FEATURE

AGOA - NEXT STEPS

<By Rosa Whitaker>

From October 1, 2004, as the law now stands, all AGOA beneficiaries will have to start using fabric sourced either from the U.S., locally or from other AGOA-qualified countries. Efforts are being made to ramp up regional production, but it is doubtful supplies of the right quality and price be available in time. Orders are already being cancelled as a result of this uncertainty. Others are threatened. The Asian firms who dominate the sector could well relocate. The garment business is mobile.

The expiration of the WTO agreement on clothing and textiles (ACT) means, in theory anyway, that WTO members will no longer be able to use quotas to control imports. As things now stand, from January 1, 2005, the U.S. will have to lift quantitative restrictions on imports from China. However, duties of around 18% will remain in effect.

So duty-free AGOA garments will retain some margin of preference, but a smaller one. Whether that margin will be enough to justify firms continuing to use Africa as a production platform is questionable given the huge volumes China will be able to ship.  The issue may turn out to be moot if the U.S. finds other ways to control surging Chinese exports. Importers are waiting to see how this will play out, but some are already taking their business elsewhere. 

The bottom line is heavy with ifs. If AGOA’s least developed beneficiary countries can keep using third country fabric beyond next year, and if some alternative mechanism is put in place to curb post-ACT Chinese exports, and if AGOA as a whole is extended well beyond 2008, then there’s a chance Africa’s garment factories will survive long enough to be customers for African fabric spun from Africa yarn. In the meantime, it is essential that additional ways be found to promote Africa’s economic diversification. 

In broadening of the range of products covered by the pre-existing Generalized System of Preferences, AGOA’s authors hoped to do just that, but the results have been mixed. South Africa, an already diversified economy actively seeking to become even more so, has done well. Because of AGOA, BMW builds cars near Pretoria for the U.S. market. But South Africa has been the exception, not the rule.   

Part of the answer may lie in providing tax incentives to U.S. firms to invest in African manufacturing, infrastructure development and services. This is advocated by the AGOA 3 Action Committee, launched in June by The Whitaker Group in conjunction with Jack Kemp, Carl Ware and other leaders in the business and non-governmental organization community.  AGOA 3 updates and strengthens the original legislation. Tax incentives were also endorsed by the Commission on Capital Flows to Africa chaired by former Eximbank president and former Corporate Council on Africa Chairman James Harmon. According to a study by the Institute for International Economics, it could increase U.S. foreign direct investment in Africa by $1.6 billion over 2000 levels. 

AGOA 3 could also help by changing the rules that bar agencies like the Overseas Private Investment Corporation and Eximbank from supporting investment in sectors, especially agriculture, seen as competitive threats in the U.S. 

Whatever gets done to enhance AGOA, and as popular as the initiative is in Africa, the real prize for the region is a successful conclusion to the WTO’s Doha negotiating round. The gains Africa stands to reap from the scaling back of rich country agriculture subsidies, and the phasing out of tariff schemes that penalize value-added, dwarf all any conceivable yield from AGOA preferences. 

Rosa Whitaker, president and founder of The Whitaker Group, was the first Assistant U.S. Trade Representative for Africa, serving under Presidents Bill Clinton and George W. Bush. She played key roles in the passage and implementation of AGOA and is co-chairman of the AGOA 3 action committee.

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