Table of Contents
INTRODUCTION
HISTORY
In
May 2000 the congress of the United States of America approved a legislation
known as the African Growth Opportunity Act (AGOA) whose aim was to offer
assistance to Sub-Saharan African countries on an economical perspective. It
also had a goal of strengthening and making better relations between these
Sub-Saharan nations and the United States (Office
of the United States Trade Representative).
The
was signed into law by President Clinton of the United States on May 18, 2000
as Title 1 of The Trade and Development Act of 2000 (International Trade Administration). It offers tangible
incentives for African countries to continue their efforts to open their
economies and build free markets. On August 6, 2002 amendments to AGOA were
signed by President Bush, also known as AGOA II, into law as Sec. 3108 of the
Trade Act of 2002 (Office of the United States
Trade Representative).
COUNTRY ELIGIBILITY
The legislation is authorized by
the President
of the United States to determine which sub-Saharan African
countries would be eligible for AGOA on an annual basis. The eligibility criterion
has requirements such as to progressing labor rights and movement toward a
market-based economy (International Trade Administration,
2003).
A
country should meet the following requirements so as to be eligible and
beneficiaries of the African Growth Opportunity Act. They should have or should
be making progress towards achieving or acquiring economies that are market based;
political pluralism and the rule of law; eliminating barriers to U.S. trade and
investment; protect intellectual property; try to fight corruption; policies on
poverty reduction, increasing availability of health care and educational
opportunities; protecting human and worker rights; and abolition child labor
practices. African countries have tried to meet these expectations although
none of the nations have implemented the list fully (International Trade Administration, 2003).
Secondly,
these nations should not be involved in activities that tend to undermine
security or the foreign policy of the United States of America. They should
also not engage in human rights violations as per international law and they
should have clear efforts in trying to fight terrorism (International Trade Administration, 2003).
GSP PRODUCT ELIGIBILITY
This
act gives the president authority so
that he can give duty free treatment
under GSP for any article after The U.S International Trade Commission, USITC and the U.S Trade
Representative, USTR determine that the
there is no import sensitivity to the article when African countries
export them (International Trade Administration,
2003).
Furthermore
the president has the right to make the articles duty free provided that they
are under AGOA or GSP eligible nations for 1,800 or more items and 4,600 other
items that are considered eligible under countries which are not signatories of
the African Growth Opportunity Act GSP. Items which were not included before
include handbags, footwear, watches luggage, flatware among others are now
accepted after a review was done (International
Trade Administration, 2003)
Eligible
countries in Sub-Saharan countries have been exempted form limitations and
competitiveness which restrict those GSP benefits that are available to those
who are beneficiaries to other regions (International
Trade Administration, 2003).
APPAREL ELIGIBILITY
Apparels
that are eligible are duty and quota free till 2015. They include apparel of
yarns and fabric from the Unite States of America, Sub-Saharan Africa, lesser
developed third-countries and those that do not have their production in
commercial quantities within the United States of America (International Trade Administration, 2003).
They
also include certain handmade or ethnic print fabric and certain wool or
cashmere sweaters. They is also
consideration of textiles that are manufactured in the least developed
countries that are beneficiaries of the act. The lesser developed nations have
a capita of less than 1500 dollars per annum (International
Trade Administration, 2003).
TRADE ITEMS
Over 90 percent of the exports in the African
Opportunity Growth Act are accounted for by crude oil and mineral fuels. About
89 percent of products under the Act are petroleum products. The energy
products under the pact are successful but the non-energy products are also
very influential (Schneidman &
Lewis, 2012).
Textile and apparel are some of the items traded. By
2011 they had contributed to more than 850 million dollars of the trade
agreement. There is also transportation material under the agreement and they
mainly involve automobiles which are from South Africa. They bring in billions
to the country and due to the duty free benefit they brought in 2.1 billion
dollars in 2011 (Schneidman &
Lewis, 2012).
Agricultural products are also traded between the two
nations. The Act nonetheless does not have a big impact on these products as
they already had the privilege of duty free access before the African Growth
Opportunity Act came into place. The standards set for eligible agricultural
products such as those regarding health and size are also hard to meet (Schneidman & Lewis, 2012).
LEGISLATION
AGOA I
AGOA enables reform of
African countries with the most liberal access to the U.S. market available to
any country or region with which the United States does not have a Free Trade Agreement.
