Good Afternoon,

I would like to thank the American Bar Association of International Law and those who organized this very timely and important discussion for inviting me to be part of this panel today.

 The Corporate Council on Africa (CCA) is keenly interested in the debate on whether or not to harmonize trade preference programs under one common regime. The result of said action would have significant consequences for our member companies and for most countries in Africa. As a brief overview, CCA is a member based organization of more than 170 U.S. companies operating in Africa, which represent nearly 85 percent of investment in Africa. Our mission is to strengthen and facilitate increased trade and investment between the U.S. and the African continent. As such, CCA and its member companies support reform in the trade preference programs. We do so confirming that particular trade preference programs, such as the African Growth and Opportunity Act, while having being successful in increasing trade and investment with Africa in the past, have seen their effectiveness peak. We are working towards a new peak.

Our organization is interested in reforms that would streamline trade preference systems, be more inclusiveness of other developing countries and their products, yet without creating trade preference erosion and diverting trade away from Africa. We are confident that this can be achieved through the renewal of all preference systems, namely the General Systems of Preferences (GSP), the African Growth Opportunity Act (AGOA), Caribbean Basin Initiative (CBI), and the Andean Trade Preference Act (ATPA).

In working towards an improved U.S. trade preference system, we must bear in mind that these programs were created with at least two priorities in mind. First, they intend to promote economic development in poor countries by providing export opportunities to the U.S.. Secondly, they serve as an effective tool for providing incentives to developing countries to support our commercial and political objectives. These goals should, and are, still being pursued to foster greater economic prosperity.  According to the U.S. General Accounting Office, overall, trade preferences programs have a small effect on the U.S. economy. They accounted for nearly 2 percent of U.S. imports or $31 billion in 2008, when excluding energy products. This trade volume is small in comparison to the U.S.’s total import bill of $1.5 trillion. Yet, this volume has had a profound impact on helping lower-income countries and in helping to advance America’s strategic goals.

There are approximately five U.S. regional trade preference programs –their relevancy continuing based on the fact that developing countries face very different challenges to economic growth and integration to the global economy. Harmonizing trade preference programs under one common regime with an eligibility criteria based on an economic threshold will not address the issue of uneven development. Lesotho is the epitome as to why a one common trade preference regime will lead to trade erosion and trade diversion. From 2000 to 2004, Lesotho saw 98 percent of its products, mainly textiles, enter the U.S. duty free, earning it $467 million in 2004. At the end of that year, when the World Trade Organization’s (WTO) Multi-Fiber Agreement expired, Lesotho and other sub-Saharan textile manufactures saw their orders drop dramatically, as U.S. companies switched to sourcing from Asian countries. This unfavorable situation will surely repeat if a common trade preference system were implemented.

This is not to state that the current programs do not have their challenges. One of the more substantive challenges is that poor Middle Eastern and Asian countries are not fairly represented in U.S. preference programs. There are also concerns about the effects of the programs on their beneficiaries as well as the legislated timeframe of these programs. I believe these challenges, among others, can all be fairly addressed through reforms within the current system of trade preferences. CCA and its member companies see possible solutions to these challenges through:
1) expanding trade preference programs by increasing the number of products covered, specifically in the agriculture and textile sectors
2) Integrating the preference review and reporting process so  Middle Eastern and Asian eligible products may be included
3) Making preference programs more permanent while bolstering the review program for sufficiently competitive products that no longer warrant preference
4) Providing additional trade technical assistance to eligible countries so their products may graduate from program

Overall, CCA welcomes and deems trade preference program reform a priority. In our U.S.-Africa policy recommendations to the Obama Administration, we highlighted the challenges AGOA faces and put forward recommendations on improving the effectiveness of this program. We have also planned to address this issue in Kenya early next month at the 8th AGOA Forum, where we will partner with the U.S. department of Commerce and the Kenyan Manufactures Association as the private sector coordinators.

CCA would like to see trade preference program reform in each of the regional programs, but does not believe it is in the best interest of America or developing countries to harmonize all trade preference programs under a one common trade regime.  We strongly believe such a regime would remove an important policy tool from our arsenal and would create trade erosion and divert trade away from current beneficiaries, particularly in Africa.

Thank you. I welcome any questions.

* Remarks prepared by Mfundo Hlatshwayo, Research Analyst