TRALAC - Trade Law Centre

Regional players cry foul over unfair trade with the US market

Tuesday, 02 March 2010

Source: The East African

The East African Community is not reaping maximum benefits from the African Growth and Opportunity Act, as the value of exports to the US market diminishes.

This has been blamed on agricultural subsidies in the US as well as inadequate trade facilitation, ballooning production and flight costs.

Last year, for instance, $1.4 billion worth of goods was traded between the regional bloc and the US, with revenue from EAC exports standing at $191.8 million — which is just a fragment of the billions the region garners from trade with the Common Market of East and Southern Africa and the European Union.

Economic experts blame the slow growth of trade partly on the region’s obsession with textiles — an area that was already undermined by US subsidies.

For instance, Uganda overlooked the production of essentials such as fruit juice, leather and nuts — for which it would have had an edge over other exports — for the production of textiles.

The venture failed, with the Treasury and export firms registering losses.

Agoa, which is now in its 10th year grants up to 97 per cent market access to Africa’s exports, as the US seeks a more liberalised African market for its exports.

Although $1.4 billion worth of EAC-US trade represents 15 per cent growth from 2008, the volumes remain low.

The US deputy trade representative for Africa Demetrios Marantis, recently met senior EAC officials to agree on minimum benchmarks that will boost trade.

“This figure is unacceptably low; we need to double it in another five years. Our work plan includes financial reforms, trade facilitation, agriculture food processing and improving air safety,” said Mr Marantis.

In 2008, businesses across Africa benefited from $1 billion trade facilitation grant through regional trade hubs in Nairobi, Gaborone, Dakar and Accra through the United States Agency for International development.

The funds were to address trade bottlenecks by creating one stop border points, fighting corruption and tackling poor transportation within the region, especially along major transit routes such as the Northern Corridor that serves the EAC hinterland countries of Uganda, Rwanda, Burundi and parts of northern Tanzania.

No breakthrough

So why hasn’t the region had a breakthrough?

At a meeting between Mr Marantis and the American Chamber of Commerce in Uganda, Nitin Madhvani, a member, raised the sticking issue of subsidies as the biggest obstacle to enhancing trade in products like sugar, milk and cotton.

He said EAC-US trade will remain a lopsided affair in favour of the US unless western countries eliminated agricultural subsidies that make it uneconomical to export to the US market.

“Most East Africans can produce milk at an extraordinarily low cost compared with your farmer in Louisiana or Florida, but they can’t export it because of subsidies. So when will you return this subsidy question to the World Trade Organisation because that’s where it has to be solved?” asked Mr Madhvani.

The matter is pending at the WTO talks, as the developed world remains adamant about eliminating farm subsidies that are as high as $2.6 (€2) allowance for a cow per day across major EU economies. Cotton farmers and sugar producers in the US are also heavily subsidised.

That the combined EAC countries of Kenya, Uganda, Tanzania, Rwanda and Burundi registered less earnings than the US, implies that the bulk of exports from the region are predominantly low-value products, in comparison to aircraft, machinery including communication equipment as well as high-value vegetables and grains that the US exports to EAC.

Before its collapse in 2006, Apparels Tri-star — which had received over $20 million in loans and subsidies guaranteed by the US government — had made shipments worth $300,000 in 2002, $2.8 million in 2003 and $3.8 million in 2004. Its all-time high was $4.8 million in 2004 but the volumes plummeted in 2006 with just $0.6 million worth of textiles exported.

Another firm Phenix Logistics has managed nine consignments worth $844 million, failing to meet its target of $4 million.

Mr Marantis said the region should focus on what “EAC does well in order to make the products more competitive.”

Taking a cue from the neighbour’s bad experience with the textiles, has now started exporting fruit juice to Agoa, and exporting firms are using their business model to access venture capital to expand.

Under the Trade and Investment Framework Agreement between the EAC and US, Agoa is to be broadened in order to offer improved market access.