NS4301 Summer 2015 Africa/US AGOA

1. NS4301 Summer 2015Africa/US AGOA

2. Overview • Oxford Analytica, “Africa/US: Trade Deal to Nudge Development,” March 16, 2015 • Current version of the US African Growth and Opportunity Act (AGOA) expires on September 30, 2015 • Legislation affords preferential (duty-free) and non-reciprocal access to U.S. markets to eligible SSA countries • Since its inception in 2000 AGOA has benefitted a few SSA economies, but largely failed to reach its potential as major driving force in continent’s development

3. AGOA Eligibility I • Eligibility for AGOA • A country that has established, or is making continual progress toward establishing: • a market-based economy that protects private property rights, incorporates an open rules-based trading system, and minimises government interference in the economy • the rule of law, political pluralism, and the right to due process, a fair trial, and equal protection under the law; • the elimination of barriers to United States trade and investment • the provision of national treatment and measures to create an environment conducive to domestic and foreign investment; • the protection of intellectual property; and • the resolution of bilateral trade and investment disputes;

4. AGOA Eligibility II • For eligibility, the country must also establish • economic policies to reduce poverty, increase the availability of healthcare and educational opportunities, expand physical infrastructure, promote the development of private enterprise, and encourage the formation of capital markets through micro-credit or other programs; • a system to combat corruption and bribery and • protection of internationally recognized worker rights, including the right of association, the right to organise and bargain collectively, a prohibition on the use of any form of forced or compulsory labour

5. AGOA Eligibility III • For eligibility the country also must not • engage in activities that undermine United States national security or foreign policy interests; and • engage in gross violations of internationally recognised human rights or provide support for acts of international terrorism and cooperates in international efforts to eliminate human rights violations and terrorist activities. • If the President determines that an eligible Sub-Saharan African country is not making continual progress in meeting the requirements shall terminate the designation

6. AGOA I • AGOA ostensibly “developmental” because it grants trade preferences to a wider range of products than already allowed under the US generalized system of preferences (GSP) which covers all developing countries. • It aims to support export-led economic growth and structural diversification along with deeper US/Africa trade and investment links • Products qualifying under AGOA cover 20,000 individual tariff lines within the US Tariff Structure – almost 2,000 more than under the GSP • The expansion of duty-free access to cover certain apparel and footware products has been particularly important • AGOA also grants exemptions from a number of caps on GSP – allowable duty free imports • However it excludes duty free imports of agricultural products subject to tariff-rate quotas

7. AGOA II Restrictive rules • AGOA’s rules of origin are fairly restrictive • Require direct importation of the product from the beneficiary country to US with a minimum of 35% of its appraised value originating either from within one or more of beneficiary countries or US itself • Difficult for many SSA exporters to prove given underdeveloped labelling capabilities and often opaque supply chains • However these rules have been relaxed for certain textile and apparel products. • Previously deemed too “import sensitive” by the United states this will apply to selected AGOA countries

8. AGOA III • The “third country fabric” provision is particularly important • Allows imports from certain AGOA countries to qualify even if the component yarns and fabrics have emanated from non-AGOA countries. • Collectively, these preferences have enabled some AGOA countries to compete with if not displace lower cost, especially Asian producers in the US Market

9. AGOA Trade Volumes I Trade Volume • US imports form AGOA countries were only $38.2 billion in 2013 or less than 2% of total US merchandise imports • Of these 70% were duty-free either under AGOA of GSP • Energy related products (mostly crude oil) were dominant – 82% in 2013 with Nigeria, Angola, Chad, Gabon and Republic of Congo all AGOA-Eligible • However they were sharply lower – by $30 billion or more than 50% than in 2011 due to US switch to shale • Given the 2014-15 drop in oil prices, imports likely to be considerably lower • Also nominal US tariffs on oil imports are very low (only 5 go 10 cents a barrel) – possible that AGOA’s benefits of this trade very low

10. AGOA Trade Volumes II • Non-energy exports • Totaled $4.9 billion in 2013, though small (and slightly below 2011), three times that of AGOA’s first year of operation, 2001 • Manufacturing • Remains one of AGOA’s largest beneficiaries • Exemption from otherwise high tariffs provides significant benefits to • Lesotho and Kenya and to a lesser extent • Mauritius, Swaziland and Botswana • However total value of AGOA-relevant apparel imports barely $900 million dollars in 2013 compared with China’s $30.3 billion and total apparel imports of $50 billion

11. AGOA Benefits Skewed benefits • South Africa by far largest exporter under AGOA, earning $3.7 billion – about eleven times more than second place Kenya • Also includes diverse range of manufactured goods • More generally preferential imports to US amounted to less than $1 million dollars in over half of 40 AGOA-eligible SSA economies in 2013 • Despite this -- wide support in SSA and the US for view that AGOA has delivered increased and more diversified African exports

12. AGOA Issues Constraints • Even with improved access and marketing support, many SSA enterprises lack the competitiveness necessary to exploit AGOA fully • Usually due to domestic constraints to business development caused by • Skills and infrastructure deficits • Administrative burdens and other disincentives to innovation – expropriation risks • SSA exporters often flounder in navigating US trade bureaucracy Future • Up for renewal in September 2015 • If renewed and in absence of meaningful economic diversification in SSA’s smaller economies, its benefits will remain limited.