Economy wide effects of a possible erosion of AGOA preferential access for South Africa

The possible erosion of preferential market access, South Africa’s access to the USA market under AGOA, is expected to lead to losses in the South Africa economy, albeit minimal. This study used, as a policy shock, the introduction by USA of applied tariffs on selected imported agricultural products (beverages and tobacco; sugar; and vegetables, fruits and nuts) from South Africa. The methodology used to quantify the effects of the stated policy change is the standard GTAP model with database from GTAP database version 7. In terms of the overall effect (looking at Equivalence Variation, EV, in the case of GTAP model) the South African economy stands to lose about $3.11 million as a result of the removal of the preferential access under AGOA. These losses will be driven mostly by losses on terms of trade and allocative efficiencies while other effects are contributing positively (even though very minimally). The quantities of industry outputs for the selected products are expected to decline while the rest will benefit positively. The trade balance for the selected products stand to worsen while other products are expected to benefit (driven by reduction in exports). There will also be labour demand loses (loss of jobs); capital demand loses (reduction in investments) coupled with shift in the land demand. Overall the economy stands to lose because of the erosion of the AGOA treatment.