TRALAC - Trade Law Centre

AGOA in top gear

Monday, 10 October 2011

Source: Black Business Quarterly (South Africa)

The African Growth and Opportunity Act is an initiative by the United States Congress to open up US markets to eligible sub-Saharan African countries

Export opportunities for African countries have always been few and far between, particularly to first-world countries. But in 2000, the US government signed into law the African Growth and Opportunity Act (AGOA), aimed at liberalising trade and assisting the growth and development of sub-Saharan African countries, through duty-free and quota-free access of a broad range of products into the US. Now 10 years on, how effective has this legislation been in reviving ailing sectors such as the almost decimated manufacturing sector in sub-Saharan Africa, and particularly South Africa?

The consensus is that AGOA – which benefits sectors such as automotives, minerals, iron and steel, metals, chemicals, edible fruits and nuts, and beverages – has been a success in stimulating bilateral trade and investment between the US and South Africa.Recent trade figures from the Department of Trade and Industry (the dti) show that the total trade between the US and South Africa in 2010 increased to R52.4 billion.

Mavis Museisi, a director of International Trade: Americas Bilateral Economic Relations at the dti, says AGOA has been well received by the private sector in South Africa, which has led to the country becoming the largest non-oil exporter to the US under AGOA.In addition, she says, many South African and African companies have attracted investment companies in Europe, Asia, Latin America as well as the US due to AGOA.

Museisi says that although bilateral trade between sub-Saharan Africa and the US has increased over the years, a large proportion of exports still comprised energy-related exports. She believes there is a need to expand product coverage under AGOA, by including other products of export potential to sub-Saharan Africa.“We also believe that the third country fabric provision, which allows countries to source fabric from non-AGOA countries in clothing exports to the US, should be extended with all AGOA beneficiary countries, including South Africa,” she adds.

This provision, set to expire at the end of next year, and its extension – or lack thereof – will be an important indicator of how committed the US Congress may be to extending the full legislation beyond 2015.Museisi says some of the major challenges South African exporters experience, related to issues around stringent sanitary and phytosanitary measures and standards.

Gus Mandigora, executive director of trade policy at Business Unity South Africa (Busa), says that during a recent South Africa–US Business Forum, both the government and business in South Africa expressed their support for AGOA and emphasised its role in reducing poverty, creating local industries and enhancing two-way trade, particularly in South Africa’s poorest province – the Eastern Cape.

The Forum included participants such as the dti, the United Nations Economic Commission for Africa and representatives from South Africa’s automotive, agricultural, clothing, textiles and metals and chemicals sectors.But Mandigora says small, medium and micro enterprises (SMMEs) have benefited less from AGOA than larger, sophisticated, well-resourced organisations.

“Busa feels that the solution here is not to concentrate only on AGOA-related market access, but to institute a range of interventions to increase SMME participation in the economy – Busa has established an SMME task team to deal with issues specific to SMME participation in Busa structures and in the wider economy,” he notes.

Automotive sector in fast lane

Vehicles and vehicle parts and accessories are the top products exported from South Africa to the US under AGOA.Norman Lamprecht, executive manager of the National Association of Automobile Manufacturers of South Africa (Naamsa), says the elimination of tariffs enhances the country’s potential to compete against the same products from other countries not enjoying the same preference. “Thus, the higher the tariff faced by other countries, the higher the competitive boost for South Africa,” he adds.

Duty rates into the US generally range from 2.5% to 25% in respect of various types of vehicles.Says Lamprecht: “This trade arrangement provides the impetus for the automotive sector’s export drive to the US, and is the reason the US is becoming a top destination for South African manufactured light vehicles.”

According to Naamsa, exports to the US as well as to fellow North American Free Trade Area countries Canada and Mexico, increased by 2.7% to R16.50bn in 2010, from the R16.07bn in 2009. Exports increased by a significant 107.5% from 2007 to 2008, mainly due to the 272% increase in exports of the new generation BMW 3 series, as well as the new generation Mercedes Benz C-Class.

But to what extent do SMMEs in the automotive industry share in these profits?“SMMEs are part of the supply chain to the vehicle manufacturers; and if vehicle production increases due to arrangements such as AGOA, then the whole supply chain benefits,” notes Lamprecht.

