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AGOA – time to lock in a long-term renewal for the benefit of Africa and the US

AGOA – time to lock in a long-term renewal for the benefit of Africa and the US

Tralac Newsletter | 14th December 2023

By The tralac and team

Since May 2000, the African Growth and Opportunity Act (AGOA) has provided duty-free access for a broad range of products from eligible African countries to markets in the United States (US). Since the current arrangement expires in September 2025, we take this opportunity to provide an update on AGOA, share insights into the deliberations in the US Congress on AGOA, and perspectives from Africa on a possible future dispensation.

The annual AGOA Forum recently concluded in South Africa, the first in-person event held in Africa since the 2019 Forum in Côte d’Ivoire. As the leading AGOA beneficiary, certainly in terms of its diversified export profile, it was the country’s first opportunity to host this important event since AGOA’s inception in 2000. It came at a particularly important juncture in the overall AGOA timeline and not long after some members of the US Congresscalled for South Africa to lose its host status over concerns that it actively undermined US foreign policy interests. AGOA has a built-in sunset clause and unless extended, will automatically expire in September 2025.

AGOA’s duty-free benefits mean that preferential access to the US market, facilitated by the legislation, allow 60% of all possible traded goods – which would otherwise pay import duties – to enter the US duty-free. Of the remaining tariff lines, virtually all are already duty-free under general MFN terms, leaving only a few hundred of the roughly 11,000 tariff lines still subject to tariff barriers. In fact, only negligible duties were paid on US imports from AGOA beneficiary countries last year, and those that were due, comprised mainly a handful of steel and aluminium categories from South Africa.

While AGOA has been valuable to African countries and to the US, it has not increased Sub-Saharan African AGOA beneficiaries’ share of total US imports, which languishes at the 1% mark. Yet for several of these countries, the US has become the most important export market. Some countries have AGOA utilisation rates of over 50%, meaning that more than half their exports are in AGOA-eligible categories.

Going by House Ways and Meansand Senate Finance Committeeleadership, there is keen interest within the US Congress to extend AGOA prior to its expiry, while African countries have united behind a request for a minimum 10 year extension of AGOA. But more broadly, opinion is divided on the legislative strategy going forward: aim for a simple renewal for now, or use the opportunity to concurrently enhance the legislation, which then risks slowing down progress and will require negotiations and possibly some horse trading within Congress. An influential senator has already circulated draft proposals on renewing AGOA, alongside a number of amendments. Apart from extending AGOA to 2041, this aims to reduce the administrative overhead and associated uncertainty around the annual eligibility review process (making it a triennial rather than annual review), raise the bar before any country is graduated on the basis of higher income levels, and link with the continental integration agenda by supporting the AfCFTA through enhanced AGOA cumulation provisions. This means that exporters in Sub-Saharan AGOA countries would be able to count inputs produced in North Africa (not covered by AGOA) as originating content in fulfilment of AGOA’s 35% local content requirement. Alongside the AfCFTA, this potentially creates a few exciting new trade and business opportunities.

The proposals also see an immediate out-of-cycle review of South Africa’s compliance with AGOA’s eligibility criteria. While this development has raised specific alarm in some quarters, it need not. Firstly, the concept of an out of cycle review has formed part of legislative changes at AGOA’s last renewal in 2015and can already be triggered at any time; and secondly, it may draw undecided legislators into supporting a renewal and getting it passed, especially those that have expressed reservations about South Africa and may condition their support on the inclusion of such a review provision. It remains incumbent on South Africa not to breach AGOA’s eligibility criteria.

An early long-term extension of AGOA will be a boon for Africa and the US – deepening the bilateral trade and investment relationship, ensuring a more predictable business environment, and avoiding creating a void ready to be filled by other countries keenly interested in growing their influence and footprint in Africa. Current proposals on extending and improving AGOA are a step in the right direction, but more can be done as we set out in this Trade Brief. In a divided and often fractious Congress, and with a presidential election in 2024, it is critical that this process is prioritised before it becomes part of wider political engagement and used as leverage (and potentially become collateral damage) in unrelated matters.

 source: Tralac Newsletter