TIFA framework.

- Confirm that these engagements should be based on the current trading arrangement between SACU and the EU under the SADC-EU EPA, including the identification of any areas where the tariff offer to the US or other provisions should be differentiated.

- Present the BUSA position to the DTIC for consideration and discussion.- Undertake strategic communication activities to demonstrate the value of a reliable and

reciprocal trade partnership with the US, in line with South Africa’s priorities for economic growth, job creation and industrialisation.

It is recommended that BUSA approach its members with the intention to collect industry perspectives on the impact of a potential reduction in applied US tariff rates to match the EU’s EPA rates as well as the impact of removal of quantitative restrictions and to enquiring if there is capacity and appetite to engage on sector specific SPS and TBT issues, particularly in the horticulture, pork, beef and poultry industries. A multi-region, multi-sector, CGE model should also be able to provide some aggregate estimates on what impact a US-SACU FTA will have on South Africa’s sectors. Cooperative provisions in a possible US-SACU FTA could also cover IPR protection, digital trade, immigration, as well as issues on customs administration and trade defence measures.

By focusing on alignment between the market access provided to the EU and the US, SACU would be able to take a proactive approach that would potentially steer away from the challenge of being presented a template FTA by the US. It could also be beneficial in this regard to move ahead more quickly so as to not be overtaken by the US-Kenya FTA process. Depending on how negotiations with the US-Kenya FTA progress, and how comprehensive the final agreement is, the US might engage South Africa with the ambition of a modern and comprehensive FTA but could also agree to a binding agreement with rendezvous clauses get a foot in the door with the objective to elaborate on issues in future. While the US will receive any progress in good faith, their long-term objective will remain reciprocal market access for US commercial interest.

With regards to a framework for engagement, the TIFA provides some options. Topics for consultation and possible further cooperation in the TIFA include market access issues, labour, the environment, protection and enforcement of intellectual property rights, and, in appropriate cases, capacity building. Furthermore, the TIFA allows for either party to consult the civil society26 in its country on matters related to the work of the Council on Trade and Investment and either Party

26 This includes business, labour, consumer, environmental and academic groups

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may, when it considers it appropriate, present the views of its civil society at meetings of the Council.

Industries and interest groups can in turn request additional outward trade and investment support through bilateral trade shows to expose US market opportunities for SACU exports and vice versa. Where needed supported for capacity building programmes established by USAID can be more focused to deliver expanded trade and investment opportunities.

These proposals would ultimately also need the support of South Africa’s labour unions so further work is needed to understand the employment impact of the trade and investment relationship with the US. The US, for all its bluster, is aware of South Africa’s socio economic and structural economic issues and the political mandates its leaders were democratically elected on, and has shown tolerance for other emerging markets’ desire to address domestic issues through more protective and restrictive policy.

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Annex 1: Assessment of US – South Africa trade and investment relationship: 2010 – 2019

2010At the start of the decade, the objective of the US and South Africa as strategic partners was to build a strong bilateral relationship under the direction of newly elected charismatic leaders. Diplomatic efforts for the new decade started in May 2010 with the SA-US Annual Bilateral Forum resulting in a Strategic Dialogue in December where various Working Groups reconvened to map out ways in which to strengthen cooperation in the priority areas at an operational level.

The theme of the strategic dialogue was “South Africa: Open for business” and it was intended to inform how the US and South Africa could cooperate further to promote mutually beneficial trade and investment; but also related to South Africa’s membership to the Non-Aligned Movement and how that could benefit US interests in Iran as well as discussions on law enforcement-related issues related to the 2010 soccer World Cup27.

From the USTR’s perspective,28 some South African trade and investment policies from 2009 were cause for concern. These included an increase in tariffs applicable to apparel imports to the MFN bound rate, a “de facto” ban on imports of most used goods if produced in South Africa and a suite of nontariff barriers that includes customs valuation above invoice prices, import permits, antidumping measures, and excessive regulation.

