AGOA’s future – it does matter for you, too
- J Brooks Spector
- 06 Feb 2014 01:42 (South Africa)
Next year, the African Growth and Opportunity Act will expire, unless the US Congress decides to renew it or pass a revised version of the law. Designed to promote exports from Africa to America by removing tariffs on thousands of potential exports, the act has been especially helpful to South Africa since it became US law. What’s at stake? J. BROOKS SPECTOR takes a quick look.
The US Congress passed the African Growth and Opportunity Act (technically Title I, Trade and Development Act of 2000; P.L. 106–200) in May 2000 and it became law once President Clinton signed it, and his successor, George W. Bush, supported an extension of the act until 2015. Despite the fact Africa still had the reputation as the “hopeless continent” when the idea of AGOA was first proposed in the late 1990s – or perhaps even because of it – this proposal ended up attracting bi-partisan support as a measure that would help Africa by encouraging trade, rather than calling for an endless pipeline of foreign assistance.
As it stands now, it will expire as US law in 2015. Does this matter? Stay with us on this - it actually matters rather more than you think, especially if you have any kind of a stake in South Africa’s automotive industry – or anything else that gets exported.
As it was initially designed years ago, AGOA had a bit of something for many different American interest groups and constituencies interested in Africa. Participating countries’ eligibility had to be assessed yearly on such things as their success in improving workers’ rights and the respective economies’ movement toward more transparent, open, market-based systems. By certifying a country’s eligibility, a country was now eligible to export – at least potentially – thousands of different product lines, with no tariffs imposed on them.
The idea behind this law was to offer incentives for Africa’s growing economies to participate more fully in international trade, thereby increasing employment and thus underpinning political and social stability on the continent. Trade, not aid, was now the preferred pathway to real growth and increased African political maturity. As a result of all this, AGOA was well-positioned so that it appealed, variously, to free traders, supporters of the export of democratic values, believers in the power of economic growth to trump unruly, disruptive politics, and even to attract backing from many representatives aligned with labour unions in the Democratic Party (individuals often wary of free trade deals because of the presumed negative impact on American jobs), for example.
One complication in AGOA was that while eligibility almost automatically applied to most product lines, wearing apparel had additional certifications required. To export apparel and some textiles to the US duty-free under the AGOA, an eligible country also had to satisfy its compliance with AGOA rules about the textiles’ actual origin. Initially, AGOA helped support the rapid growth of the apparel industry in southern Africa, creating hundreds of thousands of jobs. However, when the Multi Fibre Agreement's world quota regime for textile and apparel trade was ended nearly a decade ago in 2005, one effect was to reverse some of the original gains made by the African textile industry. This came as a result of growing textile and apparel export competition from other non-African, developing nations, most especially China.
Under the AGOA umbrella, a number of African countries have actually begun exporting new products to the United States. These include cut flowers and a range of other agricultural products, as well as steel and – especially from South Africa – automobiles and automotive parts.
Oil producers like Nigeria and Angola have been some of the largest exporters to the US under AGOA. South Africa's exports have been the most diverse in product terms. Economic development specialists believe that, going forward, agricultural exports should continue to be a promising area for AGOA-assisted exports, given the large scope that exists for African agricultural export growth. However, agricultural product exporting countries continue to have significant work to do in being able to meet American sanitary and phytosanitary standards for product entry on a routine basis.
AGOA’s apparel special provision, permitting lesser-developed countries to use fabric of foreign origin for their garment exports, expired two years ago, and this led to economic dislocations and disruptions in a number of textile-exporting nations. On balance, however, in the opinion of analysts, AGOA gets real credit for increasing Africa-US trade and encouraging a positive trade balance that leans Africa’s way.
As trade policy insider Witney Schneidman (more on his views in a minute) and Zenia Lewis explained in a recent analysis for the Brookings Institution, AGOA represented a significant break with the way the US had related to Africa historically. Until AGOA became law, they wrote, “U.S. relations with Africa had been defined largely by Cold War calculations, donor-recipient relations, aid for poverty alleviation and emergency relief. But AGOA moved the U.S. away from a singular reliance on development assistance as a strategy for engaging African countries and introduced trade between these countries and the U.S. and investment by the United States as stimuli for economic development and poverty reduction.”
Schneidman and Lewis argued AGOA also lent increasing support to the idea of finding ways to nurture democratic governance on the continent as well as aiding economic growth back at a time when the continent was still seen as something of a political-economic disaster zone – with an overall negative growth rate. But, Schneidman and Lewis argued, “By the end of the decade, as African governments put in place market-based policies and commodity prices improved, the regional growth rate on a per capita basis had increased to 2.9 percent in 2001, the first year that AGOA was in effect. Between 2000 and the onset of the global financial and economic crisis in 2008, the region’s average growth was just under 5 percent. And the projected growth rate in Sub-Saharan Africa for 2012 is 5.5 percent. In addition, last year The Economist indicated that six of the top 10 fastest-growing economies of the last decade were in Africa.” AGOA was fully in line with the new orthodoxy of the “Africa rising” mantra.
