A bipartisan bill to renew the African Growth and Opportunity Act (AGOA) for another decade was introduced in Congress on 16 April, quickly advancing out of the committee levels in both the House and Senate late last week. The current version of AGOA is due to expire on 30 September unless renewal legislation is approved beforehand.

The scheme is considered the cornerstone of the US-African economic relationship, providing approximately 6000 products from Sub-Saharan Africa with preferential quota- and duty-free access to the US market.

AGOA expands upon the US Generalised System of Preferences (GSP), a set of formal exceptions from the WTO’s most-favoured nation (MFN) principle, which allows developed countries to offer developing countries preferential treatment on specific goods.

The AGOA Extension and Enhancement Act of 2015, if approved by the full House and Senate, as well as the US President, would renew both AGOA and the Generalized System of Preferences (GSP), which expired in July 2013. The date of the floor votes in both chambers of Congress had not been announced at the time of this writing.

Long-awaited move

“Today's legislation gives our vital partnership with Sub-Saharan Africa renewed lift and focus, allowing us to continue our work together to raise standards and improve lives through trade,” said US Trade Representative (USTR) Michael Froman on 16 April after the bill was introduced in Congress.  

Potential delays in passing new AGOA legislation has been an ongoing source of concern, given the little time remaining before the 30 September expiration date. Officials and trade analysts alike have warned against a last-minute renewal in order to avoid job and investment losses, particularly for businesses that need to plan their orders months in advance. (Bridges Africa 24 February 2015)

The renewal bill was introduced in the Senate Finance Committee by its Chairman, Orrin Hatch, a Republican from Utah, and the committee’s Ranking Member, Democrat Ron Wyden from Oregon.

In the House Ways and Means Committee, Republican Chairman Paul Ryan of Wisconsin and Democratic Ranking Member Sander Levin of Michigan introduced the bill.

“I’m pleased we were able to come together and produce consensus legislation to help move America’s trade priorities forward," said Hatch, who also touted the potential of promoting trade liberalisation and economic reform further through such preference schemes.

“Passing this version of AGOA is essential to the United States catching up and realising the economic potential of trading with a continent of over one billion people,” said Congresswoman Karen Bass, a co-sponsor of the bill and the highest-ranked Democrat on the House’s Subcommittee on Africa, Global Health, Global Human Rights and International Organization.

Decade-long extension

The AGOA Act of 2015 would extend the scheme for ten years, including a ten-year extension of the third-country fabric provisions – a special rule that allows US apparel imports from African least developed countries (LDCs) to qualify for duty-free treatment even if the yarn and fabrics used in the production are imported from non-AGOA countries.

This policy is considered important for sustaining the development of the apparel industry in Africa.

Private sector stakeholders have often raised concerns over the uncertainty surrounding the duration of AGOA preferences, due to periodic reauthorisations, which they say hinders investment in Africa.

In a letter sent to US Congress earlier this month, the Obama Administration urged lawmakers to consider a 10-15 year AGOA renewal in order to fulfil “the full potential of AGOA to mobilise capital commitments, promote growth and development and integrate African stakeholders in global supply chains.”

Features

According to a White House blogpost signed by Michael Froman and US National Security Advisor Susan Rice, the bill to renew AGOA  would  help develop key industries,  assist regional integration, allow the US executive branch additional flexibility when addressing eligibility questions with beneficiaries, and foster improvements in governance and policy regarding labour and human rights.

A summary of the Act’s key provisions also explains that the legislation will promote greater regional integration by expanding the rule of origin to allow AGOA countries greater flexibility to combine inputs to meet the rule of origin for AGOA-eligible products.

Key provisions of the legislation include addressing “unfair practices by the European Union that condition African access to the European market on signing imbalanced and substandard trade agreements.”

Some analysts say that this provision is actually aimed towards addressing the US’ loss of its competitive edge in Africa following the EU’s conclusion of reciprocal trade deals with various African regional economic communities.

The new bill also extends the GSP through 2017 and provides for a retroactive application.

Both the Senate Finance and the  House Ways and Means committees have also approved the renewal of existing preference schemes for Haiti, as part of the broader AGOA legislation. Like the AGOA renewal and related amendments, this still requires approval by both chambers of Congress and the US President to become law.

The proposal also gives US President Barack Obama the authority to include cotton products in the list of AGOA preferences available to LDCs.

Eligibility criteria

The AGOA bill under discussion in Congress would, if enacted, provide greater flexibility to the Administration to withdraw, suspend, or limit benefits under the scheme if it determines that such action would be more effective than termination.

“[The legislation] provides certainty for sub-Saharan African countries, investors, and workers while strengthening our economic and political ties with Africa," Wyden said. In addition, the AGOA bill would make it easier to “crack down on bad actors and make sure that countries stay strictly in line with the important eligibility criteria.”

Regarding the enforcement of eligibility criteria, the debate has focused on the timing and scope of withdrawing preferences, with some stakeholders clashing over the length of the phase-outs.

The renewal legislation’s text requires the President to notify and explain to Congress his intention to terminate a country’s designation as a beneficiary at least 60 days before the decision takes effect.

In the new legislation, public comment, including a public hearing, are required in during reviews of a country’s AGOA eligibility. Out-of-cycle reviews can also take place at any time. It also outlines a process that would permit “interested parties to file petitions” with the Office of the USTR regarding a beneficiary country’s compliance. 

Some countries have highlighted the difficulty of meeting certain AGOA eligibility criteria, such as having a market-based economy; eliminating barriers to US trade and investment; applying the rule of law; and protecting human and labour rights.

On the other hand, some US officials argue that any change to eligibility criteria could decrease AGOA’s potential leverage for fostering economic and political reforms in beneficiary countries.

Since AGOA was put in place, 13 countries have lost their eligibility, although seven eventually had it restored, according to a report by the US Government Accountability Office (GAO), an independent agency providing audit and evaluation to Congress.

Six countries – Central African Republic, Democratic Republic of Congo, Eritrea, The Gambia, South Sudan, and Swaziland – lost their eligibility primarily due to political reasons and have not regained it to date.

South Africa’s inclusion shaky

During its mark-up of AGOA on 23 April, the US House Senate Finance Committee approved an amendment that would require the Obama Administration to launch a review of South Africa’s eligibility for AGOA-related trade benefits within 30 days of the scheme’s renewal.

The amendment requires an “out-of-cycle review” of the country within 30 days of the new AGOA legislation’s enactment. However, the amendment’s inclusion in the final AGOA bill is not guaranteed, given the various stages of the US legislative process that remain. The House Ways and Means version currently does not include such an amendment.

Earlier talks over AGOA’s renewal had move slowly due to a dispute between Pretoria and Washington on poultry trade, following South Africa’s decision to impose anti-dumping duties on certain imported US poultry products.  (Bridges Africa, 27 January 2015)

“In our view, South Africa’s unfair and protectionist practices must be addressed before Congress would be justified in extending the AGOA programme,” said US National Chicken Council President Mike Brown.

Some observers have raised concerns over South Africa’s potential withdrawal from the Act as such decision could negatively affect their motor industry.