US Lawmakers Consider AGOA Renewal as September Deadline Approaches

26 February 2015

The debate over the renewal – and updating – of the African Growth and Opportunity Act (AGOA) has ramped up in Washington in recent weeks, with US lawmakers sparring over the potential length, funding, and features of the scheme’s next iteration, given that the current version will expire on 30 September.

In the budget sent to the US Congress earlier this month, the Obama Administration backed a full renewal of AGOA, calling for lawmakers to enact a 15-year extension.

The current version of the trade legislation provides about 6000 African products with preferential quota- and duty-free access to the US market.

The bill expands upon the US Generalised System of Preferences (GSP), a set of formal exceptions from the WTO’s most-favoured nation (MFN) principle, which allows developed countries to offer developing countries preferential treatment on specific goods.

Continuing the AGOA scheme already enjoys bipartisan support, US Trade Representative Michael Froman said when testifying on the President’s trade agenda at hearings last month of the Senate Finance and House Ways and Means Committees 

Paul Ryan, the Republican who chairs the Ways and Means panel, is among those lawmakers who support a seamless and early renewal of AGOA, Froman said.

To renew AGOA, legislation must first be tabled in the above-mentioned committees in the Senate and the House. Once they pass out of those committees, the legislation would move to consideration to the full membership of those respective chambers.

Any differences between the Senate and House versions of those respective bills would then need to be reconciled – with a final agreed version subsequent to another vote in both chambers – before going to the US President for approval or veto.

Length of extension

During the US-Africa leaders’ summit held last August, leaders agreed on the importance of a long-term renewal of the scheme and also pledged to work together to increase its utilisation by African countries. (See Bridges Africa, 13 August 2014)

The length of the renewal still remains undecided and some observers indicate that this will likely be proportional to the amount of funding that will be made available.

The African Union has called for an extension of the scheme as well as the third-country fabric provision (TCF) for at least 15 years in order to ensure more predictability for investors.

The current version of AGOA was enacted nearly fifteen years ago, in 2000.

Time running out

Though several months remain before the end-September deadline, officials and trade analysts alike have warned against leaving the scheme’s renewal to the last minute, given the potential consequences for producers and exporters in AGOA beneficiary countries

“If the renewal process is delayed to AGOA’s expiration date of September 30 of this year, it will undermine much of what the legislation has achieved, especially in the apparel sector,” said Witney Schneidman in a recent blog post.

Schneidman is a non-resident fellow with the Africa Growth Initiative of the US-based Brookings Institution and a member of the Trade Advisory Committee on Africa in the Office of the US Trade Representative.

“It is very necessary that the legislation is renewed urgently because otherwise we are going to lose jobs and trade,” said Eliachim Molapi Sebatane, who serves as Lesotho’s Ambassador to the US, while leading the African group discussions on AGOA in Washington.

Sebatane added that AGOA beneficiaries previously suffered major losses of orders and jobs because of the delay in renewing the third-country fabric (TCF) provision, a special rule that allows US apparel imports from African LDCs to qualify for duty-free treatment even if the yarns and fabrics used in the production are imported from non-AGOA countries.

In 2012, the TCF received a three-year extension just days before it was due to expire, a delay which was blamed for thousands of job losses and important investment decline.

In the absence of a confirmed reauthorisation, US importers could choose to source their imports elsewhere in order to be able to secure on-time sales, which could in turn deter future investments, explained Schneidman.

Within non-energy products, the apparel sector constitutes the top export for several AGOA countries. Countries such as Lesotho, Kenya, and Mauritius are among those which make significant use of the apparel benefits.

“I am very optimistic we will get there [with the renewal], we just need to find the right vehicle to get the right programme in place and move it ahead,” said Froman during a policy discussion last month.

Reciprocal trade with advanced economies

In recent years, some US experts have argued that Washington should focus more on two-way trade agreements with Africa in order to preserve its competitive advantage.

The European Union, by comparison, has now concluded reciprocal trade deals with three regional economic communities in Africa: the Economic Community of West African States (ECOWAS), the South African Development Community (SADC), and the East African Community (EAC). South Africa, for its part, has had an FTA with the EU since 1999.

