April 12, 2024

The Future of AGOA: Implications for South Africa

FILE PHOTO: U.S. Senator Chris Coons speaks to the media in Johannesburg, South Africa, February 23, 2023. REUTERS/Sumaya Hisham/File Photo

According to a recent Reuters report, a bipartisan initiative in the U.S. Senate proposes to extend the African Growth and Opportunity Act (AGOA) through 2041. AGOA, established in 2000, is a U.S. trade policy designed to promoting economic growth in Sub-Saharan Africa by granting eligible countries duty-free access to American markets for a wide range of goods. It incentivizes African nations to pursue economic reforms and build stronger trade relations with the United States, benefiting industries such as textiles, automotive, and agriculture.

Initially, the proposed legislation included an immediate review requirement for South Africa’s eligibility based on its foreign policy stances. This requirement has been dropped, yet concerns about South Africa’s foreign policy remain a point of discussion among U.S. lawmakers. This legislative move, supported by figures such as Senators Chris Coons and James Risch, aims to strengthen economic ties and promote stability and growth in sub-Saharan Africa, with significant implications for South Africa.

Bipartisan Support and Strategic Extension

The extension of AGOA, endorsed by both Democratic and Republican senators, signals a strong commitment to fostering long-term economic relationships between the U.S. and sub-Saharan Africa. The proposed 16-year extension aims to provide predictability and stability, essential for the economic planning and investment strategies of the nations involved.

Key Legislative Changes

Significant modifications in the legislation include extending the duration AGOA will remain effective, shifting eligibility reviews from annual to biennial, and allowing the U.S. president more flexibility in enforcement actions. This change reduces the administrative burden on participating countries and provides them with the opportunity to stabilize and grow their economies without the disruption of frequent policy reassessments.

Economic Impact and Enforcement Flexibility

The bill allows the president various options if a country is found ineligible, a shift from the current mandate of terminating benefits. Additionally, the criteria for graduating countries from the program have been adjusted; countries must now maintain high-income status for five consecutive years before they can graduate from AGOA, preventing penalties for temporary economic spikes.

Benefits and Concerns for South Africa

For South Africa, the extension of AGOA until 2041 is particularly beneficial. In 2022, South Africa exported about $3 billion worth of goods to the U.S. under the program, including key sectors like automotive, agriculture (fruits and wines), which significantly benefit from duty-free access to the U.S. market. This fosters job creation and economic diversity. The bill also aims to deepen trade relations and support economic development in alignment with broader U.S. goals to enhance economic ties and invest in African economies.

However, challenges remain, particularly in how South Africa’s foreign policy decisions might influence its eligibility under AGOA. Despite criticism of South Africa’s stances on international issues like Russia and Ukraine, and Israel and Hamas, the Biden administration maintained AGOA benefits for South Africa last year. This decision faced criticism, with calls for “course-corrective action” by members of Congress like Senator Risch.

Integration with AfCFTA

The proposed changes to AGOA aim to better integrate it with the African Continental Free Trade Agreement (AfCFTA) by modifying rules of origin. This modification allows inputs from North African AfCFTA members to count towards the requirement that 35% of a product’s value must originate in the region. This change is designed to reinforce AfCFTA’s goal to develop intra-African supply chains, though participation is contingent upon meeting AGOA’s strict eligibility requirements related to governance, human rights, and foreign policy.

The extension of AGOA and the removal of the immediate review requirement for South Africa illustrate a U.S. legislative strategy that harmonizes economic and diplomatic priorities. This approach provides South Africa a stable platform for ongoing economic partnership and growth, while emphasizing the importance of skillful navigation of international relations to fully leverage AGOA’s benefits.