Bridges Weekly Trade News Digest • Volume 8 • Number 25 • 14th July 2004

AGOA Iii Allows Africa’s Trade Benefits In The US To Continue

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On 13 July, US President George W. Bush signed a bill that will extend trade benefits enjoyed by African countries under the African Growth and Opportunity Act (AGOA) from 2008-2015. The bill, AGOA III, represents the second renewal of the original AGOA Act, signed in May 2000. AGOA aims to significantly liberalise access for certain African products to the US market. In his remarks at the signing of the AGOA Acceleration Act of 2004 (AGOA III), President Bush noted that AGOA had brought gains to both African exporters and US businesses.

The bill was spearheaded by the AGOA 3 Action Committee, a coalition of businesses as well as civil society groups. Commenting on the strong US support for AGOA III — passed in the heat of an election year — Rosa Whitaker, the Committee’s co-chair noted that "minds have met on the moral imperative of drawing sub-Saharan Africa into the mainstream of the global economy." US Senator Charles Grassley echoed the sentiment of trade observers by pointing out that the extension of AGOA would curb the environment of uncertainty which had led to investment flight from Africa.

African textiles manufacturers relieved

One of the key issues for African textiles manufacturers in the extension AGOA was the renewal of a provision that excludes African beneficiaries from complying with normal, stringent rules that define where textiles and apparel products are made and determine if they are eligible to receive AGOA benefits — the so called ‘Rules of Origin’. AGOA III extends this waiver, which was set to expire in September this year, by a further three years subject to certain conditions. In effect, the designated African country beneficiaries known as the ‘Lesser Developed Beneficiary Countries’ (LDBCs) under the Act can continue using fabrics produced in countries not covered by AGOA (so-called third country fabrics) in the production of clothing products for export to the US. All 37 AGOA-eligible countries, except Mauritius and South Africa, are deemed to be LDBCs for this purpose.

AGOA has been credited with raising the value of African garment exports to the US from about US$600 in 1999 to US$1.5 billion in 2003. Trade experts, however, point out that the gains under AGOA’s textiles regime have only benefited a few countries. Countries such as those in the South Africa Development Community have generally benefited more. In Lesotho, for example, 10,000 clothing jobs were created in 2001 alone. On the other hand, the countries in Sub-Saharan Africa have generally failed to gain from AGOA. Mosuoe Moteane, Lesotho’s Ambassador to South Africa expressed relief over the extension of the waiver. He stressed that "many of our factories faced jeopardy; orders were being cancelled; many garment manufactures were considering downsizing — the extension is indeed joyous news".

Phase-out of textile quotas

A related area of concern for the African textile industry is how the imminent global phase-out of textile quotas will affect the benefits they enjoy under AGOA. Until the establishment of the WTO in 1995, textile and clothing quotas were negotiated bilaterally and governed by the rules of the Multifibre Arrangement (MFA). The MFA provided for the application of selective quantitative restrictions when surges in imports of particular products caused, or threatened to cause, serious damage to the industry of the importing country. On 1 January 1995, the MFA was replaced by the WTO Agreement on Textiles and Clothing (ATC), which sets out a transitional process for the ultimate removal of these quotas. Trade experts have raised concern over the prospect for the African textiles industry after the MFA expires, due to anticipated competition from Asian textile suppliers. International textile producer organisations recently voiced concern over possible market domination by China, and called for the extension of textile quotas (see BRIDGES Weekly, 23 June 2004).

Other provisions in AGOA III include technical assistance provisions aimed at assisting African producers to comply with US agricultural standards.

SACU-US FTA and AGOA: complementary or at odds?

In related developments, Xavier Carim, the South African chief negotiator for the South African Customs Union (SACU), denied allegations that AGOA could pose problems for the SACU-US Free Trade Agreement (FTA). Some observers have pointed out that the temporary and unilateral nature of AGOA could be used as a bargaining chip by US negotiators and is the cause of alleged areas of difficulty in the talks.

The SACU-US FTA negotiations were launched in June 2003 to build on AGOA. According to the US Trade Representative the aim is to create ‘a model for similar efforts in the developing world’. The FTA is the first with any sub-Saharan African country. The members of SACU — Botswana, Lesotho, Namibia, South Africa and Swaziland — comprise some of the leading AGOA beneficiaries. SACU has concluded six rounds of trade talks with the US so far. The next round of talks is due to be held in Botswana in August this year.

To access the 2004 Comprehensive Report on US Trade and Investment Policy Toward Sub-Saharan Africa and Implementation of the African Growth and Opportunity Act visit http://www.agoa.gov/resources/2004-05-agoa.pdf

For additional resources see http://www.agoa.info

ICTSD reporting; "US denies impasse in SACU-US negotiations," TRALAC News, 12 July 2004; "US Senate Approves AGOA extension," TRALAC News, 25 June 2004.