TRALAC - Trade Law Centre

Asst. USTR Touts AGOA, Diversification of Production

Monday, 26 January 2004

Source: Allafrica .com

America's effort to promote economic development in Africa will be eroded significantly if the Bush administration and the U.S. Congress do not work together to quickly extend a key provision of African Growth and Opportunity Act (Agoa).

In the view of Uganda's president, Yoweri Museveni, Agoa is the best thing to happen to Africa since the onset of independence. Many in Africa and the United States agree.

When signed into law in 2000 by President Clinton, Agoa was unique in concept. The goal was to stimulate job creation and help integrate Africa into the global economy by allowing nearly 1,800 new products to enter the United States largely duty free and quota free. Thirty-seven countries in Sub-Saharan Africa are eligible for Agoa benefits. The benefits are conditioned on countries making progress on democratization, economic reform and not presenting threats to American security.

The results have been remarkable among those countries taking advantage of greater access to the American market. Most striking is the growth in apparel exports to the United States. Swaziland has seen its clothing exports grow by more than 300 percent, while Kenya's exports have increased by nearly 200 percent. Uganda's garment exports to the United States have swelled nearly 30 times between 2002 and 2003 as it learns how to take advantage of the trade preferences.

In all, apparel exports from Africa to the United States have grown exponentially to nearly $1 billion since the bill's enactment. This is a vital trend given the importance that the growth of light manufacturing, especially in textiles and apparel, played in the economic development of many countries in Asia.

In Africa, Agoa has led to a surge in employment. At least 400,000 new jobs have been created in those eight to ten countries benefiting the most from Agoa. In Lesotho alone, more people are now working in the private sector than the public sector due to the increased volume of that country's apparel exports to the United States. Foreign investors, largely from Asia, have also seized upon these incentives to build or modernize factories.

What makes Agoa work is the provision that allows those countries with a per capita gross domestic product of $1,500 or less to use fabric from "third countries," such as India or China, to manufacture apparel. Eighty-five percent of the apparel that enters the United States from Africa under Agoa contains third-country origin fabric.

This provision is set to expire on September 30, 2004. Most countries that are Agoa-eligible do not yet have the infrastructure to produce fabric and, as a result, rely on third country-origin material to produce garments competitively for the U.S. market. Given the looming deadline of this provision, buyers from Wal-Mart, the Gap, Land's End and Old Navy have already begun to place millions of dollars worth of orders elsewhere.

Late last year, Senator Richard Lugar (R-IN) and Representative Jim McDermott (D-WA) introduced new Agoa legislation that includes an extension of the provision on third country origin fabric until 2008. The administration needs to play a leadership role with Congress to ensure that this aspect of the Agoa legislation is enacted as a priority when Congress returns to work.

Agoa faces many challenges notwithstanding President Bush's commitment to extend the life of the trade legislation. There are those in Congress and the Administration who remain angry over the defiant stand taken by several African countries against trade subsidies at the recent global trade talks in Cancun. Africa's share of the American apparel market will face pressure at the end of this year when the World Trade Organization eliminates all quotas on clothing and textiles. More African countries need to utilize Agoa's benefits in a broader array of sectors.

However, if the provision on third country origin fabric is not extended quickly, it will eviscerate Agoa and undermine America's successful effort to use trade as a stimulus for economic development in Africa. Many Africans will also lose newly created jobs, creating a familiar despair in an area where hope has begun to emerge.

[Witney Schneidman, who was deputy assistant secretary of State for African Affairs during the Clinton Administration, is president of Schneidman and Associates in Washington, DC. Erastus Mwencha is secretary general of the Common Market for Eastern and Southern Africa (COMESA), a regional grouping of 21 nations headquartered in Lusaka, Zambia.] (www.comesa.int)