On May 18th, the US and 39 sub-Saharan African countries will celebrate the 17th anniversary of the African Growth and Opportunity Act (AGOA), the “cornerstone of the trade and investment relationship between the United States and sub-Saharan Africa”. This act has been subject to debate over the years. Is it effective? Should the requirements for African nations be more stringent? Does it invite too much investment in oil exports? This year, a new question has surfaced: Will it be favorable to the Trump administration? President Trump’s recent rejection of the Trans-Pacific Partnership (TPP) and broader platform favoring bilateral agreements have created uncertainty for existing partnerships, including AGOA.
Overview of AGOA
AGOA was signed by President Clinton in 2000, with the objective of bolstering trade between the U.S. and sub-Saharan Africa. Since then it has been considered the “cornerstone of trade policy” between the U.S. and Africa. There are currently 38 beneficiaries of AGOA, which are able to import 6,500 different products into the U.S. duty-free. Each country benefits differently. Nigeria alone accounted for 32% of AGOA trade in 2013, but other smaller nations and industries are scaling up to tap into U.S. markets. Throughout its implementation, there have been multiple reviews of the program. A performance overview was completed by the US Trade Representative in 2014, before President Obama led the U.S.-Africa Business Summit. Overall, they report that both the U.S. and Africa (as an aggregation of all beneficiaries) have benefitted from the partnership. The highest years for trade were 2008 and 2009, before the global slowdown resulting from the 2008 recession. Over time, a trade deficit (for the U.S.) has resulted, as more African industries tap into the benefits of duty-free exports. This report, and subsequent statements by African leaders, also highlight the existing challenges in the agreement. Most prominent among these are the rules of origin and product list.
Existing Challenges of AGOA
The existing Rules of Origin for AGOA state that a country must add 35 percent value to a good in the benefitting country for that good to enter U.S. markets tariff-free. This is a very high standard for smaller countries that may be producing one item in a large, global supply chain. As a result, one of the major criticisms of AGOA is the indirect manner that it incentivizes petroleum exports. Petroleum products, unlike manufactures, easily qualify under the Rules of Origin. Policymakers in the U.S. and Africa have been developing methods to mitigate this issue. The African Union’s “AGOA Forum” began in 2002, for nations to share ideas and strategies to bolster their industries and benefit from more duty-free products. Some countries have developed individual-country strategies, and favor industries—like textiles—that could qualify for AGOA with the construction of factories.
The U.S. has been partnering on diversification projects to diminish the rules of origin barrier. USAID’s “Trade and Investment Hubs” were created to assist countries in Africa to organize themselves around AGOA. In certain countries, such as Kenya, AGOA has inspired the development of “Export Processing Zones” (EPZ) that build-up infant industries. Richard Kamajugo of TradeMark East Africa underlines the importance of these endeavors: “Repealing the Act would wipe out the EPZ sub-sector that employs about 40,000 Kenyans, and greatly reduce trade as textile and apparel products account for about 80 per cent of Kenya’s total exports to the US.” When renewal was being discussed, scholars suggested the rules of origin be adapted to encourage regional integration. For example, by stating that products could benefit from duty-free entry if a region—like East Africa—contributed 35 percent value to a good collectively, private companies and governments in the region would direct supply chains to include regional counterparts. This suggestion was never operationalized, but remains a leading idea for the 2025 renewal.
The product list has also been a point of contention, and alternative strategies are not as flexible. While AGOA offers 6,500 products, many agricultural products that are essential to countries such as Tanzania—whose agricultural sector accounts for 80 percent of GDP— do not qualify. Sugar and groundnuts are at the top of this list, and remained excluded even after the renewal of the act. U.S. agricultural subsidies are rumored to be the underlying cause for exclusion of “import sensitive products,” defined as U.S. products that are “susceptible to competition from imports from other country suppliers”. Trade ministers of many AGOA beneficiary countries have lamented the exclusion of these products, but the US has not conceded.
Politics of AGOA
U.S.-African economic policy has been uncharacteristically bipartisan. President Bush quadrupled aid to Africa during his administration, and Obama has introduced specific initiatives such as PEPFAR, Power Africa, and Trade Africa throughout his two terms. When the AGOA renewal act passed Congress, it was attached to a larger act– the Trade Preferences Extension Act of 2015–which included Trade Adjustment Assistance (TAA) to mitigate the costs to workers affected by trade policies. Democrats had initially disputed the TAA on a stand-alone act, but with AGOA included, the Trade Preferences Extension Act of 2015 passed in the House of Representatives, 387-32 and Senate, 97-1.
With its highly bipartisan nature and remaining 8-year lifespan before renewal, policy analysts had minimal apprehension that AGOA would be questioned by the new Administration. However The New York Times recently obtained a list of “Africa-related questions” that were sent to experts at the State Department. One of the many inquiries included AGOA. The Administration asked: “Most of AGOA imports are petroleum products, with the benefits going to national oil companies, why do we support that massive benefit to corrupt regimes?” Analysts, such as Witney Schneidman of Brookings Institute, are now apprehensive about AGOA’s future. Schneidman contends “AGOA could easily be the first [trade] casualty under Trump.” Analysts, investors, policy-makers, and trade ministers alike are conspiring—what would the U.S.-Africa trade partnership look like without AGOA?
Impact if Ended
The impact of AGOA has exceeded the statistics of trade balances. Many government programs, private initiatives, and factories have been constructed around AGOA’s existence, since it creates demand for African imports in the U.S. One of the largest socio-economic contributions has been the inclusion of women. Women have been employed in regions where they had minimal involvement in the formalized economy. The existence of AGOA also increased investor confidence in Africa, which has led to both public-private partnerships with government enterprises and greater amounts of foreign-direct investment (FDI).
If tariffs toward AGOA-qualifying products are re-instated, these smaller-scale industries like clothing factories will not be able to compete with large corporations. Some analysts believe that investors, who have observed the market potential in Africa through AGOA programming, will fill in the gap. Others contend that China or the European Union will offer trade promotion programs in the absence of AGOA. Regardless of this speculation, the objective evaluations of AGOA have demonstrated the positive effects of its implementation. Economies in Africa would survive in the absence of AGOA, but trust between the benefitting nations and the U.S. would undoubtedly deteriorate.
Conclusion
Policy-makers and representatives on both sides of the political aisle should vocalize their support for AGOA preemptively, before the fears of AGOA revocation materialize. Those benefiting from AGOA in Africa and supporting its implementation in the US should specify the unique qualities of this U.S-African partnership, so it will be evaluated alone. Lumping AGOA together with other seemingly ineffective trade policies would be a mistake. While AGOA may not be the long-term policy prescription that underlines all U.S.-African trade policy, its benefits have incited the creation of many industries across the continent. The U.S. has undoubtedly benefitted from this multilateral partnership, especially in terms of economic growth and strengthened relationships with African governments. As we look forward to a more fair, growing global economy, Africa must be included; AGOA has facilitated the beginning of what could be a mutually prosperous future for the U.S. and sub-Saharan Africa alike.