TRALAC - Trade Law Centre

Ten year extension sought for AGOA

Sunday, 04 August 2013 Published: | BEWKET ABEBE

Source: Addis Fortune

Next week, hundreds of delegates will converge in Addis Ababa. They will brainstorm and discuss the current state of the African Growth & Opportunity Act (AGOA). This is despite the US Congress still debating on the extension of the quota and duty-free status the AGOA offers to African exports to the US.

The opportunity was enacted into law by the US congress in 2000, so as to offer incentives for eligible countries to open their economies and build free markets. In addition, it served to transform the US-African donor-recipient relationship into a better partnership. It put the US in a position to benefit from the many emerging economies in Africa outside the extractive sectors. The AGOA allows sub-Saharan exporters export their products quota free and tariff free.

Initially set to complete its mission by 2008, it has twice been extended; in 2006 and 2008. The last extension was again set to expire in 2008. Yet, eligible countries are still asking for ten more years.

A number of eligible countries are not benefiting, the African Union Commission (AUC) claims. Out of the 39 eligible countries, only 10 of them gained more than 100 million dollars, in 2012, from exports through the AGOA. This is according to the available data from the Trade and Industry Commission of the AUC. The greater share, even in this gain, is taken by oil exporters.

"The countries haven't been beneficiaries from the AGOA as expected," says Fatima Haram, commissioner of AUC.

Since the legislation went into effect, exports under the AGOA have increased more than 500pc. This has seen them climb from 8.15 billion dollars, in 2001, to 53.8 billion dollars, in 2012. Approximately 90pc of this has been oil.

This underscores Africa's growing strategic importance to the US, according to report released in 2012. Exporters from non-oil producing countries are still not benefiting. Internal factors are increasingly being attributed for this failure.

The AGOA, which was claimed at the very beginning to be a stimulating factor for the development of light manufacturing industries, such as - textiles and apparel, leather products and shoes, couldn't yield the expected results. This is especially true when taking the potential that most African countries, including Ethiopia, has into account.

Ethiopia's exports under the AGOA are primary agriculture products and textiles, which are increasing marginally year after year. The export through the AGOA stood at 11pc of total exports to the US, in 2012. The total exports of Ethiopia through the AGOA reached 21 million dollars, in 2012.

In a country where more than 83pc of the population relies on agriculture, Ethiopia gained only 3.1 million dollars in 2011 and 3.7 million dollars by 2012 from the export of agricultural products under the AGOA.

The country with a great potential of textile and garment manufacture, which have been considered to go in line with the Growth & Transformation Plan (GTP), gained 9.9 million dollars in 2011 and 11 million dollars by 2012.

The country also earned 6.8 million dollars from the export of footwear through the AGOA. Compared to the other sectors, this shows a relatively better performance, since close to 97pc of the revenue from the export to the US was gained through the AGOA.

Anbessa Shoe SC, the biggest shoe producer in the country, is one of the companies that started exporting footwear, recently, through the AGOA.

"We always want to use the opportunity. But, we couldn't get clients," Tesfahun Alamirew, marketing & sales manager with the company claims. The right chain is not apparent to him.

"Ministry offices, such as the Ministry of Trade,(MoT) as well as industry, invite us to attend whenever there is any conference concerning the AGOA. But, they haven't ever helped us in facilitating the link that we need to have with buyers," says Bamlaku Demisie, acting general manager of the company.

The issue of getting buyers is, of course, a big deal for almost all exporters Fortune talked to. The MoT, which has the mandate to take care of dealing with the export destinations on the issue of tariffs and quotas, cannot go further, says Geremew Ayalew, director of Foreign Trade Relation & Negotiation Directorate at the MoT.

"The problem is mostly associated with quality," he claimed.

However, senior managers of Anbessa do not agree with the argument that claims products to be exported are not of a standard fit for the US market.

"We can attribute the failures to quality, only after we have the access. We don't have it at all," said Bamlaku.

