Policy Paper: AGOA, History of the Act

Introduction

The main objective of this paper is to analyze a policy paper of the US government. Specifically, the paper looks at the African Growth and Opportunity Act or AGOA. The analysis shall focus on history of the policy, its importance, implementation, impacts on business and society, and criticism with regard to effectiveness, strengths and weaknesses. It will also present recommendations for future policymaker.

History of the Act: why was the law necessary?

The US Congress enacted the African Growth and Opportunity Act (AGOA) in May 18, 2000. AGOA falls under Title I, Trade and Development Act of 2000 P.L. 106–200. The aim of the Act was to help the economies of countries in Africa and enhance economic relations of the US and other nations.

Despite noticeable improvement in economic growth and changes in governance, Sub-Saharan Africa still experiences critical challenges that affect its developmental efforts. In both the US and Africa, many observers emphasize that open trade and international investment would allow the African continent to enhance its economic growth, improve development, and lessen the extent of poverty. This was critical for the US government.

Rosa Whitaker and William J. Clinton were responsible for developing and implementing AGOA during the administration of President George W. Bush. Rosa Whitaker was Assistant US Trade Representative for Africa. Initially, the President Clinton administration signed AGOA into law in 2000. AGOA was to end after 15 years. AGOA emanated following a decade of effort from activists and senior lawmakers in the area of international trade. However, beneficiaries of the Act expect the US government to renew the Act automatically after 2015 (Mevel, Lewis, Kimenyi, Karingi and Kamau, 2013). Many observers and critics believe that the renewed AGOA would make it simple for many countries to be eligible and would concentrate on enhancing the future business conditions in several African countries with struggling economies (Van Grasstek, 2003).

Since its inception in 2000, the Act has strived to spur the US and Sub-Saharan African trade and investment opportunities, improve economic growth, enhance talks on economic and investment matters, develop trade relations and integration, and encourage the integration of African countries into the world economy (US State Department, 2013). The Act offers reforming African nations several opportunities to gain access to the US markets. This is a liberal way for Sub-Saharan African countries without free trade agreement to exploit the US markets. The AGOA gives all eligible nations to export several categories of products to the US without duty charges. According the US State Department, “eligible Sub-Saharan African countries have exported over $430 billion worth of goods to the United States under AGOA and the related GSP program” (US State Department, 2013) since its inception. In the year 2012, the total exports under AGOA were estimated to value $35 billion. Eligible countries exported various products, which included leather products, metals, and footwear. There was a significant growth in exports in the previous year. Countries must meet certain conditions in order to be eligible for AGOA. For a country to be eligible for AGOA benefits, it must meet three conditions. For instance, a country must show its initiatives to develop a market-based economy, protect human rights and labor, fight corruption, and support the rule of law among other conditions set by the US. A country must also not engage in activities that undermine efforts of the US government and its national security. Countries must also not support terrorism and violate human rights. The US president must ensure that any country that wishes to join AGOA must meet all these conditions (Schneidman and Lewis, 2012).

The US president offers duty free entry of goods from eligible Sub-Saharan Africa under AGOA on the annual basis. The accepted products support growth, manufacturing, and products of eligible countries. Today, a number of African countries have qualified for AGOA trade preferences.

Table 1: AGOA trade preferences eligible African countries as at 2013.

Source: the US State Department, 2013.

Implementation of the Act

Since the implementation of AGOA, a number of the US government agencies have worked with African countries in order to ensure effective implementation of the Act and assist African nations to exploit available opportunities of the Act. These different agencies have improved coordination in order to support AGOA. This section shows the most active agencies in the implementation of AGOA.

The US Department of Commerce

Initially, there was no thorough engagement of the US exports to Africa and how the US could improve its trade in the African markets. However, the US Secretary of Commerce, Ron Brown recognized the importance of African markets. Brown toured several African countries and signed memorandum of understanding on trade and investment opportunities. This resulted into increased engagement between the US and African nations. The move improved the competition the US in African states. However, these efforts slowed down after 1998 when no Commerce Secretary visited Africa to promote trade. Moreover, the Foreign Commercial Services (FCS) of the Commerce Department slowed down its activities in Africa and supports to American investors in the continent. However, AGOA changed this scenario. It directed that at least 20 officers from the Commerce Department take fulltime roles in different African nations and additional ten in Sub-Saharan African nations.

Today, only five FCS officers are in some African countries. The FCS closed offices in other African counties while those officers whose terms have expired will not get renewal. Local people will take up these roles because they understand local markets and can engage local people. However, the US would not have any career FCS officers to support its investment and commercial diplomacy in the region.

Security issues have negatively affected the implementation of AGOA in some African nations. For instance, the US had to move staff at Ron Brown Center in Johannesburg to the embassy. This is unfortunate situation for the US because competition for African growing economies as increased while it withdraws staff from the region. This affects effective implementation of AGOA because many African nations would not export to the US while the US would lose its commercial diplomacy strategies.

