Authors: Woubet Kassa, Souleymane Coulibaly
Affiliated organization: Open Knowledge Repository
Type of publication: Policy Research Working Paper
Date of publication: August 2019
AGOA has been considered essential to promoting trade and, hence, transformation of economies in Sub-Saharan Africa (SSA) (US Congress, 2000). The underlying basis for the Act is that “increased trade … have the greatest impact … in which trading partners eliminate barriers to trade and capital flows and encourage the development of a vibrant private sector that offers … the freedom to expand economic opportunities” (US Congress, 2000). PTAs, in general, are also considered central to the foreign policy strategy as well as international development objectives of developed economies including the US and the European Union (EU). Trade preferences through AGOA provide quota-free and duty-free imports into the United States for eligible goods expanding the benefits under the GSP program.
The main finding suggests that AGOA has contributed to increased exports in most SSA countries. Impacts however vary over time and across countries; and gains are unsteady. Much of the gains are accounted for by expansion of export of fuel and other minerals while in a few successful cases, countries were able to diversify exports in to agricultural produce, beverages and manufacturing commodities. Among the major factors explaining variations in the trade impact of AGOA are physical infrastructure such as ICT; institutions of rule of law and legal frameworks such as property rights protection; conducive macroeconomic environment such as low inflation and exchange rate stability and ease of labor market regulations.
African Growth and opportunity Act (AGOA)
The African Growth and Opportunity Act (AGOA) enacted towards the end of 2000, provides duty-free access to the US market for a selected group of products from eligible Sub-Saharan African countries. The driving principle was to “promote stable and sustainable economic growth and development in Sub-Saharan Africa” through trade. It initially provided eligibility to 34 SSA countries. It has since been renewed and extended to 39 countries, with few changes in the number of eligible countries. In 2015, it was reauthorized for the fifth time for a period of 10 years up to 2025.
There are two key provisions under AGOA. The first provision provides eligible countries duty-free and quota-free access of selected product groups, expanding the list of products under GSP. The GSP is a non-reciprocal trade preference program that permits duty-free imports of products, more than 4,600 at the HS-8-digit classification, from designated developing countries, currently about 130 including most SSA countries. AGOA expands this list to more than 6,400 product groups with an additional 1,800. In addition, AGOA countries are exempt from caps on preferential duty-free imports due to the ‘competitive need limitations’ (CNL) program.
Despite the broad product coverage, there are still important exclusions particularly in agricultural products. In their examination of the value of AGOA preferences, Bren- ton and Ikezuki conclude that a significant number of products remain effectively excluded from AGOA preferences. Important exclusions include certain meat products, dairy products, sugar, chocolate, peanuts, prepared food products and tobacco, which could potentially be major export commodities for many SSA countries.
The African Growth and Opportunity Act (AGOA) enacted towards the end of 2000, provides duty-free access to the US market for a selected group of products from eligible Sub-Saharan African countries. The driving principle was to “promote stable and sustainable economic growth and development in Sub-Saharan Africa” through trade
The second provision provides duty-free and quota-free access for eligible apparel and textiles articles made in qualifying Sub-Saharan African countries for a subset of AGOA eligible countries subject to a cap. This eliminates the average MFN tariff of about11.5% on apparel and textile imports to the US. These include products which are not eligible either under the GSP or the first provision of AGOA.
Articles include apparel made of US yarns and fabrics, apparel made of SSA yarns and fabrics, textiles and textile articles produced entirely in SSA, certain cashmere and merino sweaters and eligible hand-loomed, handmade and printed fabrics. This represents a significant change in the inclusion of manufacturing products-textile and apparel compared to GSP. With few exceptions such as leather products, headgear, glass and glassware, it provided access to a wide range of textile and apparel products.
