The World Bank called yesterday for an extension of the clothing preferences in the African Growth and Opportunity Act (Agoa).

In their discussion paper on the effects of preferential access to the US market under Agoa, World Bank economists Paul Brenton and Takako Ikezuki appealed for the benefits of Agoa to be extended or made permanent.

For many sectors, it is likely the current temporary and relatively short statutory period of Agoa constrains a significant investment response.

SA and Mauritius were cited as examples of Agoa beneficiaries that had to deal with stricter rules of origin governing exports to the US market.

Clothing accounted for 4% of SA's exports to the US, the economists said. "The issue with the more restrictive rules of origin is not just the constraints that the rules impose on the sourcing of inputs, forcing producers to use highercost fabrics and materials," they said.

"It is also the costs and difficulties in proving conformity with these rules compared to the more liberal rules where fabrics are globally sourced."

The economists said restrictive rules of origin, currently applied under Agoa, dampened clothing exports to the US.

The liberalisation of rules of origin would enable observers to evaluate the successes of non oil-exporting African countries under Agoa, they said.

Brenton and Ikezuki were concerned about speculation that US authorities intended to scrap the liberal rules of origin later this year.

They said such an action would undermine the prospects of trade diversification by concerned countries. It was crucial that the benefits remain.

"It is clear that preferences on clothing are the main source of gains under Agoa and a stimulus to export diversification for a small but increasing group of countries," they said.

South African Chamber of Business CE James Lennox said yesterday that while the relaxation of export conditions to the US would be welcome, such a move would not solve the local clothing industry's woes.

"There are other issues at play. For instance, the stronger rand, and high production costs," he said.

Agoa had created 190000 new jobs in Africa and brought in $340m in investment, said deputy US trade representative Josette Shiner.

Lesotho has benefited most from Agoa, with the US accounting for 90% of its exports. Generally, the US only accounts for 15% of all exports from African non oil-exporting countries.

Madagascar and Swaziland are the only other African countries to have a US share of total exports in excess of 20%. This means that the current aggregate effect of Agoa preferences on the beneficiaries' economies will be minimal.

For example, the value of US preferences for Malawi is estimated to be equal to 10% of the total value of exports to the US, yet this is equivalent to just 1,6% of the total value of Malawi's exports and about 0,44% of gross domestic product.

The clear exception is Lesotho, where the value of US preferences amounts to 19% of the exports' value .

A copy of this World Bank paper by economists Paul Brenton and Takako Ikezuki is now available in AGOA.info's Research Reports Archive. (16 April 2004)