Xenophobia: US, South Africa trade relations under siege?


Charisma Ncube/ Cinginkosi Dube

South Africa has recently been hit by a wave of violent xenophobic attacks which target foreign nationals resident in that country and have culminated in a gross violation of several human rights such as, among others, the right to life, the right to freedom from torture or cruel, inhuman or degrading treatment or punishment, the right to property, the right to freedom of association, the right to freedom of movement and the right to human dignity.

Xenophobia, despite being an affront to ubuntu has become a perennial problem in South Africa thus causing a diplomatic uproar. These xenophobic attacks have been condemned by the international community and has seen countries such as Malawi, Rwanda, the Democratic Republic of Congo (DRC) and Nigeria boycotting the 2019 World Economic Forum that was recently held in South Africa in protest.

The United States and United Kingdom, in response to xenophobia, issued statements threatening to disinvest in South Africa. The potential effect that xenophobia has on South Africa’s trade and investment relationship with the US in particular must not be underestimated. The US has become an increasingly important trade and investment partner to South Africa over the past two decades. This solid economic relationship might be thawed by xenophobic attacks.

This article highlights the possible effect of xenophobia on US and South Africa’s trade relations under the purview of African Growth and Opportunity Act (Agoa).

Agoa is a US trade legislation that allows selected beneficiary countries in Sub-Saharan Africa to export their products duty free into the US market. It was signed into law on May 18 2000 as Title 1 of the Trade and Development Act of 2000. Initially, Agoa was meant to subsist from 2000 until 2015 and was subsequently extended on June 29 2015 by a further 10 years to 2025.

Agoa builds on existing US trade programs by expanding the duty-free benefits previously available only under the country’s Generalised System of Preferences (GSP) programme. It is important to note that duty-free access to the US market under the combined Agoa/GSP programmes stands at approximately 6 500 product tariff lines, including the tariff lines that were added by the Agoa legislation.

The newly added Agoa products include items such as apparel and footwear, wine, certain motor vehicle components, a variety of agricultural products, chemicals, steel and many others. Currently, 39 sub-Saharan African countries are benefitting under Agoa.

In terms of Section 104 of Agoa, the president is authorised to designate African countries as eligible to receive the benefits of Agoa if they are determined to have established, or are making continual progress towards establishing the following requirements:

The US president may determine that an eligible sub-Saharan African country is not making continual progress in meeting the eligibility requirements under this Act and may terminate or suspend the designation of the country under Agoa.

According to the US international Trade Commission, the total trade (imports and exports) between South Africa and the US has grown from under US$3,3 billion in 1985 to a peak of US$16,8 billion in 2011, decreasing to US$12,7 billion in 2015. In 2015, the US was South Africa’s second biggest trading partner after China.

It is important to note that trade between South Africa and the US has been significant given that South Africa has maintained a positive trade balance with the US for most of the Agoa period and exports are not solely primary commodities but also agricultural and manufactured goods. South Africa is currently the top Sub-Saharan African supplier to the US having supplied goods worth US$ 7,8 billion.

The US has also become an increasingly important investor in South Africa. The US international Trade Commission has reported that US foreign direct investment (FDI) into South Africa has nearly doubled over the past 15 years.

The South African Reserve Bank reported that, in 2014, the US represented almost 7% of the total FDI into South Africa. In 2015, the US embassy in South Africa, estimated that about 600 US companies had invested into South Africa contributing more than 10% of the country’s gross domestic product while employing more than 100 000 South Africans. It is possible that the number of US companies operating in South Africa increased significantly.

Xenophobia is generally defined as a dislike of or prejudice against people from other countries. It has not yet been classified as a crime. However, it suffices to note that in South Africa, the manifestations of xenophobia have resulted in a blatant violation of human rights against foreign national resident in the country.