The USTR had also reported on several SPS issues with South Africa that they claimed posed significant barriers to U.S. food and farm exports. With regards to food safety there was only one issue: South Africa’s continued ban on imports of all U.S. ruminant animals and products, following the detection of a BSE positive animal in the United States in 2003. The ban had not been lifted despite US efforts to fully re open South Africa’s beef market to U.S. products that are “…consistent‐ with science, the OIE guidelines, and the United States’ controlled risk status.” South Africa’s freezing requirement to prevent the transmission of pseudorabies in pork was also flagged, but no progress was reported by the time of publication.29

The International Trade Administration Committee’s (ITAC) antidumping processes and lack of transparency was of particular concerns to the USTR, stating that “transparency and due process remain issues with respect to the actions of ITAC and its administration of South Africa’s antidumping laws and regulations”30. At this point South Africa had maintained antidumping duties on three products from the United States: chicken meat portions; L-lysine-HCl; and acetaminophenol.

The necessity of increased transparency was due to an error made by ITAC in calculating the five-year expiration date of antidumping duties. The ITAC had also indicated its intention to seek court permission to retain and “regularize” antidumping duties on 16 products which included the 3 products from the US that already attracted antidumping duties, thereby directly threatening US commercial interest.

27 https://2009-2017.state.gov/p/af/rls/spbr/2010/140260.htm28 https://ustr.gov/sites/default/files/uploads/reports/2010/NTE/2010_NTE_South_Africa_final.pdf29 https://ustr.gov/sites/default/files/SPS%20Report%20Final(2).pdf30 https://ustr.gov/sites/default/files/uploads/reports/2010/NTE/2010_NTE_South_Africa_final.pdf

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In September 2007, South Africa’s Supreme Court of Appeal ruled that ITAC had improperly calculated the five year expiration date of antidumping duties

imposed on A4 paper imported from Indonesia and that, as a result, authority to impose duties had expired prior to the initiation of the sunset review for that

product.

With regards to South Africa’s IPR protection, the USTR had a sceptical view. While noting the efforts made to improve IPR protection, concerns about lax enforcement of IPR laws against imports of infringing goods, as well as slow and cumbersome court proceedings, were noted. Interpretation of legislation to seize potentially infringing goods that are marked for transhipment through South Africa was also cited but from the US perspective monetary losses from counterfeiting and piracy remained high. The industries identified to be most valuable to this was the illegal commercial photocopying, for example at universities and libraries, of written works and the piracy of software, internet piracy (audio and visual materials), and counterfeit medicine. This was compounded by the fact that in South Africa there was no direct legal protection for local distributors against parallel imports.

Regarding investment barriers, US companies noted that South Africa did not have direct investment barriers so to speak of, but that the Codes of Good Practice and the generic scorecard to measure a company’s level of BEE (“equity-equivalent” mechanisms for multinationals) had complex documents and much about their interpretation and implementation remained unclear. For example, investors were seeking clarity on whether “equity-equivalent points” would automatically satisfy equity requirements imposed by transformation charters in the financial services, mining, and petroleum sectors. Labour mobility was also identified as a constraint for foreign companies since many sectors experienced skills shortages and the procedures for obtaining temporary work permits for skilled foreign employees proved difficult. Many of the trade and investment issues mentioned above was addressed at the ‘newly’ re-activated U.S.-South Africa TIFA.

Another policy statement that was flagged by the USTR was the suggestion by the DTI that tariffs on agricultural goods could be raised and export taxes introduced in response to the impact on the agricultural sector of the global economic crisis. The policy did not go into effect, but the example demonstrates how closely the US was following domestic development in the South African economy and in particular the exercise of state control. For example, the NTE noted that the business environment had improved significantly over the past 15 years but that many critical industries were still dominated by state-owned or state-controlled monopolies.

US trade capacity building programmes, aimed at assisting businesses in sub-Saharan Africa to take advantage of the market access provided by AGOA, continued to roll out regional trade hubs and bilateral missions. USAID, in particular, worked to ensure that ongoing trade capacity building assistance was delivered as well as linking U.S. and African businesses to expand their trade and investment ties.

2011The year started off with a scare as former president Nelson Mandela was admitted to Hospital which dominated the bilateral discussions during an otherwise slow start. US attention was much further North to Sudan, focusing on the humanitarian and security crisis developing in the region. State visits came in May and June, starting with Under Secretary of State for Public Diplomacy and Public Affairs Judith A. McHale visiting students at the African Leadership Academy in Johannesburg and with young entrepreneurs at a business incubator. U.S. Science Envoy Dr. Gebisa Ejeta followed visiting South Africa as part of President Obama’s initiative to strengthen science and education ties.

