The Time for AGOA is Nigh

Like everyone in the know will tell you, passage of the African Growth and Opportunity Act (AGOA) appears to be imminent – and we, probably, have two weeks – less than a fortnight, in fact – within which to make the final moves to renew and hopefully enhance the 15-year old program before the United States Congress renews it. AGOA is the flagship program for the partnership between the United States and Africa, and everything is suddenly important and urgent at the same time because of recent reports that the Senate Finance Committee has decided to use the week of April 21st 2015 as the mark up period for the Trade Promotion Authority (TPA). As this is the required push to complete the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), there’s a chance that the AGOA markup is not too far behind. Suggestively, AGOA could pass Congress well before the Congressional summer recess.

In this paper, we suggest that the pending AGOA markup offers an unmatched opportunity for impactful modifications to the bill as currently drafted by the congressional staff – a bill that we are told includes well-reasoned enhancement language that takes into consideration suggestions made by strategic stakeholders such as African Union, the African Ambassadors Group in Washington, DC, and of course, USTR Ambassador Michael Froman. If things go the way we hope, these steps would significantly enhance the impact of AGOA; better enabling the United States and much of Africa to attain their objectives. We also believe that these changes will not necessarily delay passage of AGOA as feared by some stakeholders.

To provide some sort of context, we know that the Trade Committees are committed to passing AGOA in the same time frame as their highest trade priority—TPA. In the short term, TPA passage will positively affect the TPP, which ought to be completed in the near term if Congress grants this authority. In the longer term, TTIP will also be a TPA beneficiary. For Washington Insiders, there has been no doubt that AGOA will be renewed. In fact, as early as the beginning of the year – during a staff briefing by the trade staff of both majority and minority members of the Ways and Means and Senate Finance Committees – all indicated that their members were committed to renewing AGOA well before its expiration although the exact time frame was not clear. More recently, both Senator Orrin Hatch and Congressman Paul Ryan, respective chairs of the Senate Finance and House Ways and Means committees are on record with their priorities that AGOA be passed if not as part of TPA, at least in the same time frame.

Thus, the aforementioned report that the Senate Finance Committee has agreed to markup TPA during the week of April 21st augurs well for the passage of AGOA in the near future. According to reports in the trade press, a staff draft is pretty much agreed upon by the Trade Committees; with the only outstanding issues being the status of South Africa and the duration of AGOA extension. These issues are intertwined with concerns about South Africa’s antidumping action against U.S. poultry. Although complaints such as these are usually taken up under dispute settlement in the WTO – the South African methodology has been used by many of America’s trade partners – Senators Chris Coons and Johnny Isakson from Delaware and Georgia respectively, decided to use the leverage South Africa’s need to continue AGOA benefits to gain a favorable outcome during the AGOA Renewal process. Together with l1 other senators – seven of whom, including Isakson – are members of the Senate Finance Committee – the pair sent a letter to South Africa stating that: ‘It is likely that AGOA will come before the Senate Finance Committee in the next month, and we hope our respective industries can reach a fair compromise before that time comes.’ South Africa’s Trade Minister Rob Davies will be meeting with USTR Ambassador Michael Froman during the week of April 13th, which provides another opportunity to work out a solution.

Regardless of whether the poultry issue is resolved or not, AGOA will move forward. If resolved, we are confident that the program will be renewed for ten to twelve years without any change to the beneficiary status for South Africa, although there may be an eligibility condition added requiring fair treatment of U.S. agricultural exports in AGOA beneficiary countries. If this issue is not resolved, South Africa’s eligibility will be in definite jeopardy – although rumors that the whole program might only be renewed for five years appear to have dissipated.

There are still questions about the renewed AGOA especially since the program has, thus far, been considered a modestly successful one. Even the highly appreciated third country fabric provision has only generated significant job creation in only four African countries—one of which, Swaziland, has been recently removed from the beneficiary list. In recognition of this factor, although beneficiary countries are committed to implementing proactive AGOA strategies to take better advantage of the program, we also seek to address how to enhance AGOA’s market access though minor legislative modification and report language. These suggestions are based on the fact that the Chinese continue to gain deeper access to Africa; the EU has successfully coerced African countries into signing premature agreements.