The most recent AGOA Extension and Enhancement Act of 2015 calls for greater reciprocity in the elimination of barriers to trade and investment in SSA. It put forward an out-of-cycle review mechanism, that ‘at any time…’ the Office of the U.S. Trade Representative (USTR) ‘may initiate an out-of-cycle review of whether a beneficiary country is making continual progress in meeting the requirements’ for eligibility. This allows entities from the private sector or ‘any interested person, at any time’ to file a petition with respect to the failure of compliance of a country ‘with eligibility requirement. These changes might adversely affect future export opportunities by raising uncertainty.
Using data for multiple preferential access schemes and countries over the period 1960-2008, present strong evidence that AGOA, EBA, ACP (African Caribbean Pacific)-EU and GSP programs of EU, US, Canada and other advanced economies have a positive effect on developing countries’ exports to the corresponding developed markets. Similarly, Rose finds a strong positive impact when the GSP was extended from advanced to developing countries though there was no impact due to participation in GATT (WTO). Yet, there are other studies that yield seemingly contradictory results on the overall impact of PTAs.
In Sub-Saharan Africa, evidence on the impact of such non-reciprocal trade agreements is very scarce. Similar to the evidence of impact of PTAs, in general, results of impact are also mixed. Using a simple partial equilibrium framework, examination of the potential impacts of AGOA by Mattoo et al. suggest that there are increased prospects for African countries to raise exports due to AGOA. Examining the scope and value of AGOA in 2002, Brenton and Ikezuki suggest that eligible countries would see very small gains in exports in products eligible under AGOA, since most already have access under the GSP. Benefits, however, are expected to be sizable due to the apparel provision. Using disaggregated product data up to the year 2006, Frazer and Van Biesebroeck show that there is a strong positive impact on imports to the US associated with AGOA.
These results, however, vary across product groups with apparel and petroleum having the biggest impact. Brenton and Hoppe suggest that AGOA has fallen short of the potential impetus it could have provided, though they report export gains in apparel due to AGOA in a few countries. Similarly, Tadesse and Fayiss show that there is a positive impact of AGOA in exporting new products while its impact on expanding exports of existing products has been minimal. On the other hand, Mueller suggests that AGOA has had no significant impact on overall exports from SSA to the United States. Similarly, Seyoum finds that AGOA has no discernible impact on agricultural exports.
In 2013, total US imports from AGOA eligible countries totaled $26.8 billion, more than four times the amount in 2001. Petroleum products continued to account for the largest portion of AGOA imports with an 86 percent share of overall AGOA imports principally accounted for by five countries. Between 2013 and 2015, there is significant decline – more than a 25% – in AGOA exports to the US mainly due to the massive decline in commodity prices. Total non-oil US imports from AGOA eligible countries were about $ 4.8 billion.
Discussion of results
The few select success stories that registered sizable increase in aggregate exports also registered expansion in export of diverse set of commodities including agricultural produce and beverages, manufacturing goods and other consumer goods. This group comprises South Africa, Kenya, Ethiopia, Tanzania, Botswana, Rwanda and Lesotho all of which (except RSA) enjoy preferential access to the apparel provision as well as the special rule for apparel. The relaxation of the ’rules of origin’ requirements through the special rule for apparel may have contributed to the expansion of apparel exports.
This suggests that further relaxation of the ’rules of origin’ requirements would lead to increased apparel exports by relaxing the sourcing of imported inputs. Still, the long run impact of relaxing the rules of origin requires further examination. Because, gains in exports could be offset by the loss in local production gains when a greater share of exportable products is imported primary and intermediate inputs.
In comparison to many SSA countries, Zambia has a relatively bigger share of exports to the US. However, the estimated rise in exports that was expected over the last two decades even without AGOA is much higher than the stable and constant export performance it registered after AGOA
Following AGOA, in 2004 Lesotho – one of the smallest countries in the region – was the largest exporter of apparel to the US in SSA. In the wake of the expiration of the Multi-Fiber Agreement (MFA).