The Office of the U.S. Trade Representative

This agency has strived to ensure the improvement of US business presence in Sub-Saharan Africa countries. AGOA created the position of the US trade representative for Africa in order to ensure effective implementation of the Act. This agency has developed several trade frameworks and investment agreements on several areas, which the US and African countries can improve their trade on goods and services and promote private sector investment in the region.

The US Agency for International Development (USAID)

The USAID has a significant role in the implementation of AGOA. The agency is responsible for capacity building and training in order to improve trade in Sub-Saharan countries. The USAID develop a comprehensive, multiyear trade building capacity for Africa entrepreneurs. This trade capacity building initiative was to improve regional integration and enhance the ability of Sub-Saharan African nations to improve their export economies. The USAID set up three regional trade hubs in Africa to ensure effective implementation of AGOA.

The US Department of Agriculture

The US Department of Agriculture (USDA) offers “trade capacity building and technical assistance to AGOA countries through its Foreign Agricultural

Service (FAS)” (Schneidman and Lewis, 2012). The FAS assist AGOA eligible African countries to develop their regulatory instruments. It also ensures that such African countries can meet “the US and international Sanitary and Phytosanitary Standards to foster increased exports” (Schneidman and Lewis, 2012). The FAS has ten officers, who are in many African nations.

The US Export-Import Bank

While the US Commerce Department has reduced its activities in Africa, the US Export-Import Bank has become thorough in improving the US trade relations in Africa. From 2009 to 2011, the US Export-Import Bank supported an increased trade value of $1,392 billion from $412 million. This was an impressive performance for the agency. Transactions increased from 132 to 179. The Bank has identified strategic seven markets in Africa as its key to success. These countries include Kenya, South Africa, Angola, Tanzania, Mozambique, and Ghana because they account for over 75 percent of exports to the US markets. Nigeria and South Africa are the most active exporters to the US markets with over half of the volumes exported.

The Overseas Private Investment Corporation (OPIC)

OPIC facilitates the US investment in emerging economies by providing insurance, financing, and other related services. Under AGOA, the OPIC establishes equity fund for developing infrastructure and supporting Africa women entrepreneurs (US State Department, 2010). However, the charter does not allow the OPIC to support any investments in areas regarded as sensitive. These are sectors, which the US perceives as potential competitors and could reduce jobs and scramble for its domestic markets. They include agribusiness, apparel, and textiles. For instance, OPIC has not been able to finance any apparel company in Africa that intends to export to the US markets. However, critics assert that the agency should conduct a study and determine the impact of these industries in the US economy and the US-based industries (Schneidman and Lewis, 2012).

The Millennium Challenge Corporation (MCC)

The US government created the agency after the implementation of AGOA. However, it has contributed to the development of AGOA. The MCC offers trade capacity building through Aid for Trade initiatives. In 2011, the agency spent $2.7 billion for trade capacity programs in 11 African countries that qualified for the funds, including Madagascar, which the US government disqualified after the coup.

The US Trade and Development Agency (USTDA)

This agency has focused on Africa, and it has turned the continent into a focal point for trade under AGOA. The USTDA developed the first project in Tanzania in 1981. Since the project was successful, the agency focused on developing infrastructures and trade capacity programs, which directly promote AGOA in the region. One of its AGOA implementation tool is the African Trade Lanes Partnership, which improves transportation in the region.

Impacts on business and society

Under AGOA, eligible Sub-Saharan African countries got benefits associated with preferential duty-free exports for some articles covered under the Act. These articles fall under the US Generalized System of Preferences (GSP). The GSP initiative is an independent trade preference program, which offers entry of goods and products to the US markets duty-free from the eligible 129 countries. The program has over 3,400 goods for all eligible countries. It also has other additional 1,400 goods for least developed countries from the Sub-Saharan Africa. Both AGOA and GSP programs provide huge export markets in the US duty-free and quota-free.

There are some imports, which the US considers as import sensitive under the GSP program. The sensitive nature of these products renders them ineligible. However, the US president can decide, which products are not import sensitive. It can do this under AGOA and the International Trade Commission. At the same time, there are also goods with import ceiling limits to control the number of goods that enter the US markets under AGOA or duty-free (US International Trade Commission, 2002). However, the US may exempt countries that benefit under AGOA from the GSP limits by a window of competitive need limitation (US International Trade Commission, 2002).

The critical elements of AGOA support duty-free and quota-free treatment for some eligible textile and apparel goods (Schneidman and Lewis, 2012). This is the third-country fabric rule of origin in which AGOA apparel program allows such imports from poor nations (US International Trade Commission, 2002). It is responsible for nearly 95 percent of the apparel exported to the US markets. The third-country fabric rule of origin expired in September 2012. This affected the vibrant African apparel export market to the US that generated over $800 million. Moreover, it would affect the impact of AGOA in African nations.

