TRALAC - Trade Law Centre

Letters from Washington: AGOA Forum Private Sector Session

Monday, 05 June 2006

Source: AGOA.info

The 2006 AGOA Forum commenced Monday 05 June in Washington D.C. with a gathering of private sector stakeholders and government officials from both sides of the Atlantic. The AGOA Forum comprises three events: the Ministerial, comprising meetings between African trade ministers (with most AGOA beneficiaries represented) and their US counterparts, a parallel Private Sector Forum (providing an interface between government officials and the private sector), and the Civil Society Forum which brought together stakeholders from a wide variety of NGOs, governments, international institutions, lobby groups, faith-based organisations and the research community.

Held at the same venue or in close proximity to each other, the forums and Ministerial have provided a unique opportunity for active engagement between the large numbers of stakeholders in attendance. In fact, never before has an opportunity of this kind presented itself, and credit is due to the organisers for bringing such a large number of stakeholders together (among them the Corporate Council for Africa CCA, and Bread for the World).

Monday’s Private Sector Forum began with a welcome and introduction by Stephen Hayes, President of the CCA, and was followed by remarks by Bobby Pitman, Principal Assistant Secretary of State for African Affairs. Next, Ambassador Karan Bhatia, Deputy USTR, highlighted the critical role played by the private sector (both in the US and in Africa) in facilitating trade between Africa and North America. He highlighted that in order to benefit from AGOA, not only do African countries need to have sound macroeconomic policies in place (with encouraging signs that this is increasingly the case), but there is also a great need to build trade law capacity both in governments and in private sector companies.

Ambassador Bhatia cautioned, however, that AGOA has thus far been only partly successful, despite increasing trade not only from Africa to the US, but also vice versa. He expressed the sentiment that in the context of the DOHA round, and multilateral trade liberalisation, the preferences under AGOA were steadily declining. There was a need to tie in preferences through a strengthening of bilateral relationships between the US and African States, whether through Free Trade Agreements (FTAs), Bilateral Investment Treaties (BITs) or so-called Trade and Investment Framework Agreements (TIFAs). He acknowledged, however, that most African countries were far from ready to conclude a formal FTA with the US, but called on the conclusion of much broader TIFAs unrestricted by a rigid implementation schedule.

Three parallel workshops were held covering issues that are of critical importance with respect to the ongoing success of AGOA. These dealt with African textiles and apparel in the context of the expiry of the Multifibre Agreement and impending expiry of AGOA’s third country fabric provisions, growing agricultural trade under AGOA, and case studies of AGOA success stories.

The first workshop featured panellists mainly from the private sector, and included the Africa Coalition for Trade, the African Cotton and Textile Industries Federation (ACTIF), apparel manufacturers (Champro and Southern Textile Exchange), the US Association of Importers of Textiles and Apparel, Manchester Trade (a consulting firm specializing in international trade and investment issues) as well as Assistant USTR for Africa Florizelle Liser.

One of the outcomes of this workshop was the critical need for the third country fabric provision, which allows lesser developed AGOA beneficiaries to source fabric from anywhere in the world, to be extended beyond 2007. A presentation of garment manufacturing costs under various scenarios revealed that only with AGOA’s apparel provision can Africa compete in the American market. In the absence of this, garment producers would have to outsource production to lower cost locations in Asia. From the perspective of US buyers, it emerged that there were six key variables that were critical in influencing US sourcing decisions. These were speed to market (a potential challenge in Africa), quality of output, value and cost effectiveness, compliance (with the legal framework, including proof of origin and other customs issues), vertical integration (can be virtual, i.e. efficient sourcing networks between apparel and fabric manufacturers) and a predictable trading environment (the latter referring specifically to interpretation precedents by US customs, AGOA legislation, duration of AGOA preferences, the rules of origin framework etc.)

From the perspective of US apparel manufacturers outsourcing production to Africa or elsewhere, in the presence of potential AGOA benefits, a number of issues were of prime importance. These were material availability (generally limited in Sub-Saharan Africa, unlimited in Asia), labour costs, efficiency and reliability (lowest in SSA, low in Asia), shipping times (up to 75 days in SSA, 20 days from Asia) and duty rates (free from SSA, 15-40% from Asia).

For the post-2007 period, and unless the third-country provision available to most African countries is extended, manufacturers and investors were left with four options regarding their sourcing strategy from abroad. These were the (a) continued use of third country fabrics, which would now attract up to 40% in US import duties, (b) the use of US made fabric and yarns (costing up to twice as much as when sourced from Asia), (c) using fabric produced in Africa (often not available or expensive) or (d) moving manufacturing to Asia, where material costs were low and lead times relatively short. For many, especially those using man-made materials such as polyester, the last option may be the only viable one. On a sobering note, the representative of the US retail sector cautioned that sourcing decisions were made many months in advance, and that unless an extension to the third country fabric provision was made this year still, US buyers would be looking elsewhere for their apparel requirements.

Following a lunchtime address by Mandisi Mpahlwa, South Africa’s Minister of Trade and Industry, in which he highlighted many of the challenges facing African countries seeking enhanced market access into the US market, two further plenary sessions were held on infrastructure development and financing of investment and trade. In the former, Erastus Mwencha, the Secretary General of COMESA, highlighted the need for sustainable infrastructure development as a key requirement for the integration of Africa’s economies into the world trade. Without sound infrastructure in place, the cost of doing business with Africa – especially the cost of getting African products from their source of production to their final export market – will continue to be undermine the continent’s global competitiveness.

The last plenary on financing trade and investment featured representatives from the Overseas Private Investment Corporation (OPIC), the Export-Import Bank (EXIM) and various investment firms.

By Eckart Naumann