TRALAC - Trade Law Centre

Act now on AGOA, says US Fashion Industry Association

Tuesday, 29 July 2014 Published: | Julia K. Hughes

Source: US Fashion Industry Association

Conventional wisdom says Congress is dysfunctional. This week, however, the fashion industry was glad to see positive developments on the Hill regarding the future for trade with Africa.

"AGOA  is an important development tool that has been proven to promote economic growth and jobs both in developing countries and in the United States," said House Ways and Means Subcommittee on Trade Chair Devin Nunes (R-CA) when announcing the subcommittee will hold a hearing on Tuesday, July 29, on the trade preference program.

"I am committed to ensuring a bipartisan, timely, and seamless renewal of the program before it expires in September 2015," he added. And just a few days later, the Senate Finance Committee scheduled a hearing on "The Road Ahead" for the African Growth and Opportunity Act. 

At a time when Congress seemingly can't agree on anything, AGOA is a non-controversial program with nearly universal support as one that's good for business in the U.S. and good for economic growth in sub-Saharan Africa. Unfortunately the clock has been ticking for the program, which is scheduled to expire on Sept. 30, 2015, but Rep. Nunes' statement and the scheduling of the long-awaited hearings are signs it finally could be renewed.

But while there's still one year left, time has all but run out before the fashion industry will slow down orders in advance of the scheduled expiration, so let's hope it's renewed quickly.

"The only way we can continue to source in sub-Saharan Africa is if the duty-free status is maintained," explains the head of international trade and customs at one of the United States Fashion Industry Association's (USFIA) member companies, a small importer and manufacturer of niche women's and children's apparel, who shared the company's story of sourcing in AGOA and the problems that will arise if the act is not renewed soon.

Currently, 40 sub-Saharan African countries are eligible for the program, which has the purpose of facilitating the region's economic growth and integration through two-way, duty-free trade with the U.S.

The program includes a provision called the third-country fabric benefit, which allows apparel producers in most beneficiaries to use third-country fabric (or, fabric from any other country in the world) and still get duty-free treatment in the United States. According to the U.S. International Trade Commission (USITC), in 2013, 98.48 percent of apparel imported into the U.S.from AGOA-eligible countries was duty free. This is a significant savings for companies sourcing in a region that would otherwise be cost-prohibitive, while also providing jobs and economic opportunities in the region.

But many companies have already taken action to either reevaluate their sourcing plans, or even pull out from the region because they simply can't afford to do business there without the duty savings, which are still uncertain, at best.

We've been through this before. The third-country fabric benefit, which accounts for most apparel exports under the program, was initially scheduled to expire on Sept. 30, 2012, two years before the expiration of the entire program. After advocacy work by USFIA and other companies and trade groups, Congress renewed the benefit until the end of the program — on Aug. 10, 2012, with only seven weeks to spare.

If you know anything about apparel sourcing or the AGOA supply chain, you know it was too little, too late.

"Our orders from the AGOA region peaked at about 40 percent," this member explained. "Now, only about 15 percent to 20 percent of our orders come from AGOA countries, with much of that drop around the time AGOA was extended [in 2012]."

Looking at the data, many companies followed suit. In 2011, AGOA apparel imports totaled $903.2 million. The following year, as the expiration of the third-country fabric benefit approached, AGOA apparel imports dropped to $864.2 million, a decline of more than 4 percent.

Now, fashion brands and retailers face the decision of whether or not to stay in AGOA again.

"We have to place our orders in advance. We hold back orders when it looks like it might not be renewed," said the member.

This particular company looks to sub-Saharan Africa to source "repeat merchandise, basic goods that sell season after season at high volume, like knit tops and tanks for women." But even these items must be ordered at minimum six months in advance for the factories to acquire the raw materials, produce samples, produce the order, and then factor in time for transportation and logistics, which can take much longer in the AGOA region than Southeast Asia or Central America, as many AGOA countries are landlocked and require significantly extra time to get the goods to and from the nearby ports. When you add it up, a company actually needs closer to a year to source product from an AGOA country.

And it goes without saying that unwieldy logistics come at a hefty price, making sourcing in the region even more expensive than other regions.

And again, this is just the experience of one company that desperately tries to stay in the region until the last possible moment. Other companies have already left.

But here's the thing — companies really want to source in the AGOA region.

In our recent industry benchmarking survey of sourcing executives, conducted in conjunction with Dr. Sheng Lu of the University of Rhode Island, we found that AGOA is one of just a handful of Free Trade Agreements or preference programs utilized by more than 20 percent of respondents. In fact, 37 percent of the survey respondents say they currently source from AGOA beneficiaries — a sharp contrast with the 30 percent who utilize the U.S.-Korea FTA, 19 percent who utilize the U.S.-Colombia FTA, and 11 percent who utilize the Haiti preference programs.

Of all respondents, 40 percent expect to increase sourcing from Africa in the next two years, while 53 percent expect to stay the same. And 7 percent say they expect to decrease sourcing — a number that we expect to rise as the expiration date gets closer and closer.

I have no doubt that these numbers will look very different if there has not been any action to renew the program by the time we conduct our survey again next April.

We'll be paying close attention to next week's hearing and the upcoming U.S.-Africa Leaders' Summit in August. While we've heard from many sources that there's unlikely to be any action on trade until after the midterm elections, we remain hopeful that Congress will recognize the importance of quick, seamless renewal, for the workers affected by AGOA who desperately need apparel jobs and for the companies in the U.S. that desperately want to provide them.


Julia K. Hughes is the president of the United States Fashion Industry Association (USFIA) , which represents textile and apparel brands, retailers, importers, and wholesalers based in the U.S. and doing business globally.