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Agoa – Good for Africa?

HAS THE African Growth and Opportunity Act (Agoa), a US law passed in 2000 to help African countries export some products quota-free and duty-free to the US benefited African countries, or has it benefited mostly US exporters and companies from emerging markets who used the act to send their products to the US through Africa?

The US government reviews African beneficiaries of Agoa annually to determine whether they should continue being eligible for benefits. The US government is currently reviewing the eligibility of sub-Saharan countries, including Namibia, to continue receiving benefits in 2018 under the act.

Agoa is only available for African countries that have adopted a set of policies – or are making progress doing so, that are approved by the US. These include having established market-based economies, reduce their trade barriers for US companies and protect US intellectual property.

These Agoa requirements undermine the policy space for African countries to come up with independent policies appropriate to their circumstances, make it difficult for African countries to diversify into new industries – which often initially need nurturing, and allows US companies, with highly subsidised products, scale and financial muscle to flood African markets with cheaper products, and so destroying local industries.

A core requirement for Africa, if the continent wants to achieve a higher quality, more equitable growth, is for countries to add value to the raw materials it extracts and to diversify into manufacturing and services.

This will create more jobs for Africans, and result in more equitable and sustainable growth rates, and generate more wealth for African economies.

Africa has been prevented from doing this since the end of colonialism and the Cold War by industrialised nations which have erected high trade barriers to products that have been transformed from raw materials to manufactured products – which means value has been added, coming from Africa.

However, raw materials from Africa usually do not have the same high tariff barriers in industrial countries.

The success of any trade deal between any African country and another industrialised or emerging market therefore is based on whether Africans can export, or develop home-grown value-added manufacturing, to be exported to these countries; and whether these industrialised and emerging market countries will see such value-added and beneficiated products coming from Africa.

Agoa has since its inception contributed to a 78% increase in overall trade between Africa and the US.

However, the devil lies in the detail of the trade. Energy accounts for 88% of exports from Africa to the US through Agoa, with oil accounting for 68% of the exports in 2014.

African exports to the US such as crude oil, precious metals and oil seeds have grown under Agoa, while manufactured products such as high-skilled apparel, computer machinery, consumer electronics and motor vehicles have declined.

African countries that have oil and gas dominate the exports to the US. Figures from the US International Trade Commission showed that almost 90% of products traded under Agoa went to four countries: South Africa, Nigeria, Angola and Gabon.

Anthony Carroll, from Johns Hopkins University, notes in his testimony before the US House Foreign Affairs Committee in May this year that “US exports to the Agoa-approved countries have grown by a greater percentage since 2000 (up 130%) than have US imports from the same countries (up 75%)”.

Carroll exclaimed: “This is a winning programme for US jobs!”

A recent study by the US Congress Research Service showed that for African countries which export significant textiles and apparel to the US, the Agoa trade has not been able to move the African production from low-skill apparel production to higher skill manufactured products.

Both the World Bank and International Monetary Fund have criticised Agoa for excluding key African products and for providing subsidies to US companies deemed to be under threat from African competition under Agoa.

The US subsidised its agriculture sector, for example, on cotton – which many African countries export.

Former US trade representative Ron Kirk, for example, said the US could only cut some agriculture subsidies, such as cotton, as part of larger agreements, which would have large developing country economies such as Brazil, China and India, also agree to open their markets to the same products.

The US government has opposed African countries’ requests to have more African products securing access to US markets under Agoa; instead, arguing that African countries should better use current provisions of Agoa – that is, try to expand the exports of products to the US already listed under Agoa.

Kirk said: “The answer is not expanding the list of Agoa products”, but “increasing the utilisation of Agoa”.

However, African agricultural products which do not face high tariff barriers under Agoa face sophisticated, complex and multiple health and safety rules in the US, which effectively translate into high tariff barriers.

A research paper published by the Centre for the Study of African Economies at Oxford University reported that Chinese textile companies, for example set up in Africa, and send their products from Africa to the US, under the guise that the products were made in Africa, in so doing get free access to US markets.

Africans have little input in the assembly of such Chinese products, neither is much value-added to African economies. This practice is called trans-shipment.

Agoa officially prohibits the practice and any non-African company found to have done so by US authorities is banned for five years from exporting products to the US. The rule of origin provision of Agoa states that African exporters must either source certain inputs for their products locally or from the US.

African countries need to diversify the products they produce. They need to add value to current oil, metals and agricultural products they produce. But African countries must also diversify their trade with other developing and industrialised countries. African countries must trade more with each other.

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