Proposed AGOA III legislation - Senate version S.1900

Published date:
Wednesday, 03 March 2004
Author:
Eckart Naumann
Source:

Below is an earlier analysis of S. 1900, the AGOA III legislation which was initially proposed in November 2003

On November 20 and 21, 2003, a new trade Bill relating to US-African trade relations was introduced in the Senate and House of Representatives of the United States of America. It is proposed that this bill, commonly referred to as “AGOA III”, be enacted under the formal title of “United States-Africa Partnership Act of 2003”.

[The African Growth and Opportunity Act (AGOA) was enacted by the United States to grant eligible Sub-Saharan African countries with preferential market access to the US market. This Act currently covers the period from 2000 to 2008, and builds on existing trade preference programs such as the Generalised System of Preferences (GSP).]

In 2002, some amendments were made to the terms of the Act (frequently referred to as AGOA II), although these related mainly to certain clarification regarding the duty-free treatment of apparel. In that context, Namibia and Botswana were re-designated as “lesser-developed beneficiary countries”, a status that provided them with more flexible rules of origin relating to apparel (at least for a limited period of time).

The proposed changes to AGOA contained in the AGOA III Bill currently before the US Congress are significantly more fundamental than those under AGOA II.

One of the principal (proposed) changes is an extension of AGOA’s time-bound preferences by an additional 7 years to 2015. Another critical change is the proposed extension of AGOA’s special rule relating to apparel by a further 4 years to 2008. Other changes relate to agriculture and technical assistance. The Bill also introduces certain issues relating to transportation, infrastructure, investment and what could be described as trade facilitation. Notably, no provision is made for an enhancement to the scope of the current product coverage, which continues to contain many gaps (notably textiles, many agricultural products etc.)

Firstly, an extension of the terms of AGOA to 2015 is largely good news for Africa. The additional 7-year period would introduce an added measure of predictability and credibility to AGOA, and is likely to send out a positive signal to businesses engaged in trade both in Africa and the US alike. But despite this extension, the Bill re-enforces the non-reciprocal nature of the Act by affirming that trade-preferences may be withdrawn if the US on its own determines that an AGOA-eligible country no longer meets the eligibility criteria. AGOA contains no independent dispute settlement facility.

In this respect, whereas ‘AGOA I’ merely states that the US President can make the determination to remove a country’s eligibility status, the AGOA III Bill provides the US President with powers to inform the US Congress about a such a “re-designation”, which in turn must enact a law within 90 days (after notification by the President) prohibiting such a determination. The Bill thus places the emphasis on Congress to prohibit, rather than confirm, any re-designation of eligibility (SEC 301 of the Bill).

Changes to the Provisions Relating to Apparel

The most fundamental change proposed by the Bill is the extension of special apparel preferences to some countries (beyond the original 4-year period) by an additional 4 years to 2008. The special rule relating to apparel grants lesser-developed beneficiary countries (as determined) with flexible rules of origin relating to apparel, whereby they may use yarns and fabrics not produced in an eligible country for the purposes of AGOA-eligible exports. Of the countries making use of this provision, virtually all exports are still produced using the third country fabric rule.

The proposed changes are likely to have a number of consequences:

Firstly, it saves a number of African countries (notably Lesotho, Kenya, Swaziland and so forth) from a potential implosion of its apparel manufacturing sector. This would lead to the loss of much-needed investment and probably many thousands of jobs. In a country like Lesotho, 99.8% of its exports to the United States during 2002 consisted of apparel, all of which was produced using third-country fabrics. For the year to September 2003, the figure for Lesotho is the same, revealing little in the sense of local textile manufacturing capacity. (Click here to view Lesotho’s current trade profile with the US). While there has been some investment in improving domestic textile manufacturing capacity in some of these countries, this is unlikely to be able to counter the impending textile shortfall in a timely and competitive manner.

Secondly, the proposed extension is likely to mitigate somewhat against the possible effects of the WTO’s Agreement on Textiles and Clothing, which sees a phasing-out of textile and apparel quotas globally by January 1, 2005. It is uncertain whether some of the apparel producers in Africa (and elsewhere for that matter) would be able to compete against the low-cost producing and exporting countries of the Far East, were it not for preferential market access and the option to utilise cost-competitive textile inputs.

