The Paris deal on Poultry: Implications for South Africa’s access to the US under AGOA

2015-06-17

Dear Speaker of the National Assembly and Honourable Members of Parliament, I am making this statement today on the state of play of our negotiations with the US to remain a beneficiary of the new extended AGOA for two reasons: firstly, to report back to you on the on-going negotiations, and secondly, because some members of the house have displayed a keen interest in understanding the issues.

The Paris deal

There has in the past few months been considerable interest and debate in the press about the on-going negotiations and the last negotiating meeting held in Paris.

After a two day meeting held in Paris, on the 4th and 5th of June, 2015, South Africa and the US made a breakthrough in the long-standing dispute of the export of bone-in chicken pieces from the US. The deal will go a long way in securing South Africa?s participation in AGOA for the next 10 years!

What was the outcome of the Negotiations?

Agreement was reached on a quota of 65 000 tons per annum (t/a).

This quota only remains in place for as long as South Africa is part of AGOA.

There will be a growth factor, which will be calculated annually as an average of DAFF verified/supplied production and consumption growth or shrinkage, on the 2015 base line.

A large a percentage as possible of the quota will go to Historically Disadvantaged Individuals (HDI's).

the dti, DAFF and SARS will administer the quota and its allocation, and volatility will be prevented via set and agreed rules applying to each quarter of the year.

SPS issues are being finalized on poultry, beef and pork for US exports. South Africa and US are working on the outstanding SPS or animal and plant health technical issues.

Officials from DAFF will participate in a conference on SPS issues on poultry that will be held in Baltimore, US on the 23rd of June and a stock-taking exercise of the SPS issues will take place at the end of June, 2015.

SPS matters on reciprocal trade opportunities on South Africa?s potential exports to the US, including on poultry, avocado?s, litchis, were also discussed and progress was made on SPS matters related to South African race horses and citrus to facilitate their export to the US.

Background

It may be useful at this stage to provide members of the house some background to AGOA. What is AGOA and what has the debate been about?

The African Growth and Opportunity Act (AGOA), is a unilateral preferential programme for about 6400 tariff lines including those provided by Generalised System of Preference (GSP) that the US offers to 48 African sub-Saharan countries. About 38 countries, including South Africa currently are beneficiaries of AGOA. As the current AGOA will expire at the end of September 2015, the US Congress has drafted a new Bill to extend the preferential programme. As the AGOA Extension Bill received overwhelming support in both the Senate and the House of Representatives, there is every reason to believe that it will be passed by the US Congress soon and signed into law by the President.

While South Africa, together with other African countries campaigned for the extension of AGOA for a 15-year period, this 10 year extension is a significant achievement. This is a significant victory for all those supporters of AGOA on the Hill over the past year that worked tirelessly for the passage of this extension.

While some African countries have been able to use AGOA preferences to attract investment and re-industrialize, this has been limited to a few African countries thus far. The potential however, for the further expansion of production and expansion of investments on other African countries to take advantage of AGOA benefits are considerable.

In the case of South Africa, we have been able to use AGOA across a significant number of industrial sectors to expand our exports into the United States. These include autos, agriculture and chemical sectors. I have been arguing that AGOA is of mutual benefit to both the United States and South Africa. A Brookings study in the US found that AGOA created 100 000 jobs in the US and a local study found that 62 000 jobs were created in South Africa as a result of AGOA.

On this occasion, I want to discuss a number of points that have come up in our local press and in the debate between some of our stakeholders about this issue. I am sure many of you must be totally bewildered as to how an issue of chicken has come up as a major topic of discussion between the largest economy in the world and a middle sized economy like South Africa.

The issue at the centre of the controversy goes back to an anti-dumping duty (ADD) that South Africa (SA) imposed on US bone-in chicken in 2000. Two US Senators, Senator Chris Coons (Delaware) and Johnny Isakson (Georgia), who represent Poultry producing States, supported the demands of their poultry exporters, represented by the United States of America Poultry and Egg Export Council (USAPEEC) to restore access to the South African market for the United States, notwithstanding the Anti-Dumping duty put in place by ITAC in accordance with South Africa?s Anti-Dumping legislation and WTO disciplines. The Senators linked the continued participation of South Africa in the Africa Growth and Opportunity Act (AGOA) to the resolution of the chicken dispute.

