End of Agoa: No doom and gloom

The United States has decided to terminate South Africa’s eligibility for AGOA. That means South African goods will no longer receive the programme’s duty-free treatment when entering the US market. The change takes effect on 1 January 2027, giving businesses time to adjust.

The decision was announced by the US Trade Representative. The administration said South Africa’s government had engaged in practices inconsistent with AGOA’s eligibility rules. It cited barriers to US trade and investment, corruption, and threats to US national security and foreign-policy interests.

The immediate effect will be higher tariffs for some exports, but economists do not expect economic disaster. Donald MacKay said the biggest sectors, including cars, steel and aluminium, had already faced separate US duties. Agriculture and individual companies may feel more pressure, while South Africa will need to seek new markets and trade arrangements.

The African Growth and Opportunity Act is a US trade programme enacted in 2000. It allows eligible African countries to export qualifying goods to the United States without normal import duties. That preferential access is designed to support trade, investment and economic development.

The key mechanism is simple: removing a tariff lowers the cost faced by an importer. A South African exporter can therefore offer a product at a more competitive price than a rival whose country does not receive the same preference. The article notes that cars were duty-free under AGOA, while other exporters paid 2.5% before additional US duties applied.

AGOA’s value differs across sectors and countries. South Africa was its largest beneficiary, accounting for 54% of AGOA-related exports to the US over 25 years. However, economists said the average advantage was only about 3.5%, so losing it will hurt some businesses without necessarily causing economy-wide damage.

AGOA mattered greatly in scale because South Africa was the programme’s biggest beneficiary. Over the past 25 years, it accounted for 54% of all exports to the United States linked to AGOA. That makes South Africa’s removal politically and commercially significant, even if the programme’s advantage was not overwhelming for every product.

Donald MacKay estimated that AGOA gave South Africa an average advantage of 3.5% over exporters from the rest of the world. The benefit varied sharply by sector. Cars entered duty-free under AGOA, while other exporters paid 2.5%. Steel and aluminium were also major AGOA exports, although separate US duties had already reduced their advantage.

The figures suggest a mixed picture. AGOA supported competitiveness, but it was not South Africa’s only route into the US market. Economists therefore expect pressure on particular businesses and agriculture, rather than a catastrophic shock to the entire economy.

Without AGOA’s duty-free treatment, qualifying South African goods will generally face higher US import tariffs. That can make them more expensive for American buyers, reduce demand, squeeze exporters’ margins or encourage customers to switch suppliers. Labour has already expressed concern about possible job losses.

The effect will differ by industry. MacKay said cars, steel and aluminium had already been hit by separate 25% US national-security duties. Losing AGOA would take the car tariff from 25% to 27.5% in his example, while agricultural exporters could face additional costs. The article does not quantify likely consumer-price changes; in general, tariffs may be shared by importers, exporters or consumers.

Economists do not expect the entire agricultural sector to be at material risk. Individual businesses and some farm exports may suffer, however. Companies will need to find new customers, improve competitiveness or absorb some costs, while affected industries may face pressure to protect jobs.

The Trump Administration said South Africa no longer met AGOA’s eligibility criteria because of barriers to US trade and investment, corruption, and threats to US national-security and foreign-policy interests. The US Trade Representative described these practices as inconsistent with the programme’s rules. The decision was therefore based on both economic and political concerns.

South Africa’s status had been questioned before the latest decision. In 2014, discussions focused on its being an upper-middle-income country. The argument was that it had developed beyond the level suited to a unilateral preference programme and should graduate to a full bilateral trade agreement with the United States.

That transition did not happen. South Africa faced complications because it belongs to the Southern African Customs Union, which limited its ability to sign a separate bilateral agreement. Sihlobo also said South Africa lobbied to retain AGOA’s unilateral benefits. In hindsight, he said an earlier agreement might have produced a different position today.

The clearest alternative is diversification. Duma Gqubule urged South Africa to focus more on trade with Africa, beginning with nearby Namibia. Donald MacKay likewise said the country should seek other trading partners because the United States had become unreliable. New markets could reduce the damage if US access becomes less attractive.

South Africa could also pursue a formal trade agreement with the United States. Wandile Sihlobo said that in 2014 the country was pressured to graduate from AGOA and begin negotiating a full bilateral agreement. Such an arrangement might provide more predictable access than a unilateral programme, although its terms would need to be negotiated.

The main institutional obstacle is South Africa’s membership in the Southern African Customs Union. Sihlobo said the country cannot sign bilateral trade agreements independently under that arrangement. South Africa therefore needs both regional coordination and broader market exploration, especially in agriculture and sectors exposed to US tariffs.

A tariff is a tax charged on imported goods. When it rises, an exporter may need to lower its price, accept smaller profits or lose buyers. When an agreement removes tariffs, goods can enter more cheaply and compete more effectively. This is why AGOA’s duty-free access mattered even though economists judged its average advantage modest.

The article gives a clear car example. Cars were duty-free under AGOA, while other exporters paid 2.5%. South African vehicles then faced a separate 25% US national-security duty. After AGOA ends, MacKay said the combined car tariff would reach 27.5%. Sihlobo gave another example: some products facing 12.5% could rise to 15.9%.

A Most Favoured Nation tariff is the normal, non-preferential tariff applied to imports from trading partners under standard rules. It is not necessarily the lowest tariff. A special trade agreement or preference such as AGOA can reduce the rate below MFN levels.