Thirdly, the proposed extension may impact negatively on the textile manufacturing industries in countries such as Mauritius and South Africa, both of which are bound by far more restrictive rules of origin which effectively translate into a triple-stage transformation requirement. Textile producers in these countries were hoping for increased local and regional demand in the post-September 2004 period, when it was intended that eligible apparel manufacturers would have to source yarns and fabrics from within the region.

Besides the extension of the time-bound preferences relating to apparel, the Bill proposes the scrapping of the Section relating to ‘findings and trimmings’ (as contained within Section 112 "Treatment of certain textiles and apparel"). Currently, AGOA allows the utilisation of findings and trimmings within an article of apparel up to a value of 25 percent of the total. Also, it allows the use of foreign yarns and fibres up to a maximum of 7% of the total weight of the garment. The AGOA III Bill proposes the scrapping of this Section and thus appears to reduce the options for manufacturers. While the conditionalities contained therein currently have little effect on producers in lesser-developed countries anyway, they could impact negatively on producers in countries such as South Africa and Mauritius who do not benefit from flexible rules of origin.

The AGOA III Bill also clarifies issues around the eligibility of certain handmade and traditional fabrics. Whereas AGOA has to date been very vague about defining these, the Bill proposes that ‘handloomed, handmade, folklore articles and ethnic printed fabrics’ be declared eligible for duty-free benefits under AGOA. It imposes a number of conditions, though, especially relating to ‘ethnic printed fabrics’ which were not previously included. All relevant items will need certification in principle by a competent authority, while ethnic printed fabrics are for instance those “normally sold in Africa by the piece as opposed to being tailored into garments before being sold in African markets...”, and “of the type that contains designs, symbols, and other characteristics of African prints” etc. (See SEC. 102(6) of the Bill).

Agriculture

As mentioned previously, the AGOA III Bill proposes a number of further additions and changes to the wording of the existing Act.

It places an additional emphasis on trade in agricultural products, and recognises that AGOA has not lived up to its potential for the agricultural sector. In fact, during 2002 a mere quarter of the US$ 867mn worth of agricultural products exported to the US from AGOA-beneficiary countries were AGOA-eligible, of which half would have qualified under the GSP anyway.

The Bill commits itself to enhance agricultural trade through for instance:

  1. measures to help identify the potential for enhanced competitive agricultural products and exports to the US;
    (b) identification of constraints to US-African agricultural trade;
    (c) identification of potential value-added and processed agricultural products that can be exported to the US under AGOA;
    (d) formation of partnerships with the private and public sectors in Africa for the removal of agriculture-related constraints to trade;
    (e) increased working with farmers and farmer groups; 
    (f) increased access to vital market information, price data, product quality and aggregate demand, quality of inputs and associated costs as well as customs rules and regulations relating to agriculture.

The AGOA III Bill also directs the United States’ Animal and Plant Health Inspection Service (APHIS) to “evaluate methods for training African agricultural producers and for implementing capacity building programs to help the producers meet United States food safety standards” (SEC. 203). In practice, it is proposed that 20 full-time APHIS personnel are designated to at least 10 AGOA-beneficiary countries for technical assistance relating to agriculture.

Transportation and Other Issues

Title IV of the Bill places a renewed emphasis on a number of other issues, not all of which are directly trade-related. Some of these relate to transportation, infrastructure, investment and trade facilitation.

For instance, the Bill proposes the enhancement of transportation systems and infrastructure to “increase exports from, and trade among, eligible sub-Saharan African countries”. In implementing “policies to encourage, and assist with, investment in...infrastructure projects...information and communication technologies... (the)upgrading and liberalisation of the energy and telecommunications sector...” the United States is seeking to increase co-operation between itself and Sub-Saharan African countries.

With respect to trade facilitation, the Bill proposes the “increased coordination between ports and airports in the United States and...(AGOA) countries”, as well as the “interaction between technical staff” of the various countries (SEC 402).

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