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In June Secretary of State Hillary Rodham Clinton announce a public-private partnership with the MAC AIDS Fund to expand critical medical and emergency support services for survivors of rape and sexual assault in South Africa. Assistant Secretary of State for Economic, Energy and Business Affairs Jose W. Fernandez met with South African government officials and industry representatives to discuss bilateral trade and investment opportunities. The final visit for June was from former First Lady Michelle Obama focusing on mentoring and youth leadership, education, health and wellness.

An interesting yet concerning technical barrier to trade(TBT) was reported in 2011 when South Africa’s standards for alcohol levels in alcoholic beverages was set to exclude a range of beverages that contain between 15-24 percent alcohol from classification, with the exception of products that fall into the “Cream Liqueur” classification, namely spirit based alcoholic beverages that contain a dairy product. As a result, any U.S. products that fall into this range could not be sold in South Africa. However, at the time industry observers reported that South Africa has granted at least one exception to its requirements for domestic products, thereby treating foreign and domestic products unequally.31 No other major or novel issues were reported for 2011 outside of the TBT.

20122012 was the first year where US companies’ cited preference erosion from South African trade agreements with other countries (the EU was used as an example) as an impediment to doing business. At the time is was phrased that US companies face ‘differential tariffs as an impediment to doing business in South Africa’32. Some of the affected product categories included cosmetics, distilled spirits, chocolate and confectionery products, plastics, textiles, trucks and parts, fibre optic cable, agricultural equipment, and arms and ammunition. According to the NTE this was a matter that was highlighted by the US “consistently in bilateral discussions with South Africa”.

US exports of poultry products and acetaminophenol was still attracting antidumping duties and the US continued to seek transparency and due process with respect to ITACs administration of trade remedy laws.

Regarding IPR protection the US had reported the same concerns as the two previous years and continued to engage with South Africa on intellectual property issues through regular dialogue and extensive education and training. The same could be said of investment barriers, same old concerns since 2010, but was accompanied by a new note asserting South Africa’s openness to greenfield foreign direct investment, while merger-and-acquisition related foreign direct investment is subject to close scrutiny for its impact on jobs and local industry. This was likely because of the Walmart - Massmart acquisition in 2011 which was subjected to approval from the South African Competition Commission Tribunal. However, from the NTE it would seem that the concern was not the oversight of merger-and-acquisition investments but rather the politicization of South Africa’s posture towards this type of investment.

Concerns around business mobility, e-commerce, telecommunications, SPSs and TBTs all remained more or less the same. An additional SPS measure was South Africa’s suspension of imports of table grapes from California due to concerns over two plant pests. It was reported that the US was engaging South Africa to review options to harmonize both countries’ mitigation measures for mites inspection rather than using fumigation.33 Beyond these, an additional entry on Transparency

31 https://ustr.gov/sites/default/files/TBT%20Report%20Mar%2025%20Master%20Draft%20Final%20pdf%20-%20Adobe%20Acrobat%20Pro.pdf32 https://ustr.gov/sites/default/files/South%20Africa.pdf33https://ustr.gov/sites/default/files/uploads/gsp/speeches/reports/SPS%20Report%20-%20FINAL %203.27.12.pdf

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and Corruption noted that South Africa has no fewer than 10 agencies engaged in anticorruption activities, with three of these institutions already constitutionally mandated to address corruption as part of their responsibilities. Nonetheless following allegations of corruption in the Cabinet, President Zuma had reshuffled his cabinet in late 2011 to remove some ministers who were under investigation.

2013Preference erosion was again sighted as an impediment to doing business in South Africa, detailing that the South Africa-EU trade agreement resulted in 12 percent lower tariffs on EU goods, but that in some categories, EU products enjoy up to a 50 percent tariff advantage compared to U.S. products.34 The NTE discussion around tariffs were again focused on apparel, this time in the context of preference erosion.

In 2013, South Africa’s antidumping duties on frozen bone-in chicken pieces from the United States have been in place for 12 years. However, South Africa’s poultry producers successfully petitioned ITAC in 2011 to renew the duties for another five-year tern until 2017. At this point discussions around AV duties have become a staple at TIFA discussions.

