TRALAC - Trade Law Centre

SA: Agoa Expiry Will Hang Local Textiles Out To Dry

Tuesday, 02 March 2004

Source: The Nation (Nairobi)

The future of a US law on which Kenya has hitched a lift to spawn a $164 million industry and create 30,000-plus jobs might lie in California.

KenyaSources have told BusinessWeek that when the two draft Agoa (African Growth and Opportunity Act) Bills, which have been tabled before Congress are eventually harmonised into one, a Republican from the western seaboard state, Bill Thomas, who chairs the House's powerful Ways and Means Committee, is expected to play a central role in any emerging dispensation.

In fact, keen watchers of the progress of the Agoa debate so far, are betting their last dollar that Mr Thomas, a key player in the legislative arm of the US government, is likely to craft a middle-of-the-ground Bill that generally mimics the key elements of the two drafts already in Congress.

There are two Agoa III Bills in Congress right now which were presented in November last year, and whose "marriage" is likely to be enacted by July.

One - which has been referred to the Committee stage - was presented by Washington Congressman Jim McDermott, while the other one has been authored by Indiana's Republican Senator Richard Lugar, chairman of Senate Foreign Relations Committee.

While the two Bills do not differ markedly in terms of intent, spirit and wording, they part ways only on the important issue of datelines for some of the key provisions of Agoa.

For instance, the former proposes a 2020 deadline for the extension of the Agoa benefits to African states, against a previous date of 2008 as envisaged for Agoa II. The Senate Bill, on other hand, fixes this at 2015.

On the contentious issue of the so-called "third country fabric provision" - whose key plank is to allow countries like Kenya to buy their textile raw materials e.g. yarn and fabric from without their borders and whose expiry is only six months away in September 2003 - there is also a marked departure.

The Senate Bill is pushing for an extension of this provision for another four years. The House variant is more flexible, proposing a four-year extension, with the possibility of another two year grace period.

The way the US Legislature works, little opposition is expected for a hybrid Bill, given the fact that the two chambers are currently controlled by the ruling Republicans and the bipartisan support Agoa has summoned in the past, despite its deep Clintonian roots.

Trade minister Mukhisa Kituyi has said in the past that Kenya would be comfortable with a four-year extension of the third country textile provision beyond September to 2008 and a 2015 deadline for the Agoa provisions in their entirety.

During a recent interview with BusinessWeek, US Assistant Trade Representative for Africa Florizelle Liser, said that a compromise position is likely to be reached between the two Bills on the two contentious timelines.

"The final Bill, which is expected to be ready by the Summer will depend on how the debate fashions up in Washington.

Early indications that the overall deadline may be fixed at 2015, while beneficiary states may be allowed to import raw materials for another three years. But it is still early days," she said.

The 'third country' special provision is especially crucial to Kenya whose cotton-growing industry collapsed in the 1980s following the death of the country's indigenous textile industry - evidenced by the death of such factories as Kisumu's Kicomi, Thika's KTM, Nanyuki's Mountex and Eldoret's Rivatex and Raymond mills.

Even if Kenya was to have its way in the US Congress, it is doubtful whether it would, in just four years, develop a cotton growing infrastructure efficient enough to attract the 38 apparel factories that currently operate in Kenya's Export Processing Zones (EPZs).

It is likely that the factories would still be keen on buying from the cheapest sources, and Kenya is not likely to be one of them even in four years.

It is estimated that about 85 per cent of the apparel exports into the US under Agoa by the 37 eligible African states are dependant on third countries for raw materials.

In Kenya, most of the yarn and fabric is from India, Korea, Taiwan, China and interestingly, even the US, albeit on a small scale.

But even as Kenya and others push for their case, those with vertically-integrated textile industries like Mauritius and South Africa are not showing the same level of enthusiasm for this clause and would rather it was struck off.

According to Ms Liser, Kenya and other African states must create the right environment to encourage investment in cotton-growing.

She is not for a long-drawn extension of the third country window.

"In arriving at the right deadline for this provision, we must balance current needs of Africa with the imperative for providing incentives to investors in cotton-production. No farmer is going to grow cotton unless there is a market for it," she said.

Agoa, which built on the Generalised System of Preference (GSP) template to give Africa special duty-free access to the US market for some 6,500 product categories has been a boon for Africa.

In Kenya, Agoa-privileged exports to the US have grown trebled from $45 million in 2001 to $150 million last year. During the same year, Kenya overtook Mauritius to become the third major exporter of apparel to the US market.

Kenya has also had some success, in diversifying and adding categories like cut flowers into the Agoa basket starting last year.

Even then, there has always been an eerie feeling regarding the longevity and sustainability of the transient Agoa benefits.

The fact that most of the factories are sired by foreign capital, largely get their raw materials from outside and spawn relatively poor quality jobs, mean that little local wealth has been created.



“AGOA Latest AGOA Trade Data on AGOA.info

Click here to view a sector profile of Kenya’s bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.



Other regularly updated trade statistics on AGOA.info include:

  • AGOA-beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.