DTI: USA is SA's third biggest trading partner - for imports and exports
Published: 16th Feb 2018
Post-hearing statement by the Department of Trade and Industry on behalf of the Government of the Republic of South Africa on the occasion of the US International Trade Commission’s investigation on US trade and investment with Sub-Saharan Africa
South Africa (SA) would like to thank the USITC for the opportunity to make oral submission at the recent public hearing and would like to take this opportunity provide this written statement and to also respond to some of the issues that were raised at the Hearing particularly the matter relating to anti-dumping duties on bone-in chicken pieces from the United States (U.S.). Accordingly, this issue is treated comprehensively as an annex to this written statement. This statement is classified into the following parts: current relationship between South Africa and the United States, a summary of SA’s development status and current challenges, benefits under AGOA, the utilisation and the challenges.
2. Overview of South Africa- U.S. Trade Relations
2.1. The U.S. is an important trading partner for South Africa (SA). In 2016, the U.S. was ranked as the third biggest source of imports globally for South Africa and was ranked 3rd as an export destination for South African products after China and Germany.
2.2. In Rand terms, bilateral trade between South Africa and the US has shown tremendous growth in the past few years, growing from R56.7 billion in 2010 to R153.3 billion in 2016. Both exports and imports have recovered beyond their pre-crisis levels in 2008. South Africa’s exports to the US grew from R64.4 billion in 2012 to R80.4 billion in 2016. Similarly, the US exports to South Africa grew from R61.0 billion to R72.9 billion in 2016. South Africa enjoyed a trade surplus against the U.S. since 2011 with the exception of 2014 where South Africa experienced a deficit of R1.3 billion.
2.3. However, in dollar terms, due to currency fluctuations, bilateral trade between South Africa and the US has declined from US$13 billion in 2010 to US$10.4 billion in 2016. South Africa’s exports to the US decreased from US$7.9 billion in 2012 to US$5,5 billion in 2016. Similarly, the US exports to South Africa decreased from US$7.4 billion to US$4.9 billion in 2016. South Africa enjoyed a trade surplus against the U.S. since 2011 with the exception of 2014 where South Africa experienced a deficit of US$85 million.
2.4. However, in terms of manufactured exports, the U.S. continues to enjoy a trade surplus. In 2016, the United States enjoyed trade surplus in the following sectors: agriculture (US$5.3 million), manufacturing (US$1.0 billion), other manufacturing (US$58 million) and others sectors (US$292 000). The trade surplus that South Africa enjoys is mainly due to exports of primary products and commodities. In 2016, South Africa enjoyed a trade surplus only in mining amounting to US$1.4 billion. This leaves the country vulnerable to global shocks and fluctuations in price of commodities. It is for this reason that the South African Government prioritises industrial development, diversification and structural transformation as critical to promoting inclusive growth and sustainable development. The aim of this agenda is to promote the participation of all in the formal economy, especially historically disadvantaged individuals that were denied access by apartheid.
2.5. The industrial development agenda therefore aims to change the structure of trade to more value added products, boosting productive activity and create jobs.
2.6. The key factors that underpin the growth in US-SA trade include:
• strong industry-to-industry linkages resulting in mutually-beneficial trade relations;
• conducive investment and business climate;
• leveraging South Africa as one of the gateways to the rest of Africa;
• Regional integration agenda that the African market is embarking on with a view to create a market of over 1 billion people and a GDP of US$ 2.6 trillion. Such integration initiatives would also serve to address the challenges of small and fragmented markets which are an unfortunate feature of the Africa region. Regional integration initiatives coupled with the growing middle class in the African continent suggests that Africa would be a more viable investment destination that offers opportunities for establishing mutually beneficial trade and investment relations with all trading partners, including the US.
2.7. Annex 1 shows SA’s key exports to the US which are mainly primary products, while the imports from the US are manufactured products. There is therefore a need to continue the focus on changing the structure of trade to more value added products. This highlights the importance of industrialisation and the implementation of a high impact industrial action plan as prioritised in South Africa’s Nine-Point Plan.
3. SA-US investment relations
3.1. In Rand terms, bilateral direct investments between SA and the US increased by more than 100% from R99.6 billion in 2012 to about R215 billion in 2016. Total bilateral investment (FDI, portfolio and other investments) stood at R2.2 trillion in 2016.
3.2. In dollar terms, bilateral direct investments between SA and the US increased by 20% from US$12.1 billion in 2012 to about US$14.6 billion in 2016. Total bilateral investment (FDI, portfolio and other investments) stood at US$149.5 billion in 2016.