Eligible countries must observe the illegal transshipment of apparel products from ineligible countries under AGOA. This requires the establishment of a visa system so that only eligible countries export their textiles and apparel duty-free and quota-free. The visa system must meet all conditions that the US Customs Service has developed. Under AGOA, only 27 African nations have visa system for exporting apparel and textile to the US domestic markets (Schneidman and Lewis, 2012). However, in reality, only a small a number of countries have successfully exported a huge volume of apparel and textile to the US. The US Secretary of Commerce should study exports and identify growth in exports in order to prevent countries from exporting goods beyond the recommended levels. Any surge could result into the withdrawal of duty-free benefits. However, since the inception of AGOA, no country exported textiles and apparel beyond its limit.

AGOA has also facilitated export for women entrepreneurs. African Women’s Entrepreneurship Program (AWEP) consists of entrepreneurial African women who own their small and medium-sized business in Africa. These entrepreneurs export most of their products under AGOA (US State Department, 2010). They also strive to increase volumes of exports to the US.

AWEP looks for policymakers in the US and arrange for meetings. This gives women entrepreneurs many opportunities to interact with senior trade officials. For instance, women had such an opportunity under AGOA forum, Integrating Africa’s Women into the Global Economy in Washington, DC (US State Department, 2010). AWEP strives to empower African women entrepreneurs. However, women have noted that they need opportunities under AGOA to improve their businesses.

Researchers have noted that AGOA has presented ten years of growth for eligible countries. Analysis of AGOA indicates that volumes of exports to the US have demonstrated strong growth. For instance, in 2011, AGOA beneficiaries exported goods valued at $53.8 billion. This was a 21.5 percent increment relative to the previous year. In addition, this growth was significant compared to the year 2001 when exports were only $8.15 billion. Minerals, fuels, and crude oil have been responsible for driving AGOA exports to the US in 2011. Still, AGOA accounted for over $2.19 trillion of the US imports in 2011. While this may be a small growth, the ten-year period has created growth of 2.5 percent from 0.7 percent in trade between the US and other eligible countries under AGOA. In addition, a number of Sub-Saharan African countries have enjoyed duty-free exports under AGOA and GSP.

Policy analysis

AGOA has worked well for many Sub-Saharan African countries. For instance, in November 2010, many Africa’s trade ministers agreed that AGOA had led to an obvious economic payoff for many countries in Africa (Schneidman and Lewis, 2012). However, they observed that Kenya had benefited in terms of job creation and textile export to the US, but these ministers noted that new firms that entered Kenya originated from other countries. New entrants only wanted to exploit Kenya’s export processing zones to export textiles to the US. In Lesotho, the challenge of linkages with the local economy in the textile industry has been minimal alongside incoherent regulations of the sector. Overall, AGOA has resulted into job creation and foreign investments. Hence, there is a need to encourage investment opportunities that originate from AGOA.

AGOA has also created foreign direct investment, particularly in export-oriented sectors. For instance, in Malawi, many European and Taiwanese firms have invested in textile firms in order to exploit opportunities that Malawi enjoys as eligible country under AGOA. At this time, the country estimated that the total employment would rise by 10,000 jobs. In Tanzania, a US firm joined a local firm in order to expand the textile industry, which created 1,000 jobs. A US firm acquired “a fish-processing firm while some Portuguese firms made heavy investment in the apparel industry in Cape Verde” (Schneidman and Lewis, 2012). A Malaysian firm showed interests in investing in the South Africa cloth facility by “investing $100 million and creating 13,000 jobs” (Schneidman and Lewis, 2012).

African ministers noted that the US should renew AGOA, but it must be inclusive, accessible, and permanent. On this note, African countries hop that the US would strengthen, enhance, and improve the preferences in order to allow trade and investment to run on durable markets that can support exports rather than on transient preferential markets.

Many African companies consider AGOA as “very important” because of the US provides a huge market to many African exporters. Companies, which have faced challenges with AGOA, have often cited issues of capacity and financial difficulties. Other exporters have not been able to get visa to allow them to travel to the US for business. In addition, others have challenges with conducting market research and getting reliable distribution channels. However, many African firms believe that AGOA has ensured job creation and capacity.

A number of African countries noted that it was important to strengthen AGOA by improving production capacity and facilitating investments so that companies can run effectively, expand production capacity, and comply with the US standards, as well as improve worker skills (Christ and Polly, 2004).

Many African countries do not want the US to extend a similar program like AGOA to other countries outside Africa, such Sri Lanka, Vietnam, or Bangladesh. In addition, they also noted that the new or revised AGOA should emphasize the relevance of business support services. Exporters wanted skills related to technical expertise so that they could conform to the US strict Sanitary and Phytosanitary Standards and encourage the export of African goods in the US market. Moreover, there was also a need to improve the business conditions in many Sub-Saharan African countries. Capital and financial challenges continue to inhibit potential businesses from exporting to the US.