IPR protection challenges, trade in services barriers, E-commerce, business and labour mobility, transparency and corruption, SPS issues (food safety, animal health and plant health), TBT issues (liqueur classification), and investment barriers remained static compared to previous years. The NTE acknowledged that South Africa is reviewing its BEE requirements, with a view to emphasizing enterprise development and procurement over simple equity ownership. However, U.S. firms remained wary that the proposed changes would prevent them from gaining certification in the future.

2014USTR concerns for 2014 was again similar to those of 2013 and earlier, namely preference erosion, but was heightened by negotiations on the EU-SADC EPA. The US had raised these preference erosion concerns in bilateral engagements, but according to the NTE35 South African authorities emphasized that they see no way to address this U.S. concern other than through an FTA; which was tried and failed in the 2003-2006 U.S.-SACU FTA negotiations. Later in the year (September) South Africa would increase import duties for whole chickens to its maximum bound rate of 82 percent as well as duty increases on other poultry products.

ITAC had also initiated an investigation into alleged US dumping of soda ash in 2013, resulting in preliminary antidumping duties, but had removed antidumping duties on acetamidophenol in 2013 after South African industry ceased production.

Other nontariff measures noted in the 2014 NTE included:

Antidumping duties on imports of frozen bone-in chicken pieces from the US Localisation requirements for government procurement (SA not being a party to the WTO

Agreement on Government Procurement) Importance of B-BBEE score in relation to public tender competitiveness, complicated by

stricter B-BBEE requirements proposed in 2013 affecting US firm scores as well as their inability to improve score through key “ownership” element36

34 https://ustr.gov/sites/default/files/2013%20NTE%20South%20Africa%20Final.pdf35 https://ustr.gov/sites/default/files/2014%20NTE%20Report%20on%20FTB%20South%20Africa.pdf36 Corporate rules can prevent the transfer of discounted equity stakes to South African subsidiaries

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Lack of IPR protection in transhipment of counterfeit goods to neighbouring countries and the domestic issue of cybercrime

Telkom’s market dominance and upstream monopoly, along with the Department of Communications’ (DoC) large stake in the company’s shares (Concerns of DoC influencing management decisions)

Local content requirements of satellite, terrestrial and cable subscription broadcasting services

Delay in allocation of radio frequency spectrum for telecommunications operators Concern over possible politicization of South Africa’s posture towards merger and

acquisition related foreign direct investment screening Difficulty in recruiting due to skills shortages and emigration of skilled workers with stringent

labour laws and difficulty in obtaining temporary work permits for their skilled foreign employees

A 2014 review of the taxation of alcoholic beverages in South Africa proposed that amendments to the Customs and Excise Act reflect that products in the category containing between 15 and 24 percent alcohol by volume would be classified under HS 22.08 and 22.06. The TBT with regards to South Africa’s classification of alcoholic beverages, noted in previous reports, were absent in the 2014 report. However, the issues around beef cuts, beef products, other U.S. ruminant animals and products (BSE trade issues) as well as issues on pseudorabies and trichinae on U.S. pork remained on the SPS report. No mention was made with regards to import restrictions on table grapes from California and the assumption is that the matter had been resolved.

2015At the start of the year the US removed Swaziland form the list of eligible beneficiaries for AGOA due to lack of political will to political will to bring about basic changes necessary to protect internationally recognized workers’ rights.37 Following this decision, top of the US president’s trade policy agenda was the renewal of the African Growth and Opportunities Act (AGOA) through congress. The objective was to update and renew AGOA for the longest term possible, but attention was also given to the Trade Africa Initiative with the East African Community (EAC) in facilitating U.S.-EAC private sector engagement and the renewal of the Generalized System of Preferences (GSP) program. $7 billion in new financing was announced in 2014 to support U.S. exports to Africa as well as the creation of the President’s Advisory Council on Doing Business in Africa while ongoing Trade and Investment Framework Agreement (TIFA) negotiations with South Africa was also mentioned.

Bilateral relations between South Africa and the US, with regards to trade and investment, remained on a cordial tone but long-standing issues remained unresolved while new issues started to emerge. The 2015 NTE38 noted that a second phase of labelling regulation for foodstuffs39 raised concerns that, if finalized as drafted, could require some brand owners to make changes to existing trademarks, and branding and labels in order to continue to sell their products in South Africa. Labelling relating to health measures on alcoholic beverages was also mentioned in the NTE raising concern that a proposed amendment to the Regulations Relating to Health Messages on Container Labels of Alcoholic Beverages (R697) was lacking in definition and clarity, but the matter was referred to the WTO TBT Committee for clarification.