In comparison to many SSA countries, Zambia has a relatively bigger share of exports to the US. However, the estimated rise in exports that was expected over the last two decades even without AGOA is much higher than the stable and constant export performance it registered after AGOA.
AGOA impacts were the largest in South Africa, Nigeria, Angola and the Republic of Congo. As discussed above, a few countries which have also been resilient in their growth performance in SSA registered a continuous rise in their exports while a few registered significant declines associated with the commodity price decline. Nigeria, Angola and the Republic of Congo registered the biggest declines after a large early gain due to AGOA. South Africa, Botswana, Kenya, Ethiopia and Tanzania registered consistently increasing gains at various levels of trade.
Determinants of Variations in Impacts under AGOA
Analyses of African trade flows indicate that the relatively low performance is largely due to poor infrastructure, particularly transport and poor trade facilitation. Raising capacity in four areas of trade facilitation, namely port infrastructure (air and maritime), customs environment, regulatory environments and communication infrastructure would significantly improve trade performance, especially exports. Physical infrastructure, soundness of the macroeconomic framework and quality of institutions appear to be major determinants of export performance.
Another layer in the drive towards greater investment and export capacity is a macroeconomic environment characterized by stable and competitive exchange rates, stable prices and low levels of debts. Poorly managed exchange rates can have unfavorable outcomes by limiting investment and export opportunities. Moreover, the package of formal and informal labor market and wage bargaining institutions matters in the effort to attract investment and expand export capacity.
Analyses of African trade flows indicate that the relatively low performance is largely due to poor infrastructure, particularly transport and poor trade facilitation
It is evident that in order to raise exports and improve trade and hence promote growth and transformation of SSA economies, we need to improve a set of institutions in property rights protection and legal structures. Though improvements in other areas of institutions such as reduction of corruption are also important, in terms of trade and exports, emphasis on the rule of law and judiciary quality seems to have greater returns. SSA countries also need to adopt a set of sound macroeconomic policies to keep inflation low and exchange rates stable and competitive.
The main finding is that most countries registered gains in exports due to AGOA. The results, however, were varied and export gains were largely unsteady. Much of the gains are due to exports of petroleum, minerals and agricultural products, while there are few countries that were able to expand into manufacturing and other industrial goods. When the gains were derived from exports of fuel, they have been largely unsteady.
When they were based on non-fuel exports, the gains have been increasing consistently over the years of AGOA eligibility. In the long term the impact of AGOA in exports could support the transformation of economies as long as there is diversification of exports into non-fuel products such as manufacturing and agro-processing.
Sound macroeconomic policies to maintain a stable and competitive exchange rate, low inflation and improving the quality of infrastructure especially ICT provide the 40 underpinnings necessary to allow these economies to take advantage of export opportunities provided by AGOA. Reforms in improving business should focus more on improving the judiciary quality, infrastructure and macroeconomic stability. The study suggests the need for a further dis-aggregated analysis of changes in the exports of product categories due to similar preferential trade agreements.
Les Wathinotes sont soit des résumés de publications sélectionnées par WATHI, conformes aux résumés originaux, soit des versions modifiées des résumés originaux, soit des extraits choisis par WATHI compte tenu de leur pertinence par rapport au thème du Débat. Lorsque les publications et leurs résumés ne sont disponibles qu’en français ou en anglais, WATHI se charge de la traduction des extraits choisis dans l’autre langue. Toutes les Wathinotes renvoient aux publications originales et intégrales qui ne sont pas hébergées par le site de WATHI, et sont destinées à promouvoir la lecture de ces documents, fruit du travail de recherche d’universitaires et d’experts.
The Wathinotes are either original abstracts of publications selected by WATHI, modified original summaries or publication quotes selected for their relevance for the theme of the Debate. When publications and abstracts are only available either in French or in English, the translation is done by WATHI. All the Wathinotes link to the original and integral publications that are not hosted on the WATHI website. WATHI participates to the promotion of these documents that have been written by university professors and experts.