South African exporters to US could face huge losses

Though Busa could not quantify the financial losses, they could be substantial.

Trade between South Africa and the US reached R2.8 billion in the first six months of last year before closing the year at R3 billion. But it surged to R3.5 billion in the first six months of this year.

A source said the move by US could see some small and mid-sized exporters in South Africa being forced to shut down.

He summed up the mood at the department of trade and industry (dti): “Obviously it is not going to be nice to have benefits that would help boost our economy taken away.”

According to dti statistics, exports to the US surged 15.4 percent from January to June this year.

Laurraine Lotter, a Busa representative, said: “I think all the companies that are involved in exporting, from chemicals to metals, automobiles, you name them, will be adversely affected,” Lotter said.

In a letter earlier this month to the US trade representative in South Africa, Busa said financial losses could result because trade patterns between the US and South Africa had not yet stabilised.

“Many companies that will suffer the most ‘ are significant investors both in productive capacity and corporate social responsibility projects in South Africa.

“Many are also major employers and any company restructuring in order to withstand the negative impact of the withdrawal of the US market, would have a serious impact on the country’s already high unemployment level,” Busa said.

Busa believed that the target of halving unemployment by 2014 could be achieved if unemployment continued to decline at the rate seen in the past two years.

The US recently asked 133 beneficiary developing countries to make presentations with its trade representatives in those countries on why they should continue enjoying free trade benefits. Its trade offices have received 800 submissions.

The US introduced the generalised system of preferences (GSP) three decades ago as a temporary measure to promote growth in developing countries by stimulating their exports. The programme expires at the end of this year.

The review of the GSP is expected to exclude countries whose exports to the US exceeded $100 million (R760 million) in 2005, were classified as upper middle-income economies by the World Bank and their total exports exceeded 0.25 percent of all global exports that year.

The US now classifies South Africa as an upper middle-income economy. Busa does not dispute this and in its letter it said the classification did not adequately reflect the extent of the challenges facing the country.

Dan Biers, the US embassy spokesperson, said that the review, scheduled to be completed in December, would look at each country’s level of development and consider the economic impact of the loss of GSP.

“We will also consider whether eligible exports would be competitive in the US market without GSP,” Biers said.

The developing countries that are being looked at include India, Brazil, Russia, Romania, Kazakhstan, Turkey, Croatia, Indonesia, Thailand, the Philippines, Argentina and Venezuela.

US imports were $26.7 billion under the programme in 2005, an 18 percent increase from 2004.

Sources say that some of the large developing countries would get the chop from the trade benefits. The Bush administration apparently supports the extension of the GSP to some of the countries that have been benefiting from the free trade.

It is unclear whether South Africa is one of the countries that may escape the suspension, and Lotter said the suspension was possible but far from certain.

“The whole GSP thing was the US’s unilateral decision to assist the developing countries. It was not a negotiated contractual relationship. So, they can choose who they suspend and keep whoever they like,” said Lotter.

Victor Mashabela, a director at dti, said elimination of South Africa from the GSP would be “very unfortunate” because the government had embarked on the accelerated shared growth initiative of South Africa (Asgisa), which is a project to improve economic growth in the South Africa.

“We resolved to use all available tools to make sure that Asgisa succeeds. And GSP has been one of those tools. To take it away would be inopportune and unwise,” Mashabela said.

Washington considered this review after the collapse of the world trade talks recently. The talks collapsed after five years of haggling. At the time, it was said that resuming them could take years.

The suspension of the World Trade Organisation’s Doha round came after major trading powers failed to overcome differences on reforming world farm trade.

The US reviewed GSP after Brazil and India, two of the biggest beneficiaries of the programme, resisted demands at the world trade talks to open their markets to more US exports.

South Africa is not the only country that has raised concerns about GSP review, with Russia and Brazil having complained to the US about its intentions. ‘ BUSA.

October 2006
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