TRALAC - Trade Law Centre

Tobacco, cashew nuts Tanzania's potential AGOA export bailout

Thursday, 22 August 2013

Source: Tanzania Daily News

Many African countries, including Tanzania, are likely to miss the opportunity of enhancing their trade relations with the US through the African Growth and Opportunity Act (AGOA), which is coming to an end in 2015.

Therefore, urgent measures are crucial by African governments to engage the US government to put in place provisions and conditions that allow countries like Tanzania to diversify their exports besides their usual oil and textile industries.

So far, the AGOA list excludes some of the key export products with great market potential in the US, including tobacco, processed cashew nuts, tea, honey and leather.

On the other hand, the US government should listen to requests of diversifying AGOA exports by eligible countries that have so far failed to exploit fully the AGOA potential. For example, tobacco, the country's leading crop in terms of foreign exchange among other traditional cash crops, as mentioned above, is not included in the AGOA enhancement plan.

If included, together with cashew nut, is likely to bail out Tanzania in efforts to enhance exports to the US and enable the country to earn millions of US dollars adding to the current portfolio. According to the US Department of Trade report, the highest AGOA sales for Tanzania were in 2011 covering mostly apparels, estimated at about $5.7 million worth of goods exported to the US making it the fifth among Sub-Saharan surveyed countries benefiting from AGOA.

Industry experts hint that this volume is equivalent to a sizable tobacco cargo in export terms, hence a lost opportunity for the country. By these figures, Tanzania was behind Lesotho's exports valued at $314.3 million, Kenya's 292.6 million and Mauritius's 77.19 million.

Tailing behind Tanzania were Uganda's exports $2.541 million and Rwanda's $0.597 million. AGOA's purpose is to assist the economies of sub-Saharan Africa to improve economic relations between the US and the sub-Saharan region. Industry watchers have it that, efforts by African governments, Tanzania's in particular, is key in making sure the US government includes these other items, especially tobacco and cashew nut to be part of AGOA's enhancement plan in support of the World Trade Organisation in terms of the least developed countries (LDCs).

The experts assert further that, because AGOA includes export of raw materials, with value addition in agro processing, then tobacco which is an established value chain and the leading traditional cash crop in export terms for the last five years could be the right choice, alongside cashew nuts, as compared to other items on the list.

The tobacco sub sector for instance, employs more than 95,000 farmers and provides employment to other incidental activities. In her recent address when opening of Second AGOA Forum in Addis Ababa, Ethiopia, last week, AU Commissioner for Trade and Industry, Mrs Fatima Haram Acyl, said with only two years towards the review, most eligible countries have not benefited from it.

She said even the few countries that had benefitted, including Tanzania, did so by exporting only raw materials with no value addition or only one product, hence failing to achieve one of its objectives which is export diversification. Therefore, she asked African countries to ensure they increase their trade and investment with the US under AGOA specifically by diversifying their exports as well as facilitating Africa's integration into the global economy.

According to her statement, since the AGOA legislation came into being in 2000, exports under AGOA have increased more than 500 per cent, from $8.15 billion in 2001 to $53.8 billion in 2011. "However, about 90 per cent of the exports were oil products, hence the need to diversify its exports to the US and also to negotiate better terms for non-oil products with the US," she said.

Due to the fact that many countries were initially planned to benefit from AGOA, the trade commissioner called for AGOA extension for a longer time beyond 2015 in a predictable manner and a range of products eligible for AGOA imports expanded.

Speaking on the same occasion, US Trade Representative Michael Froman said President Obama, while visiting Tanzania announced the launch of Trade Africa, a new partnership between the US and Africa that seeks to increase internal and regional trade within Africa and expand trade and economic ties between Africa, the US and other global markets.

"When President Obama returned to the continent in June, he underscored the centrality of trade and investment as the drivers of strengthened ties between us and is contained in his Presidential Policy Directive (PPD), which calls for increased trade and investment to form a key pillar of strengthened partnerships between the US and Africa," he noted.

It is the PPD which reflects a conviction that to achieve sustainable development in Africa and around the world, there is need for more trade, not just aid; investment, not just assistance, stressed Froman. He explained that AGOA predicted Africa would have enormous economic potential and it would be in the US interest to help African countries use trade as an engine for economic growth.

Opponents of tobacco argue that exports to the US revolves around World Health Organisation's Framework Convention on Tobacco control (FCTC) and that will contravene quotas allocation to North American Free Trade Agreement (NAFTA). While critics argue that the inclusion of tobacco from Africa, contravenes the spirit of NAFTA, this line of thought does not have factual support. However, there is a marked difference between AGOA quota allocation and AGOA quota utilisation.

The referred unused quota of 66,000 million tonnes for the last 10 years includes tobacco from NAFTA members. Records show unused portion for the last 10 years of the allocated tobacco portion of 150,000 million tonnes is in the region of 66,000 million tonnes globally.

Again, the US is not a signatory to the WHO's FCTC. Thus, health arguments do not apply in this particular case for none inclusion of tobacco, an agricultural product, the corner stone of AGOA. Tanzania is the second largest Flue Virginia Cured (FVC) tobacco producer in Africa after Zimbabwe with production of the crop in the 2013/14 season estimated at above 100,000 million tonnes.

Thus, tobacco farming has experienced tremendous growth in recent years due to improved crop compliance and traceability, effective production management, greater crop compliance, organisation of smallholder farmer units into primary societies and the increased production potential.

In Africa, tobacco production in the nine major exporting countries as a group (Zimbabwe, Malawi, Tanzania, Zambia, Uganda, Mozambique, South Africa, Kenya and Democratic Republic of Congo) is forecast to increase by about 77 million kilograms (23.9 per cent) in the 2013 season. Most of this increase is expected to come from filler origin Tanzania and flavour origin Zimbabwe.

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