Anbessa's sales manager says there is great demand, both in the US and Europe. The opportunity is not being taken simply because there is no link that can put the two parties together.

"We sent 17 shoe models and had encouraging feedback concerning their quality. This was with the exception of one model, which we had its sole imported from China," says Tesfahun.

The problem of finding partners is not only specific to the leather sector.

There is a visible gap in identifying the demand and the supply, according to Ruha Zeleke, salesman with Abem Garment plc, which exports garments within a subcontract.

"There need to be intermediates, in order to easily find partners in the US or Europe," Ruha says.

Without the support of the government, entering into the US market through the AGOA is not an easy task. This is especially true for beginners whose products are not well promoted, according to Ruha.

"Most of the companies have to promote their products at a high cost, which is difficult for many of them," he added.

Whatever the specific reason is and whoever the body to balm is, both the government and local companies agree that the failure to achieve the potential benefits of the AGOA emanate from internal factors.

Countries with similar potential to Ethiopia export a much higher volume through the AGOA. Kenya earned close to 100 million dollars, in 2012. This amount is 45pc of the Kenya's total exports to the US. This is unlike Ethiopia, which exported only 11pc of its export to the US through the AGOA.

Ethiopia's share puts it among the least benefited countrie,s even when compared to neighbouring countries. However, government institutions are busy with their own efforts to make the AGOA sustain more.

Currently, the MoT and the Ethiopian Chamber of Commerce & Sectoral Associations are drafting a new AGOA response strategy. Through this, they plan to identify key supply side constraints to help the export to the US through the AGOA.

Two weeks ago, stakeholders met at the ECA conference hall, with the privileges of the AGOA only having a month left before expiry. At the meeting, close to 110 companies took part out of the 300 invited by the Ministry. The meeting finally saw an agreement to organise a Committee to take care of the issue of the AGOA alone.

Two different structures for the handling of the Committee were suggested at the meeting. The first one is that the Committee will be directly accountable to the Prime Minister's Office, while the second option is to make the Committee accountable to the MoT.

The first one will most likely be implemented, according to an official at the Ministry who is close to the issue.

"Much remains to be done to exploit the full potential of AGOA," Yidnekachew Simie, deputy secretary & advocacy department manager at the Ethiopian Chamber of Commerce & Sectorial Association, exclaims.

This is why the Obama administration has been pushing the US congress to extend the program, according to Eyob Tekalign, advisor on the AGOA at the MoT.

The issue of mutual benefit will be something that will further strengthen the political support for the AGOA to be extended, Donald Booth, US ambassador to Ethiopia, said at the conference held on July 18, 2013, at the ECA conference hall.

Although it is the US Congress that decides the fate of the AGOA, it is not what worries stakeholders, including the MoT.

The possibility of expiration is very low, Eyob confidently claims. Other government officials too are optimistic about the extension of the AGOA for the next ten years.

"We don't think the US congress will stop the program, which has not yet met its goals," Geremew says.

However, experts like Tamiru Wubie, claim that the extension of the free tariff and quota alone is not enough.

Unless the country develops the capacity to be competitive in the international market, the opportunity alone cannot lead Ethiopia anywhere, according to Tamiru.

Ethiopian products under the AGOA have the advantage of a 17.5pc tariff reduction, which should have been used properly, said Geremew.

"The bigger problem is that we couldn't penetrate into the market," he suggested.

The 11th AGOA conference, which is to be held from August 9 to 13, 2013, is expected to incorporate frank and serious dealings in a manner that both the US and Africa can be mutual beneficiaries.

The negotiators on both sides will be there to deal with how the AGOA should benefit African counties.

Exporters, such as Anbessa, will also have their own ambitions with the outcome of the conference. They will, thus, also be there with high hopes.

The fact that hot debates and serious negotiations will be entertained makes the upcoming Forum a bit different from the previous ones, says Geremew.