TRALAC - Trade Law Centre

Cameroon: Cocoa Business Blooms under AGOA

Saturday, 03 July 2004

Source: Allafrica.com

Florizelle Liser has spent twenty years developing and implementing policy at the Office of the United States Trade Representative (USTR). She currently serves as assistant U.S. Trade Representative for Africa, leading U.S. negotiations on the African Growth and Opportunity Act (Agoa) and the proposed Free Trade Agreement with the five-nation Southern African Customs Union (Botswana, Lesotho, Namibia, South Africa and Swaziland). In the 1970s, Liser was a founding member of TransAfrica Forum. She spoke to AllAfrica's Margaret McElligott about Congressional approval last month for the Agoa Acceleration Act, which extends and enhances the legislation that was adopted by Congress and signed into law by President Bill Clinton in 2000. Excerpts below:

When do you anticipate President Bush will sign the AGOA Acceleration Act?

I think that the administration is already on record as supporting what was the House bill, went to Senate, and was passed there. We are expecting that the President should be signing this soon.

What impact do you expect this extension of AGOA will have?

Agoa basically provides to sub-Saharan African countries in Africa, a total of 37 of them, duty-free market access for just about everything they make. Everything from automobiles to apparel to cut roses. The effect of this - giving them that duty-free access to the U.S. market for about 6000 products - has meant that exports of their products to the U.S. increased substantially since Agoa first went into effect.

Just last year, between 2002 and 2003, it grew by 55 percent, and totaled 14.1 billion dollars in 2003. Even the non-oil exports grew by 30 percent in 2003, over the 2002 figure. What it has meant is that they have gotten probably over $300 million in investment. Some people say that we are underestimating the amount, but being modest, we say somewhere over $300 million in new investment, as well as tens of thousands of jobs that have been created. Most of the new investment, and the new jobs, have been created in the textiles and apparel sector, but it's also been true in other areas as well.

As I said, cut flowers would be an example. Kenya was exporting cut flowers to Europe. They still are, but they had been exporting very little of that to the U.S. The duty advantage that they get for Agoa - I think they more than doubled the amount of cut-flowers that they sent here. And if you look at the data for the first part of 2004, they'll probably double that or triple again. So, we're seeing marked results [from] this.

I think the one thing that's really important is that people understand that trade, and the ability of Africa to trade, is so critical to their development efforts and their efforts to alleviate poverty. For a long time, I think people have focused on aid as a way they would be able to do that. But today, it's not that they don't need aid, they certainly still do, but to be able to trade gives them a much better opportunity, not only to send products to the U.S. market, which is an 11 trillion dollar market, but to other markets in the world, and to also be more active participants in the global trading system. So this has really meant a lot for them, and building on that access really allows them to be real players in the global trading system.

Which countries have benefited the most from AGOA? What factors do they have in common?

Some of the top Agoa exporters, when you include petroleum, obviously you're going to get Nigeria and Gabon as some of the major beneficiaries. But there are [other] countries - two that I should probably point to. One would be South Africa, which has expanded their exports to the U.S. tremendously, and not really just apparel, but across a wide range of products, probably over 300 tariff lines of products that they're exporting to the U.S. now: machinery, automobiles, light manufactured products. They've really done well in terms of diversifying and expanding on the exports they've been sending to us.

Then, we get countries like Lesotho, a very tiny country, which prior to Agoa had a small textiles and apparel industry which was managed by Asians there. As soon as Agoa passed in 2000, some of these same people who were there recognized that this was going to be a major opportunity. And this attracted additional investments, and as a result of those investments, Lesotho is now the largest exporter of apparel to the U.S. in sub-Saharan Africa. They exported about $345 million in apparel to us last year.

It's just been incredible. You go the factories there and you see all of these women, mostly, working in places where there was nothing before. But even though it has had tremendous benefits for Lesotho, which I said is the largest exporter, they still rank something like 37th in their exports to the U.S., There are lots and lots of countries which export far more apparel to the United States. We're such a huge market.

What are the benefits to the United States?

The thing that is interesting is that Agoa has actually increased two-way trade. Last year, our exports to Agoa beneficiary countries were up about 15 percent. So they are getting investments to build factories, and manufacture all sorts of products there, [and] we are exporting more of the equipment that is related to that. It can be oil-field equipment. It can be equipment that goes into the apparel sector, but it's also even textiles in some cases are being exported from the U.S. to these countries, put into products they have there, apparel which then comes back to us duty-free. So I would say that it cuts across a number of sectors for the U.S. in terms of our increasing exports to them.