Within the US political system as well, AGOA had also helped create a bipartisan consensus on Africa in the Congress. As the two analysts wrote, “As a nonreciprocal trade agreement, AGOA has been a unique initiative in that the duties and tariffs on about 6,400 products coming into the U.S. from Africa were dropped to zero. At the AGOA Forum in Lusaka in 2011, Secretary of State Hillary Clinton and the U.S. trade representative, Ambassador Ron Kirk, called for a ‘seamless extension’ of AGOA, which is due to expire in 2015.”
Specifically for South Africa, the passage of a revised or renewed AGOA is of real importance, especially for some of its major industrial products like automobiles and auto parts. There is now some concern among policy makers that the discussion about AGOA renewal includes the possibility there would be a provision that South Africa would graduate from AGOA coverage, given its economic strength and complexity compared to the rest of Africa.
Moreover, SA Institute of International Affairs’ TradeBeat website notes, “AGOA expires in 2015, and its future is currently being debated before the US Congress. Doubts have been raised about the sustainability of asymmetrical deals like AGOA, and on the appropriateness of including larger African economies like South Africa in the scheme. Even if AGOA is extended in the short term, the future of trade between the US and the continent is set to undergo a major transition, and understanding and managing this process is vital to building a healthy and vibrant relationship with the world’s biggest economy.”
Ah, yes, perhaps you were wondering when we were going to return to Witney Schneidman. More than an academic, he is an example of the policy wonk who has a pitch-perfect understanding of the realities of the American political process. Schneidman was part of Barack Obama’s transition team after Obama’s first election; he has been a highly sought-after consultant on African trade issues; and he earlier served as a Deputy Assistant Secretary of State for Africa. In his newest incarnation, he is senior advisor on Africa for one of Washington’s most politically potent law firms. And on 29 January, he was in Johannesburg, talking about AGOA’s future prospects with South African trade specialists.
Setting out the current circumstances, Schneidman began by putting AGOA’s specific impact on South Africa in the broader context. Arguing that “AGOA is at the centrepiece” of US-Africa ties, he noted that in technical terms it is a non-reciprocal preference agreement that added some 1,200 products on top of several thousand product lines covered under international Generalized System of Preferences protections.
Measuring its achievements, Schneidman noted that exports to the US from Africa have now reached the level of around $53billion, and that this represents something of a 500% increase over pre-AGOA days. Now it is true that oil represents about 89% of that total and such exports to the US would have been duty free with or without an AGOA. But the really interesting part of the trade is in the rest of the exports. Over the 2001-2012 interval, non-petroleum exports have tripled from around $1.2 billion to almost $5 billion.
Among that total, apparel may well have been the most important segment across the continent. Shirts made all over Africa helped become an image changer for Africa. Textiles from places like India and China was made into clothing and these exports to the US equalled about $850 million in 2011, representing around some 350,000 jobs in almost a dozen countries now exporting apparel to the US. Beyond that direct jobs total, of course, many other jobs were indirectly created – spreading out from the direct employment.
Nevertheless, Schneidman said there are now concerns in some quarters in the US about AGOA and the act has something of a mixed reputation as to its successes. African exporters have only utilized about 300 of the total possible product lines under AGOA’s provisions. He notes that other critics are saying, “AGOA is a unilateral preference agreement and doesn’t address American investment or trade going into Africa. What do we do about American business?” Now that’s a group that definitely should be brought on board at a time when the US economy’s revival remains fragile and tentative.
Meanwhile, South Africa’s own orientation towards AGOA has undergone change since the measure was first proposed. Initially, the South African government opposed the idea in the late 1990s because of those pesky conditionalities (such as more open markets and political transparency) that were built into the legislation to advance those other economic and political goals. But of course there was, politically, no way the US Congress would have supported the proposal without those conditionalities. (As a historical footnote, the role of the African ambassadors in Washington and South African ambassadors Harry Schwarz and Franklin Sonn who effected persuaded the South African government in Pretoria to go along with the idea and publicly endorse it.)
Now the challenge is that some American policy makers saw AGOA as the pathfinder for a deeper trade relationship between the US and South Africa. The failure of the US-SACU free trade agreement negotiations was a real setback for this idea. There is some sense that South Africa, regardless of what was said publicly, just didn’t see that free trade agreement as a priority for South Africa. Parenthetically, one could ask, what, exactly, was the incentive for South Africa to carry those negotiations forward vigorously when there was already access under AGOA. There have subsequently been various trade forums, but they mostly function as ways for dialogue and not as venues for tangible policy actions.
Regardless of the lack of forward progress on negotiations, South Africa has utilised the opening under AGOA more effectively than most nations. Half of that $8 billion noted above represents South African exports to the US and half of that is from the automotive sector, including all those gleaming, shiny Beamers and Mercs.
