TRALAC - Trade Law Centre

Opportunities Abound as World Woos Africa

Monday, 07 August 2006

Source: The South African Exporter (South Africa)

Washington recently hosted the annual African Growth and Opportunity Act (Agoa) forum, an annual event mandated by the Agoa legislation which brings together stakeholders from Africa and the US.

Agoa — often misunderstood to be a free-trade agreement between African countries and the US — is in fact a piece of US legislation enacted six years ago which scrapped import duties on about 7000 qualifying tariff lines sourced from (currently 37) eligible sub-Saharan African states.

There are two obvious benefits: enhanced competitiveness for African goods in the US market, and cheaper imports (and inputs) for US producers, retailers and consumers.

While Agoa has helped some African countries boost their exports, it is widely acknowledged that preferential market access without a secure and predictable legal framework is insufficient to grow trade and investment over the longer term.

Businesses on both sides of the Atlantic are loathe to commit resources when trade preferences can be adjusted or withdrawn at the sole behest of US policy makers; decisions that may be motivated by broader political considerations rather than purely economic ones.

Despite all its positive intentions (and mixed results), Agoa is more than just token goodwill on the part of the US. Africa is seen as a potentially vast market and trade partner, and Agoa has formed the first part in a strategically mapped out path towards more formal relations.

As evident from the recent negotiations with the Southern African Customs Union, US authorities have sought to leverage growing trade under Agoa (in the context of the act’s unpredictable legal status) in favour of cementing a more comprehensive trade pact that includes not only trade in goods, but “new generation issues” such as investment, intellectual property rights, government procurement and competition frameworks.

Unable to compromise, both sides failed to find common ground on key issues and walked away from the negotiating table. The US in particular was adamant that any new trade agreement had to be consistent with its model framework agreement, and its aspirations particularly on nongoods trade issues.

Enter China to spoil the party. In the middle of an economic boom, China has for the past few years embarked on a charm offensive in Africa, scouting for investment opportunities, building trade ties and seeking natural resources.

As competitive Chinese-made goods today find their way into every corner of Africa, so are increasing volumes of the continent’s commodities helping to sustain Chinese expansion. And Chinese interest appears to be warmly welcomed across Africa, including the south: no awkward questions, no unreasonable conditions, and no moralising on democratic, human rights and environmental conventions.

Despite all its challenges, Africa again finds itself in the enviable position of having a handful of wishful suitors. But while Chinese President Hu Jintao, Premier Wen Jia Bao and Foreign Minister Li Zhaoxing recently weaved their way across Africa, having on separate occasions visited Tripoli, Dakar, Luanda, Accra, Kinshasa and Cape Town, so has interest in Africa also grown in the US.

Having largely failed to impose its own terms on deeper engagement with Africa, suddenly there is acknowledgement, not least in a recent call by US trade representative Rob Portman to congress for an alternative approach to trade ties with Africa, that the objective of concluding the somewhat unwieldy and comprehensive free-trade agreements may not be the answer to further interaction in the short term.

The US is of course mindful of the danger of losing ground to less picky trade partners in the east. In a sense it has become — as has Europe — an unwitting victim of its own yardstick.

Trade and investment framework agreements are just one way that the US is pursuing closer trade and investment relations with “ready and willing” African countries. Having earlier concluded a trade and investment framework agreements with SA, Mozambique, Nigeria and Ghana, the most recent agreement was signed a few weeks ago with Rwanda, a country relatively rich in natural resources yet whose total trade with the US was last year valued at little more than $5m.

While trade and investment framework agreements are largely short on substance, they do set in motion increased bilateral consultation, not least through the establishment of so-called councils on trade and investment.

Within these councils any bilateral trade or investment matter may be raised, and they are explicitly mandated to identify (and work towards the removal of) impediments to US-African trade and investment.

As such, they potentially present exporters with a valuable opportunity of raising issues relating to market access, including but not limited to tariff and nontariff barriers.

For African exporters the current climate is potentially a very positive one. Strategic manoeuvring on the part of policy makers in the context of bilateral and multilateral trade negotiations will, however, remain of utmost importance if they are to leverage this advantage and help translate it into greater market access for exporters.

But while commitments on the new generation trade issues have largely been held off for now, the reality is that competitiveness through preferential market access — usually based on margins of preference over competing trading nations — will on their own be insufficient in the long run to keep exporters in business.


Eckart Naumann is an economist and associate of the Trade Law Centre for Southern Africa, an independent organisation based in Stellenbosch.