TRALAC - Trade Law Centre

A narrow niche for African exports

Tuesday, 14 January 2003

Source: Business Day

THE Africa Growth and Opportunity Act (Agoa), the US law passed in 2000 giving sub-Saharan Africa increased access to the US market, comes under the spotlight this week.

There is no doubt that certain countries SA, Mauritius and Lesotho among them have received tangible benefits from the scrapping of US tariffs on a range of product categories.

But there is concern among African governments about the future of Agoa, which expires in 2008. Some of these issues will be raised at the Agoa Forum, a threeday ministerial meeting that convenes in Mauritius tomorrow.

Trade and Industry Minister Alec Erwin will attend along with many of his counterparts from the region. Washington will be represented by US special trade representative Robert Zoellick, who was in SA yesterday promoting a free-trade pact with SA and the other Southern African Customs Union (Sacu) members.

"Agoa is a beautiful thing, but it has practical problems," says Tshediso Matona, SA's deputy director-general for trade policy. He says there is little point in freer trade if countries attract the investment required to take advantage of the lowered tariffs.

Another concern is what comes after Agoa. Washington is pushing for a free-trade agreement with SA, Botswana, Lesotho, Swaziland and Namibia the Sacu countries to succeed Agoa. This would give American goods duty-free access to these nations.

To date 38 countries have been declared eligible for Agoa benefits, but only 22 had exported something under the programme by mid-2002. Five countries account for 95% of Agoa exports and most of that is oil.

In the 18 months from the start of 2001, shortly after Agoa's passage, Nigerian exports, overwhelmingly oil, accounted for more than 79% of imports under the scheme. Gabon, another oil producer, accounted for over 13%. SA, largely due to car exports, made up less than 6%.

For SA the outstanding Agoa success story has been BMW's exports to the US. According to Ian Robertson, MD of BMW's SA manufacturing operation, about half of the company's local production is exported to the US.

That means about half the 3000 jobs at BMW and the 18000 at its components suppliers are reliant on the US market.

Agoa made it possible for BMW SA to extend to the US the competitive advantage it gains as a result of SA's lower-cost materials, energy, land and buildings.

While Agoa has helped to expand US-African trade, the pace of new business has not been rapid. In the first three quarters of last year, the US imported about 6bn under Agoa, compared with about $5,5bn for the first three quarters of the previous year.

In the first half of last year, more than 80% of Agoa exports to the US were made up of oil-related products. Textiles and apparel made up 10% and transportation equipment 6%. Agricultural exports were a mere 1% of the total imports under Agoa.

The primary benefit to the US economy as a result of Agoa is that oil from eligible countries is landed at lower cost to refiners.

African countries, however, would like to see far greater access for processed agricultural commodities as well as a wide range of manufactured goods. They would also like to see an end to the massive subsidies the US government hands out to American farmers.

Agoa is also an instrument that Washington can use for political leverage. For example, earlier this month US officials told Eritrea and Swaziland that they would lose Agoa benefits unless they met Washington's stipulations related to alleged human rights violations.

In addition to boosting the flow of African crude to US shores and giving Washington more political bargaining power, Agoa's survival has also been ideological, says Stephen Morrison, director of the Africa programme at the Centre for International Studies in Washington.

Free trade remains close to the Bush administration's heart, despite the White House overseeing increased agricultural subsidies and the imposition of surcharges to protect the US steel industry.