By encouraging reform of Africa’s economic and commercial regimes, it supports
U.S business, which will build stronger markets and more effective partners for
U.S. firms (International Trade Administration,
2009).
The list of products
sub-Saharan countries may export to the U.S are expanded subject to no import
duty under the Generalized System of Preferences (GSP) which covers 4,600 items
and applies to more than 6,400 items until 2015 (International
Trade Administration, 2009).
AGOA II-TEXT OF AMENDMENTS
TO AGOA
AGOA II was signed by
former president George W. Bush so as to modify certain provisions in AGOA I. It
clarifies and expands trade opportunities in the region and also encourages
more investment. It also has a section for Congressional guidance on how
textile provisions in the bill can be administered (International Trade Administration, 2009).
Amendments include (International Trade Administration, 2009):
·
Provision of knit-to-shape articles from
yarn from the U.S or any Sub Saharan beneficiary country in an eligible
Sub-Saharan country.
·
Preferences to be made for ‘hybrid’
apparel articles in the involved nations. It thus provides beneficial treatment
of apparel articles from the U.S and beneficiary countries of the act.
·
The apparel cap is doubled for African
made apparel with regional yarn between 3-7 percent over a period of 8 years.
·
Namibia and Botswana can be
beneficiaries of the ‘lesser developed beneficiary sub-Saharan Africa country’
provision. Their producers can use third country fabric in qualifying apparel.
AGOA III- AGOA
ACCELERATION ACT OF 2004
It was signed in July
13, 2004 by former president George W. Bush. It extended preferential access
for imports from beneficiary sub-Saharan African countries until September 30,
2015. Fabric provision in third countries was also extended for 3 years (from
September 2004-September 2007). It also included provision of more
Congressional guidance on how to administer the bill’s textile production to
the Administration (International Trade
Administration, 2004).
Eligibility was further
expanded to allow non AGOA member states items such as waistbands, belts
attached to garments, straps with elastic, collars, cuffs, drawstrings,
padding/shoulder pads and elbow patches to be eligible from all import
categories (International Trade Administration,
2004).
AGOA would support
other African countries in other initiatives such as, poverty reduction, peace
promotion, HIV/AIDS awareness and fighting and attraction of more trade and
investment opportunities (International Trade
Administration, 2004).
Other amendments
included (International Trade Administration,
2004):
·
Provision of a sense of congress for Africa
to participate more in the World Trade Organization and trade liberalization.
·
Bilateral investment agreements were
encouraged.
·
Development of infrastructure and an
ecotourism initiative was encouraged and promotion of investment in
infrastructure project in support of development in transport systems,
telecommunication and agriculture.
·
Facilitation of increased harmonization
between customs services at ports and airports in the countries of the pact in
order to reduce time in transit and to increase efficiency and safety
procedures.
AGOA IV-AFRICA INVESTMENT
INCENTIVE ACT OF 2006
It was signed in 20,
October 2006 by former American President George W. Bush. Fabric provision in
the third country was extended for 5 years (September 2007-September 2012).
There was addition of an abundant supply provision, certain denim articles were
also considered as abundant supply and lesser developed beneficiary countries
were allowed to export certain textiles under AGOA (International Trade Administration, 2006).
Textile apparel
provision was also extended to 2015 and a process for removing designated
fabrics or yarns that would not be available in commercial quantities to be
used by lesser developed countries on the basis of fraud was provided (International Trade Administration, 2006).
FUNCTIONS OF AGOA
One
of the main functions of AGOA is that it promotes economic ties between Africa
and the USA. It is through this ties that Africa would benefit from increased
capital investment and USA would benefit from the profit accrued inn working in
Africa and at the same time promoting US economic ideology of liberalism.
AGOA
helps to promote US national interests in Africa. One of the eligibility
criteria of joining AGOA is that the African country should not support terrorism.
Through this it would enable the African countries come up with laws that limit
terrorism thus enabling US maintain a balance of power in the region.
Niba
argues that AGOA helps integrate African economies to the global economy. The modernization
of market economy and the reduction in tariffs will promote Sub Saharan trade,
increase productivity thus finding available market in the global economy.
EFFECTIVENESS OF AGOA
According
to Schneidman he argues that AGOA has promoted democratic governance in Africa.
