TRALAC - Trade Law Centre

Comment: The 8th AGOA Forum in Kenya

Wednesday, 12 August 2009


Kenya last week hosted the 8th USA-Africa AGOA Forum, an annual event mandated by the AGOA legislation. The Forum took place over three days from 4-6 August, with the first day dedicated to private sector and civil society sessions, and the next two to the Ministerial. This was open to all registered delegates.

The US' high-powered delegation to this year's event was spearheaded by Hillary Clinton who began her 11-day Africa trip in Kenya. Others included at least three congressmen, including Jim McDermott, one of the original architects of the AGOA legislation. Others were United States Trade Representative Ron Kirk, who serves as US President Obama's principal trade advisor and chief negotiator, and who has been in office since March this year; Tom Vilsack who is the United States Secretary of Agriculture, congressional staff, and ambassadors. Also present were senior private sector and civil society representatives.

Africa was likewise represented by senior trade representatives (in most cases, trade ministers) from all AGOA beneficiary States, the private sector and civil society. As hosts, Kenya was led by President Mwai Kibaki, Prime Minister Raila Odinga and Vice President Kalonzo Musyoka, as well as Minister of Trade Amos Kimunya. Altogether well over 1,000 participants ensured lively deliberations during the three days.

This year's AGOA Forum - themed "Realising the full potential of AGOA through trade and investment" - took place against a backdrop of a global recession, which has not spared African countries. The economic crisis in the United States has resulted in lower demand for imports, and far greater price sensitivity. This is also reflected in the latest trade data to May 2009: aggregate exports from AGOA beneficiary countries to the US are down 59% year-on-year on a dollar-basis, from $ 48bn to $ 18bn. Much of this decrease is due to lower oil prices: energy-related products form the bulk of export value under the Act, currently almost 80% (2008: 84%). In percentage value terms, oil exports for the year are 62% lower than over the same period last year.

But oil exports are not the only reason for the substantial decline in AGOA exports this year. Non-oil exports are 43% lower over the same period, and are worth just under $ 4bn for Jan-May. Exports of products that could be considered the real beneficiaries of the AGOA legislation, namely those tariff lines not previously eligible under the GSP, suffered 'only' a 23% decline. At present, these new categories account for exactly one third of non-oil exports to the US from AGOA beneficiaries. Were it not for preferential market access under AGOA, this trade might never have materialised.

The AGOA Forum featured an extraordinarily full programme, which highlights one of the other benefits of the AGOA legislation. This is not just about trade in a relative vacuum, but represents a means of connecting African and US policymakers, businesspeople, civil society and a host of other stakeholders. These benefits are not easily measurable in hard numbers, and it is likely that the political and social dimension actually has larger implications for US-Africa relations that the trade dimension has. From an organisational perspective, by and large, this Forum was a major notch up from those that have preceded it.

Kenya's choice as host was interesting: in terms of its trade profile with the US, Kenya is a net importer of US goods, while its US-bound exports have been relatively stable at around $ 350mn over the past few years. Articles of clothing form the bulk of its exports, with lesser amounts of agricultural products. Kenya's imports from the US consists mainly of transportation equipment, agricultural products and machinery.

Kenya was also the location of the deadly bomb attack on the US embassy there just over a decade ago, and more recently, the scene of post-election violence which media reports say left more than 1,000 people dead. A fragile power-sharing agreement following the disputed outcome of these elections, and the recently formed Truth, Justice and Reconciliation Commission (TJRC) - it is hoped - will bring justice to those that instigated and perpetrated post-election violence. It remains to be seen how this Commission will pass the court of Kenyan public opinion, and serious concerns remain as to its ultimate effectiveness in dealing with impunity and achieving real reconciliation. Other lingering concerns relate to issues of governance and corruption.

These dynamics represented US officials with both an opportunity and challenge, especially given the AGOA legislation's strong emphasis on democracy, governance, the rule of law and so forth. In some ways, there was a sense of underlying frustration both on the part of the US and Kenya, and probably Africa at large. During the Forum's official opening, Kenya's Prime Minister Odinga reacted sharply to US ambassador (to Kenya) Michael Raneberger's mention of the ongoing need for greater transparency, effective anti-corruption efforts and stronger democratic institutions as key building blocks for increased trade (according to media reports, a US official described the reaction as a little bit of "public posturing"). A day later, however, Odinga implicitly acknowledged earlier US criticism, following US Secretary of State Hillary Clinton's account of how the election of President Obama provides ample proof of her country's respect for democratic processes (one will remember of course the controversies around President Bush's initial election not too long ago) . Turning to President Kibaki, he said that his country still had much to learn about respecting the outcome of elections.

