Johannesburg - A critical provision under the US’s African Growth and Opportunity Act (Agoa) was not on South Africa’s negotiating agenda, Trade and Industry Minister Rob Davies said yesterday.
He described the “third party fabric provision”, which could benefit local clothing manufacturers, as “a nice to have if it could happen”. But he conceded that South Africa did not extend this benefit to its Southern African Development Community (SADC) partners.
South Africa is excluded from Agoa’s third country provision, which allows for the sourcing of cheaper fabric from third countries for the manufacture of clothing exports to the US duty-free. Davies said the exclusion could be because South Africa had its own textile industry.
Davies was in the US last week pressing for the extension of Agoa beyond its 2015 expiry date.
Though Davies did not say as much, it seems South Africa may be prepared to take the provision off the table because the Department of Trade and Industry is determined to prevent neighbouring countries, which source cheap inputs abroad, from competing with local producers.
Davies noted that South Africa would need support from other African countries to press for the benefit in its negotiations with the US.
Catherine Grant Makokera, the head of economic diplomacy at the SA Institute for International Affairs, clarified: “Some industry players in other SADC countries have said they will lobby for South Africa not to get third country fabric rights under Agoa until they put in place a single stage transformation rule of origin in SADC.”
Under the rules of origin, the “single stage transformation rule” allows the location of the final stages of production to determine whether the goods are entitled to preferential tariff treatment.
Makokera explained that South Africa applied a two-step rule in trade within the SADC free trade area. “This requires two stages of transformation in one country before origin can be claimed. In the case of clothing in the SADC, you need to produce the fabric and/or yarn and then also assemble the clothing before you can claim origin.”
Commenting on South Africa’s stand on the two-stage transformation Davies said: “This is a matter that other [SADC] countries have raised, which we are debating. And no doubt a similar issue will crop up in tripartite negotiations.”
Three African economic blocs have set up a Tripartite Trade Negotiating Forum to promote greater trade integration. They are SADC, the Common Market for Eastern and Southern Africa and the East African Community.
Davies said a formula for determining origin could be discussed “in the tripartite context” to prevent products “largely manufactured elsewhere” to be masked by “low levels of value addition” in one of the tripartite communities.
Agoa, along with a generalised system of preferences and other provisions, allows duty-free treatment in the US for almost all goods produced in eligible countries.
Textiles have benefited little from Agoa, while local automotive manufacturers have reaped massive rewards. - Business Report