37 https://ustr.gov/sites/default/files/USTR%20DOL%20Trade%20-%20Labor%20Report%20-%20Final.pdf38 https://ustr.gov/sites/default/files/files/reports/2015/NTE/2015%20NTE%20South%20Africa.pdf39 Regulations Relating to the Labelling and Advertising of Foodstuffs (R146)

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Issues around beef cuts, beef products, other U.S. ruminant animals and products (BSE trade issues) as well as issues on pseudorabies and trichinae on U.S. pork remained on the SPS report. However, it was now reported that South Africa also require a certification that swine are free of pseudorabies. Poultry trade issues also extended into SPSs as South Africa banned all poultry imports from the entire United States due to the detection of high pathogenic avian influenza (HPAI) in two states. With regards to horticulture South Africa prohibited US imports of Pacific Northwest apples, US cherries and pears.

The US continued its trend of working with South Africa to eliminate these barriers (SPSs) and to establish procedures and standards that are fully consistent with all OIE and Codex Alimentarius guidelines regarding animal health and food safety, but noted that South Africa should consider implementing poultry import restrictions to only regions affected by the disease rather than a nationwide ban.

With regards to tariffs, the same line of argument was used to communicate the US’s preference erosion in the South African market to EU imports. As negotiations on the EPA drew closer so did the concern about even greater tariff disparity. At the time of publication South Africa’s maximum bound rate of 82 percent for whole chickens was still in place while duty rates for frozen bone-in chicken was increased to 37 percent. With the latest increase in poultry tariff the US had added a note that the South African government has encouraged domestic industry to appeal for increases up to the bound tariff rates where a lack of global competitiveness was a concern.

Other non-tariff measures from the 2015 NTE included:

Antidumping duties on imports of frozen bone-in chicken pieces from the US Localisation requirements for government procurement (SA not being a party to the WTO

Agreement on Government Procurement) Importance of B-BBEE score in relation to public tender competitiveness, complicated by

stricter B-BBEE requirements implemented in 2015 affecting US firm scores as well as their inability to improve score through key “ownership” element

Telkom’s market dominance and upstream monopoly, along with the Department of Communications’ (DoC) large stake in the company’s shares (Concerns of DoC influencing management decisions)

Local content requirements of satellite, terrestrial and cable subscription broadcasting services

Delay in allocation of radio frequency spectrum for telecommunications operators Concern over possible politicization of South Africa’s posture towards merger and

acquisition related foreign direct investment screening High local content requirements on investments in areas such as renewable energy projects Difficulty in recruiting due to skills shortages and emigration of skilled workers with stringent

labour laws and difficulty in obtaining temporary work permits for their skilled foreign employees

Concerns over the proposed MPRDA was raised as it would grant the government 20 percent carried interest in any new petroleum or mineral activity and allow the government to acquire additional ownership of the venture on terms determined by the minister of mineral resources. The U.S. oil companies invested in South Africa took a firm stance stating that if the bill becomes law, they will not invest further.

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For investors 2015 brought about two further scares. The redefining of the term “expropriation” in the draft Investment Promotion and Protection Act, to effectively allow for expropriation without compensation, and the Private Security Industry Regulation Act Amendment Bill, which would require 51 percent local ownership in private security firms with only one month to comply.

The US at the time was concerned about the potential impact of Geographical Indications (GI) clauses in trade agreements, like the EU’s EPAs. The concern was that GI clauses would limit US firms’ ability to export products identified by common names or generic terms. The US engaged South Africa bilaterally on the matter with the objectives to ensure the grants of GI protection does not violate prior rights, does not deprive interested parties of the ability to use generic or common terms, that interested persons have notice of GI protection that is sought or granted, and opposed efforts to extend the protection given to GIs for wines and spirits to other products. However, South Africa stood to benefit from GI clauses and have subsequently applied them extensively in the EU-SADC EPA.