In the first place, AGOA enhancement is supported by the African Union in its White Paper on How AGOA 2.0. Can Be Different. The paper suggested specific improvements in origin rules, product coverage, eligibility requirements and measures to support regional integration. The areas identified were endorsed for improvement by USTR Michael Froman in testimony before the Senate Finance Committee on the eve of last summer’s AGOA Forum, and enhancements were even suggested by a whole host of stakeholders including the Corporate Council on Africa and disparate think tanks as Brookings, Heritage and the Center for Global Development dating back to the beginning of the Obama Administration.

Based on speculation as to what’s in the current bill, it does not appear that the program provides greater access for African products. However, judicious use of the chairmen’s mark, report language and floor colloquies on can still allow significant enhancement of the program.

The first suggestion is that during the mark up period, African products currently subjected to the debilitating tariff rate quota should be provided greater access in ways that do not undermine domestic priorities. The challenge, of course, is that we have a number of products whose quotas are currently under-filled – products where Africa as a newcomer. If these quotas were reallocated in ways consistent with the WTO – particularly the Agricultural Understanding reached in Bali on the Administration of tariff rate quotas and WTO and approved special treatment for least developed countries – African countries like Malawi, Mozambique, Tanzania, and Zambia may be able to take advantage of the numerous opportunities available in the U.S. market. To this, we suggest that Congress report language or minor legislative changes, or suggest that USTR reallocate TRQs to allow African countries or LDCs to fill shortfalls.

Secondly, when it comes to updating rules of origin, in light of the success of the third country fabric rule in a number of countries, many AGOA experts are calling for significant updates to the origin rule to apply to non-apparel AGOA imports. One way that this could be done is it to establish a system where the more supply chains that add African value-added, the greater the duty reduction on a product entering the U.S. for products with identifiable African value – even if these are finished elsewhere (and so lack AGOA beneficiary country origin). We’re cognizant that while a major overhaul of origin rules may not be plausible, Congress could suggest a pilot program to gather data on a proposed new origin rule or a study on the feasibility of such a rule. A similar result could be achieved if report language suggested that TTIP and other FTAs treat African content as if it originated within the FTA area.

Thirdly, to strengthen the effectiveness of U.S. law in an effort to promote good governance – particularly democratic reform – Congress should recommend that collective non-trade sanctions with entities such as the African Union ought to be employed – actions that have been deemed as more effective in curbing aberrant behavior than actually limiting AGOA benefits. A policy change such as this one has been followed most recently with Russia and Southern Sudan, and should, thus, be applied to all AGOA beneficiaries. Our suggestion is that report language endorsed by the trade and foreign affairs committees indicate that they consistent with current law and that the Committees prefer collective targeted sanctions as opposed to limiting AGOA benefits when more effective tools are available with less collateral damage to innocent parties, African economic development and regional integration.

On another note, we observe that while continuing to support trade integration within the East African Community, the U.S. has so much more to gain from supporting continent-wide efforts to create a continental free trade area and possibly a customs union by 2019. This would make progress towards a single integrated African market in which U.S. supply chains and distribution networks can benefit from economies of scale as well as create a potential trade partner with the U.S. for future mega FTA negotiations. Thus, in a bid to expand support for entities like COMESA, ECOWAS and SADC in their efforts to deepen their own integration, report language could suggest that the U.S. prioritize Africa’s 8 building bloc regional economic communities as the best way to attain a CFTA by the end of the decade. This would, therefore, establish the basis for more balanced relations between the U.S. and the region when AGOA expires – including the possibility of a mega FTA—less rigorous but nevertheless modeled on the TTIP.

Lastly, while the recently negotiated economic partnership agreements (EPAs) were foisted on African countries, we must emphasize that if fully implemented, these will undermine African efforts to attain regional integration and force African countries to discriminate against U.S. exports. In an effort to assure a common approach to Africa, both the Senate and House trade committees should craft language to urge the EU to show maximum flexibility in implementing EPAs to avoid retarding progress towards Africa’s CFTA or causing displacement of current or potential U.S.

If some or all of these suggestions are put in place during this period, one can be assured that the true dynamic between the United States and sub Saharan Africa will be explored to its true potential in ways which would not slow the passage of AGOA.