AGOA a goer in 2015?

The United States’ African Growth and Opportunity Act (AGOA) was enacted in 2000 to help diversify Africa’s export production, expand trade and investment between the United States and sub-Saharan Africa, with a view to generally supporting Africa’s economic progress. Because AGOA is a unilateral tariff preference programme as opposed to a reciprocal free trade agreement, the US can and does set qualifying criteria for receiving AGOA benefits based on criteria which include the establishment of a market-based economy, rule of law, and poverty reduction strategies. The scheme is not permanent and needs to be periodically renewed. The present incarnation of AGOA will expire in 2015.

One of the items that African’s are particularly keen on is the so-called ‘third country fabric provision’ where non-originating fabric can be used to manufacture garments for export to the US market. This will need to renewed in 2013. It is notable that the embattled South African garment industry does not benefit from this concession.

South African trade minister Rob Davies has been most supportive of AGOA and was recently quoted in parliament as saying that AGOA is the most important framework for building USA-Africa trade and investment relations and represents the most tangible and meaningful expression of US support for African Development.

Not surprisingly South Africa has taken the view that that AGOA should be extended beyond the current expiry date in 2015, and that SA should receive improved AGOA benefits; notably to have the US extend the third country fabric to South Africa. To this end South African Ministers have met key members of Congress and US business leaders to register support to the African position calling for the extension of AGOA. This has included meetings with the US Trade Representative, Ron Kirk, and the Secretary of State, Hillary Clinton. This said:

In the WTO, unilateral preference schemes are derogations from the rules and require periodic waivers from the rules to continue. Globally these schemes are falling out of vogue. Probably the most pertinent example of this change in fashion is the ongoing effort to convert the ACP’s unilateral trade preference scheme with the European Union into reciprocal Economic Partnership Agreements or EPA’s.
In line with this trend in global thinking, the USTR’s Flora Liser recently expressed the view that AGOA preferences program should not become permanent because trade preferences with no expiration are more likely to make it difficult to develop ‘a more mature trade relationship’ with the US. Logically ‘mature’ is a softer way of saying ‘reciprocal’, which Africans are generally loathe to support with South Africa as an example. The US is no doubt keeping a watchful eye on the emerging European-ACP Economic Partnership Agreements. However this ‘absolute winner’ view is not held by all African AGOA recipients.

The Ghanaian trade minister Hanna Tetteh recently opined that AGOA had failed to realize meaningful US investment in Africa because there are no incentives for US businesses to invest in Africa, AGOA aside. While Ghana benefits from AGOA for products like apparel (with third country content benefits) and cocoa, US businesses receive no encouragement from the US government to invest in Ghana. While the US focuses on AGOA, investors from China, India and Turkey have aggressively entered the Ghanaian market. These investments in turn lead to the export of products from Ghana back to the home markets of these investors. In this way Ghana benefits not only from trade but also from the effects of the FDI.

Others like Zambia’s trade minister Felix Mutati have taken a middle of the road approach. Mutai has been rather strategic in his comments. While agreeing with the US that AGOA should not be permanent, he takes the pragmatic view that AGOA could conceivably be milked for a couple of decades before ceasing – clearly not being permanent. He has suggested that Africans benefit from AGOA with an expiry until they become competitive in the US market. Logically such a condition would almost certainly make for a permanent incarnation of AGOA for most African countries, especially an LDC like Zambia.

All considered it would be extremely difficult for Congress to scrap or dilute AGOA in 2015 and retain any semblance of development sensitivity. After all, the President is notionally a Kenyan correct?