3.3. SA has also invested in the US contributing to the creation of jobs and productive capacity. In 2016, South African investments to the US accounted for about 19% of total South African investments to the world. The investments are in sectors such as beverages, mining, oil, steel, furniture (mattresses), information communication technology, and heavy-duty trucks.
3.4. According to the South African Reserve Bank data, U.S. direct investments flows to South Africa increased from R62.3 billion in 2010 to over R126.6 billion in 2016. In dollar terms, US direct investments flows to South Africa increased from US$8.5 billion in 2010 to over US$8.6 billion in 2016. In 2016, the U.S. investments into South Africa accounted for about 22.4% of total inward investments from the world. There are over 800 U.S. companies doing business in South Africa. Software & IT services are the top sector accounting for almost one-quarter of FDI, followed by Business Services, communications, industrial machinery, equipment & tools, automotive and pharmaceuticals. Therefore, U.S. companies are involved in both manufacturing and the services sectors but their target market is largely Africa, Middle East and Europe.
4. Importance of AGOA to South Africa-U.S. economic relationship
4.1. The African Growth and Opportunity Act (AGOA) has been the cornerstone of the Sub-Saharan Africa – United States commercial relations and has generated tremendous goodwill for the U.S. in the continent.
4.2. For South Africa, AGOA underpins strong and growing mutually beneficial trade and investment relationship between South Africa and the U.S.
4.3. The benefits of AGOA are two-way. Estimates by the Brookings Institute indicate that AGOA created 100 000 jobs in the U.S. In South Africa, AGOA is estimated to have created 62 000 jobs.
4.4. AGOA promotes intra African trade and industrialization that in turn promotes the development of regional value chains. For instance, the Trade and Industrial Policy Strategies (TIPS) report indicates that the South African garment manufacturing firms have been opening operations in Lesotho producing garments almost entirely for the U.S. market. South Africa in turn exports some trims (zips, buttons, sewing thread, wadding, tapes and elastics) to Lesotho. As a result, Lesotho’s textiles industry has expanded. Another example is in the automotive sectors, wherein Lesotho produces car seats that are used by the South African auto manufacturers to produce vehicles for export.
4.5. According to statistics by Trade Map, Lesotho exported US$21.3 million worth of parts seats to South Africa. South Africa was the only export market for Lesotho for parts of seats. Similarly, Botswana exported US$106 million worth of ignition wiring sets to South Africa, which equalled 93% of total ignition wiring sets exported by Botswana to the world. This implies that the automotive industry in South Africa serves as one of the anchors for regional value chains in Sub-Saharan Africa.
4.6. In the clothing and textile value chains, South Africa exported US$13.2 million worth of parts of garments or clothing accessories to Lesotho, which are equivalent to 68% of total parts of garments imported by Lesotho from the world. This shows that textile and clothing provide another sector where regional value chains exists in the region.
4.7. AGOA has also promoted the development of intra-industry linkages between South Africa and the U.S. in manufacturing and agriculture sector. For example, American global automotive corporations have built strong business links with their South African operations. Increased South African component and vehicle exports has assisted automotive industry development in South Africa and has contributed to employment creation and retention in both South Africa and the U.S. (800 employees Ford US due to Ford engine manufacture in SA). In 2016, South Africa exported US$33 million worth of automotive components to the U.S.; while the country imported US$135 million worth of automotive components from the U.S.
4.8. In most sectors, South Africa’s exports to the U.S. account for less than 1% of total US imports, thus South Africa exports do not pose a threat to the U.S. industry and jobs especially given the fact that our production seasons are different. It is therefore important to consider the exemption of South Africa from restrictive actions that the U.S. plans to take for national security reasons to protect U.S. jobs.
4.9. The share of SA exports in total US imports from the rest of the world was 0.3% in 2016. The highest share recorded was 0.5% 2013. South Africa was ranked 42nd as a supplier to the U.S. in 2016. This implies that South Africa is not a significant exporter to the U.S., therefore, would not pose much of a threat to local production in the U.S.
4.10. In relation to Sub-Saharan Africa (SSA), AGOA is estimated to have created 350,000 direct jobs and 1.3 million in indirect employment.
4.11. Further, the US Chamber indicated that 86% of exports to the U.S. by African countries still consist of petroleum. Even for South Africa, a significant portion of our exports (40%) are still commodities.
4.12. Sub-Saharan Africa exports to the United States under AGOA including, the Generalised System of Preferences (GSP) have declined in recent years to the level below 2001. The decline in exports can be attributed largely to the decrease in commodity prices, as well as the fact that the US is now self-sufficient in shale gas. This is a clear demonstration of Africa’s vulnerability to relying on exports of primary products.