2016Following the 2015 out-of-cycle review for South Africa’s eligibility to AGOA, President Obama notified Congress and the Government of South Africa of his intent to suspend duty-free treatment for all AGOA-eligible agricultural goods from South Africa effective January 4, 2016. Later in January President Obama issued a proclamation that would suspend South Africa’s AGOA benefits, in the agricultural sector, with an effective date of March 15 2016 to allow South Africa time to implement actions negotiated in early January to resolve the outstanding barriers to US trade.

The 2016 NTE again highlighted the same issues on TBTs with regards to labelling of foodstuffs and health measures on alcoholic beverages as well as SPS issues related to Pacific Northwest apples, cherries and pears but significant progress was reported with regards to other SPS issues. South Africa’s Cabinet adopted a decree recognizing the United States’ negligible risk status for BSE and the U.S. Department of Agriculture (USDA) and South Africa’s Department of Agriculture, Forestry, and Fisheries (DAFF) reached agreements on the content of health certificates for the importation of U.S. beef and beef products into South Africa, U.S. pork and pork products into South Africa and U.S. poultry to South Africa.

Beyond the changes to these specific SPS issues, the US and South African poultry industry groups also reached an agreement to establish a tariff rate quota (TRQ) on a certain volume of U.S. bone-in chicken (65 000 tonnes) that could be exported to South Africa without being subjected to antidumping duties. However, the older issues remained seemingly entrenched, namely preference erosion, lack of transparency and due process for ITAC’s administration of trade remedy laws, B-BBEE and government procurement, IPR protection, the use of GIs under the EU-SADC EPA, telecommunications monopoly and state-led management interference, local content requirements for broadcasting, lack of radio frequency spectrum for telecommunications service providers, certain provisions of the Electronic Communications and Transactions Law, screening of merger and acquisition-related FDI, local content requirements for on investments for specific sectors, the pending Mineral and Petroleum Resources Development Act (MPRDA), the pending Expropriation Act, the Private Security Industry Regulation Act Amendment Bill, business and labour mobility constraints, corruption and acts limiting transparency. One new concern was added; delays in issuing letters of authority (LOAs) in South Africa were reported to effectively block imports of certain U.S. high-technology/ICT equipment into South Africa.

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2017Starting in 2016 bilateral engagements, at least press releases and reports relating to bilateral engagements, between the US and South Africa decreased and a shift was noted to a broader Africa agenda. The 2017 NTE40 showed no new TBT, SPS, tariff, non-tariff, government procurement, IPR, services or investment concerns, but none of the standing concerns had been addressed either save for the prohibition on US cherries and pears.

ITAC, at the request of South Africa’s poultry industry, had initiated a sunset review of the existing antidumping duty and determined to continue imposing them for frozen bone-in portions of chicken originating in or imported from the United States with the next sunset review available in 2022. This does not affect the TRQ imports from the US but all imports outside of the allotted amount. The 2017 Annual report and Trade Policy Agenda41 also raised the same set of issues as the years before: GI’s, the SCM Agreement, and South Africa’s 2016 out-of-cycle review.

2018On the diplomatic front 2018 was equally quiet, but some progress was reported on previous non-tariff, and SPS concerns. Delays in issuing LOAs had reportedly noticeably decreased and an agreement between the USDA and South African authorities on an amendment to the USDA export health certificate for poultry allowed the importation of US turkey meat produced from turkeys grown from Canadian poults under certain conditions. Beyond the progress on these issues, the same concerns on TBTs, SPSs, tariffs, non-tariff measures, government procurement, IPR, services or investment concerns were reported in the 2018 NTE42.

Some new notes were included in the 2018 NTE that highlighted US commercial interests in South Africa. For one the US seeking access to the South African market for its blueberries, and had raised concerns about the potential increase in costs and time associated with the issuance of Certificates of Compliance (CoCs) for Electromagnetic Interference/Compatibility (EMI/EMC) of electrical and electronic goods. The release of the new Copyright Amendment Bill and the revised national IP policy framework in 2017 was noted, not with concern but out of interest as South Africa’s IPR protection had been a longstanding concern for US firms. The National Integrated Information and Communication Technologies (ICT) policy white paper had also caught the USTR’s attention is a similar fashion but noted some concern around provisions relating to the Wireless Open Access Network. The introduction of the Equity Equivalence (EE) program was welcomed but noted that “the reporting requirements and high level of required financial contributions make the EE program unviable for most.”43 Investor concern around the Expropriation Act was somewhat sated as Parliament passed a motion to open debate on whether or not to amend the constitution to permit expropriation of property without compensation.

