While the 2007 AGOA forum did not need to focus almost exclusively on the pending expiry of a key provision (the third country fabric rule), textiles were again in the spot light as delegates grappled with the implications of an interesting new provision enacted late last year by the US. The reasons for the high level of interest were the new regulations pertaining to the sourcing of fabrics, as contained in the African Investment Incentive Act (otherwise known as AGOA IV.

AGOA, originally passed into law in 2000 by former US President Bill Clinton, has seen three major and a number of minor amendments. These are:

AGOA II: passed in August 2006, these amendments (re) classified Namibia and Botswana as LDC countries, thus permitting them to source third country fabrics. Also clarifies certain customs interpretations, including “knit to shape”, the origin of yarns (further processed into fabric), and extends the volume cap on duty-free clothing exports from beneficiary countries.

AGOA III passed in July 2004, extends AGOA from 2008 to 2015, increases duty-free clothing quota, designates ethnic printed fabric as AGOA eligible, and extends third country provisions by three years to September 2007.

AGOA IV passed in December 2006, extends clothing’s third country provisions by five years to 2012, extends the GSP to end-2008, and introduces abundant supply provisions for fabrics.

The objective of the abundant supply provisions (referred to in the legislation as “special rules for products in commercial quantities in Africa) appears to be to provide incentives for the use of African fabric in the production of clothing, rather than third country fabric. In reality, the presence of this provision probably enabled the passage of legislation to extend third country fabric sourcing by a further five years, a provision which it must be noted met with substantial resistance amongst US lawmakers. Had it not been for extensive lobbying by stakeholders both in the US and in Africa (most notably at the 2006 AGOA Forum), and the very real threat of an implosion of the African garment manufacturing industry, it is unlikely that there would have been a further extension of this rule.

While the abundant supply provisions were a creative means of appeasing all parties concerned (including textile and clothing manufacturers in Africa), the provisions appear not to have been thought through clearly. Or rather, the provisions were ahead of their time in that the administrative framework to give practical effect to these rules was lacking or at best incomplete.

The “abundant supply” provisions entail roughly the following: the AGOA legislation provides for certain fabrics to be considered as being in abundant supply (i.e. available in commercial quantities) in Sub-Saharan Africa. Where it is deemed that a type of fabric is in abundant supply, garment producers in eligible countries must use the available quantity in the manufacture of garments under AGOA. This holds irrespective of whether such fabrics are available in only a single country, or whether high transportation costs in Africa might render it unfeasible for a West African country to source such fabric from a Southern African supplier. For purposes of this provision – or AGOA in general for that matter – beneficiary countries are seen as “one”. This means that they are able to freely cumulate production with each other (in other words, the “working and processing” required by the legislation can be undertaken jointly in more than one country).

While the AGOA legislation provides for a petition process – whereby an interested party (which could be a African textile producer) may file an abundant supply petition – an investigative process determines the nature of this “abundant supply” and the quantities available. Any ruling then applies to the following annual period (which for AGOA purposes runs from October to September of the following year).

Should the US Trade Commission determine that a stipulated quantity of abundant fabric (or yarn) was not utilised by African exporters in aggregate, in the applicable period, then such surplus will be added to the following year’s abundant supply quota. The Commission also has the right to withdraw preferential treatment to AGOA garments in subsequent periods if it is found that the abundant supplies continue to be underutilised.

The 2006 AGOA amendments went a step further by stipulating that denim fabric (of subheading HTS 5209.42.00) is considered to be available in commercial quantities up to a volume of 30 million SME for the period beginning October 2006. According to sources this is linked to the commercial activities and supply capacity of a vertically integrated denim mill located in Lesotho.

Some of the practical challenges associated with these provisions is that there are no reliable statistics of denim garment exports under AGOA to the US in affected categories for the year in question. Since most AGOA beneficiaries are able to export under the third country rule (i.e. classify exports as falling under HTS 9819.11.12 - “Apparel from foreign fabric made in a lesser developed country”), they have mostly done this all along, even when using local fabric. As a result, the available data is at best unreliable. Furthermore, new reporting requirements (to prevent this problem from re-occurring) were only introduced as late as June 2007.

A copy of the new Textile Certificate of Origin can be downloaded from AGOA.info here.

While these provisions and associated implications are of interest to African textile manufacturers (explaining perhaps why a number of textile associations, and industry heavyweights such as Frame Textiles attended the Forum), they are a worry to African garment manufacturers. The reasons are varied but include the fact that any restriction on the sourcing of fabrics, especially considering the free reign that producers have had up until now, may impact negatively on business. A further reality is that global value chain dynamics in this sector are such that producers are in effect price takers – while US (or any other country for that matter) buyers hold the reigns. They usually determine the sourcing of fabric, the price paid, or the choice of licensed suppliers. Any restrictions on these dynamics may chose buyers to look elsewhere.

One company that is worried is Levi Strauss, according to David Love, Senior Vice President for global sourcing of that company. He was speaking at the textiles and clothing parallel session at the AGOA Forum in Accra, and expressed his concern about restrictions being placed on buyers by the AGOA legislation. While the company “remained committed to Africa”, and has operations in various countries, he saw such restrictions as a major challenge to the feasibility of sourcing from Africa under AGOA. US consumers placed the company under huge pressure, both in terms of pricing as well as styling, time to market, trends etc. Many of the company’s often very-specific denim fabric was not available in commercial quantities in Africa, and he cautioned against classifying all denim fabric in such a blanket manner.

Mr Brian Brink, Executive Director of the South African textile Federation, and Mr Jack Kipling, Chairman of the South African Clothing Export Council. Both organisations form a part of the African Clothing and Textiles Industries Federation (ACTIF).