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Forecast on South Africa

South Africa

South Africa is unlikely to be an issue for U.S. trade policy in 2009, although the country continues to play a sometimes adversarial role in the Doha Round. Uncertainties about South African political leadership will dominate bilateral relations which have some potential for impacting commercial relations.

The FTA negotiations between the US and SACU were suspended in 2005, leading to negotiations for a “Trade and Investment Development and Cooperation Agreement,” signed in July of 2008, which committed the parties to continued dialogue via a Consultative Group. In addition to a monitoring function the Group is to try to conclude trade and investment enhancing agreements. Agreements on customs are foreseen, but not a BIT, which would have the greatest commercial significance to the U.S. A return to US-SACU FTA talks is very unlikely in the foreseeable future.

AGOA, which in 2004 was extended to 2015, is the U.S.’s most significant commercial policy affecting Africa and South Africa, but is coming under scrutiny as are preference programs generally. Congressman McDermott and others introduced legislation in 2008 to extend AGOA benefits beyond Africa, which was unwelcome to many African beneficiaries. It is probable that this legislation will again be introduced in 2009.

AGOA’s impact has been most significant in the motor vehicle industry in South Africa whose exports of fully built-up vehicles and components to the U.S. have been increasing annually under AGOA. The original South African industrial policy program for the motor car industry, the Motor Industry Development Program, provided export subsidies and import duties, still today at 30%, was widely regarded as blatantly WTO-illegal. Under the program exports grew from nearly zero in the mid-‘90s to 150,000 vehicles in 2007, exports of components (mainly catalytic converters and stitched leather seat covers) increased and high rates of investment followed. In 2004 Australia threatened to bring a WTO case challenging the program as a prohibited subsidy and in 2008 the program was replaced by a modified program deemed to be WTO compliant.

South Africa has continued to champion developing country positions in the Doha Round, most recently demanding special relief for SACU beyond that available to other developing countries. Specifically, South Africa is asking that additional tariff lines protecting SACU’s textile and clothing sector be exempted from cuts required under the general formula..

The South African domestic political situation remains uncertain, but so far is best characterized as politics rather than political instability.  In September the ANC unceremoniously replaced Thabo Mbeki as president with Khalema Mothlante who is to serve until April when Jacob Zuma is expected to be elected president for a five year term. Despite widespread nervousness over the fact that Zuma comes to power on the support of the trade unions and the Communist Party, and continues to face charges of corruption, he has been generally successful in reassuring business that he will continue the successful macroeconomic policies of his predecessors.