4.13. Utilisation of AGOA and the challenges
4.13.1. In 2016, of the 1 835 tariff lines under AGOA, South Africa utilised only 240 tariff lines, which is equivalent to 13% utilization rate. Similarly, South Africa utilised 537 of the 3400 tariff lines available duty-free under GSP for developing countries, which translated to 15% utilization rate.
4.13.2. Sub-Saharan African countries (inclusive of South Africa) utilised 535 tariff lines under AGOA and 693 tariff lines under GSP for developing countries, which translated into a utilization rate of 29% and 20%, respectively.
4.13.3. Therefore, this strengthens the need for Africa to industrialise and attract investments in productive sectors. The key challenge for many African countries in accessing global markets is not necessarily tariffs as can be seen from the low utilisation rate of AGOA but mainly lack of productive capacity and supply-side constraints.
4.13.4. In order to increase utilization of AGOA, South Africa has established targeted engagements with key exporters to the US market to understand the challenges in accessing the US market. Some of the known challenges speak to:
4.13.5. Supply-side factors as mentioned above (poor/inadequate infrastructure - transport and energy). According to the Africa Infrastructure Country Diagnostic (AICD) Study of November 2009; Africa’s infrastructure deficit is suppressing per capita economic growth by 2% each year, reducing the productivity of firms by as much as 40%.
4.13.6. Productive capacity constraints. Most countries have a limited productive base as exporters of primary products. There is a need to prioritise industrial development and diversification so as to move up the value-chain.
4.13.7. Lack of capacity to meet stringent US SPS measures. Most SSA countries produce basic agricultural products but those products are denied market access due to the stringent regulatory measures in the US.
4.13.8. One of the reasons why SA/SSA countries are not able to fully take advantage of AGOA benefits is that products of export interest to SSA are not included under AGOA. A case in point for South Africa would be products such as canned fruit products (pears).
4.14. South Africa is in the process of developing the AGOA Utilisation Strategy. However, government has undertaken work at a provincial and local government level to promote AGOA in South Africa.
5. Development and Challenges in South Africa
5.1. South Africa is a developing country with a population of 56.5 million people. It has a young Constitutional democracy (24 years) and has managed to build strong institutions, well-developed infrastructure, and continue to maintain the rule of law.
5.2. South Africa is mainly an exporter of primary products and commodities, which leaves the country vulnerable to global shocks. The key priority for the country is to industrialise, diversify the productive base and move up the value chain.
5.3. . Reliance on primary products leaves the country vulnerable to global shocks. The key policy instruments to promote economic growth, sustainable development and integrate South Africa into the global economy include the National Development Plan, New Growth Path, the National Industrial Policy Framework and the Industrial Policy Action Plan and the Trade Policy and Strategy Framework.
5.4. As a young democracy, South Africa also has its challenges. These include an unemployment rate of 27.7% with higher levels of unemployment among the youth. It also has a growing inequality and poverty, as well as a challenge with skills, especially among the youth. One of the priorities of Government is education.
5.5. It should be noted that in a short space of time, progress has been made since 1994 to provide services to a majority of the people that were excluded from the main stream economy with over 80% of South Africans having access to electricity, housing etc. The country has also been able to grow the middle class.
5.6. South Africa has well developed policies that are developed through a participative and transparent process with the aim of promoting inclusive growth and sustainable development.
5.7. South Africa is a relatively open economy, accounting for 0.5% of global trade and is only moderately protected by tariffs:
➢ The simple average MFN applied tariff is 8.0% (down from 23% in the 1990s). -NAMA: 7.8%; Agriculture: 8.9%).
➢ 56% of duties are set at 0%. 96.6% of tariff lines bound; South Africa replaced all remaining quantitative controls and formula duties with ad valorem duties.
➢ The South African tariff book consist of 7 743 tariff lines (down from more than 12 000 in the 1990s). South Africa has fully implemented HS2017 on 1 January 2017. Compared to many of our partners, the tariff regime is transparent and not overly complex (e.g. comparatively few NTBs). In comparison: China has 8 238 tariff lines; United States of America has 10 711 tariff lines; EU has 9 376 tariff lines; India has 11 328 tariff lines; Brazil has 10 031 tariff lines; Malaysia has 9 417 tariff lines; and Indonesia has 10 012 in their respective tariff books, compared to that of South Africa.
5.8. The services sectors are open: WTO Services commitments are comparable to many OECD countries and exceed those of other developing countries.