TRALAC - Trade Law Centre

New AGOA: Merely recycling old ideas?

Monday, 24 May 2010

Source: This Day (Nigeria)

A few weeks ago, the AGOA Action Committee - a group consisting primarily of U.S. companies, U.S. academics, and Washington-based NGOs - recently released its six-pronged policy proposal that allegedly signifies a new U.S. policy approach toward Africa. This comes at the time of the 10th anniversary of the passage of AGOA and when a general stock-taking is underway in Washington. However, many of the policy proposals put forth are merely the repackaged ideas of old and, more importantly, reflect a failure to understand how both U.S. and African stakeholders need to and have changed in this post-recession new world order.

The six proposed prongs are to (1) protect, extend, and expand AGOA, (2) revitalise Africa’s agricultural sector, (3) make U.S. aid smart and effective, (4) expand and reform the Millennium Challenge Corporation, (5) increase financing for U.S. exports to Africa through the U.S. Export-Import Bank, and (6) increase support to the Overseas Private Investment Corporation. However, these proposals are troubling for many reasons. First, none of these ideas are new. All six proposals have been pitched to past U.S. administrations and Congresses and the political will has been lacking to carry them through. Where are the new, dynamic ideas that the Obama Administration is hungry and asking for? This is supposed to be the era of change, yet we continue to be presented with 20th century ideas in a 21st century world.

Second, throughout the proposal, one reads language about the enactment of tax credits, loans to African businesses, increased funding for U.S. aid and development programs, and increased financing and assistance to African stakeholders as possible ways to carry out the proposal. All of these ideas require government funding, yet there is little mention of where the money will come from. The United States is coming off its worst economic period in decades. To stave off further financial difficulties and a deepening and longer term recession, the Obama Administration had to inject several trillion dollars into various sectors. In addition, the U.S. Congress recently enacted a revised health care initiative in the United states that will require prolonged additional funding prior to and during the implementation period.

Finally, the same U.S. Congress is currently contemplating additional financial regulation to stave off a repeat of the activity that led to the financial crisis and is entertaining the possibility of U.S. immigration reform – all of which, if enacted, will require even more funding. Not to mention the fiscal obligations embedded in ongoing U.S. activities in Iraq and Afghanistan.

It will take U.S. taxpayers and the U.S. Government, through different fiscal initiatives, several years before any of this money is recovered and the United States returns to the days of Clinton-era surpluses. The reality is that the United States has prioritised getting its own house in order after years of neglect and it is not in a position to take on any additional obligations at this time.

Third, while the idea of protecting, extending, and expanding AGOA is noble in intent, it does not reflect the current political reality in Washington and economic reality in the marketplace. As has been stated in prior Trade Hound missives, there is a strong and determined legislative effort to simplify U.S. trade preference programs and extend duty-free, quota-free access to all lesser developed countries, not just those in Africa. The objection coming from U.S-based African policy proponents is that any past gains made by African manufacturers, particularly those in textiles, will be eroded if opened up to free and fair competition. Unfortunately, the economic reality that these policy proponents are faced with is that this is the nature of competition in the free market system. U.S. – as well as worldwide - consumers (whether individuals, distributors, or downstream manufacturers) are generally unconcerned about their sources of supply, as long as the supply is consistent, to specification, safe, on time, and within budget. World suppliers like China, Japan, the EU, India, Brazil, Russia, Cambodia, Bangladesh, South Africa, and Ghana all know this. African policy proponents should adjust to this reality and make proper proposals with this in mind.

Fourth, the desire of certain U.S. Congressmen to reform the trade preference programs has been around and known for years. However, the response over the years from African (both businesses and governments) and U.S. stakeholders has been tepid at best. The facts demonstrate that there has been limited utilisation of AGOA over the past 10 years and a failure to take advantage of the existing capacity building and financial opportunities being offered. Yet African policy proponents plead for additional time. This is the same plea made when AGOA was first extended in 2004. It begs the question that if, after 10 years of special and near exclusive U.S. market access, one fails to sufficiently utilise what decision-makers have been told is a necessary benefit, then why should those extending the benefit not consider extending it to others? Rather than let the watering hole suffer from neglect, it may be better to open it up to those that want to drink from it.

All of this culminates in one final point. The last 10 years of AGOA have demonstrated an important lesson: as much as African policy proponents have and are failing to come up with any new and dynamic proposals, African stakeholders still have no one to blame but themselves. The same problems that plagued them prior to AGOA are the same problems that plague them today – high input costs, poor infrastructure, lack of access to financing, and failure to meet international quality standards. Rather than object to the near-certain changes coming, it may be more beneficial in both the short and long term to embrace them and use them as a mechanism to compel needed improvements to be a more competitive participant in the world market.

After 10 years of limited success under AGOA, there is no question that a new policy approach with and from Africa is in order. However, having policy proponents request post-recession funding and recycling old ideas, coupled with African stakeholders failing to take responsibility for their own fate, is not the way forward.

The post-recession new world order has presented a new and enticing opportunity for all those involved, but it remains to be seen whether and how this opportunity will be seized. For now, the band plays on . . .

By Victor Mroczka, This email address is being protected from spambots. You need JavaScript enabled to view it.. Source: This Day (Nigeria). Mroczka’s views are his own and should not be attributed to any of his clients or his firm.