I considered this matter carefully with my Department and with my colleague, the Minister of Agriculture, Forestry and Fisheries, Minister Zokwana, and consulted with other stakeholders. While an offer to open the bone-in chicken market would require a significant contribution from an industry that had no objective interest to do so, I had to consider the wider picture and interests of the existing and potential new beneficiaries of AGOA. The loss of AGOA would have threatened the jobs of several other sectors of the South African economy, especially in auto vehicles and parts; chemical products; and manganese products; and agricultural subsectors such as citrus, wine, macadamia nuts.

As the Minister of Trade and Industry, I encouraged the South African Poultry Association (SAPA), to engage with the US poultry industry with a view to find an amicable solution. The first meeting between the poultry associations facilitated by the Government of South Africa took place in September 2014 in Washington. In this meeting, SAPA offered to exempt a specified quantity of US bone-in chicken into the SA market from paying the anti-dumping duty.

Several offers have been exchanged between SAPA and the US poultry industry. SAPA's initial offer was 30 000 tons. This offer increased to 45 000 tons and then 50 000 tons before the Paris meeting. The initial US poultry industry?s demand was 140 000 tons. This was lowered to 125 000 tons, and then to 110 000 tons, before the Paris meeting. So, the gap between SAPA and USAPEEC before the meeting in Paris still remained considerable.

Our challenge was to find a sweetspot or area of compromise that still enabled SAPA and the poultry industry to make the necessary adjustments without a significant loss of jobs. We also had to consider the implications on the development programme for poultry that Cabinet had agreed to in the Agriculture Policy Action Plan (APAP) and especially the importance of the development of the small farmer poultry sector.

What are the implications of the deal for the poultry sector?

• Our negotiators were compelled to ensure that in any final compromise offer made to the US there was a careful balance of the quantum of imports of bone-in chicken pieces offered: ensuring that the Poultry Industry could manage any negative impact on production and jobs. In my view, the deal reached in Paris achieved this objective.
• DAFF and the dti had encouraged the poultry sector to make a significant offer that would be acceptable to the US and in exchange the dti and DAFF undertook to provide support to the sector through the APAP and assistance with market access opportunities for Exports.
• Both the dti and DAFF have built a strong relationship with the Poultry sector to continue to work with them on the transformation of the sector and the development of the small farmer sector.
• The United States offered to provide development support for the small farmers through investment, skills development and support with processing. This offer will need to be concretized with requests for scholarships on poultry production, investment and transfer of processing technology.
• The quota creates new opportunities for new and emerging importers of poultry to benefit from the deal. DAFF and the dti will determine the manner and quantum that will be allocated to the HDIs after a consultative process.
• For the poultry sector, the resolution of the dispute with the US does provide it with more certainty and security for its shareholders.

What are the benefits of AGOA for South African exporters?

South Africa has been a significant beneficiary of AGOA as it has been able to utilize these preferences to expand its exports in significant high value growth sectors of the South African economy, such as automobiles, chemicals, wine, and citrus.

In 2014, major AGOA-beneficiary sectors, amongst others, included vehicles, mineral and metals, chemicals, and agricultural products.

Of total SA exports to USA, 38% went under AGOA (including GSP) in 2014, down from 44% in 2013. South Africa?s AGOA exports, including GSP, amounted to US$3.1 billion in 2014, down from US$3.6 billion in 2013. Of interest to note is that GSP exports increased from US$1 billion in 2013 to US$1.4 billion in 2014, while AGOA exports declined from US$2.6 billion in 2013 to US$1.8 billion in 2014.

The decline in AGOA exports may be attributed to the fact that Mercedes Benz ceased exporting its C-Class vehicles from SA, as the company re-located its production of these models to the US in 2014. However, the recent announcement by Mercedes that it intends to resume its exports of its C-Class vehicles to the USA will expand the automobile exports of South Africa into the US market, especially if AGOA is secured for South Africa for another 10 years. In the case of the Auto sector the main beneficiary is currently BMW. BMW currently exports 40 percent of its current production of 70 000 units (3-series sedan) to the United States.

