TRALAC - Trade Law Centre

Overview of Proposed Changes to AGOA

Friday, 29 September 2006

Source: AGOA.info

A flurry of activity has seen a number of Bills being considered by the US government that could see important amendments to the AGOA legislation. The most recent Bill, by Rep. Bill Thomas (one of the original architects of the AGOA legislation), was submitted a few days ago and is currently with the House Ways and Means Committee for consideration.

The Bill, named the “Africa Investment Incentive Act of 2006” (or under its formal code HR6142), can be downloaded from AGOA.info’s archives by following this link. It deals with proposed changes to the AGOA legislation, the Generalised System of Preferences (GSP) on which AGOA is based, as well as other issues relating to market preferences for other regions.

Some of the key changes HR6142 proposes include an extension of AGOA’s apparel provisions, which not only offer duty-free access to originating garments until 2015, but also contains flexible origin rules for “lesser developed” countries who are permitted to source fabrics from outside the AGOA region. These rules have had the single most important impact on the struggling garment sector in many African countries, which has been largely uncompetitive when faced with the prospect of having to use locally-made fabrics and yarns.

The third-country fabric provisions are set to expire at the end of September 2007, after which garment exports must be manufactured from local fabric. In the October 2006-2007 period, the quota associated with these rules has been halved, meaning that the restrictions may kick in earlier (for quota statistics, AGOA.info provides all data, by country, since AGOA’s inception – by following this link.)

Under the proposed changes, the quota for the 2006/2007 period would be increased sufficiently so as not to hinder garment exports from Africa. Likewise, the Bill proposes extending these apparel provisions by a further year to 2007, likewise under an enlarged quota of 3.5% of total US garment imports (this quota being sufficiently large to provide little hindrance to Africa’s garment exports under AGOA).

The Bill also proposes to introduce a value-added rule of origin for apparel exports from eligible AGOA countries that currently benefit from the flexible rules of origin. This entails a local 50% value-added requirement in the first three years after September 2007, rising to 55% in year 4 and 60% in years 5, 6 and 7 (the last being 2015). Local value-added is based on the local cost of direct processing as well as direct materials used in the manufacture of qualifying garments.

A further proposal relates to cumulation of origin, a concept that expands the number of countries whose processing (value-adding) may be taken together with any local value-added to make up the required minimum threshold. Here the Bill proposes cumulation of origin with the USA, countries benefiting from the Caribbean Basin Initiative (CBI), the Andean Community countries as well as all other US trade partners with which the US has concluded a free trade agreement. In other words, AGOA countries would not be limited to sourcing from other AGOA countries, but from a range of other countries.

Regarding the GSP, the Bill proposes an extension of the US GSP by a further 2 years to the end of 2008, and also changes to the Competitive Needs Limitations (CNL). These would remove GSP benefits of a product (from a particular beneficiary country) where aggregate exports (from that beneficiary country) of such a product exceed US$ 1,5bn worth of exports to the US in the preceding year. These provisions would begin at the start of 2007.

Eckart Naumann

tralac Associate