TRALAC - Trade Law Centre

USTR: Africa Needs AGOA Action Plan

Monday, 15 March 2004

Source: The Whitaker Group (Washington, DC)

By Rosa Whitaker: Four years ago, Washington witnessed a rare moment of consensus. In the heat of an election year, minds met on the importance of drawing sub-Saharan Africa into the mainstream of the global economy.

The result was the African Growth and Opportunity Act (AGOA) in which we said to African nations: if you create conditions conducive to broad-based growth, we will give you special access to our markets to see that your reforms pay off.

Since its enactment in May 2000, AGOA has helped change the lives of millions for the better. Jobs have been created. Reform has picked up pace. Entrepreneurial juices have been stirred. The urgent question now is: are we going to keep to our side of the bargain or are we going to turn our backs when key provisions of the act expire later this year?

If the latter, we risk undermining the effectiveness of everything else we are doing to help Africans build themselves a brighter future. We will limit the potential impact of the billions of dollars we are committing to Africa with initiatives like the new Millennium Challenge Account. And because HIV thrives where there is poverty, we will save fewer lives for every dollar we spend combating AIDS.

Reliance for export earnings on the volatile prices of one or two raw commodities is part of the reason so many African economies are mired in debt and unable to meet their people’s basic needs. To stimulate investment in manufacturing, AGOA guaranteed qualified African countries a duty-free share of the giant US clothing market. More importantly, it allowed the majority of those countries to use low cost fabric sourced from Asia.

The results have been impressive. Africa’s clothing exports to the US grew 46 per cent in the first two years of AGOA, reaching $1.1 billion in 2002, a mark easily topped in just the first nine months of 2003. In both volume and value, Africa’s share of US imports has more than doubled since AGOA’s enactment.

These imports represent a negligible fraction of US consumption and pose no threat to US workers, competing rather with Asian products. But they are of tremendous significance to small economies like Namibia’s, which alone has received around $100 million in direct investment thanks to AGOA’s apparel provisions, according to the US International Trade Commission.

It has not been plain sailing. To prevent countries like China using AGOA to end-run import quotas, US Customs has interpreted the act’s rules of origin very narrowly, creating uncertainty as retailers draw up their global sourcing plans. Moreover, it took much longer than expected for countries to satisfy our bureaucracy that they had systems in place to deter cheating.

Even so, if you look at US imports from the 38 countries that are now members of the AGOA club, clothing is overtaking non-ferrous metals as the most valuable category after petroleum products. This has translated into tens of thousands Africans newly employed, and many times that number lifted from abject poverty.

But for how much longer?

On October 1, the key AGOA benefit lapses. Customs will start assessing prohibitive duties on African garments sewn from non-African fabric. Efforts are being made to ramp up regional textile production, but it is unlikely supplies of the right quality and price will be available in time. Orders are already being cancelled. Others are threatened. The Asian-owned firms who dominate the sector are starting to relocate. The rag trade is mobile.

To make matters worse, the expiration of the WTO agreement on clothing and textiles (ACT) means that, from next year, the US will have to lift quantitative restrictions on imports from China, though duties will remain in effect. Even if duty-free AGOA garments retain some margin of preference, without quotas the effective margin will be sharply reduced. The IMF reckons the value of Africa’s clothing exports may fall by a third.

We must act now to extend the period in which garment manufacturers in the poorest African countries can win American orders using third-country fabric. And we must clear up the ongoing confusion over what constitutes an AGOA eligible garment.

Fortunately, there are two excellent bills now before Congress that would do just that, one introduced by Senator Richard Lugar (R-IN), chairman of the Senate Foreign Relations Committee, the other by Rep. Charles Rangel (D-NY), ranking Democrat on the House Ways and Means Committee. Co-sponsors include Rep. Ed Royce (R-CA), chairman of the House Africa Subcommittee and Rep. Jim McDermott (D-WA), the original author of AGOA.

This legislation will not only save Africa’s nascent textile and apparel sector. It will spur broader investment and help well-managed African economies diversify and capture more value from their abundant mineral, agricultural and other resources. And that is in our own best interest: healthy African economies mean larger markets for American goods and services and are less likely to spawn or incubate threats to our security.

For the legislation to move forward, commitment from the White House and the congressional leadership is urgently needed. If we reached consensus on AGOA in the heat of an election year in 2000, we can surely do so again.

Rosa Whitaker served Presidents Bill Clinton and George W. Bush as the first ever Assistant US Trade Representative for Africa.