African leaders consider AGOA as a stimulus for the African manufacturing sector and a good challenge for many African firms, which must meet all strict conditions the US impose so that they can export to the US market. African exporters, especially those with little experience, did not get adequate support to allow them to compete against others globally in the US market. Given these experiences, the US should extend AGOA beyond 2015 so that the Act can gain its full potential in Sub-Saharan Africa. AGOA can also help the US firms to be competitive in Africa and present growth opportunities for the continent, as well as reduce the influence of China companies in Africa (Freund and Levy, 2009).

Recommendations for future AGOA, after 2015

The US government set AGOA to expire in 2015. As a result, there have been uncertainties regarding the extension of AGOA after its expiry. The US government had extended AGOA for seven years after its expiry in 2008. Some components under AGOA, such as the third-country fabric program, have expired. This uncertainty has led to several cancelations of apparel orders from Africa. The message is clear for the US Congress. It should extend AGOA for another long period to give African countries to learn how to access the US market.

The USAID developed three trade hubs for offering technical help to the business community and manufacturers in order to develop their capacity to export under AGOA (Schneidman and Lewis, 2012). This assistance would also allow these entrepreneurs to export to other nations too. African countries have different business environments. African nations could benefit from AGOA if they developed a similar strategy for implementing AGOA among eligible countries. For instance, the USAID created effective 21 resource centers in West Africa in order to enhance the ability of entrepreneurs to develop technical skills, increase the US trade diplomacy in terms of gaining access to the local market, suppliers, and other entrepreneurs. However, AGOA or the USAID has not established similar centers in other regions. The major challenge is that political and financial agendas have often determined the trade hub priorities rather than program oriented motives (Schneidman and Lewis, 2012).

African countries would like to create regional integrated trading blocs amidst several challenges (Nigeria Export Promotion Council, n.d). The original AGOA failed to foster integrated growth among African countries. The new AGOA would emphasize integrated trade for the US firms that would require larger markets in Africa. Regional integration is a welcome development for both the US and African entrepreneurs. In fact, today some agencies are working on new trade and investment deals with East African Community.

AGOA did not support agriculture in Africa. It did not offer a deal to help Sub-Saharan farmers to export their agricultural produce to the US market. The US has agricultural subsidies, which could make it difficult for Sub-Saharan African farmers to export their goods to the US markets, especially in most competitive import segments (Schneidman and Lewis, 2012). Nevertheless, the new AGOA should promote agricultural export from Sub-Saharan Africa to the US markets (Freund and Wallace, 2004).

The US has a poor commercial engagement in Africa. Moreover, it did not develop AGOA to trade and investment in the continent. It aimed at developing capacity and supporting African entrepreneurs. Today, Africa has become a player in the global economy, and it has increased competitive abilities as Obama administration seeks for new ways to engage Africa and create jobs. The US must encourage American investors to invest in Africa because many investors only consider Africa as a risky continent for investment. Such US firms could seek for zero tax for repatriates. AGOA can provide such opportunities for many US firms. The Commission of Capital Flows to Africa observed that tax incentives would lead to major investment.

References

Christ, N., and Polly, L. (2004). U.S. Trade and Investment with Sub-Saharan Africa. Washington, D.C: U.S. Government Printing Office.

Freund, K., and Levy, J. (2009). Sub-Saharan African Textile and Apparel Inputs: Potential for Competitive Production. Washington, D.C: U.S. Government Printing Office.

Freund, K., and Wallace, R. (2004). Textiles and Apparel: Assessment of the Competitiveness of Certain Foreign Suppliers to the U.S. Market. Washington, DC: U.S. Government Printing Office.

Mevel, S., Lewis, Z., Kimenyi, M., Karingi, S., and Kamau, A. (2013). The African Growth and Opportunity Act: An Empirical Analysis of the Possibilities Post-2015. Washington, D.C: Brookings Institution.

Nigeria Export Promotion Council. (n.d). Implementation of AGOA In Nigeria. Web.

Schneidman, W., and Lewis, Z. (2012). The African Growth and Opportunity Act: Looking Back, Looking Forward. Washington, D.C.: Brookings Institution.

US International Trade Commission. (2002). U.S. Trade and Investment with Sub- Saharan Africa: Third Annual Report. Washington, D.C: U.S. Government Printing Office.

US State Department. (2013). Learn More About AGOA. Web.

US State Department. (2010). Promoting African Business Women: The African Women’s Entrepreneurship Program. Web.

Van Grasstek, C. (2003). The African Growth and Opportunity Act: A Preliminary Assessment. New York: United Nations.