At the business end of the Forum, topics included financial sector reform, agricultural policy and regulatory standards, intellectual property rights, the promotion of regional trade, SMEs, transportation, speciality foods and capacity building. The issue of clothing preferences under AGOA remained a hot topic throughout, as was to be expected. This sector is one of the few real beneficiaries under AGOA, and is most widely impacted throughout AGOA beneficiary countries. As a result of the current US tariff regime on imports (and hence substantial preference margin for compliant exporters), as well as the fact that this sector relatively widely spread out throughout Africa. Given its relative labour intensity, it also probably provides the most "bang for each buck", resulting in outcomes that US and African policymakers, at least, are always happy to acknowledge. A walk through the massive manufacturing halls of AGOA clothing exporters brings a human element to this issue, and firmly drives home the message that for this sector, market preferences are an essential component of export success.

It is not only the waiver on duties that attracts US buyers to African exporters under AGOA, but also the fact that much larger exporters in Asia - often the suppliers of choice - do not benefit from this form of preferences (duty and quota-free market access with favourable Rules of Origin). But unlike previous Forums - for example Washington in 2006 - where much energy was spent on lobbying for an extension of the so-called third-country fabric provisions, the fear today relates less to AGOA's expiry (2012 for clothing and 2015 for the rest) than a possible alignment of US trade policy with respect to textiles and clothing.

The red herring here is Bangladesh and Cambodia. Bangladesh, for example, last year exported $ 3.4bn worth of clothing to the US, while Cambodia exported $ 2.4bn. In contrast, aggregate clothing exports from AGOA countries combined were valued at just under $ 1.2bn over the same period. In other words, Sub-Saharan Africa's clothing exports to the US are worth only about one fifth of those shipped to the US from these two countries, which is reflective of the immense scale of production that takes place in those countries. Extending similar US trade preferences to Cambodia and Bangladesh, African countries fear, could spell gloom for the latter's survival in the American market and severely undermine the benefits received under AGOA.

US officials seemed coy on the subject, at least on specifics. Congressman Jim McDermott went as far to acknowledge that these were valid concerns, and that a Trade Bill that he is to introduce to Congress in mid September will recognise these issues. How any further generosity towards other low-income countries will not undermine Africa's ability to export clothing to the US remains to be seen. It is perhaps worth noting that in July 2009, Congressman McDermott also introduced a Bill (H.R. 3039) granting the Philippines duty-free access for its apparel exports, albeit with stricter Rules of Origin than those that are currently in place for most of Africa (which permit the use of third country fabrics). The Philippines are unlikely to be hamstrung by the same supply constraints that Africa is when it comes to yarns and fabric, so this should not be an issue. In 2008, the Philippines exported more garments to the US than all AGOA beneficiaries combined.

Another issue which created some rather uncomfortable moments at the Forum was the question of Madagascar. The AGOA legislation mandates the US President to amend or withdraw benefits from any country that no longer fulfils the eligibility criteria, including meeting acceptable standards on democracy, respect for the rule of law and so on. Unfortunately, these criteria are spelt out as principles and measurability or any form of benchmarking is near impossible. Some countries - like Eritrea, Mauritania and Cote d'Ivoire - have previously lost eligibility, while others with arguably no better record on the required issues (but, perhaps, with more resources to offer the US), remain on the list. In the case of Madagascar, where a coup last year instilled a new leadership, progress is being made in putting the country back on a path to democracy, although the country's AGOA status remains vulnerable at best. The problem is this: US buyers require sufficient certainty that AGOA benefits will not be withdrawn come January 2010. Given long lead times and planning requirements, clarity on Madagascar's AGOA status must emerge now or orders will be lost, placing at risk a sizable portion of the 400,000 strong workforce in the local textile sector. The prospects of Madagascar were not helped at the Forum when USTR Ron Kirk, in dealing with this issue, remarked that in order to regain AGOA benefits, Madagascar must first demonstrate clear progress towards reinstating democracy in that country. It seems almost that Madagascar's fate - although at this stage still a full AGOA beneficiary - has already been determined.

An overriding issue reinforced at the Forum is that AGOA is about more than simply preferential market access, and that on the issue of trade, it was up to African countries to reduce the many impediments that still constrain African exports and competitiveness. Africa represents a market that is far larger than the US market, buying-power aside, yet intra-regional trade barriers including infrastructural, logistical, administrative and customs constraints continue to undermine countries' ability to achieve economies of scale, diversify exports, and grow market share. Of course, more integrated markets would make Africa far more attractive to US exporters and investors as well. AGOA is clearly not just about African exports, but as much about opportunities for US commercial and political interests.

Eckart Naumann