THE AFRICAN GROWTH AND OPPORTUNITY ACT (AGOA)

03.07

One of the most important tools for development is trade. Africa needs to increase its share of international trade in order to earn more resources to be able to finance its own development. In addition to unfair subsidies, access to rich country markets is limited for Africans. Quotas limit the quantity of products that may enter a certain market while tariffs often make products too expensive to compete. Sometimes tariffs are unevenly applied making it twice as expensive for African farmers to export processed goods (from which they could derive greater profits) than their unprocessed crops.

The Africa Growth and Opportunity Act (AGOA) is one way in which the U.S. has worked to open its markets to African producers. AGOA was enacted in 2000 as the first piece of trade legislation focused on increasing and enhancing trade between the United States and countries of sub-Saharan Africa by permitting the duty-free export to the U.S. of most African goods. In order to qualify for AGOA, countries must be working to improve the rule of law, human rights, and respect for core labor standards. Currently, 37 of 48 sub-Saharan African countries qualify


The Impact of AGOA

Statistics indicate that imports from AGOA-eligible countries have increased each year since enactment of the law, most recently rising by 16 percent in 2006 over 2005, although the majority of AGOA exports to the U.S. are oil and petroleum products. AGOA works best for countries producing oil and engaged in other extractive industries and petroleum exports continue to make up the bulk of export income. Five countries – Nigeria, Chad, South Africa, Angola and Gabon—have accrued the lion’s share of these benefits. However, other industries such as agriculture commodities, textile and apparel, and automobiles are benefiting as well. More than $500 million in new investments and approximately 250,000 jobs have been in Africa as a result of AGOA. Apparel has been particularly successful due to a special provision of AGOA that allows 24 of the 37 AGOA countries to use inexpensive fabric from anywhere in the world to make clothing, that can be exported to the U.S. duty-free.

Examples of AGOA Successes— Lesotho’s apparel industry has grown tremendously under AGOA. Total employment in the apparel sector is more than 50,000, many of them women. The apparel sector in Lesotho now employs more people than the national government. Botswana apparel producer Caratex has benefited greatly from AGOA and anticipates increasing earning from $6 million (2003) to $10 to $14 million this year with the launch of new clothing lines. As a consequence, Caratex expects to increase the number of employees from around 1,300 people to as many as 2,600 people. In 2005, 33 of the 37 AGOA countries used the program to export to the U.S. Exports from Malawi, Botswana, Mozambique, Tanzania, Mali, Guinea, and Rwanda increased during this period. AGOA exports of footwear, toys, sportswear, ftuits, nuts, and cut flowers all increased during 2005.

Limitations of AGOA

Though efforts have been made to extend AGOA and make it easier for African countries to take advantage of the benefits, AGOA as a tool is limited in its ability to truly alter African trade with the U.S. The scope and diversity of products could be expanded to create more opportunities for African countries—for example full access to sensitive products such as sugar, beef, and footwear are not included under AGOA but could have great potential for African producers if they were added.

Moreover, AGOA itself only addresses market access; its impact will be limited because it does not reflect a comprehensive approach to trade policy. AGOA does not and is not intended to address subsidies in any way; therefore the competitive advantage of subsidized U.S. goods continues to impact Africans’ ability to compete. What AGOA even more vividly reveals is the need for greater trade capacity assistance and the need to address “supply side” issues in Africa so that once the barriers to trade are removed, Africa can better take advantage in a variety of industries. The lack of infrastructure (transportation, telecommunication, energy and water); finance and currency problems; and the need for legal and banking reforms work against Africa. Only by addressing capacity/infrastructure gaps, encouraging diversification of exports and transforming the international trade system to level the playing field will ensure that more trade benefits accrue to sub-Saharan Africa.

 

Learn More
http://www.agoa.gov