TRALAC - Trade Law Centre

Happy 10th birthday AGOA but why is there no party?

Monday, 24 May 2010

Source: The East African (Kenya)

Congratulations abounded on Capitol Hill in Washington at a 10th birthday celebration for the Africa Growth and Opportunity Act.

“By opening the American market to almost all goods from beneficiary sub-Saharan African countries, Agoa has helped Africans use trade to fight poverty and grow their economies,” US Trade Representative Ron Kirk declared.

Mr Kirk acknowledged, however, that “more can be done to help African countries make the most of the opportunities Agoa provides.”

Analysts outside the US government agree that Agoa did produce significant gains for Africa in the first five years after the preferential trade programme was signed into law by President Bill Clinton on May 18, 2000.

Agoa was mainly intended to boost African textile and apparel sales to the United States by providing duty-free access for those products for countries that met US political and economic criteria.

The theory was that development of a textile manufacturing sector could power an overall economic takeoff in Africa just as had occurred decades earlier than in East Asia.

And there were signs that Agoa might indeed succeed in that regard.

Kenya’s clothing exports to the United States, valued at $30 million in 2000, had soared to $258 million in 2005. Similar gains were enjoyed by a few other African countries that had at least a rudimentary textile manufacturing infrastructure in place at the time of Agoa’s inception.

The trend has turned sharply downward in the past few years, however.

Agoa itself should not be blamed for this reversal, the independent analysts say.

“It was a case of being in the wrong place at the wrong time,” observes Paul Ryberg, head of the Washington-based African Coalition for Trade.

He and other experts point to the end in 2005 of an international textile quota system that had limited exports to the United States by major manufacturing countries such as China and India. With the lifting of that lid, the Asian dynamos were able to grab even larger shares of the US market — to the detriment of countries such as Kenya that lacked economies of scale and that were hobbled by weak infrastructure.

Inhibiting factors

Mr Ryberg notes that while Bangladesh is about as distant from US West Coast ports as Kenya is from US East Coast ports, it typically takes four times longer for a Kenyan shipment of clothing to reach the United States than for a boatload of clothing from Bangladesh.

In addition, production costs are much higher in African countries than for their Asian competitors. Electricity is more expensive and less reliable, for example, owing to an underdeveloped grid.

The global recession has compounded the losses sustained by African exporters. Last year, Kenya shipped $195 million worth of apparel to the US, according to Mr Kirk’s office – about $60 million less than in 2005.

Kenya has experienced a corresponding loss of apparel-sector jobs during the same period — from 32,000 to 12,000 employees, according to an Agoa information website maintained by the Trade Law Centre for Southern Africa.

As severe as those losses have been, Kenya’s apparel exporting sector would probably have disappeared entirely following the end of the quota system had Agoa not been in place, Mr Ryberg speculates.

Today, Agoa functions mainly as an oil-importing programme. Petroleum products now account for more than 90 per cent of all Agoa-covered trade, with three oil-producing countries — Nigeria, Angola and Congo-Brazzaville – reaping about 70 per cent of Agoa’s benefits.

Competitive threats to Agoa’s textile-exporting countries could meanwhile prove overwhelming if the US Congress approves a proposal to extend duty-free access to Bangladesh and Cambodia.

Paul Collier, head of Oxford University’s Centre for the Study of African Economies, warned recently that such a move “would destroy Africa’s much smaller apparel manufacturing sector.”

He notes that Bangladesh and Cambodia already enjoy annual apparel sales to the United States of $3.5 billion and $2 billion, respectively, compared to about $1 billion for all of Africa.

Mr Ryberg suggests there is a good chance that the proposal favouring Bangladesh and Cambodia could be approved next year.

He and other lobbyists focused on Africa trade are working to block the legislation while simultaneously urging Congress to help improve Africa’s infrastructure. Mr Ryberg concedes, however, that prospects for such an initiative are not promising, given the size of US budget deficits.