K i n g f o r
AS THE Africa Growth and Opportunity Act (Agoa), a US law passed in 2000 to help African countries export some products quotafree and duty-free to the US, benefited African countries or has it benefited mostly US exporters and companies from emerging markets, who use the Act to send their products to the US through Africa?
In June, President Barack Obama renewed Agoa for another 10 years. It was due to expire in September. President Bill Clinton steered the original 2000 Agoa bill, which gave trade preferences to more than 6 400 African products.
The June renewal of Agoa was accompanied by another bill, which extended protection from foreign trade to US workers.
President-elect Donald Trump has vowed to adopt an “America first” trade policy and to renegotiate all foreign trade deals. This means Agoa, which includes 39 African countries in trade with the US, might also be reviewed.
A research paper published by the Centre for the Study of African Economies at Oxford University said Chinese textile companies, for example, set up in Africa and sent their products to the US. Under the guise that the products were made in Africa, they got free access to US markets. Africans had little input in the assembly of such Chinese products, neither was much valueadded to African economies.
This practice is called transhipment. Agoa officially prohibits it and any non-African company found to have done so by US authorities is banned from exporting their products to the US under the Agoa framework for five years. Agoa’s rules say African exporters must source certain inputs for their products either locally or from the US.
However, Agoa is very lenient about rules of origin – how much value an African country should get from a product exported to the US.
The World Bank and the
HInternational Monetary Fund have criticised Agoa for excluding key African products and providing subsidies to US companies deemed under threat from African competition.
The US subsidises its agriculture sector, for example cotton, which many African countries export. Former US Trade Representative Ron Kirk said the US could only cut some agricultural 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.
A core requirement for Africa, if the continent wants to achieve better, more equitable, growth is for countries to add value to raw materials and diversify into manufacturing and services.
Agoa is only available to African countries which have adopted, or are making progress doing so, policies approved by the US. They must have established marketbased economies, reduce trade barriers for US companies and protect US intellectual property.
Since the end of colonialism and the Cold War, Africa has been prevented from doing this by industrial nations, which have erected high trade barriers to manufactured products transformed from raw materials – those where value has been added. Raw materials from Africa do not have the same high tariff barriers.
African economies have lost wealth, jobs and economic growth because countries continue to
export raw materials to both industrial and developing countries, while these countries export manufactured and beneficiated products to Africa.
The latter create jobs and are more valued, yet are often made from cheap African raw materials, exported back to Africa as a more expensive finished product. Some emerging powers – China and Brazil – are even transplanting their manufactured goods from their home base to Africa.
The success of any trade deal between Africa and industrial or emerging markets, therefore, is based on whether Africans can develop value-added manufacturing to be exported.
Most African countries export raw materials, such as oil, metals and agricultural products. Agoa has since its inception contributed to a 78 percent increase in overall trade between Africa and the US. However, the devil is in the detail of the trade. US imports from Agoa beneficiaries represent only 1 percent of total US imports.
Energy accounts for 88 percent of exports from Africa to the US through Agoa, with oil accounting for 68 percent in 2014. However, oil imports from Africa to the US have actually declined overall by 80 percent since 2011.
Exports to the US of natural resources, such as crude oil, precious metals and oil seeds have grown under Agoa, while manufactured products, such as clothing, consumer electronics and vehicles, have declined.
The African countries that have oil and gas dominate exports under Agoa. US International Trade Commission figures showed almost 90 percent of products traded under Agoa went to four countries: South Africa, Nigeria, Angola and Gabon.
African agricultural products might not face high tariff barriers under Agoa but they face complex health and safety rules in the US, which effectively translates into high tariff barriers.
If one excludes South African exports, the second largest imports from Africa to the US under Agoa are textiles and clothing. However, a recent study by the US Congress Research Service showed African countries which export them have not been able to move from lowskill production to higher-skilled manufactured products.
Kenya’s President Uhuru Kenyatta said African efforts to diversify their exports to the US away from energy have not been “fully realised”. They faced “enormous challenges, such as lack of competitiveness, supply capacity constraints, weak infrastructure, low flow of private investments from the US, lack of access to finance and low technical capacity”.
The US under the Obama administration has opposed African countries’ calls to have more products securing access to US markets under Agoa, arguing they should better use the current provisions.
African countries need to diversify the products they produce. They need to add value to their oil, metal and agricultural products. But they must also diversify their trade with other developing and industrial countries. African countries must trade more with each other.
Restless Nation: Making Sense of Troubled Times Tafelberg