TRALAC - Trade Law Centre

Rule to encourage Africa trade set to expire

Wednesday, 13 June 2012

Source: Wall Street Journal (USA)

A clause in a U.S. trade law designed to stimulate trade with Africa is set to expire Sept. 30 and, so far, there appears little prospect that it will be renewed by Congress.

At issue is a provision in the African Growth and Opportunity Act, which was passed with bipartisan support by Congress in 2000 and gives 40 African countries tariff-free access to the U.S. market. Some 90% of exports to the U.S. from Africa since then have been oil.

But a clause called the “third-country fabric rule” has been successful in encouraging the growth of African textile and apparel manufacturing, which is part of the development goal of AGOA, as the law is known.

Before the third-country fabric rule was added to AGOA in 2002, African manufacturers could only export textiles or apparel to the U.S. if the products were wholly or partly made in Africa or the U.S. says, Gregory Simpkins, a senior member of the staff of Rep. Chris Smith (R., N.J.) Mr. Simpkins was involved in drafting the language of the act.

Because African manufacturing was nascent this precluded a lot of trade. “African governments requested that they be allowed to source cloth from China, India and Bangladesh and that’s worked,” he says.

But the provision had a built-in expiration date of Sept. 30, 2012. And, so far, there appears to be little prospect Congress will renew it.

The reason: partisan bickering, says Witney Schneidman, a former deputy assistant secretary of state for African affairs under President Bill Clinton who recently authored a report on AGOA for the Brookings Institution.

Few bills have made it to a vote in Congress this year. Any bill, including an extension of the third-country rule, that comes up for a vote therefore runs the risk of having a range of legislation appended to it that otherwise is unlikely to reach the House floor.

That has, in turn, decreased the chances of the third-country rule coming up for a vote, as the supporters of the bill don’t want the provision used a vehicle for other causes, Mr. Schneidman says.

“The House is afraid the Senate will attach a lot of amendments to it and it will die,” says Mr. Schneidman.

Renewing the provision isn’t a pressing issue for U.S. manufacturers as the African third-party garment provision represents a small part of overall U.S. textile imports. But the rule has generated $800 million in exports and a lot of jobs in Africa where oil extraction generates few employment opportunities for medium and low skilled labor.

Thomas Puthoor, who runs a family-owned textiles business in Mombasa, Kenya, with 2,200 employees, is concerned that the expiration of the provision will hit sales. Last year his company, Kapric Apparels EPZ Ltd., exported close to $21 million of merchandise to the U.S.

“As producers, we don’t have much alternatives. The domestic market in Africa cannot support our kind of factory size. We could end up with factory 1/4th to 1/5th the size, if it’s not shutdown.”

He adds that the third-country rule and other provisions of AGOA “has been a bigger boon to this part of world compared to aid that did not percolate down to the people.”

Already, the prospect of expiration is hurting the industry. Sourcing for global apparel takes place nine months in advance of new trends and seasons. Some U.S. companies have already stopped sourcing from Africa because they are not sure if, by the fall, Africa will still have the tariff differential.

On Thursday the U.S. government is hosting the annual trade conference on AGOA in Washington D.C. where discussion will be held on how to enhance and update the act.

The tussle over textiles comes at a time when the Obama administration stated goal is to create U.S. jobs by increasing exports.

The African Development Bank has described Africa as a continent experiencing rising income levels and the future emergence of a sizeable middle class of a billion people — a possible destination market for U.S. goods.

AGOA , which is set to expire in 2015, was crafted at a time when the U.S. focus was aid and not trade. According to Mr. Schneidman, this needs to change, if U.S. firms are to compete with countries like China which has engaged Africa with an estimated $ 73.4 billion in export trade.

A bipartisan effort called the “Increasing American Jobs through Greater Exports to Africa” has been introduced in the House. It is an attempt to compliment AGOA and boost American exports to Africa.

The Obama administration has taken the jobs bill into consideration, as a lot of the provisions in the bill can be done as a directive from the White House. A possible announcement by the administration, on the jobs bill, is anticipated during the conference in Washington D.C.