He states that after the end of communism in 1989, many communist countries in
Africa like Angola were forced to change its political economic principles of
communism to the emerging political economic principle of capitalism and
liberalism. Through this, many African countries have a free market based
economy that has enabled foreign agricultural companies in the USA to come and
invest in agriculture and at the same time promote democratic governance.
In
the early 1980s, the economies of many African countries were weak. This lead
to massive unemployment but the embrace of AGOA made the economic growth of
Africa grows from 1.1% in 1995 to 2.5% in 2012. Through this many people have
been employed in different agricultural sectors that have been funded and
executed by AGOA.
AGOA
has also enabled African countries to be integrated to the world economy. The
foreign companies that have invested in African countries have made the latter
more dependent on the foreign MNCs thus increasing the role of African growth
in the globalised economic integration process.
AGOA
has also enabled African countries to abide to the rule of law and
international treaties especially those relating to labor and human rights. One
of the eligibility of joining AGOA is that the country must not engage in human
rights violation. This has made many African countries reduce interstate wars
as was witnessed in the 1990s. The respect of human rights has enabled Africans
to engage in political and economic matters that influence the positive
relationship between African countries and the USA.
SUCCESS OF AGOA
Related
to its provisions of the Generalized System of Preferences, GSP, Provisions of
the United States under the African Growth Opportunity Act increased by 440
percent from the year 2001 to 2006, almost five times the original (Liser, 2007).
AGOA
has created thousands of jobs across the African continent. It has also ensured
that hundreds of millions have been invested in countries that are eligible (Liser, 2007). Direct foreign investment is
especially visible in the manufacturing sector. There has been growth in the
formal and informal sector due to rising rates of employment (Carr & Williams, 2010). Jobs have been
created both in the United States and Africa with 100,000 people being employed
in the United States and 1.3 million in signatory African countries (New York City Bar Association, 2013).
There
has been a boost in imports which were not traditional like cut flowers and
apparel. This also includes value added goods and food products that are
processed (Liser, 2007).
Other
nations have for a long time exported raw materials from Africa. These products
usually entered the developed countries with little or no tariff. AGOA has
promoted export of food, furniture, apparel among other products of processed
or manufactured goods by eliminating tariffs (Liser,
2007).
By
2007, there had been an increase of apparel products imported from Africa by
251 percent. This has brought in about 1.3 billion dollars. In 2007 imports
involving agricultural and industrial had almost doubled (Liser, 2007).
By
2011 there had been an increase in African exports by 500 percent. This earned
the continent 53.8 billion dollars as compared to 8.51 billion dollars in 2001 (New York City Bar Association, 2013).96.1
percent of products that influenced this rise were those involving crude oil
and mineral exports (Schneidman & Lewis,
2012). By 2012 exports had brought in 430 million dollars (Gresser, 2014).
The
African Growth Opportunity Act has also led to a rise in the growth of the
middle class in Africa as some sectors were revived such as Kenya’s nearly
vanishing clothing sector. From the income brought in there has also been
reduction of dependence on development assistance and American companies have opened
up their doors to African products such as Macy’s which gets its baskets from
Rwanda (New York City Bar Association, 2013).
Other leading companies that were attracted to source from Africa in the
textile and apparel sector include Victoria’s Secret, Wal-Mart, Levi’s, Calvin
Klein among others (Schneidman & Lewis,
2012).
AGOA IN LESOTHO
Lesotho
is a beneficiary of the African Growth Opportunity Act and it is furthermore at
an advantage as it is a beneficiary of the where the least developed nations
have access to apparel that is duty free by use of ‘third country’ fabric which
refers to fabric that originates from any part of the world(Carr & Williams, 2010).
There
is a contribution to Foreign Direct Investment in Lesotho as a result of the
efforts of AGOA. Is has attracted a lot of investment from Asian countries like
China as they wanted the benefits of the duty and quota free goods. The Foreign
Direct Investment as a result of AGOA has a significant in Lesotho’s economy (Economic Review, 2011).
The
number of exports from the Lesotho to the United States has had a tremendous
increase as from 2001. The country is now one of the biggest exporters of
apparel to the United States (Economic Review,
2011). Today, Lesotho is the biggest exporter of denim to the United
States. It makes about 300 million dollars from this denim export with 93
percent of this money being earned under the African Growth and Opportunity Act (Embassy of the United States of America, 2011).
