- African Growth and Opportunity Act
TRALAC - Trade Law Centre
You are here: Home/News/Article/Next steps for trade with Africa - opinion piece

Next steps for trade with Africa - opinion piece

Next steps for trade with Africa - opinion piece
Sunset or dawn?

AGOA exports to the United States (AGOA/GSP combined) YTD to SEPTEMBER 2013

AGOA beneficiaries, Unit: $ million, Customs Value

Published date:
Wednesday, 27 November 2013
Stephen Hayes

When the Africa Growth and Opportunity Act (AGOA) was passed in 2000, there was well-deserved excitement and euphoria over the first act ever passed specifically for Africa by the American Congress. It was more than a trade act, but also a political incentive tool. African countries could qualify for AGOA if they met certain political measurements, including a positive human rights record, movement towards democracy and a number of other general criteria. More than 35 countries now qualify as AGOA-certified countries.

Since the passage of AGOA, there have been two legislative improvements to the act, but the expiration date has stayed the same. The original legislation stated that the act would expire in 2015. Many assumed that Africa would be able to use the provisions of the act to improve its trade position in the world and many of the African nations would rise to a higher level of development. The development of the Asian Tigers (Southeast Asian countries) was the model.

However, what was clearly not factored into the thinking was the level of infrastructure in Southeast Asia that allowed the movement of goods more readily, and the near complete lack of infrastructure in Africa. Neither was the resistance to change in governance in many countries in Africa well calculated.

In the passage of AGOA was considerable American optimism about the inevitability of democracy and progress, but we live in a very different world now. More time is needed if the intent of the original legislation is to be met.

There really is little drama at this time about whether AGOA will be extended. Indeed, the United States simply cannot allow AGOA to expire and expect to be able to compete in the African market, or just as importantly, to have any political leverage in future negotiations on trade or politics. To allow the only legislation ever passed solely for Africa to expire would be viewed as a statement of apathy and neglect. Without AGOA as a base for trade between the United States and the nations of Africa, African nations would turn more to traditional and new trading partners, and American companies would likely face an uphill battle to gain footholds in the world's largest emerging market. To not extend AGOA would be far more damaging to American interests than any damage inadvertently done to Africa through the culmination of AGOA.

Yet the political environment in Washington is as uncertain and unsettled as perhaps it has ever been since the founding of the republic. It is clear that some in Congress are quite capable of shooting themselves in the foot simply to spite one side or another. Nothing is going to move on a fast track under these circumstances. Care must be taken to make sure that not only is AGOA passed, but it is passed in such a way that benefits to the American economy are as well understood as the benefit to African nations. Emotion must be taken out of the arguments as much as possible, and a clear laying out of the facts must be made, and this is exactly what U.S. Trade Representative Michael Froman has done in a letter to the International Trade Commission calling for four investigations, the first of which was discussed in my previous post.

The remaining three investigations may not be released to the public, but will be available for key policy makers in government and the halls of Congress. Two of the remaining three have as much to do with the American economy as they do with Africa. Froman asks for a confidential assessment by the International Trade Commission of AGOA's impact on the American economy. He asks for the assessment to focus on both our own manufacturing as well as benefits to consumers. This assessment also will go a long way to bringing rationality back into trade talks. There needs to be fairness on both sides of the Atlantic, for the American economy is also not a bulwark of stability, as our own gap between rich and poor grows and the middle class shrinks.

Froman also asks for an assessment of how AGOA can better promote regional integration, the merging of small markets into more cohesive, comprehensible and coherent regional markets. He asks that the ITC look at what products and exports would benefit from regional markets. I read this as a desire to look at what besides the traditional textile route of development used since the Industrial Revolution might work for Africa. This examination can only be good and it can also help the U.S. decide how better to interact with Africa.

The last investigation may be the thorniest of all to tackle. It is what some call "the South Africa question." Froman asks that parts of this report be marked as confidential for 10 years. It is hard to fault him for the secrecy, as our relationship with South Africa depends heavily on how we approach our trading relationship with the nation. South Africa has been, above all nations, the primary beneficiary of AGOA. It has a well-developed infrastructure in place, and it has a greater work force capacity than any other country in Africa. Some in the administration call for South Africa to be "graduated out" of AGOA, something that South Africa strongly opposes; it is lobbying U.S. policymakers furiously to continue its inclusion. Indeed, to remove South Africa would remove the primary success story of our trade policy with Africa.

Those that argue for "graduation" of South Africa argue that the purpose of AGOA was to promote development in Africa and, since South Africa is far more developed than any country in Africa, it should no longer have the same advantages offered to less developing nations.

It may also be true that our political relations with South Africa, somewhat strained over other issues such as the relationship with Iran, is a factor among those who want to graduate South Africa from AGOA. South Africa's fuel supply is heavily dependent upon cheap Iranian  oil, and the boycott of Iran affects South Africa's access to that fuel supply. South Africa has opposed strongly and vocally U.S. policy towards Iran.

There are also those that point out that since South Africa had AGOA, they have seen little reason for any kind of reciprocity in our trade relationship. There are still considerable barriers to U.S. companies attempting to enter the South Africa market. Unions in South Africa, which have generally opposed the entry of foreign competitors into the South Africa market, are very strong and a lifeforce for the African National Congress, the only party that has been in power since apartheid ended in 1994. Furthermore, South Africa has signed an Economic Policy Agreement with the European Union that many trade analysts feel gives strong advantages to Europe over America. Froman has wisely asked for an ITC assessment of the EPA on the U.S. ability to compete on a level trading field with other countries.

Nevertheless, if the U.S. were to exclude South Africa from AGOA, our relationship with the most developed nation on the continent will enter a new and increasingly chilly era. We can ill afford to alienate South Africa, for it has been essential as an ally, albeit sometimes a reluctant one. One must also be cognizant that the leader of the African Union is now the former Foreign Minister of South Africa, Dr. Dlamini-Zuma. Our relationship with South Africa is strongly linked to how adept we are in working our way through the briar patch that AGOA presents. To do so, emotion needs to be tempered as much as possible. There is more than Africa's economy at stake. So too is our position in the global economy and its effect on the American marketplace. The U.S.  Trade Representative has shown highly commendable wisdom in his approach so far, but the most difficult parts are ahead.

Stephen Hayes is president and CEO of the Corporate Council on Africa.

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