The U.S. Lawmakers and Trade Policy Officials Launch Debate on the Extension of AGOA

The U.S lawmakers and trade policy officials have started debating the renewal of the African Growth and Opportunity Act ( AGOA) which is due to expire in 2015. The AGOA is a unilateral system of trade preferences that allows United States to import over 6500 different types of goods produced in Sub-Saharan Africa  on duty-free quota free basis. The AGOA was originally designed for eight years; from 2000-2008 but was later extended to 2015.  

A group of U.S. lawmakers and trade policy officials are examining the efficacy  of AGOA in increasing investment, trade and job growth between African countries and the United States. Among the group lawmakers and trade policy officials are; bipartisan legislators-House Foreign Affairs Committee, the Senate Foreign Relations Committee, the House Ways and Means Committee and the Senate Finance Committee.

Along the same lines, the U.S. Trade Representative Michael Froman has asked the U.S. International Trade Commission (US ITC) to conduct four studies related to AGOA to inform the policy debates on the renewal of the AGOA. The studies are examining the performance of the AGOA since its launch in 2000. Consistent with his views expressed at the 12th AGOA Forum held in Ethiopia, the USTR is specifically interested in the; impact of AGOA on the business and investment climate in sub-Saharan Africa, possible changes to the AGOA Rules of Origin to promote regional integration as well as the likely impact of the EU-Sub Saharan Africa Free Trade Agreement on U.S. exports to Africa. A public hearing is scheduled for 14th January 2014 at the US ITC in Washington, D.C. Interested parties are expected to submit comments by January 21, 2014.  

Meanwhile during the 12th AGOA Forum in Ethiopia, August 2013, the African Group called for extension of AGOA for not less than ten years. However history shows that the U.S has not operated the AGOA for a period of more than 8 years. Thus, extension of AGOA for more than 10 years seems to be far fetched.They also called for the revision of the AGOA rules of origin to reflect the development and capacity perspectives in Africa. The African group also called for extending the the third country fabric to run for the same period of the AGOA. But U.S is aware that that simpified rules of origin and a continued 3rd country fabric arrangement could provide an opportunity for the more advanced Asian economies to route their products to United States through Africa under the auspices of AGOA. 

At the same 12th AGOA Forum, the USTR  urged the parties to reflect on the benefits of a reciprocal relationship in form of a free trade agreement like the Economic Partnership Agreement between Sub Saharan Africa and the European Union or the form of a trading arrangement Africa is pursuing with China. The dynamic global forces seem to indicate that world economic powers are shifting their strategy of engagement with Africa. The gift or donor strategy is being refocused and increasingly, reciprocity is being seen as the way forward. Reading between the lines, the extension of AGOA seems to be in balance.

In a nutshell, although the U.S is not expected to drop a formal trading arrangement with Sub Saharan Africa, it remains to be seen, what the Super Power will decide come 2015. The less likely outcome is the extension of the AGOA in its current form. It is also not likely that the AGOA objectives will be dropped. But Africa should prepare for some surprises, the most likely outcome may be an an extension of AGOA characterized by a movement towards a more predictable arrangement and not necessary devoid of reciprocal pressures. The interest of the U.S. lawmakers and trade policy officials seem to say it all. They seem to be positioning to answer the question; what strategy can the U.S use to remain with a competitive space for trade and investment with or in Africa under the new global dynamics?

Obama Promises during Africa visit to Extend and Improve AGOA after 2015

The US President Barack Obama promised during his visit to Senegal to improve the the African Growth and Opportunity Act (AGOA); the US initiative that allows African countries to access the US market on duty free Quota free arrangement. President Obama told joint press conference with his Senegalese counterpart Macky Sall that"AGOA will end in two years time. But I will seek for modalities to renew and improve the law to regenerate more trade and employment opportunities,"

The President's promise is good news indeed given that up to now US authorities had a clear signal that the AGOA will be extended come 2015. Now that the President himself has made the promise we can hope that the AGOA will be extended; after all the arrangement itself is a Presidential Initiative. 

On the face of it, this should be good news to Africa. But of course we know that the President still has to convince Congress before the promise to extend AGAO can become a reality. There is still another huddle to over come. The US may extend the AGOA but the extension of its Waiver at WTO is also required. The extension of the WTO Waiver might turn out to be a serious huddle given that other countries like Cambodia, Bangladesh and Vietnam are also seeking for a similar preferential arrangement from the US. These countries will of course try to broke the extension of the AGOA waiver at WTO on grounds that the initiative is discriminating in nature as it does not cover all developing countries . The AGOA violates the Non discrimination requirement of WTO and that is why it must be provided a waiver at WTO. The current waiver expires with the AGOA in 2015. The likes of Cambodia have already used the WTO platform to express to the US their demand for the AGOA equivalent. It remains to be seen how this will play out. 

In any case the period of extension will also determine the extent to which the AGOA will remain relevant to the economic development needs of Africa. At the moment some schools of thought say that the AGOA has not helped Africa realize economic growth as anticipated by the Act. It is said that the time span for the AGOA has always been a short period so inadequate to attract large scale foreign direct investments. As an example, this school of thought say that US citizens and others from more developed economies have failed to take advantage of this noble AGOA initiative because the arrangement does not provide guarantee returns to long term targeted investments. It is believed that this is so because of AGOA's short time nature and the fact that the initiative itself is unilateral thereby making it difficult for investors to predict its continuity after a certain period. 

In addition, Africa has it own internal challenges relating to the supply side constraints. The challenges explain why since the launch of the AGOA in 2000, not many African countries have significantly taken advantage of the initiative. Save for a few countries-Kenya, Mauritius, Lesotho and Botswana, most of the other countries have not benefited as much. The American market is highly capitalistic with unique market demands. Penetration into the US Market requires clear response mechanism that address the constraints along the value chain and tailor the production systems to the US market needs and requirements. African countries continue to face challenges related to transport infrastructure, limited storage and warehouse facilities, limited investments in value addition, low capacities to comply with standards and rules of origin requirements, ignorance about the market, and un integrated value chains, among others. 

Obama has promised will extend the AGOA but without clear response mechanism to address the above challenges, Africa will not effectively take advantage of the initiative. It should also be recalled that effective implementation of the response mechanism is also dependent on the duration of the AGOA. 

In short, should AGOA be extended? yes. Will Africans benefit much from the extension of the AGOA? yes but only greatly if they are able to address the supply side constraints and attract plausible investments . But duration of the extended period of the AGOA is obviously going to be a key indicator in addressing the above challenges. 

WTO Waiver is Needed for the Extension of AGOA Come 2015

The African Growth and Opportunity Act (AGOA) will expire in September 2015. AGOA extension requires another World Trade Organisation (WTO) waiver because it is inconsistent with the Most Favoured Nation obligation. Programs such as the Generalized System of Preferences (GSP), under which developed countries grant preferential tariff rates to developing country products, such as the African Growth and Opportunity Act (AGOA) require a waiver by the World Trade Organization (WTO) .Such programs are inconsistent with the Most Favoured National obligation because they accord some countries more favourable tariff treatment to selected countries than is accorded to other WTO Members.

Read more on why a WTO Waiver is Needed for the Extension of AGOA beyond 2015