The
employment industry has also been boosted in Lesotho’s textile industry due to
the export of duty and quota free apparel to the United States. The number rose
by 26,700 employees, a majority in the manufacturing industry as from 1999 to
2011. . The manufacturing industry in Lesotho became one of the largest sources
of employment and with time it surpassed the government (Economic Review, 2011). The 70 million garments which the country
knits annually is a source of employment for 28,000 citizens in Lesotho (Carr & Williams, 2010).
It
also was influential in aiding in the employment of women in the country who
had previously been unable to get jobs (Economic
Review, 2011). 15,000 people of which 80 percent of women got employment
in Lesotho’s most important sector which involved making and exporting denim jeans (Carr & Williams, 2010).
The
success of the manufacturing industry in Lesotho has also promoted investment
in infrastructure in the country, for example, the country had a denim mill
built for an equivalent of 100 million dollars (Economic
Review, 2011).
Lesotho
has however had its fair share of challenges like a fall in sales as a result
of a decrease in textile exports by 12 percent and 11 percent in 2005 and 2006
respectively.as a result the value of Lesotho’s currency depreciated, loss of jobs
and investors started to source from other nations. This was as a consequence
of the closure of the Multi-Fibre Arrangements. Nonetheless am imposition on
anti-China textiles and policies by the European Union and the United States
helped the country to regain its influence. Lesotho however still faces
competition from Asian nations but it is the most influential exporter of
garments to the United States (Carr &
Williams, 2010).
Because
of the impact of AGOA there has been blame that the workers in the factories
built have to work in poor working conditions and these factories are also a
major source of different forms of pollution as this affects the citizens.
Getting water supply to these factories was also a major challenge (Carr & Williams, 2010).
FAILURES OF AGOA
Like
any other trade agreement. AGOA does not fall short of failures and challenges.
Over the years it has had its critics and there has been a reduction in the
trade income at times in countries such as Lesotho.
There
are archaic customs procedures, erratic and uncoordinated transportation
regulations, red tape in cross-border movement and other trade logistics
challenges. This makes transportation logistics add up to 40 percent of the
export cost of African merchandise. It also makes the exporters incur
transportation costs that pay up to 30 percent more duty to enter the U.S.
market. (Kituyi, 2010).
Only
few varieties of products are allowed to be exported to the United States of
America. The textile and apparel sector has witnessed growth especially within
the early years of AGOA. Agricultural products account to less than one percent
of the total value of exports. More products such as sugar, tobacco, beef and
dairy products should be included as some of the sub-Saharan countries are competitive
producers. AGOA’s failure to spur increased exports underlines the challenge of
making unilateral market access a tool for Africa’s sustainable development.
Countries such as Eritrea, Ivory Coast and the Central African
Republic have had their AGOA eligibility revoked as a result of human-rights
abuses or failure to implement political or economic reforms.
Increasing competition by other exporters, for example China has
been able to sharply increase their clothing sales to the United States thus seizing
market share from African countries. This has resulted in the loss of
employment for example; Kenya has lost an estimated 5,000 of the 30,000 jobs it
gained as a result of AGOA.
Lack of access to low-cost credit and
efficient financial sector operations to unlock the potential of small and
medium-sized enterprises remains a key area of intervention for realizing the
promise of AGOA.
AGOA IN
MADAGASCAR
Madagascar was a major non-oil AGOA beneficiary that saw its status revoked, following a coup in 2009, which
resulted in lack of democracy in the country. This revocation resulted in
massive setbacks for its economy. Madagascar exported, on average, over $200
million a year under AGOA, with a peak of over $300 million in 2004 most of it
in the apparel sector, but with some handicraft items as well. Half of all
textile exports from the country (around $600 million in total) went to the
United States, and the textile sector covered up to 8 percent of the country’s GDP
(Sy, 2014).
