US tariffs threaten Agoa and automotive exports

Minister of Trade and Industry, Rob Davies, addressing US think tank, Atlantic Council, in Washington. Source: dti

Storm clouds are once again gathering over the African Growth and Opportunity Act (Agoa) as the Department of Trade and Industry awaits word from the US about its intention to impose tariffs on South African cars and car parts to the States.

Recent news that the administration of Donald Trump wants to invoke Section 232 of America’s Trade Expansion Act, allowing for tariffs on automotive imports into the US, took Trade and Industry Minister Rob Davies by surprise.

He subsequently visited the US where he met with American trade ambassador, Robert Lighthizer, commerce secretary Wilber Ross, and two senators, explaining that Section 232 tariffs would deal a nullifying blow to Agoa whose very existence is contingent upon sustained duty-free exports from SA and 38 other sub-Saharan countries to the US.

Should Trump raise tariffs on exports from the likes of local BMW and VW plants, it could effectively sound the death knell for an agreement that also faced doom towards the end of 2016.

Then, the administration of Barack Obama threatened not to renew the Agoa agreement initiated and instituted by fellow democrat Bill Clinton in 2000 because of concerns SA had raised over bulk chicken imports.

As the country mulled pulling the plug on US poultry in a bid to contain the spread of avian flu, Obama’s government finally had its way, saving the day not only for its own chicken farming sector but also for exports from these shores.

Local producers of citrus, macadamia nuts, canned fruit, wine, and avocados have derived huge benefits thanks to Agoa, but the sale of cars and car parts to the US have steadily clicked into higher gear year on year.

That now is in danger if Trump forges ahead on his path of protectionism.

Last year duty-free automotive exports to the US amounted to R18.8bn.

However, sensing that markets are shifting, BMW has already redirected the aim of its X3 SUV series to the EU, leading some commentators to argue that the expected impact of automotive tariffs by the US won’t be as bad as anticipated.

Some add that the R18.8bn raised through exporting cars and car parts to the US also pales against the R164.9bn for overall global automotive exports from SA in 2017.

At the heart of Trump’s protectionist tariff rumbling is his persistent push to safeguard the US aluminium and steel industry against growing threats from China and the EU.

South Africa’s attempts to persuade the US that its steel and aluminium exports to that country are relatively small and, as with several South American countries, should be exempted from respective import tariffs of 25% and 10%, have been in vain.

If automotive exports to the US were taxed, it could have a significant impact on the labour market in this sector, said Renai Moothilal, executive director of the National Association of Automotive Components and Allied Manufacturers.

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