How has AGOA affected trade policies of the African countries?

Many of the African countries have undertaken a number of market reforms in some cases directed by the IMF and World Bank, as a part of their overall development and economic strategy, because it's been recognized that liberalizing your trade regime and putting in measures that make it more investor-friendly, the combinations of those kinds of things will attract investment and will allow you to build your export market and your export sector. Some of these countries don't even have much that they produce for the export market. So again, in terms of reforms that they've been undertaking, there are a number of countries that have actually undertaken quite a few trade reforms lowering their tariffs, largely because they are themselves recognizing how beneficial this is for them. If the result of that has been that we, on this end, have been able to export more of our products to them, then that's good.

Are there any current unused or under-used aspects of Agoa that African countries or American firms could make better use of?

As good as Agoa is doing, we'd like to see it do better. And here's how - we'd like to see more product diversification. Some countries are now only exporting four or five different tariff lines of products. We've got 6000 tariff lines of products that are eligible for duty-free treatment. We'd like to see more product diversification, and one area where I think there is a lot of potential for joint ventures between the United States and the Africans is in agro-business. Under Agoa, if those countries were to send their raw commodities - say pineapples - to the U.S. duty-free, there are other countries under GSP (Generalized System of Preferences) that can also send their raw pineapples duty-free. But under Agoa, what we've done is also made it possible for them to export the processed products such as canned pineapples or pineapple juice to the U.S. duty-free. So light-manufacturing and processing, which is sort of the foundation of building an industrial base in any country, is what we are starting to see happen in some of the countries and what we think has a lot of potential for growth in the future.

How do you determine eligibility for AGOA? Are there labor or environment side agreements that are taken into account?

I think the main thing that people need to know is that when Agoa was first established it was made very clear that there were certain criteria that would be looked at in terms of eligibility, and every year we have an annual review to look at those things. We look at what are their market practices, their economic practices for opening their market, their trade practice. We look at issues of governance. We look at issues related to labor practices, and whether or not they are meeting international labor standards. So we have a whole range of criteria. What we're looking for is continual progress in meeting those criteria. We go through that annual review, and at the end of every year a recommendation is made as to which countries will continue to be eligible for Agoa, and which countries there may be some problems and we need to try to follow up with them and try to see what can be done. Our hope is always that we would not have to withdraw eligibility for Agoa from any country, and since Agoa has come into effect we've been slowly adding some more countries as they have met the range of criteria for Agoa.

Are you considering more countries for eligibility?

37 of the 48 countries in Sub-Saharan Africa are currently eligible. Of the ones that are not eligible, there are a few that have not actually requested eligibility, and that's fine. Every year, for the ones that are not yet eligible, we come back and look at what has happened over the last year, and whether or not they now meet the criteria. Last year we added a country. It went into effect January 1, 2004 - Angola was added.

Are there additional requirements for some of the other benefits of AGOA?

There is an additional process for being eligible for the apparel benefits, which would allow you to use third country fabric. Of the 37 countries that are eligible for Agoa, 24 have their apparel visas. That process is a little different only because we have to make sure that they have in place the kinds of systems that will prevent transshipment. That is something that we have worked very closely with customs and border protection and others. And we actually haven't had very many problems in this area, but it's probably because we've done a good job of making sure the countries have all the systems in place that are necessary to verify that products that they're making, the apparel products that they're making, were indeed made there in Africa.

Briefly, what is transshipment?

Transshipment would be where a country says, 'we made the products here,' but actually what happened is that it came in from some other country - China or wherever - and somebody just sewed a label in that said 'Made in Lesotho', and that ends up in the United States. That's transshipment. It's illegal, and it's not a garment that would be considered 'Made in Africa'. So, in order to make sure that kind of thing doesn't happen you have to have certain kinds of verification systems in place. We've worked very closely with the Africans who have requested those apparel visas under Agoa to make sure that everything is in place. And in some cases they've needed to put laws in place, and regulations in place and so forth. And at the end of the day, 24 of the 37 who are eligible for Agoa now have apparel visas.

Are any countries at risk of being declared ineligible?

