US embassy cable - 05PRETORIA2783

UNCLAS SECTION 01 OF 02 PRETORIA 002783 
 
SIPDIS 
 
DEPT FOR AF/S; AF/EPS; EB/TPP/MTA 
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
COMMERCE ALSO FOR HVINEYARD 
TREASURY FOR BRESNICK AND CUSHMAN 
DEPT PASS USTR FOR PCOLEMAN 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, EINV, SF, AGOA, USTR 
SUBJECT: SOUTH AFRICAN AUTOMOTIVE INDUSTRY BENEFITING FROM AGOA 
 
 
1.  Summary.  South African automotive exporters appreciate the 
benefits of duty-free access to the U.S. market under AGOA. 
Department of Trade and Industry statistics indicate that South 
African automotive exporters have saved R454.1 million on import 
duties between 2001 and 2004.  BMW was the first carmaker to grab 
the opportunity provided by AGOA and exported 15,226 of its BMW 3- 
Series cars to the United States in 2004, up from 853 cars in 
2000.  Motor vehicle exports to the United States are expected to 
increase beginning in August 2005, when BMW will start exporting 
the new BMW 3-series.  End summary. 
 
2.  According to the Department of Trade and Industry (DTI), 80% 
of Africa's vehicle output is concentrated in South Africa.  Big 
car firms have invested billions of Rand in their plants since 
South Africa's adoption of democracy in 1994, taking advantage of 
the Motor Industry Development Programme (MIDP).  The MIDP is a 
complementation scheme that allows exporters to earn credits 
based on local content.  These credits can be applied against the 
duty rates for imports and thus are used to offset the cost of 
their imports.  According to Statistics South Africa, the 
automotive industry in South Africa accounts for about 28% of the 
country's manufacturing output. 
 
3.  South African automotive exporters attribute the improvement 
in their competitiveness to the MIDP, combined with the boost 
from duty-free access to the U.S. market through AGOA.  USITC 
data for 2004 indicates that light motor vehicles accounted for 
70% of all automotive imports (HTS 8701 - 8708) from South 
Africa.  Automotive components contributed 19% and commercial 
vehicles 8%.  According to the National Association of Automobile 
Manufacturers of South Africa (NAAMSA), 14% of all light 
passenger vehicles exported from South Africa are destined for 
the United States, making it South Africa's fourth largest 
destination for this category.  In the case of automotive 
components, 8.4% of all exports are making their way to the 
United States, the third largest export destination next to 
Germany and France. 
 
4.  DTI statistics on duty savings in terms of AGOA indicate that 
South African automotive exporters saved R454.1 million on import 
duties between 2001 and 2004.  Norman Lamprecht, Manager 
Automotives at the Department of Trade and Industry, said that 
the benefits from AGOA for the South African automotive industry 
are broader than the mere duty- and quota- free access to the U. 
S. market, it also stimulates opportunities for a chain of 
collaborative arrangements with domestic automotive manufacturing 
companies from third countries, that want to access the United 
States via South Africa.  According to him, these collaborative 
arrangements enhance the domestic automotive industry's 
competitive production capabilities.  The South African Motor 
Industry supports the current U.S.-SACU free trade agreement 
negotiations, as it would assure them that the temporary 
opportunities provided by AGOA would be converted into a 
permanent agreement. 
 
5.  BMW was the first carmaker to grab the opportunity provided 
by AGOA and is also the largest South African light motor vehicle 
exporter to the United States.  According to Andries Cronje, 
General Manager Finance at BMW, 15,226 of the BMW 3-Series cars 
assembled in South Africa, were exported to the United States in 
2004.  Apart from engines and gearboxes, everything in the South 
African 3-Series BMW comes from South Africa.  Cronje said that 
because of the duty-free access provided under AGOA, BMW saves 
about R2,500 on each car it exports to the United States, 
depending on the option off-take and the exchange rate.  BMW has, 
since 2002, invested R2 billion into its plant's development and 
created the conditions for an annual production capacity of 
75,000 cars. 
 
6.  United States International Trade Commission (USITC) figures 
demonstrate how the five-year old AGOA initiative has been 
successful in stimulating trade between the two regions.  The 
import of motor vehicles (HTS 8703) from South Africa increased 
from a mere $50,000 in 1999 to $625 million in 2003.  These 
figures declined, however, to $410 million in 2004 and continued 
this trend into the first five months of 2005 with a further 54% 
y/y decline (down to $84.5 million from $184.4 million) because 
of a revamping of production in South Africa.  NAAMSA statistics 
show that 15,322 passenger cars, largely by BMW SA, were exported 
to the United States in 2004, down from the 20 899 units exported 
in 2003.  According to Norman Lamprecht, the model run-out of the 
3 series BMW as a result of the launch of the new generation 3- 
series BMW in August 2005, was responsible for the decline in 
export numbers in 2004.  Andries Cronje agreed with Lamprecht's 
reason for the declining export numbers and did not view the 
strong rand as responsible for this development.  Even with the 
strong rand, NAAMSA expects motor vehicle exports to the United 
States to increase beginning in August 2005 when BMW will start 
exporting the new BMW 3-series. 
 
FRAZER