AGOA isn’t the political leverage Washington thinks it is
AGOA isn’t the political leverage Washington thinks it is
Ventures | 4th December 2023
By Ovigwe Eguegu
AGOA is not a big enough economic carrot, as Washington would have the world believe, and that poses major challenges to US foreign policy going forward.
On 9th June 2023, the US, with Australia, Canada, Japan, New Zealand, and the United Kingdom issued a statement that began with the sentence: “The use of trade-related economic coercion and non-market-oriented policies and practices threatens and undermines the rules-based multilateral trading system and harms relations between countries”.
Less than six months later, however, on 1st November, the US announced a plan to delist Gabon, Niger, Uganda, and Central African Republic (CAR) from a special trade scheme it has with up to 35 African countriesknown as the Africa Growth and Opportunity Act (AGOA). The announcement came a day before the start of the 2023 AGOA forum in South Africa, designed to discuss a potential renewal of AGOA from 2025 onwards. By blacklisting these countries the US was using AGOA as a stick, a tool of economic coercion to achieve political objectives. The problem is, not only was this hypocritical but AGOA has never been a big enough economic carrot. Both these factors – if not addressed – pose major challenges to US foreign policy going forward.
AGOA has grown limited African exports
Since its inception in 2000, the innovative trade scheme AGOA has offered preferential market access opportunity for eligible African countries, and for an extensive range of products including manufactured items, not just commodities. For these reasons, and especially before the introduction of the African Continental Free Trade Area (AfCFTA), it is an excellent scheme in principle, and can even be seen as a model for other development partners.
However, for various reasons, two decades later, much of AGOA’s success has been concentrated in a few countries and a few industries and sectors. For instance, Kenya and Lesotho boast some of the highest AGOA utilization rates: the share of their exports to the U.S. that qualify for zero-tariff treatment is 88 per cent for Kenya, and as high as 99 per cent for Lesotho. However, both nations’ exports to the U.S. were mostly apparel items.
Conversely, over the same period, nearly half of all beneficiary countries have a utilization rate of 2% or lower, implying that 98 percent of U.S. imports from such countries were subject to US tariffs. As a result of this, for instance, a model designed by an economist to predict the impact of AGOA not being renewed for South Africa or South Africa losing AGOA benefits (for example due to blacklisting) suggests that at worst, South Africa’s total exports to the US would fall by about 2.7%. “In aggregate, a loss of AGOA would lead to a decline in SA’s GDP of just 0.06%.” This remarkably small effect is ascribed to two factors — “the nominally higher tariffs on SA exports to the US and the composition of SA’s export basket.”
This challenge has been borne out in reality, for instance in Ethiopia, a country that the US blacklisted from AGOA in 2021 due to “gross violations of internationally recognized human rights.” In 2021, 93.1 per cent of all apparel from AGOA countries entered under the AGOA programme. That figure dropped to 68.3 per cent in 2022 due to Ethiopia’s exports entering the US outside of the AGOA programme. This means that Ethiopian goods had strong demand even without preferential treatment. There is no doubt that Ethiopia is better inside AGOA than out, but the competitiveness of its exports meant being cut off from AGOA was a pinch, not a punch.
Perhaps most damning, figures show that AGOA has made little inroads in expanding the market in absolute or relative terms for African countries in the US since its inception. African exports to the US as a percentage of overall US imports have declinedfrom 2.27 percent in 2000 to 1.06% per cent as of 2022. The fact is, Africa’s trade with China, the EU and India have all eclipsed US–Africa trade since then.
