Agoa 2.0: The US gives and takes

2015-04-26 17:00

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The current version of the act making its way through the US congress creates a new arsenal to use against African countries

The second version of the US’s signature trade deal with Africa looks set to shift the balance of power to American companies – while only making one major concession to the continent.

The African Growth and Opportunity Act (Agoa) expires this year, but an act to extend it for a further 10 years reached the US Congress this week. The Agoa Extension and Enhancement Act is making its way through committees of the US Senate before being voted on and ultimately approved by US President Barack Obama.

The current version of the act – which may still change – creates a new arsenal of weapons the US can use to make African countries change their trade rules. It requires the US president to create a process for “interested parties” to file petitions about an Agoa beneficiary’s compliance with the act’s rules.

These rules generally revolve around free trade.

This would open the door for US corporations and industry groups to use Agoa to try to change policies that hurt them. The new act also allows the US president to remove Agoa benefits on specific products to try to get African countries to comply.

Furthermore, it gives the US president the power to conduct ad hoc “out-of-cycle reviews” of African countries’ adherence to Agoa rules – and terminate their Agoa benefits if deemed necessary.

The renewal of Agoa has been overshadowed in South Africa by the so-called chicken war between US and South African chicken producers. The Americans have threatened to get South Africa excluded from Agoa if anti-dumping duties on American chicken are not scrapped. Instead, it seems the new act will allow the war to continue without holding up the passing of the Agoa extension.

As things stand, the SA Poultry Association is waiting on its US counterpart to reply to an offer to allow a set amount of US chicken into the country free of any dumping duties.

Although South Africa is singled out for an out-of-cycle review in the new act, it is only a “sense of Congress” clause. This is an unusual American convention that allows congresspeople to add opinions on laws that have no binding effect, but mostly send a signal. The US president can act on these opinions if he wants to – but doesn’t have to.

However, the current draft of the new Agoa is not all about imposing American discipline.

One potentially meaningful concession is a change to the “rules of origin” applied to products to get them into the US duty-free.

The current Agoa only counts products with at least 35% of their value added in the beneficiary African country – which is the reason almost nothing actually gets exported under Agoa, even though African countries could have duty-free access to the US market for about 4?700 different products, if they actually made such products.

Actual exports under the Agoa concession mostly consist of oil from Nigeria and Angola and cars from South Africa.

In South Africa’s case, Agoa exports mostly pertain to 40?000 or so BMWs built here specifically for the US market every year.

Clothing exports from the continent that do benefit from Agoa only do so because they are largely excluded from the 35% rule, so clothing factories using imported fabrics can still qualify.

The African Union and UN Economic Commission for Africa last year produced an “African position” on what the new Agoa should look like. It called for the value-added content requirement to drop to 15% or even 10% for most products. That would allow African countries to participate in global value chains, doing things that are actually within their means, the paper argued.

The new Agoa doesn’t make this concession, but does change the rules governing origin in a way that could potentially benefit African countries.

Now the 35% can be cumulative – with the value added in a variety of African countries.

This would help in the case of products made with inputs from African suppliers and build the kind of regional value chains that South African industrial policies tend to talk about.

Christopher Wood, a researcher at the SA Institute of International Affairs, said that while the inclusion of South Africa in the sense of Congress clause could be harmless, he tended to believe it was not merely academic.

“The negative way is that its inclusion is an indicator that the dispute will not end with the passing of Agoa, and South Africa’s inclusion remains uncertain even after the renewal is passed.

“Given the expanded power to review Agoa eligibility in the bill, I’d say the latter option is more likely. This process would happen regardless of the sense of Congress clause though; its inclusion is purely an indicator,” he said.

Wood was more positive about the rules-of-origin concession saying it was “potentially very important, as it could allow smaller countries to diversify while still enabling them to use the facilities available in major productive hubs like South Africa”.

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