And so, what are the actual prospects for renewal of AGOA? Schneidman said that the Obama administration has publicly said for the past year and a half that it is committed to a seamless renewal. But the question that remains is what, exactly, does renewal mean in specific terms? How can the political process come together to address any visible shortcomings in the current act? The Obama administration is carrying out a full review of the act and its renewal. The plan is to have it ready by the US-Africa leaders summit scheduled for August in Washington - where AGOA’s future will be a key agenda item.
A second key question is whether South Africa should graduate from AGOA’s provisions. The South African government has now made its position clear to the US that it certainly hopes such a thing will not happen. According to Schneidman, DTI Minister Rob Davies made the argument in Washington recently that if South Africa graduates from AGOA, there will be some serious repercussions locally.
For example, for the $2 billion worth of auto exports to the US, there are 36,000 employees directly dependent on those exports, and some 270,000 more indirectly related jobs. As a result, if South Africa must suddenly graduate within 20 months from now, it will be a huge shock to the South African and the SADC economies. Obviously this would have an impact on the broader bilateral relationship (as well as the political and economic stability of the country, it could be argued).
But critics of South Africa’s continued coverage under AGOA have been making the point of whether or not this US market opening mechanism was really designed to allow South Africa to export all those duty free BMWs and Mercedes to the US (especially given the American auto industry’s own current weaknesses)? Moreover, if South Africa can have a free trade agreement with the EU that has reciprocal provisions, what is preventing such a deal with the US? Other economic partnership agreements also bother some in the US as they can have a deleterious impact on American trade and investment in Africa. Why, for example, is South Africa asking not to graduate from AGOA even as it does not come forward with any other proposed mutual and reciprocal frameworks?
Still other issues in play include how long should any extension or renewal be for? Perhaps Congress should just extend the act for a five-year period, changing nothing in the measure. After all, uncertainty is the real enemy of trade growth.
In addition, a discussion on AGOA can only really be expected to gain Congress’ attention for so long. That is to say there really is only so much bandwidth for Africa in Congress. Moreover, this year is an election year in the US (well there is one in South Africa too, but the results are less predictable in America so far) and that is where attention will really be focused among American politicians rather than a trade bill for Africa.
A further issue that will undoubtedly gain traction as any renewal measure proceeds is whether or not the conditionalities should be altered in some way. Setting out some of his ideas, Schneidman asked whether, for example, it makes real sense to keep a country like Madagascar out of AGOA coverage. That nation’s access – or the lack of it – affects the 3,000 women working in apparel, but not the politicians that have made a mess of national governance. Even for Zimbabwe, Schneidman asked, why not use trade and investment to help the people who want to do the right things? As an alternative, perhaps sanctions could just be levelled against political leaders, unless Congress votes full economic sanctions against a regime.
Looking forward, Schneidman suggested adding a provision that allows tax incentives for American companies that invest in Africa. There could be zero taxes levied against repatriated profits as a stimulus for economic development and investment decisions. This could be a real signal to American companies that lowers risk and increases real returns.
Finally, Schneidman recommended increasing American trade representatives in Africa. By contrast to the handful of fulltime American commercial attachés on the continent, China seems to have about 150 such officials now. That means strengthening the US trade hubs to help American companies access opportunities in Africa, rather than just primarily aiding African businesses entering the US market.
Ultimately, however, there is the timeline tightness issue. Can Congress actually get to the point of passing a new AGOA act in the midst of the national political debate over control of Congress before the current law expires? President Obama may well see this as one of his key foreign policy legacies – but will Congress play along? One thing for sure, it would help if South Africa and the rest of the continent begin to make the push for this measure – and to be careful to couch this in terms of bilateral benefits - rather than simply one more unreciprocated gift to the hopeful continent.
- The African Growth and Opportunity Act (AGOA): Looking Back, Looking Forward at the Brookings Institution
- The renewal of AGOA and the prospects for US-SA trade relations at the Tradebeat website (associated with SAIIA)
The above includes links to the following:
- The Testimony of Dr. Witney Schneidman, before the US House Foreign Affairs Subcommittee on Africa, Global Health and International Organizations, “Will There be an African Economic Community?” (35.29 kB)(January 9, 2014)
- Joint BLSA and SAIIA submission on the AGOA Trade and Investment Performance Overview to the US International Trade Commission (486.62 kB) (January 21, 2014)
- Why 2014 is a crucial year for AGOA
- AGOA rules: The intended and unintended consequences of special fabric provisions
- African Growth and Opportunity Act (AGOA) boosted bilateral trade between the United States of America and South Africa, and the impact of the Act on the country’s balance of trade at the Department of Foreign Affairs (now DIRCO)
- African Growth and Opportunity Act (AGOA) at the State Department website
- African Growth and Opportunity Act at the International Trade Administration website (with detailed links to specific provisions of AGOA)
Photo: U.S. President Barack Obama (L) and South Africa's President Jacob Zuma shake hands after their joint news conference at the Union Building in Pretoria June 29, 2013. REUTERS/Gary Cameron