He says SMMEs benefit by exporting duty- and quota-free into the US.Furthermore, says Lamprecht, Naamsa pays the annual subscriptions on behalf of all component suppliers, including the SMMEs that cannot afford this fee to the Automotive Industry Export Council – which serves as an umbrella body for the industry in respect of assistance with invitations and participation in exhibitions, trade enquiries, industry reports and other service offerings.

In the rest of sub-Saharan Africa, AGOA was a key component of US–Africa trade.According to statistics compiled in a working paper by the Trade Law Centre for Southern Africa, AGOA beneficiaries – including top oil exporter Nigeria – grew their aggregate exports to the US by 277% within eight years of the promulgation of the Act.

Deadline looming

With AGOA expiring on 30 September 2015, the question remains: Will the US Congress feel the need to extend the programme, particularly as the pressure at home to resurrect the country’s ailing economy intensifies on the Barack Obama administration?

Mandigora says there is talk that the US is considering treating large developing countries, such as South Africa, differently from other AGOA recipients. He says that this could involve either removing South Africa from the list of beneficiaries, or making material changes to the country’s

access conditions.“Busa’s response is that AGOA is an important part of bilateral US–SA trade relations; and removing South Africa from the list of beneficiaries, or reducing access, will harm long-term trade and investment flows between the two countries,” he notes.

“Furthermore, AGOA has played an important part in creating and growing industrial capacity in South Africa, particularly the automotive sector’s supply chain in South Africa’s economically challenged Eastern Cape. Again, removing or reducing AGOA preferences will have a detrimental effect on this region in particular.”

Mandigora says Busa would prefer a long-term extension of AGOA, with similar or enhanced access conditions to increase certainty in the market.“This long-term certainty would enable companies to make informed capital-intensive investment plans.”However, trade experts in the US and in South Africa have provided divergent reviews on this.

AGOA Forum 2011

While attending the AGOA Forum 2011 in Lusaka, Zambia in June, US Secretary of State Hillary Rodham Clinton said that even though Africa’s exports to the US have quadrupled in the past decade to $4bn, excluding oil, it still amounts to only 3% of total US imports.US trade representative Ambassador Ron Kirk, leading the US AGOA delegation at the Forum, was positive on AGOA’s trade statistics and optimistic about the programme’s ability to increase trade between the US and African countries in the future.

He cautioned that increased market access to the US would not necessarily equate to increased trade, and that a great deal had to be done in respect to trade capacity.The ambassador announced a new Obama administration initiative to address those issues: The African Competitiveness and Trade Expansion initiative, which will provide $120m over four years, is to build on the success of Africa’s regional trade hubs and help African nations realise AGOA’s full potential.

Standard Bank chief economist Goolam Ballim says the US would continue to “be favourable to Africa” through AGOA, as it would not want to jeopardise its diplomatic relationship with the continent.“The US would not easily yield to pressure to be more conservative in its trade policy with Africa because, through AGOA, the country has built up a long-standing agreement harking back to the (Bill) Clinton era; and the US feels that Africa’s resurgence is integral to enhancing its global appeal,” he adds.

AGOA facts and figures

AGOA is an extension of the US Generalised System of Preference (GSP), which was instituted on 1 January 1976, and which granted South Africa duty-free status to some goods.Since 2001, trade with the US has been significantly increased by AGOA, which was an extension of the GSP and which allows duty-free access of additional products into the US.

The effective commencement date of the duty-free access provisions in terms of AGOA was 1 January 2001 until 30 September 2008, which was subsequently extended until 30 September 2015.The cornerstone of AGOA is the expansion of development and trade with Africa, providing diverse opportunities to grow and integrate the continent into the global economy.

South Africa, together with 36 other African countries, had been designated as eligible countries in terms of the Act.AGOA builds on existing US trade programmes and extends the 4 650 products previously only available under the GSP, by an additional 1 835 items. Some 98% of traded products currently qualify for duty-free access into the US market.

Daniel Bugan

“ Latest AGOA Trade Data currently available on

Click here to view a sector profile of South Africa's bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.

Other regularly updated trade statistics on include: (click each link to view)

  • AGOA-Beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.

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