By all accounts, the African Growth and Opportunity Act, which among other things provides duty-free access for apparel produced in Africa, has been a significant success since it was enacted by the U.S. Congress in 2000. But that very success may be generating pressure to revamp the program in ways that could be harmful to apparel producers and U.S. importers, who have been among AGOA’s biggest beneficiaries. The prospect of such changes is fostering a debate over AGOA more than two years before the program is scheduled to expire and could complicate what has typically been a smooth, bipartisan renewal effort.
AGOA was created to help more than three dozen sub-Saharan African countries join the global marketplace, and it includes an unusually generous benefit to encourage the production of textiles and apparel. This third-country fabric provision recognized that there was little capacity for producing yarns and fabrics within AGOA countries and thus permitted them to use inputs from anywhere in the world in the manufacture of textiles and apparel that may then enter the United States without the payment of tariffs, which can exceed 30 percent. This gives AGOA producers a significant advantage over their competitors, even those in countries that have concluded free trade agreements with the United States, which typically feature a stricter rule of origin requiring all inputs from the yarn forward to be made in the United States or FTA partner country.
The end result is that textile and apparel exports to the U.S. from AGOA countries have ballooned from $359 million in 2001 to $815 million in 2012. This expanded production has drawn much-needed foreign investment, generating hundreds of thousands of jobs in chronically underemployed countries such as Ghana, Lesotho, Kenya and Mauritius, and helped lower costs for U.S. retailers and consumers. Supporters say these benefits dwarf the cost in foregone duty revenue and point out that despite more than a decade of duty-free treatment, imports of apparel from AGOA beneficiaries are still a mere drop in the bucket compared to what the United States brings in from Asia and Latin America. Efforts are thus already underway to secure a straight renewal of both AGOA and the third-country fabric provision, even though neither expires until Sept. 30, 2015.
At the same time, the success of AGOA is precisely the reason that new U.S. Trade Representative Mike Froman may be under pressure to change it. One of the primary reasons is that the purpose of the third-country fabric provision — the development of a textile industry in sub-Saharan Africa that could feed apparel factories — has for the most part not been realized.
It is thus perhaps no coincidence that Froman announced at an annual summit in Ethiopia this summer that the United States will conduct a top-to-bottom review to “lay the foundation for AGOA 2.0.” Froman indicated that the Obama administration is especially interested in making sure that a renewal of the program does not put U.S. firms at a disadvantage in the African market, where many think they are being outcompeted by foreign rivals. To that end, he intimated, this review could yield some unpleasant results for those invested in beneficiary countries. These could include revising the products and countries that receive duty-free treatment under AGOA, removing preferences from industries or beneficiaries deemed globally competitive, and stricter enforcement of eligibility requirements.
Close observers know that Washington typically exhibits far more bluster than bite, and it is true that the prospect of preference program reform has been raised before. But this time there appears to be a growing momentum in its favor. The United States recently allowed the expiration of a program created to combat the cultivation of illegal drugs in South America due in part to the failure of some of the beneficiaries to comply with the participation requirements. A much broader program covering thousands of products from more than 100 developing countries across the globe, the Generalized System of Preferences, recently lapsed despite a well-organized campaign of support from U.S. businesses that use GSP to save millions each year. There appears to be increasing support for revamping GSP (which is likely to be reauthorized at some point) by graduating countries deemed too well-off and removing products that compete with U.S.-made goods.
It also bears noting that the United States is making a strong push for a yarn-forward rule of origin for apparel as part of the Trans-Pacific Partnership agreement now under negotiation among a dozen countries. Should a similar rule find its way into AGOA, the effect would be catastrophic for apparel manufacturers in beneficiary countries.
USTR Froman acknowledged the possibility that after the newly launched review is completed “we will conclude that AGOA should just be renewed as is.” In my view, this option would be in the best interests of all involved, because anything more than minor adjustments could damage what has been a very successful program providing meaningful economic development and employment opportunities for some of the poorest countries on the planet. But Froman said the review aims to be “robust and insightful” and will be conducted “with an open mind.” African apparel manufacturers and U.S. importers should therefore keep a close eye on developments in Washington and be prepared to make their voices heard in the coming debate. n
TOM TRAVIS is managing partner of Sandler, Travis & Rosenberg, P.A., a leading customs and international trade law firm. He also serves as chairman of ST&R’s related consulting company, Sandler & Travis Trade Advisory Services. With 12 offices in six countries throughout North America, South America, Asia and Europe, ST&R and STTAS form the largest customs and international trade services provider in the world. Our strengths lie in the experience and creative problem-solving skills of the more than 600 hard-working global trade professionals who make up our team.
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