The Africa Growth and Opportunity Act (AGOA), which allows certain African exports to enter the US quota and duty free, has been a great boon to textile producers in some of the poorest African countries. But the textile preferences have come under increasing attacks from other exporters. Congress has just extended the provisions for another three years. What happens to African textile exports after that date? Tom Nevin discusses.
Battling a rearguard action against a relentless flood of cheap Chinese imports, Africa’s textile and garment manufacturing industry has received a $855m industry-saving shot in the arm with a three-year extension of the vital fabric aspect in the US’s Africa Growth and Opportunity Act (AGOA). For a decade or more, Africa’s textile spinners, weavers and garment makers have weathered the worst effects of China’s clothing invasion by marketing their produce tariff, quota and duty free to the vast and lucrative American markets.
“A massive veil of uncertainty was lifted when the US Congress agreed to pass legislation that extends to September 2015 key textiles provisions of AGOA,” says Eckart Naumann, associate at the Southern African Trade Law Centre (tralac). The extension means that African textile-associated industries will continue to enjoy preferential entry into the US markets as home sales of textiles and garments dwindle in the face of Chinese competitive imports. The extension in Congress was touch and go in a House fraught with pre-election partisan politics.
“This is a US presidential-election year, traditionally meaning that less legislation is passed as political manoeuvering and Congressional voting records often appear to dominate proceedings,” reports Naumann.
“Non-reciprocal trade preferences are considered less of a priority these days, and the costs associated with them often make for heated debate. Of all the bills and resolutions before Congress, only about 5% become law.”
The extension of the AGOA concessions to September 2015 has been widely welcomed in Africa by the private sector, civil society, various heads of state and trade ministers, calling it “nothing short of a lifeline” for the garment manufacturing industry in many parts of Africa.
The value of exports to the US under AGOA has grown to nearly $86bn a year, of which $855m worth was in garment exports in 2011. In the process over 300,000, mainly female, jobs were created in the African apparel manufacturing sector, says the USAID Trade Hub website.
One of Africa’s poorest countries, Lesotho, was the top exporter at $314m, followed by Kenya at $259m and Mauritius at $156m. Those figures speak volumes for the angst that pervaded Africa’s textile goods-producing sector as the prospect of AGOA’s garment component coming to an end threatened to become a reality. The sector has over the past decade shown mushroom growth on the back of US exports given the favourable rules of origin under the textile provisions. By comparison to AGOA’s stellar clothing exports, the value of clothing exports not dependent on third-country fabric was just $26m in 2011.
South Africa does not qualify for garment concessions open to poorer countries and its manufacturers are obliged to use locally made or regional fabric; it exported only $5m worth of clothing to the US in the last year.
Breathing easier – and after 2015?
So those in Africa’s garment-making sector can breathe easier for the moment, but what happens after 2015 is still cloudy, although a persistent niggle is that the US is becoming skittish at non-reciprocal trade arrangements. Is AGOA, despite its success, in danger of disappearing?
“What is clear,” says Naumann, “is that economic conditions in the US remain difficult on the back of the recent global financial crisis; Congress is divided politically (given the respective majorities within the Senate and House) and seems more intently focused on policies that, for example, promote its own export market opportunities. There has been an increase in bilateral investment treaties with African countries, and SACU – Southern African Customs Union (Swaziland, Lesotho, Namibia and South Africa).”
More recently, the Obama administration has undertaken to work with Congress to extend AGOA beyond 2015, although Naumann surmises that the future focus of the Act may be more on the lower-income countries.
“Export expansion is critically important to Africa’s development,” says Rosa Whitaker, who developed and implemented AGOA as former Assistant US Trade Representative for Africa. “World Bank research indicates that if Africa had maintained the share of global trade it achieved during the 1980s, it could have generated an additional $100bn a year – more than the region received in annual aid flows from all sources during this period.”
AGOA’s expiry in 2015 would not only undermine the gains made by African and American firms in growing bilateral commercial trade relations, but would seriously harm more generally the standing of the US as a reliable partner for Africa, especially in the face of the continuously increasing ties between the continent and China and India among others. Globally, more than half of the 10 fastest-growing countries are located in Africa. Though AGOA has proved largely successful as a tool of development policy, its future remains in question. Its limited timeline fails to provide the certainty needed for expanded investment and trade flows, says Whitaker, calling for a decision soon, lest African economies suffer: “Sourcing and investment decisions are made years in advance. Therefore, delay or doubt regarding AGOA’s renewal may cause significant job loss and decreased export revenues in Africa.”
AGOA was designed to promote both trade and investment as tools of economic development, observes Whitaker, but laments that while many African countries have experienced export gains, the investment response from US businesses has fallen short, due in part to AGOA’s failure to include tax incentives for US companies.
Considered as a whole, notes Trade Hub, AGOA has been a significant success. Improving its impact is now the focus of trade policymakers from around the world. Ultimately, the Act has created hundreds of thousands of jobs – a sure way to alleviate poverty. To call it a day in three years’ time would unravel the immense good AGOA has brought to Africa’s development.
What is AGOA
AGOA is one of Washington’s more canny pieces of legislation. It neatly sweetens much of the resentment-building, carrot-and-stick conditionality that tied beneficiaries of US aid to better governance in return for a handout. Some such trade-offs remain, but this time more acceptably, judging by the African buy-in. A brainchild of the Bill Clinton administration, it was seen by many as a trade concessionary master stroke that made friends of its recipients, built bigger and better trade bridges between America and emerging nations, helped expand their economies and enhanced inter-regional cooperation.
It’s unlikely that the architects of the law envisaged AGOA’s multiplicity of benefits when they were putting the nuts and bolts of it together, but it has outdone itself in one important aspect: it introduced the ‘buddy’ factor to African-American dealing.
AGOA came into being in 2000 as part of the Trade and Development Act providing beneficiary countries in sub-Saharan Africa with the most liberal access to the American market available to any country or region with which the US does not have a free trade agreement.
It removes tariffs, duties and quotas for a wide range of goods from AGOA-eligible countries, reinforces African reform efforts, provides improved access to US credit and technical expertise and establishes a high-level dialogue on trade and investment through a US/sub-Saharan Africa Trade and Economic Forum.
The incentive rewards for African countries implementing economic and commercial reform policies are tangible and immediate and happen alongside AGOA’s contribution to better market opportunities and stronger commercial partnering in Africa for US companies.
The measure is a classic quid pro quo that helps the continent forge more effective African-American commercial ties and assists in Africa’s integration with the global economy. At the same time it opens marketing opportunities for US goods in Africa and for American firms to partner in privatisations of African state-owned enterprises or in infrastructure projects, with funding, skills and technical transfer.
But, the more sceptical ask, what has really changed in the constricting conditionality and does the United States have the right to set eligibility criteria for African countries?
The US State Department maintains that the criteria “are standards which African countries themselves have espoused and most are striving to uphold.” It insists that AGOA was never intended as a blank cheque for all African countries, without regard to performance: “It was meant to offer tangible incentives for African governments to improve their political and economic governance, not to underwrite poor policies.”
It goes on to say that the US President may designate sub-Saharan African countries as eligible to receive the benefits of the Act if they are making progress in such areas as: establishment of market-based economies; development of political pluralism and the rule of law; elimination of barriers to US trade and investment; protection of intellectual property; efforts to combat corruption; policies to reduce poverty, increase availability of health care and educational opportunities; protection of human rights and worker rights, and elimination of certain practices of child labor.
“Progress in each area is not a requirement for AGOA eligibility,” it adds.