Following revocation, tariff rates on apparel exports returned to
high levels estimated around 12-33 percent, greater than the tariff
free access of AGOA. The tariff increase made apparel
exports from Madagascar uncompetitive and resulted in export losses. According
to Takahiro Fukunishi a scholar, the revocation caused exports from Madagascar
to the U.S. to fall by around 70 percent, which caused almost 30 percent of job
losses after the coup, and largely increased the probability of factory
shutdowns. Similarly, a publication by the United Nations Economic
Commission for Africa indicated that the revocation also had negative effects
on regional integration and nearby economies stating that the revocation
affected several countries which are also AGOA beneficiaries, as Madagascar’s
apparel sector uses denim fabric from Lesotho, zippers from Swaziland, and cotton
yarn from Zambia, Mauritius and South Africa. Furthermore, from a foreign
investor’s perspective, the Madagascar saga highlights the risk of losing the
benefits of lower tariffs to the U.S. if a country loses its eligibility to
AGOA. (Sy, 2014)
Challenges
of AGOA
Among the challenges is that short time horizon
undercutting investment was initially considered to last for 10 years but was
later extended until 2015.Its short-lived nature discouraged long- term
investment as the 10 years window of opportunity discouraged investors in light
of difficulty of retrieving capital before the expiry of the act thus lowering
potential benefits greatly.
They are challenges concerning AGOA’s eligibility
revocation impacting on regional integration. Integrating Africa’s economies
locally to compete globally is important to Africa’s long-term economic
success. Its eligibility is reviewed yearly by the US which has the option of
independently withdraw benefits if certain economic, political and human rights
conditions are not most by beneficiaries.
There are trade
logistics hampering AGOA’s utilization. Africa's major supply side constraints
are trade logistics which determines the cost of getting goods from the factory
to the consumers. Lack of infrastructure, poor public institutions and lack of
competition among service providers hinder the efficient movement of goods. For
example in East Africa, the average cost of trade logistics is equivalent to a
tax of between 25% and 40% on value-added which deters it from entering markets
with competitive nature.
Agricultural
exports seem to have remained low. Agricultural commodities account for less
than1% of AGOA exports. It has important exception on special agricultural
products like sugar, peanuts, dairy, tobacco which are among the main revenue
generating exports which sustains many African states.
None tariff
barriers such as standards and sps impose additional demands on exporters which
further undermines agricultural market access for African states. US subsidies
for domestic producers such as cotton subsidies eliminate any competitive
advantage of Africa agriculture sector under AGOA. The subsidies artificially
lower world cotton prices thereby reducing revenues of African cotton exporters
and also reducing the development of textiles and apparel sector in Africa.
There is a
risk of preference margin erosion. The margin of preference currently afforded
to African countries under AGOA is of 7.7% while average duty on excluded
products is above 30%. Those preferences are low given that the products
liberalized under AGOA already enjoy duty and largely quota- free access under
the US, GSP which washes down any preference for African nations as they
compete with other beneficiaries.
Foreign
Direct Investment Diversion and specialization is also a concern. FDI-driven
specialization in textiles and apparels has raised a major concern if AGOA
expires in 2015. If FDI is not accompanied by technology transfer, the
opportunity to foster economic development competition and greater specialization
and greater specialization may be lost.
RECOMMENDATIONS
The African Growth Opportunity act should be extended
so that it does not expire at the expected time of September 2015. There is
some element of doubt in its extension and this has resulted in a 35 percent
decrease in its apparel and textiles orders as the American producers are now
resorting to other non-African fabrics
(Schneidman & Lewis, 2012).
Industries like the Lesotho textile industry and the Kenyan
flower industry should stop being heavily reliant on the African Growth
Opportunity Act. They should try to expand and find new trade partners. An end
to the trade as a result of the African Growth Opportunity Act ma have a
negative impact as it was in Lesotho when the Multi-Fibre Arragements were
closed down.
Trade hubs should be increased so as to enhnace export of
goods between the member states and to enable that these products have access
to other markets. These trade hbs have been noted to have a huge and positive
inmpact on trade between Africa and the United States but currently there is
only one in Accra Ghana(Schneidman & Lewis, 2012).
The African Growth Opportunity Act should work towards
working with the integration bodies in Africa . This will help the United
States as it may expand its markets.The countries in the pact should also work
with the Trade and Investment Framework Agreement to help resolve disputes (Schneidman
& Lewis, 2012).
The African Growth Opportunity Act should work towards
promoting Agriculutural exports from Sub-Saharan African countries.
Agricultural exports are accepted in the Act but certain barries like
requirements on size and height make it diificult for farmers to benefit as the
do not have all the equipment requires to meet all these requirements.
The member countries should also work with small and
medium-sized businesses to help them grow as AGOA has been criticize for only benefiting large
enterprises. There therefore should be policies and investments to benefit
small and medium-sized businesses in Sub-Saharan Africa.
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