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Africa: AGOA not imperiled after all?

Published date:
Monday, 12 August 2013

On July 31, 2013, the US Generalized System of Preferences (GSP) - a program established by the Trade Act of 1974 expired semi-surreptitiously; something that may not augur well for a more comprehensive American trade and investment program for Africa.

Twin bills (download Bill H.R. 2709 alongside) in the House and Senate to extend GSP provisions until September 2015 simply did not come full circle, and anyone keen on an improved African Growth and Opportunity Act (AGOA) – including President Barack Obama – has cause to worry.

Itself expiring in September 2015, AGOA is akin to GSP in that both programs give developing nations access to the U.S. market on a non-reciprocal duty-free basis. Agoa preferences apply to nearly 7,000 items, including 4,975 tariff lines covered by GSP, plus the additional 1,800 reserved only for African beneficiaries.

But then, renewal of trade preference programs in general has always been somewhat controversial. The Congressional Research Service (CRS) says, GSP in particular, is even more dicey since advanced beneficiary developing countries like Brazil and India are competitors to the U.S.; India even leads opposition to the U.S. at the World Trade Organization while refusing to increase trade obligations in tandem with its economic performance. This time around, the Senate’s unanimous consent (UC) on GSP collapsed at the finish line by a smidgen.

Per Washington Trade Daily, Oklahoma Republican Senator Tom Coburn put a hold on the bill because he objected to several of the revenue offsets used to pay for the program. Interpretively, Congressional rules stipulate that customs revenue ‘lost’ from trade preference programs must be offset by either income increases or, according to Sen. Coburn, through cutting federal government largesse. In a widely circulated later, Coburn also warned Agoa proponents not to apply GSP accounting gimmicks, or else, Agoa would suffer the GSP fate.

Before its recent expiry, some had argued that a short-term GSP extension to September 2015 guaranteed that Congress would consider Agoa and GSP together. However, with USTR Michael Froman pushing for Agoa to considered in advance of elapse, a situation where a cost conscious Congress juxtaposes the ‘cost’ of AGOA’s 1,800 non-GSP items vs. GSP’s 5,000 may be avoided. Nonetheless, just like America wonders why India and Brazil continue to benefit from GSP, Congress may query Agoa beneficiaries with an affinity for the EU’s economic partnership agreements (EPAs).

For instance, the U.S. is losing market share in South Africa as a result of the EPA-like EU – South Africa Trade and Development Cooperation Agreement (TDCA) of May 2004. Of course, in South Africa’s defense, the TDCA came into force when many expected the U.S. to gain similar benefits under what were eventually unsuccessful free trade agreement (FTA) negotiations with the Southern African Customs Union (SACU).

Here in Addis Ababa to attend the 2013 AGOA Forum, Stephen Lande, putative father of the GSP, suggests that the silver bullet to both an equitable U.S. – Africa relationship and the EU – U.S. reciprocity quandary rests in formulating an initiative at par with T-TIP and TPP. In collaboration with the Woodrow Wilson Center, Lande, et al came up with the Trans-Atlantic South Partnership (TASP), as an idea for an equitable partnership between the U.S. and Africa; aptly named to reflect Africa’s strategic importance in the South Atlantic.

A key TASP recommendation is for the U.S. to prevail upon the EU, under the auspices of the on-going T-TIP negotiations, to postpone EPAs and any reciprocity for a conditional 10-year period. This hiatus would ensure that Africa become integrated enough to negotiate as one economic entity. Other TASP provisions around regional integration and productive investment in Africa already have momentum: The African Ambassadors Agoa Working Group endorse the expansion of Agoa product coverage, flexibility on rules of origin, promotion of U.S. investment and links to regional integration.

To this, Ambassador Erastus Mwencha, Deputy Chairperson at the Africa Union alludes to a continental free trade agreement (CFTA) alongside promoting non-extractive investments and expanded product eligibility in an ideal AGOA. Then, a July 2013 empirical study of post 2015 Agoa scenarios by the Brookings Institution and Economic Commission for Africa (UNECA) especially supports Mwencha’s call for a CFTA with statistics that show tangible benefits if Africa does business as one economic entity.

Silver bullet or otherwise, TASP ostensibly seeks to ensure that EPAs are off the table so that the U.S. Congress can have fewer qualms about unanimously authorizing Agoa preferences. As for GSP, proponents believe that in spite of current costs incurred by American businesses, ‘gimmicks’ will soon be resolved enough to receive Congressional approval. Whatever the case, with the current optimistic buzz around the Addis Forum, Agoa seems to be on a better trajectory than GSP. Solving GSP issues works in AGOA’s favor where Senator Coburn is concerned, and with Michael Froman here to listen to the Africans, perhaps an enhanced Agoa will contain something more significant for American investors, for African entrepreneurs and for those, like the Washington Ambassadors, Mwencha and Lande who long for an integrated Africa optimally inserted into global distribution networks and supply chains.

Ms. Demissie and Mr. Matanda are trade and investment policy analysts at Manchester Trade.

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