Perhaps the most important announcement in 2018 was at the AGOA Forum where USTR Robert Lighthizer announced the Trump Administration’s desire to negotiate a model free trade agreement with a sub-Saharan African country44. Mr Lighthizer noted that AGOA was designed to encourage alignment around best practices -rules-based, market-oriented economies- in order to pave the way

40 https://ustr.gov/sites/default/files/files/reports/2017/NTE/2017%20NTE.pdf 41 https://ustr.gov/sites/default/files/files/reports/2017/AnnualReport/AnnualReport2017.pdf42 https://ustr.gov/sites/default/files/files/Press/Reports/2018%20National%20Trade%20Estimate%20Report.pdf43 https://ustr.gov/sites/default/files/files/Press/Reports/2018%20National%20Trade%20Estimate%20Report.pdf44 https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/july/statement-ustr-robert-lighthizer-0

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for a free trade agreement between the United States and sub-Saharan African countries. While the country(ies) in question were not announced, Mr Lighthizer stated that the extension of AGOA to 2025 presents an opportunity to build on the principles and go beyond AGOA; indicating that once a model is established AGOA can be used to shape relations for an easier transition to FTAs.

2019The 2019 Trade Policy Agenda and 2018 Annual Report45 painted very much the same picture as the previous years; USAID trade and investment hubs continue to boost trade and investment with the US and within each African region while prompting two-way trade, the US’s concern around the classification of developing countries under the WTO were highlighted again with South Africa as an example, the establishment of a multilateral system for notification and registration of geographical indications for wines and spirits was included with South Africa as a co-sponsor, the US’s proposal with regards to Article 25.8 the SCM Agreement with South Africa’s concerns, US’s notice of South Africa’s notifications regarding the application of a provisional safeguard measures46, and the US’s notice of South Africa review and notification on the Working Party on State Trading Enterprises.

The Trade Policy Agenda and Annual Report also highlighted the Trump Administration’s Africa Strategy. First announced the 2018 the new Africa Strategy prioritised establishing a stronger US commercial presence in Africa (for trade and investment), creating a supporting business environment, developing a strategy to counter other foreign development finance institutions’ ambitions on the continent and to use AGOA to promote deeper trade ties with sub-Saharan African countries and prepare them for reciprocal agreements.

The US continued to express their long-held concern in the 2019 NTE47 highlighting the same set of issues as the previous years. Notably, some new concerns around the amended poultry TRQ guidelines, which did not consider U.S. Government comments, was included. Access to South Africa’s poultry market had been a long-standing sensitive topic between the US and South Africa which almost resulted in the US removing South Africa’s eligibility for AGOA. Unfortunately, ‘poultry relations’ seem to have taken a toll as requests from the USDA on DAFF to employ transparent and consistent practices in testing imported poultry products (salmonella testing) and to utilize a risk-based approach to sampling frequency were met with silence regarding their sampling plan, despite continual bilateral engagement.

A new SPS issue was also raised, an about turn on an earlier agreement that a USDA veterinarian would sign the export health certificate while the exporter would sign the seal on the container. DAFF had now demanded that USDA veterinarian sign both the health certificate and the container seals for shipments of U.S. pork casings and egg products which, according to US experts, is impossible for USDA veterinarians.

Furthermore, the NTE had noted that the updated draft of the Copyright Amendment Bill contained provisions that could weaken protections, include broad and ambiguous exceptions to copyright, and limitations on contractual relations between private parties. The finalised IP Policy was also a cause of concern, as stakeholders pointed out, it advocates for weaker exclusive patent rights. IPR protection is another long-standing issue between the parties. Significant progress had been made in addressing previous concerns; like reducing transhipment of counterfeit goods, internet and software piracy; but these new policies have thrown this progress into relief.

45 https://ustr.gov/sites/default/files/2019_Trade_Policy_Agenda_and_2018_Annual_Report.pdf46 The 2019 report noted the measures on ‘Other Screws Fully Threaded with Hexagon Heads Made of Steel’47 https://ustr.gov/sites/default/files/2019_National_Trade_Estimate_Report.pdf

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