Debates in Washington have therefore focused on making AGOA more effective by “graduating” more advanced countries, such as South Africa and enhancing its utilisation. (See Bridges Africa, 31 July 2014)

Apart from energy and apparel products, South Africa accounts for the majority of US imports under AGOA, especially for vehicles. Some experts argue that excluding large countries such as South Africa or Nigeria from the scheme could jeopardise efforts to deepen regional value chains.

In the past month, the South Africa-US dispute over poultry trade has been at the centre of the AGOA renewal debate. US senators Chris Coons and Johnny Isakson cautioned South African President Jacob Zuma that continued refusal to eliminate “unfair” duties on US poultry could threaten South Africa’s continued eligibility.  

A proposal to end the row was tabled by South African Minister of Trade and Industry Rob Davies at the end of January, though a formal resolution between the two sides has not been announced. (See Bridges Africa, 27 January 2015)

During his appearance before the Senate Finance Committee last month, Froman said that the resolution of this poultry impasse would be critical in moving ahead with AGOA’s renewal.

Towards AGOA 2.0

In a speech at the August 2013 AGOA forum, US Trade Representative Michael Froman said that the reauthorisation of the scheme would serve as an opportunity to “lay the foundation for AGOA 2.0” based on the “lessons” learned so far.

Since then, AGOA has been under review, with the US Government Accountability Officerecently releasing areportintended to assess AGOA’s eligibility process and economic impact.

The annual AGOA eligibility review process has been a recurring source of concern for the scheme’s beneficiaries. Some countries have highlighted the difficulty of meeting certain AGOA eligibility criteria – such as having a market-based economy; eliminating barriers to US trade and investment; applying the rule of law; protecting human and labour rights.

On the other hand, some US officials argue that any change to eligibility criteria could decrease the potential leverage of AGOA to foster economic and political reforms in beneficiary countries.

Since AGOA was put in place, 13 countries have lost their eligibility, although seven eventually had it restored, according to the GAO report.

Six countries – Central African Republic, Democratic Republic of Congo, Eritrea, The Gambia, South Sudan, and Swaziland – lost their eligibility primarily due to political reasons and have not regained it to date.

A 2013 European Commission study found that while EU preference eligibility is on the same level as the US preference eligibility, the utilisation rate of EU preference schemes is significantly higher compared to the US.

“Higher or lower utilisation rates are mainly the result of the stringency and/or complexity of rules of origin and ancillary requirements,” the Least Developed Country (LDC) Group at the WTO said in a report released last October.

The paper called upon WTO members, particularly the United States, to review the substance and form of their rules of origin systems, which “have not materially changed” since the 1970s. (See Bridges Africa, 5 November 2014).

Other aspects appear to be constraining the AGOA’s effectiveness, such as the legislation's product coverage, experts say.

Some key agricultural products of interest for beneficiary countries are excluded, for example. Furthermore, some of those agricultural products included in the scheme are subject to tariff-rate quotas which limit the amount that may enter the US market duty-free.

In addition to these limitations, observers have also highlighted AGOA’s lack of focus on intra-African trade, the geographical concentration of the scheme, as well as the difficulty for some countries with capacity constraints to meet sanitary and phytosanitary standards.

Some experts argue that in the current context of the current Doha Round negotiations at the WTO, full duty-free, quota-free market access should be extended to all LDCs, even though such move could lead to substantial preference erosion for some countries.

According to Froman, tariff preferences need to be part of a larger investment strategy that should include elements such as capacity building and trade facilitation to ensure that an AGOA beneficiary can take full advantage of the scheme.

“The access is not enough if you don’t have the capacity to take advantage of it,” he said last month during a Washington speech.

ICTSD reporting; “Sunset on AGOA?,” BROOKINGS INSTITUTION, 12 February 2015; “US-Africa Commercial Relationship: Time is Running Out for AGOA Reauthorization,” TADIAS, 4 February 2015; “AGOA, un renouvellement rapide souhaité,” LE MAURICIEN, 27 January 2015.

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