South Africa’s reliance on preferential access to the US market and the potential impact of an AGOA exit

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Since the start of 2023, tension between the U.S. and South Africa has rapidly escalated. In February, South Africa welcomed the Russian warship Admiral Gorshkov—with the Kremlin’s pro-war symbol, the letter “Z”, on prominent display. South Africa participated in a joint naval exercise with Russia and China—Mosi II—that took place on the one-year anniversary of the Ukrainian invasion. In response, a group of U.S. policymakers introduced House Resolution 145 opposing S.A.’s hosting of military exercises with Russia and China and called on the Biden administration to “conduct a thorough review of the U.S.-S.A. relationship.”

In May 2023, the tension advanced when the U.S. Ambassador to South Africa made a public statement that South Africa had secretly supplied Russia with weapons that it could use against Ukraine. The weapons were allegedly loaded onto Lady R, a ship owned by Transmorflot, a company sanctioned by the U.S. last year when it docked in Simons Town in December 2022. Rapidly, the discourse shifted to how the incident would shape the future of U.S.-South Africa relations and particularly, the future of South Africa’s inclusion in the African Growth and Opportunities Act (AGOA). In May 2023, South African President Cyril Ramaphosa established a three-person panel to investigate the incident, led by judge Phineas Mojapelo. The inquiry found that the ship did not transport weapons from South Africa to Russia. Shortly thereafter, the White House released a statement thanking Ramaphosa for the speedy and responsive nature of the investigation and affirmed its commitment to AGOA. However, a number of legislators remain hesitant. Following the AGOA forum in August 2023, U.S. Senator Christopher Coons (D-CT) released a draft bill to renew it for 16 years but would require an immediate “out-of-cycle” review of South Africa’s eligibility for AGOA. Such a review could lead to an expulsion from a program.

Setting aside the potential for direct political consequences, AGOA is up for renewal in 2025, which opens up a window for the U.S. congress to graduate South Africa out of AGOA for its status as an upper middle-income country.

This paper has three objectives. First, it undertakes a brief review of the preferential access granted to South Africa by the U.S. through AGOA and the Generalized System of Preferences (GSP), which is the largest and oldest U.S. trade program. Second, a computable general equilibrium (CGE) model is utilized to assess the economic impact that a loss of AGOA and GSP preferences. Third, the paper provides an overview of the various broader implications of an AGOA suspension for South Africa, beyond the direct trade impacts.

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