Many of the countries that are eligible for Agoa are doing very well, and we don't think that there are any problems. But notwithstanding that, we look at all the countries and what they're doing in all of the areas of eligibility criteria every year, just to make sure. And so you never know what may be discussed or considered a concern from year to year. But I think the general feeling is that for many of them, assuming that they stay on the path that they are on, they should be fine. For a few of them, they may have some issues that they need to look at. For example, a resolution of some commercial dispute that's important to us. We keep our eyes on these kinds of things. And we let them know, we say, 'Hey, you've got to make sure that these things get resolved so that people don't start to think whether you should be eligible.' And we do try to work with them. We have our ambassadors, and our staff in the embassies on the ground often go in and talk to the Africans about whatever may come up.

Have there been any discussions on making countries no longer eligible for AGOA, because they don't need the trade preferences, who 'graduate', one might say?

I've not heard any discussions like that. I think everyone recognizes that Africa has a lot of potential in the trade area that it hasn't yet realized. So as to the idea of graduating countries, no we have not gotten there yet. Maybe one could say that we'd be happy to see Agoa be so successful for them down the road and for us, through the U.S. companies that are supplying the equipment and so forth to them, to make these Agoa-eligible products that one day we would have to worry about graduating them, but I think that even for a GSP, which I know a little bit about, many countries that are quite successful under GSP and quite developed, have not been graduated even from that preference program. So I can't see at this point that we would be focusing on graduation of this particular group of countries. We do hope that they can get to a point where they are more competitive in the global system in producing whatever products they produce, that they get better at everything that they can be competitive in. We'd like to see them do as well as possible.

You talked a bit about using trade rather than aid as an engine of growth. Could you comment on the impact of U.S. agricultural subsidies on the ability of African countries to export agricultural products and do you think that there will be any movement on that any time soon?

First of all, it's really not aid versus trade. It's really aid and trade. And it's aid to trade. When we talk about trade capacity building assistance, we're really talking about giving them the type of assistance that will help them to build their productive capacity and produce the kind of products that can be competitive on the global economy. So we really shouldn't pit those two against each other.

On the issue of various barriers that they might experience on their side - here's the real thing that I tell people to really look at: In the U.S. as well as in other developed countries, many of us have programs that are somewhat like Agoa. I think Agoa has been especially successful, but we have duty-free, quota-free programs that apply to almost everything these countries make. If you look at the utilization of those programs, what you'll find is that many of these countries are actually not fully utilizing them. Some of them are not utilizing these programs at all, whether it's a U.S. program, or EU program. And this is because of supply-side constraints.

In other words, you can open up your market as much as you possibly can, and we think that Agoa does that, but if the countries on the other side are actually not producing very much, or not producing things that are competitive, or they produce things competitively and then they face high transport costs, and their ports are not running effectively, or there's limited transportation and shipping from where they are to here - there are just any number of supply side constraints that are so critical. If you ask most of the experts, what are the key things that need to be focused on to help the Africans and other poor countries be bigger players in the global system, they would tell you - and I've heard this even from the people at the UN Economic Commission for Africa - that you have to focus on what's happening in those countries as well.

This is not to say that they don't face barriers out there, but frankly, what we really need to do is to help them to produce the products so that they can be competitive and get the products out into the market. Those supply-side constraints are in most cases the major factors that are holding them back.

On the supply-side, I understand that the new AGOA Bill includes telecommunications and transport investments. What are those and what impact will they have?

There is a section in the Agoa Acceleration Act that talks about some of the infrastructure issues that need to be focused on to help the Africans to address those supply side constraints I was talking about. And there's a section on facilitation of transportation, helping them to develop their customs systems and giving them technical assistance that's needed there, with freight forwarders, and customs bookers, and so forth. And also increasing the amount of air service that's available to transport goods between Africa and here - that's also limited at this point. And then there's a section on support of infrastructure, to support increasing trade capacities, and also ecotourism.

Everyone knows that these kind of programs are really critical, especially for the least developed countries. This preference in our market is helping them to grow their trade capacity, [which] is really critical for whether or not they will ultimately be able to grow their economies, meet the needs of their people, reduce poverty, and, at the same time, it's a good thing from our end as well.

These countries are important to us. The U.S. exports more to Africa than we do to the former Soviet republics - about 1.5 times as much. We export twice as much to sub-Saharan Africa as we do to Eastern and Central European countries. A lot of people don't know that. These countries are the largest block of countries in the WTO [World Trade Organization], and so therefore play a vital role there, and also stand to benefit from what we're doing there. The point is that Agoa is really one of the foundations of an expanding relationship with Africa that covers a whole range of issues.