Awaiting Further Action on AGOA from Obama
Mwangi S. Kimenyi, Director, Africa Growth Initiative
Zenia Lewis, Research Assistant, Global Economy and Development, Africa Growth Initiative
Brandon Routman, Research Assistant, Global Economy and Development, Africa Growth Initiative
The Brookings Institution
October 27, 2011 – President Obama issued a press release on October 25, 2011 where he announced the trade benefits of the Africa Growth and Opportunity Act (AGOA) would be restored to Ivory Coast, Guinea and Niger. Each country had previously been deemed ineligible—Ivory Coast in 2005 amidst the country's political turmoil; Niger in 2009 after the president extended his term against the country's constitution; and Guinea in 2010 after a coup. Over the course of this year, all three countries hosted elections that were considered free and fair, which compelled the Obama administration to re-extend to them AGOA's benefits. These three nations and the many U.S. companies that can now conduct business more easily will be grateful for the ability to expand their business and for jobs to be created.
Revocation of AGOA eligibility is supposed to be a punitive measure hurting those countries that do not uphold democratic ideals. Unfortunately, the real losers are not the dictators or autocrats who are primarily responsible for the acts that lead to revocation, but the people for whom AGOA creates jobs and a livelihood. In 2009, for instance, Madagascar lost its AGOA benefits after a political coup. Up to that point, the country had been an AGOA success story, a "leader in the utilization of the trade benefits" according to the State Department, and had tripled its exports to the United States through the program. Also, crucially, the legislation had created some 50,000 jobs in the island country. The revocation of AGOA has since meant that many of those jobs have been lost, factories have closed and wages have plummeted.
Revoking eligibility in one country also hurts other nations due to the interruption of supply chains. In essence, losing AGOA's benefits imposes costs on neighboring well-behaved governments, punishes regional trading partners and generally raises investor uncertainty. Thus, while we applaud the actions by President Obama on Tuesday, there is a need for his administration to reevaluate the revocation clause and its far-reaching implications on other countries and people. Recommendations for combating this include allowing noncompliant countries to continue providing inputs to regional supply chains, but not directly export to the U.S., and implementing a gradual removal of trade preferences as governance standards decline so investors have a more predictable trade environment. This is especially relevant considering the Obama administration's interest in promoting intra-regional trade.
In addition, the most urgent issue pertaining to AGOA is the extension of the Third Country Fabric Provision. This Provision allows for AGOA-eligible countries to first import fabrics from outside the continent, which would otherwise be cost prohibitive, and then produce the raw fabric into purchasable items, and finally export them to the United States. Set to expire in 2012, the provision has helped revive Africa's beleaguered textile/apparel industry and has generated thousands of jobs on the continent. Allowing it to expire would be a serious blow to the fledgling apparel sectors that have developed throughout many countries in sub-Saharan Africa.
Earlier this month, the AGOA Action Coalition hosted a meeting including, stakeholders from the U.S. Congress, the African Union, African ministries of trade, and the apparel sector, among many others, to discuss enhancing AGOA. The meeting also affirmed the benefits of the Third Country Fabric Provision and demonstrated broad support for it and its contribution to increased African apparel trade.
As of now, the Obama administration has not devised any major innovations concerning the U.S.-Africa commercial relationship. The Third Country Fabric provision is key to the viability of AGOA and the administration should prioritize extension of this provision as a matter of urgency.