African nations must make wise use of Agoa, prepare for new era
Africa can no longer rely on it as the centrepiece of trade relations with US
THE recent decision by the US to renew the African Growth and Opportunity Act (Agoa) for a further 10 years represents good news for Africa. But African countries must improve their trade policies if they are to take full advantage of Agoa benefits.
Introduced by the Clinton administration in 2000, Agoa allows sub-Saharan African countries duty-free access for the bulk of products exported into the US market, provided these countries meet certain governance criteria.
Since Agoa’s inception, the total value of African exports to the US has more than quadrupled in size. In 2013, total trade between the US and Africa amounted to $63 billion (R765bn). In the same year Africa enjoyed a trade surplus with the US, with imports from the continent into the US market totalling $39.3bn. The lion’s share of these imports ($26.8bn) were Agoa-eligible. Agoa has also complemented regional integration efforts in Africa and supported the creation of regional value chains. It has also provided an effective platform for co-operation between the US and African nations. Moreover, the goodwill fostered by America’s provision of unilateral market access concessions to African exporters has shored up US-Africa relations.
Even so, the implementation of Agoa has been hampered by a number of domestic and external policy factors. Firstly, outside of South Africa – whose exports to the US include precious stones such as diamonds, vehicles, iron and steel, machinery, as well as agricultural products such as wine, fresh fruit and tree nuts – Agoa has largely failed to stimulate a meaningful diversification in African exports.
Although African exports to the US have grown exponentially, these exports have remained heavily concentrated in oil and petroleumrelated products; 85 percent of African exports fall within this category. African countries must diversify their economies and exports if they are to fully exploit Agoa’s trade preferences. Central to this is the need to build manufacturing capabilities and stimulate industrialisation.
Secondly, US agricultural subsidies, combined with tough sanitary and phyto-sanitary measures, have constrained the ability of African agricultural producers to compete in the US market. These factors have meant that even with the provision of Agoa trade concessions, African countries still struggle to export value-added agricultural and agro-processed products to the US. Although the tetchy issue of agricultural subsidies is unlikely to go away soon, African farmers should take greater advantage of the financial and technical assistance provided by the US government through the Agoa scheme.
Thirdly, there has been a problem of underutilisation of Agoa benefits by African exporters. African governments must actively assist exporters to take better advantage of the preferential access into the US market provided by Agoa. To this end, they must place greater emphasis on removing barriers to trade by, among other things, removing supply-side constraints and tackling infrastructural and skills defi- ciencies. They must also use Agoa as a platform to promote industrialisation of their economies.
Agoa is the most valuable gift the US has given to Africa. Yet African nations can no longer rely on it as the centrepiece of their trade relations with the US. For Agoa is not a negotiated, reciprocal agreement: it is an American initiative that provides non-reciprocal preferences to eligible African countries. This means the US can arbitrarily suspend or withdraw its benefits to participating countries.
To be sure, the recent review of Agoa by American policymakers suggests that its continuation cannot be guaranteed when it expires in a decade’s time. This uncertainty is a consequence of changes in US trade policy, which, in turn, have been brought about by new global conditions. Agoa came into existence amid globalisation’s finest hour and at the height of the US economic boom. Since then, the global economic environment has deteriorated and this has strengthened the influence of trade protectionists in the US. Also, the US has been shaken by the rise of China and has been using trade as a tool to reassert its position as the preeminent global economic power. That explains why it has been leading efforts to conclude a TransPacific Partnership trade deal, which would include the US, Japan and 10 other major Pacific economies – but exclude China.
In the light of these global shifts, it can be surmised that US policy towards its African trade partners will in future be less generous and less accommodating. African nations would do well to make wise use of the 10-year extension of Agoa and retool their economies in preparation for a post-Agoa era.