In the metals sector our manganese exporters to the United States benefit significantly from AGOA. And in chemicals, SASOL takes advantage of the preferences to export a number of its chemical products. In agriculture our Citrus exporters, faced with challenges in the EU market have been able to use AGOA benefits to expand their exports last year to 107 000 tons. Our wines have also gained a foothold in the US market using AGOA benefits.

As I said before collectively, the total number of jobs estimated by one study to have been created by AGOA for South Africa was approximately, 62 000.

Assessment of Costs and Benefits

This discussion indicates that while AGOA is a non-reciprocal preferential programme, the US does expect some payment. In addition, the current debate in the US Congress over the Transpacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP), if successful, will lead to more than two thirds of world trade being captured in these new trading blocs and the consequent erosion of preferential access into the US market for current beneficiaries of AGOA, such as South Africa, and other Sub-Saharan African countries.

There are two other risks that could reduce the Agoa benefits further. Firstly, if the threat of full reciprocity or free trade negotiations with South Africa are insisted on by the USTR, and, secondly, the threat of ?withdrawal, suspension and exclusion? of AGOA benefits based on the outcome of Out-of-Cycle Reviews, are carried out, AGOA benefits could be drastically reduced for South Africa.

However, the Paris deal on Poultry will significantly reduce these risks as the deal on Poultry is linked and conditioned on South Africa's continued participation in AGOA.

Unfortunately, both the Senate version of the Bill and the House version have maintained a provision in the Bill that require a 30 day Out-of-Cycle Review, specifically aimed at South Africa, after the enactment of the 2015 Bill. In our view this is an unnecessary provision as the discussions with the USTR on issues that are of mutual concern can be discussed satisfactorily in the existing bilateral platform that exist between our two countries in the context of the Trade and Investment Framework Agreement (TIFA) that meets on an annual basis.

It has always been our view that the SA-US trade and investment relationship has been working well reflected in the growing presence of more than 600 US companies in South Africa and a growing bilateral trade relationship. Total two-way trade between South Africa and the United States increased from R56,7 billion in 2001 to R141 billion, in 2014. South Africa?s exports to the US grew from R30 billion in 2001, to R69,8 billion, in 2014. Most importantly, AGOA has contributed to this mutually beneficial relationship by assisting South Africa to export more value-added products and reducing the structural imbalance in the trade relationship.

The Paris deal can be seen as a win-win for South Africa and the United States and both our countries should use it as a platform to build and deepen our trade and investment relationship across all sectors of the South African economy and as partners to strengthen regional value chains across the continent, strengthening regional integration. In addition, the deal on poultry will mean that Senators Coons and Isakson could become key allies in helping to keep South Africa in AGOA for a further 10 years as they will be keen to ensure that USAPEEC continues to benefit from the Paris deal.

Thanks to all that made the deal possible

Finally, I wish to take this opportunity to thank SAPA for making a significant contribution to the South African effort to find a sweetspot of compromise with the US. I thank Kevin Lovell (CEO-SAPA), Chris Schutte (CEO- Astral Foods) and Martinus Stander (CEO-Country Bird Holdings), and Justice Zotwa (SAPA Transformation Committee) who participated in good faith and as patriots in the negotiations.

I also want to thank all the other sectors of the South African economy that participated in the consultations, including BUSA, NEDLAC, the auto industry, SASOL, the manganese exporters, the citrus, wine and other agriculture sectors, that worked together with us as TEAM SOUTH AFRICA. It was this spirit of working together to find creative solutions that ensured that we made a breakthrough in Paris.

I also want to thank Senators Coons and Isakson, and Ambassador Froman and his assistant, Florie Lizer, and Ambassador Patrick Gaspard, who have continued, throughout this process, to display an appreciation for the development challenges of South Africa and a willingness to also find the sweetspot of compromise that was arrived at in Paris.

The SA-US trade and investment relationship has considerable potential to advance and deepen, both bilaterally and in partnership to contribute to the development integration of the African continent. I am confident that the successful renewal of AGOA for another 10 years will take our relationship to new heights.

I thank you

Issued by the DTI, June 17 1015