TRALAC - Trade Law Centre

AGOA described as a

Monday, 09 August 2010

Source: West Africa Trade Hub (Ghana)

Ten years ago the United States launched the African Growth and Opportunity Act. One of its chief architects, Rosa Whitaker, CEO of the Whitaker Group, also served as the first U.S. Trade Representative for Africa after the U.S. Congress enacted AGOA. As the law passes its first decade, Tradewinds asked Whitaker for her thoughts on how it had affected trade between the U.S. and AGOA-eligible African countries.

Rosa Whitaker was the first U.S. Assistant Trade Representative for Africa.

Tradewinds: It's been 10 years since AGOA came into effect. What's your overall assessment of its impact? In concrete terms, what best demonstrates its success?

Rosa Whitaker: I think it’s been a phenomenal success. Has it been a panacea for everything in Africa? No, it wasn’t designed to do that. But if you look at the return on the investment, it’s been amazing. It costs the American taxpayer very little – about $2 million a year. In under a decade, exports from AGOA-eligible countries grew over 300% from $21.5 billion in 2000 to $86.1 billion in 2008, though exports fell to $46.9 billion in 2009 because of the drop in oil exports during the recession AGOA has created well over 300,000 jobs in Africa, particularly in sectors like apparel that benefit women. Some people would say that that’s primarily oil but there’s no trade initiative that can change the paradigm that oil is the major export from Africa in 10 years. Non-oil exports since 2007 have increased to $28 billion.

TW: You were an architect of AGOA. What’s the story of AGOA, how does it fit in with U.S. policy toward Africa?

Rosa Whitaker: AGOA represents the first ever trade law toward Africa. It expanded our policy from just aid – and aid is important, there’s a role for aid. AGOA made U.S. policy for Africa more comprehensive to include aid, diplomacy and trade. Throughout history the trade component was missing. It’s made U.S. policy for Africa more robust and effective. We had an assistant U.S. Trade Representative for every region of the world except Africa. There was no trade policy toward Africa. AGOA created an Assistant U.S. Trade Representative for Africa, and it was my honor to serve as the first. And AGOA’s birth was at the same time as the WTO birth. That’s when people started asking, “Where will Africa be? How will we ensure that Africa moves toward the mainstream of the world economy?”

TW: The numbers are impressive. What are some concrete examples of AGOA’s impact?

Rosa Whitaker: The success stories are pretty phenomenal. AGOA helped develop an automobile industry in South Africa. In 2000, that industry was exporting about $148 million; it has increased to $1.9 billion in 2008. Car parts exported to the U.S. had an 18-25% tariff. When those tariffs came off for Africa, the assembly part of that manufacturing process moved to South Africa. There are plenty of other examples. Lesotho was exporting $139 million in apparel in 2000; now it’s over $340 million: a 143% increase. Kenya’s cut flower industry expanded from $34 million in 2001 and to exports over $240 million now. Swaziland was exporting $85,000 in jams and jellies in 2000; today it’s $1.6 million. For a small country like Swaziland, that’s important. Then you have Tanzanian coffee and other products. I could go on and on.

TW: And the real impact is bigger, right?

Rosa Whitaker: Certainly. These are not just numbers – these are families, farmers, a woman sending her children to school. AGOA has not solved the poverty problem. It has provided us with a model that works. It only stands to reason that if you have something that works, you should build on it. AGOA has demonstrated that trade and enterprise solutions are among the best vehicles for economic development and poverty alleviation.

TW: Where are the problems for AGOA? And what needs to be done to address them?

Rosa Whitaker: AGOA must be expanded to allow the duty- and quota-free import of all products, including agricultural products like sugar and a full range of processed cocoa products, in addition to products like ethanol that have been added to the U.S. Harmonized Tariff Schedule since AGOA was enacted.

While AGOA has expanded African exports to the U.S., it has failed to deliver the anticipated investment response. AGOA should include tax incentives for U.S. companies investing in labor-intensive development sectors to be able to repatriate profits to the U.S. tax-free. Lack of U.S. investment incentives is a key reason why China and other nations are outpacing U.S. investments and engagement in Africa. We don’t recommend that the U.S. subsidize its companies like China, but America must open its tax code to promote development in Africa and expand opportunities for U.S. business in the region.

To protect against foreign workers being brought in to work in African factories, AGOA should encourage local laws requiring that African factories producing AGOA-eligible products employ a certain percentage of African citizens.

TW: Some have proposed extending AGOA benefits to all lesser-developed countries. What do you think of that idea?

Rosa Whitaker: Cambodia and Bangladesh export more than $6 million – they are growing by leaps and bounds. They don’t need trade incentives. If you give them the same deal, no one will source from Africa. Giving these countries AGOA benefits would devastate Africa. AGOA has been like a priming pump mechanism to build possibilities. Bangladesh and Cambodia have already achieved those steps. Trade preferences should be a way to help the weak reach a threshold. Trade preferences are not about countries, they are about sectors. To give them preferences where they are already strong at the expense of poorer people is just unfair.

TW: As a new decade starts, how would you like to see AGOA modified?

Rosa Whitaker: We have not gotten the investment response that we had hoped to get. We have seen the exports expand but we have not seen a lot of American investors go into Africa to invest. That’s why in our new proposal we have recommended that American companies seeking to invest in Africa be awarded tax incentives. Companies go all over the world looking for tax incentives. If we really want to see the investment response, we know that tax incentives would be a strong catalyst to get a response. And AGOA has to be permanent. If I’m an investor, I’m not going to invest into something that I’m not sure it’s going to be around in five years.

People need to remember, too, that market access is not enough. It’s one part of the puzzle. Critics look at AGOA as a policy instrument to take care of everything. But market access does not take care of everything. You still need to build the productive capacity. The Trade Hubs have done great work, for example. They aren’t funded well enough to do what they need to do. If I say a country like Liberia can export like they can – 98%, 100% can come in duty free. But Liberia does not yet have the capacity to produce the things the American consumer wants to buy.

TW: AGOA alone does not drive economic development, it’s part of a bigger picture. Can you paint it for us?

Rosa Whitaker: AGOA needs to be complemented with strong capacity building. Initiatives are needed on the ground to develop the capacity of the private sector to produce products. No country in the world has developed without incentivizing, empowering the indigenous private sector. That’s the issue. Strong trade capacity building would do that. You’ll never find a country that has grown without it.

This interview appeared in the August 8 edition of the West Africa Trade Hub newsletter.