- African Growth and Opportunity Act
TRALAC - Trade Law Centre
You are here: Home/News/Article/Three scenarios for the future of AGOA

Three scenarios for the future of AGOA

Three scenarios for the future of AGOA
Published date:
Saturday, 02 August 2014
Christopher Wood


On September 30, 2015, the African Growth and Opportunity Act will expire. The act provides duty free access to the United States, and if it lapses could threaten 62,395 jobs in South Africa alone.

African trade ministers will have bad memories of September deadlines. In 2012, a vital component of AGOA that facilitates the export of textile goods was renewed with days to spare. At that point, orders for African textiles goods had already dropped by 35 percent.

The problem then, as now, was uncertainty - investors and clients are unwilling to work with African manufacturers in a climate in which vital competitive factors like AGOA are up in the air.

While the Obama administration has assured a full renewal of AGOA, the divided and schizophrenic United States Congress must draft and approve the legislation. With a domestic approval rating of 15 percent and endless partisan deadlock, uncertainty is Congress's speciality. To overcome this uncertainty, AGOA countries need to plan for all possible scenarios, of which three are most likely.

Scenario 1: Full renewal of AGOA

The most likely scenario is a full renewal of AGOA - in which the current 40 eligible countries maintain duty-free access to the U.S. market on 1800 tariff lines, giving African exports a competitive edge.

This would safeguard the gains of AGOA, which have included contributing to a 78 percent increase overall trade and a 514 percent increase in automotive exports. But renewal must be accompanied by an effort to overcome the limitations of the deal.

Aside from South Africa, exports from AGOA countries continue to be dominated by energy, which account for 88 percent of total exports to the U.S. Half of AGOA eligible countries barely make use of their preferences, exporting less than U.S. $1 million dollars to the U.S. Huge agriculture subsidies and complex health and safety rules mean African agriculture goods are often uncompetitive in the U.S. market, and pressure from textile manufacturers in East Asia has undermined much of the expansion in trade seen under AGOA. To truly benefit from AGOA, Africa's export basket needs to be diversified, and the renewal process should work towards this aim.

First, AGOA should be extended for a longer period of ten to 15 years, in order to provide the certainty investors need. Second, programmes to provide technical assistance to navigate the complexities of entering the U.S. market, such as the U.S. Trade Hubs programme, should be expanded. And third and most important, work needs to be done to overcome the infrastructure gap that holds back Africa's competitiveness. An expansion of the innovative Power Africa plan, which aims to develop electrical capacity on the continent, would be an excellent step in this direction.

Improvement in these areas will assure AGOA fulfils its promise, turning low tariffs into real competitive market access.

Scenario 2: Renewal of AGOA without South Africa

South Africa is perhaps most at threat of losing AGOA preferences. The country has been described by critics as a “rich country with lots of poor people”, who argue that as a middle-income country, South Africa should no longer qualify for AGOA access. This position is supported by influential lobby groups in the U.S. pork, poultry and beef industries, which bemoan their lack of access to the South African market. While much of this criticism is likely a bargaining position to try and improve access for U.S. agriculture interests, the threat of South Africa being graduated from AGOA still remains.
Removing South Africa from AGOA would be counter-productive. It would not only directly threaten thousands of South African jobs, but would critically limit the effectiveness of the broader AGOA program. Small, less developed countries rely on large hub countries like South Africa in order to enter manufacturing value chains.
It is unreasonable, for example, to expect Namibia to develop a competitive automotive parts industry in the short lifespan of an AGOA renewal. It is, however, very possible for Namibia to supply components that feed into South Africa's pre-existing manufacturing infrastructure - supplying, for example, the leather used in car seats.
Keeping South Africa in AGOA provides an indispensable partner that can help other African countries bridge productive gaps in the short term, and thus tap into the full developmental potential of AGOA.

Scenario 3: An EPA-Type Deal

AGOA is currently a unilateral preference, in which the United States provides access to their market without asking for anything in return. If the deal was to end, it would likely be through an attempt to transform it into a two-way trade agreement, in which African states have to open their markets to U.S. Importers.
This would follow the path taken in Africa-European Union relations, in which unilateral preferences are abandoned in favour of Economic Partnership Agreements (EPAs) that provide complete access to the EU market in return for the liberalisation of 75 percent of African tariff lines. The EPAs are in their final stages, and it is going to become increasingly difficult to justify denying access to the U.S. while granting it to Europe.
Despite this, any attempts by the United States to negotiate EPA-style deals now would be misguided. A deal signed now will be incompatible with a 21st century Africa or a 21st century America. In the best case scenario, such a deal would grant the U.S. slightly better access to goods markets, but would be very unlikely to include any agreement on issues such as trade in services, investment protection or intellectual property rights - and it is exactly those factors that should matter to a future U.S.-Africa trade deal. The backbone of the United States' economy is the services industry, and the next frontier for growth in global services trade is Africa. The United States should negotiate when they are most likely to gain the most in areas like services, and this is not that moment.
Whatever scenario materializes, the United States would do well to heed the lesson of the EU's EPA negotiations. Ten years of bitter negotiations have put immense strain on the EU-Africa relationship, at the very moment in which China is outspending everyone on the continent, and emerging partners like India and Japan are deepening their engagement.
The world is waking up to the promise of Africa, and the realisation that this promise can best benefit them when Africa is on their side. With a renewal of AGOA, the United States can score a major win in the battle for the hearts and minds of the African continent. It is an investment that will rise in value as the continent does.
Christopher Wood is research fellow at the South African Institute of International Affairs in Johannesburg.