One fundamental right that comes to mind and has been violated is the right to freedom from torture or cruel, inhuman or degrading treatment or punishment which is enshrined in Section 12 of the South African constitution of 1996. There has been several reports and video footage that bear testimony to a violation of this and other rights.

It must be borne in mind that South Africa is a party to the United Nations Convention Against Torture and therefore has an obligation to protect all those within its borders against torture. The continued occurrence of xenophobic attacks in South Africa now can be perceived by the US as a failure by the government of South Africa to respect its international obligation to protect human rights and hence in breach of the Agoa eligibility requirements.

It is apparent that the US is a key trading partner and key economic player for South Africa. However, the threats issued by US President Donald Trump on xenophobic attacks indicate that their trade relationship might be fast reaching a tipping point. This may be a tell-tell sign that South Africa may not make the cut for Agoa in the next review period.

Furthermore, it is important to note that South Africa’s bargaining power is limited in Agoa negotiations due to the unilateral nature of the programme. Judging from the look of things, the US has three possible options available in responding to South Africa’s alleged breach of Agoa eligibility requirements:
l Termination of SA’s benefits

The US may decide to terminate South Africa’s benefits under Agoa. The effect of this decision will be the obvious loss by South Africa of its preferential market access to the US considering that in 2014, South Africa exported goods to the US under Agoa to the value of US$1,7 billion.

This will likely be catastrophic for South Africa regardless of the fact that it has numerous other bilateral or multilateral trade and/or economic arrangements with other countries.

Also, South Africa’s removal will mean that trade between the US and South Africa will be relegated to being governed by WTO rules. South Africa would not be the first country to be removed from Agoa. On January 1 2011, the DRC lost its beneficiary status under Agoa after it was found not to have made sufficient progress towards the protection of human rights.

On January 1 2019, Mauritania’s benefits under Agoa were terminated due to its failure to protect workers.The US may also decide to suspend South Africa’s benefits under Agoa.

In most instances, countries that have been suspended have been reinstated onto the programme after becoming compliant with the eligibility requirements. The effect of suspending South Africa’s benefits under Agoa will be that trade between the US and South Africa will be temporarily relegated to being governed by the WTO rules until such a time that its benefits are restored.

On November 5 2014,in response to the poultry trade war, the then US President Barack Obama sent a letter to Congress threatening to suspend South Africa from Agoa for want of compliance with one of the eligibility criteria for preferential treatment namely the elimination of barriers to US trade and investment. This was however mitigated by discussions conducted by both countries resulting in the Protocol for Poultry Meat and Day-Old Chicks, which addressed South African concerns about avian flu, lifted some restrictions on US poultry imports to South Africa while establishing an annual quota of 65 000 tonnes for such imports.

Notably, on July 31 2018, Rwanda was suspended from accessing the US market under Agoa after it refused to rescind a decision by regional heads of states in Arusha in 2016 to ban imports of used clothing and leather products over a three-year period commencing in 2019. Kenya, Tanzania and Uganda abandoned the import ban opting instead, to save the economic benefits that accrue under Agoa. However, in the event that South Africa is suspended and in turn fails to comply with the eligibility requirements its benefits will not be restored.

The US may decide not to do anything at all in response to South Africa’s xenophobic attacks. This stance may be considered to be a protection mechanism of US economic interest in South Africa. The US might want to protect its investments and may fear retaliation by South Africa noting its aggressive negotiation stance as evidenced in the poultry war that both countries were once embroiled in.

The unilateral power that the US wields under this programme makes it difficult for other beneficiary countries to complain that they are being unequally treated if the US decides to ignore South Africa’s breach of the Agoa eligibility requirements.

Clearly, South Africa’s economic relationship with the US is under siege. Perhaps, it is now the right time for South Africa to start looking at other options, preferably entering into bilateral trade and investment arrangements with the US in order to preserve its current and advance its future economic benefits.
Ncube and Dube are associates at Scanlen and Holderness and the views expressed in this article are their personal views and do not constitute legal advice.

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