South Africa and the African Growth and Opportunity Act II : The game of ‘chicken’ and calling our bluff
Intellectual Property Rights
The first issue revolves around the yet to be completed reform of our intellectual property law under the proposed National Policy on Intellectual Property Bill. Included in this is an overhaul of pharmaceutical patent legislation, which would both limit the ability of multinationals to hold multiple patents on similar medicines and free up access to cheap, generic medicines to the SA market.
The National Foreign Trade Council – an American trade association that represents, amongst others, US pharmaceutical interests – claims that, whilst a strong intellectual property regime is important for an innovation-conducive environment and contributes to socio-economic empowerment, these reforms are retrograde and damaging to US interests in that their “overall intent appears to weaken current standards that are important to investors and innovators”. [1]
US pharmaceutical companies are clearly unhappy with proposals that threaten existing business and undermine future profitability. ‘Ever-greening’, the practice by which multinationals renew expiring patents through slight recipe alterations, for example, in order to prolong market dominance, would be limited under the new reforms. And competition with affordably priced generics would be promoted.
The proposed South African reforms are, however, widely and staunchly supported by national and international civil society groups and NGOs – including Section 27 and Médecins Sans Frontières – who argue that the proposals will significantly improve the availability, affordability and accessibility of life-saving medicines. [2] They contend, correctly, that the proposals are both harmonised with South Africa’s WTO obligations and constitutionally directed, in that they work toward ensuring the right of access to health care services. [3]
It is currently unclear whether this will threaten South Africa’s status under AGOA. The US promised under Clinton not to “seek the revocation or revision of an intellectual property law or policy of a beneficiary sub-Saharan country…that regulates HIV/AIDS pharmaceuticals or medical technologies”. [4]
However, the pharmaceutical industry – colloquially known, or rather branded, as ‘Big Pharma’ – is influential in Washington. A threat to profitability will be responded to, and South Africa’s beneficiary status in AGOA will become an issue. The expected line of argument will be that the reforms would undermine protection of intellectual property – allowing for the possibility of expropriation. This is an eligibility criterion.
In August, AmCham formally requested that South Africa’s AGOA eligibility be made contingent on abandoning the reforms. [5] South Africa has proven unwilling to surrender the AGOA trade benefits for the security of the domestic poultry industry. We will have to wait and see whether Washington considers the intellectual property reforms to be in breach of AGOA’s eligibility requirements, and if so, what response Pretoria will make.
Private Security Industry Regulation Amendment Bill
The second, and more prominent, issue is the proposed Private Security Industry Regulation Amendment Bill, which includes the requirement that all employees of private security companies are South African citizens, and puts a 49% cap on foreign ownership of private security companies operating in South Africa.
Foreign ownership is dominated by four transnational security corporations: ADT, G4S, Chubb and Securitas. Over the past eight years, investments by the big four through acquisition of local private security subsidiaries have amounted to R4.5 billion. [6] Of these, ADT is an American company and Chubb is US-owned. ADT employs just over 10 000 people, whilst Chubb has a smaller presence at marginally fewer than 2 500.
AmCham argues that these companies have “contributed substantial capital investment and infrastructure development as well as introducing international best practice in skills training and development which has uplifted the entire sector”. [7] This is true. Costa Diavastos, the executive director of the Security Industry Alliance, stated in an interview with Business Day TV that the state that the industry is in today owes much to “foreign flows of capital, the introduction of new technology, [and] the proliferation of systems within the security industry that weren’t here before”. [8] Worryingly, Diavastos predicts that the reaction by foreign companies will be one of total market withdrawal. [9]
South Africa is currently committed under the WTOs General Agreement on Trade in Services (GATS) to full market access and national treatment for foreign investment with respect to security services. In this, it guarantees that foreign investors in the South African private security sector will not be restricted to terms, limitations or conditions that are not applied to domestic investors. The proposed Amendment Bill is therefore entirely contrary to our current WTO commitments, which are legally binding under international law.
The Amendment Bill provides that companies would be given a five-year grace period to meet the demands – either through divestment or ownership dilution – or face expropriation, with no offer of compensation included. This is possibly unconstitutional. What’s more, included in the clause restricting foreign ownership is the provision of sole and complete discretionary power to the Minister of Police in deciding the percentage of expropriation (i.e. up to 100%). This is understandably worrying to US investors. But it should also be deeply disturbing to conscientious South African citizens: the potential for cronyism and graft is massive.
Apart from alienating the United States, the Amendment Bill will have two damaging domestic effects. In such a climate of uncertainty characterised by a scramble to sell, share prices will collapse, dislocating the industry. As a result, tens of thousands of jobs will be directly lost and indirectly put at risk, and at a time when unemployment stands at 25%.
If the Amendment Bill becomes law, South Africa will be thrown out of AGOA. It directly calls into question South Africa’s commitment to the protection of private property rights through the threat of expropriation, and suggests a government that is hostile to foreign investment. Both of these aspects fundamentally conflict with eligibility criteria required of AGOA-beneficiary nations.
That it has languished on the President’s desk for so long suggests that the Executive is both aware of the effects that the Bill will have on foreign investment and wary of the implications. Rightfully so: private security is a very large employer in South Africa. It functions to protect our lives and property in the absence of a reliable and effective police force.
Endangering the possible efficacy of the private security sector and hindering its ability to operate by using anti-competitive practices would be politically, socially and economically calamitous.
Conclusion
AGOA is a non-reciprocal trade benefit scheme. However, to view it as an act of pure altruism on the part of the US is simply incorrect. Every trade agreement involves exchange. Through AGOA and its trade benefits, the US is able to effectively encourage soft-power objectives such as safeguarding the rule of law, combatting corruption and promoting peace and security in the region. This is in everyone’s best interests.
The real exchange, however, lies in securing trade-barrier free access to SSA markets for US exporters, and in ensuring that those markets are favourable to US investors. The eligibility criteria laid out in the AGOA document makes this overwhelmingly apparent.
South Africa tested US patience and resolve over the dispute surrounding market access for US bone-in chicken portions to the point that Obama issued us an ultimatum. Our government’s actions were deeply misguided. We treated the US in a discriminatory and mercantilist manner whilst expecting to retain unbridled tariff free access to their market. Jy kan nie jou brood aan albei kante botter nie.
Moreover, doing so to prop up the local poultry industry was, though understandable, arguably short sighted. While domestic industries must, to some extent, be protected from foreign competitors with whom one cannot compete, this should have been limited to the MFN tariff. Aside from being unfair on US exporters, the anti-dumping duty was an excessive example of import substitution – this leads to inefficient and uncompetitive production and drives up domestic prices.
Our inclusion in AGOA is, and will now remain, at risk. The private security amendment bill and the overhaul of our intellectual property regulations are most prominent at the moment, but many more potential threats to our eligibility loom in the future. Among them, are issues surrounding BEE ownership initiatives, proposed land reform and the recently revised Promotion and Protection of Investment Bill. Each of these threatens US investment.
If we again act in a way that irks or even undermines an aspect of US trade and investment, it is unlikely that Washington will demonstrate the same fifteen-year patience that they did over the poultry dispute. What’s more, there’s no reason for them to. They have called our bluff and we have proven quick in our response to their threat of suspension from AGOA. We are, no doubt, something of the proverbial donkey: caught between our desire for the carrot and the promise of a sharp thwack to the flanks from Washington’s long reaching stick.
Andrew Barlow
Researcher
andrew@hsf.org.za