Read related news articles

Renewal of AGOA a benefit to both US and Africa

Following the conclusion of the US-Africa Summit in Washington DC last week, it is opportune to reflect on some of the outcomes for SA and Africa. On the eve of the summit, ministers of trade from those African countries that are eligible for the trade preferences under the African Growth and Opportunity Act (Agoa) called upon the US to seamlessly and timeously extend Agoa for at least 15 years, without conditions. This message was...

13 August 2014

Rep. Karen Bass - Pictures from forum Cannon House event (during 2014 AGOA Forum)

Growth and Opportunity in Africa Forum in coordination with the U.S.-Africa Leaders Summit Tuesday, August 5, 2014  [Please note - this event has concluded]   9:00 AM - 12:30 PM Cannon Caucus Room (345 Cannon House Office Building) U.S. House of Representatives Washington, DC 20515 Panel One 9:00 – 10:30 am Moderator: Dr. Monde Muyangwa Africa Program Director, Woodrow Wilson Center   H.E. Erastus Mwencha Deputy Chair,...

11 August 2014

14 years of AGOA: Why no real Africa intra-trade?

When President Bill Clinton signed the African Growth Opportunities Act (AGOA) into law 14 years ago, he offered incentives for African countries to open their economies and build free markets, to move the continent from an aid dependency to a viable trading partner. That is why at their summit hosted by US President Barack Obama in Washington, 50 African heads of states, including our own President Jacob Zuma, smilingly reminisced about how...

07 August 2014

African Union head cautions US on Africa

  If the United States does not take more interest in Africa it is going to lose out, African Union commission chair Nkosazana Dlamini-Zuma said on Thursday. “It's in their advantage to know what's happening in Africa because if they don't come to the party eventually the party will happen without them,” she said in Washington. “Business people really know about Africa from the media and American media is not really kind on...

07 August 2014

US-Africa Leaders Summit: CEOs promise to push AGOA further

The United States House of Representatives on Wednesday hosted an event titled “A Dialogue With African CEOs” that brought together women and minority business owners, chief executives from across Africa and US and SME entrepreneurs. The focus of the panel discussion was to examine possible business partnerships between African business and government with their American counterpart through the African Growth Opportunity Act (AGOA) that...

07 August 2014

US urged by Africa's leaders to extend AGOA trade programme

African leaders urged the US on Monday to renew a trade benefits programme giving duty-free access to billions of dollars of African exports for 15 years, saying it would help cement trade relations and boost development in sub-Saharan Africa. President Jacob Zuma, one of nearly 50 African leaders in Washington to attend a three-day summit, said the renewal of the African Growth and Opportunity Act (Agoa) when it expired next year was one of...

06 August 2014

South Africa welcomes Obama's backing of AGOA

  South Africa has welcomed the commitment by US President Barack Obama to support the continuation and enhancement of the African Growth and Opportunity Act (Agoa). Obama made the remarks at the US-Africa Business Forum in Washington on Tuesday. His backing of a new Agoa term came as a pleasant surprise to many, who have been waiting to hear Obama's position on the issue. US law makers are expected to vote on the renewal of Agoa when...

06 August 2014

Kenya: President Kenyatta's presence at US Africa summit 'expected to end frosty relations'

The US has recently cut down its embassy staff in Nairobi and also pushed back funding for various projects and programmes in the country. This has impacted negatively on business and stakeholders are hoping that President Uhuru Kenyatta's presence at the ongoing US-Africa leadership forum in Washington DC will end the frosty relations between Kenya and the US. "We hope the issue of lifting travel advisories will feature prominently. We are...

06 August 2014

Africa seeks technological partnership at US-Africa summit

Africa is looking to the United States for help modernizing industry and combating terrorism, according to the deputy chairman of the African Union (AU). Erastus Mwencha also said AU officials are negotiating with Washington at the U.S.-Africa summit to improve the trade framework in the African Growth and Opportunity Act (AGOA) to include investment opportunities for American businesses and investors as the U.S. Congress readies to begin...

06 August 2014

AGOA Forum: Nigerian Entrepreneur seeks removal of barriers on AGOA

An Abuja-based Agriculture entrepreneur, Mrs Esta Charles-Ayede, has urged the U.S Government to remove barriers inhibiting some African countries from fully utilising the benefits of the African Growth and Opportunity (AGOA). Ayede made the submission at a roundtable between local entrepreneurs in Abuja and the U.S Assistant Secretary of Commerce for Economic Development Jay Williams. The discussion was held via a Digital Video Conference...

06 August 2014

Obama sees US opportunities in Africa

US President Barack Obama said the fast growing economies of Africa represent one of the greatest opportunities for the US to extend its commercial reach and doing so requires a concerted effort by business and government. The president highlighted $33 billion (R356 billion) in commitments to Africa: $14 billion in investments by companies including General Electric and Coca Cola, $7 billion in financing to promote US exports and $12 billion...

06 August 2014

You are here: Home/News/Article/Three scenarios for the future of AGOA