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Termination of African countries from AGOA agreement: A threat or opportunity for the African economy?

Termination of African countries from AGOA agreement: A threat or opportunity for the African economy?

Modern Diplomacy | 11th May 2024

By Ezra Nnko

“Accordingly, I have decided to terminate the designations of the Central African Republic, Gabon, Niger, and Uganda as beneficiary Sub-Saharan African countries for section 506A of the Trade Act, effective January 1, 2024………..these countries have failed to address the United States’ concerns about their non-compliance with the AGOA eligibility criteria”. U.S. President Joe Biden.

On January 2024, President Joe Biden of the U.S. announced the termination of Uganda, the Central African Republic, Gabon, and Niger as the beneficiary of the African Growth Opportunity Act (AGOA), an agreement that gives “free pass” as U.S. duty-free for 6,800 products imported into the U.S. from the qualified Sub-Saharan countries. Reciprocity, the African countries remove barriers to U.S. trade and investments within their countries.

Uganda was terminated due to the claim of gross violations of internationally recognized human rights after enacting one of the world’s harshest Anti-Homosexuality Acts which imposed the death penalty for aggravated homosexuality. The CAR was terminated due to the claim of growing human rights abuses while Gabon and Niger were removed simply because of the failure to comply with section 506A(a)(1) of the Trade Act of political pluralism as the government is under military rule.

Impacts of AGOA on African economy

AGOA has been in effect in Africa for more than 22 years. Before the AGOA agreement, the FDI flows to Sub-Saharan African countries was less than 1% of the global FDI in the 1990s, after the signing of the agreement the stock FDI rose from $69 billion in 2001 to $246 billion in 2008.

In Africa, countries like South Africa, Kenya, Ghana, and Mauritius are termed as beacons of the success of AGOA. For instance, South Africa had increased its vehicle exportation to the US by 1,643.6% in single years since the signing of the agreement, while Kenya had grown its exportation to the US from US 55 million in 2001 to US 603 million in 2022, accounting for 67.6% of the country’s total export to the US.

AGOA and its Threat to the African Economy and Sovereign

Unlike other preferential trade deals, AGOA is a non-generalized and non-reciprocal preferential arrangement between developing and developed countries, which is not a regional trade agreement (RTA) categorized in Article XXIV of the general agreements of Tariffs and Trade (GATT), nor is it generalized preferential schemes justified by the Enabling Clause under the World Trade Organization (WTO) legal systems.

Due to its incompatibility with the WTO rules, the AGOA has been severely criticized since its inception.

Despite the mentioned impacts of AGOA on the African economy, the agreement has also been criticized for crippling the African economy and being used as a tool of “US Domination” in Africa.

East Africa has been a leading bloc in producing cotton although it is the least consumer of the local textiles. Four East African countries (Tanzania, Kenya, Uganda, and Rwanda) accounted for 13 percent of the second clothes market from the U.S. under the AGOA agreement in 2015. Tanzania produces approximately 220,000 tons of cotton annually, while neighboring Uganda recorded an annual cotton production of 254,000 bales in five consecutively years from 2019 ironically over 70 percent of clothes sold in East Africa are imported second-hand clothes.

The EAC Industrialization Strategy (2012-2032) has indicated its plan to diversify the manufacturing base and raise local value-added content (LVAC) of resource-based exports to at least 40 percent from the current estimated value of 8.62 percent by 2032. The statistics above indicate how the importation of second-hand clothes inhibits the growth of the textile industry in EAC. Industrialization is an indispensable element in achieving sustainable growth and AGOA has been strongly criticized in “let it happen”. In 2016 Rwanda increased the tariffs on imported used clothes from $0.20 to $2.50 per kilo, this decision led to the suspension from AGOA because the Rwandan decision would impose “significant economic hardship” on the American used clothing Industry. The Kigali government aimed at phasing out all used imported clothes to nurture their garment industry and create more than 25,000 jobs.

Most of the discussion after the expulsion of Uganda from AGOA was “how much Uganda will lose in trade after its removal from AGOA benefits” and not on what basis the U.S. has the legitimacy to interfere with Uganda’s internal affairs. Neither the African member states nor the EAC condemned the decision. To Africa, AGOA has become a favor deal and not a bilateral “equal partner” trade agreement.

Although the U.S-Uganda trade deal under AGOA is relatively smaller compared to other EAC member states, the expulsion of Uganda from AGOA has been translated and can be used as an opportunity for other African countries. From June 2022 to June 2023, Uganda’s exportation to the U.S. under AGOA amounted to $8.2 million about 11.5 percent of total imports to the U.S. in that year. The Rwanda campaign, “Made from Africa”, aims at boosting Africa’s manufacturing capacity, adding links to Africa’s regional supply chain, improving intra-African trade, and reducing Africa’s reliance on imports. With the surplus of Uganda’s cotton production and the advancement of Rwanda’s apparel production, these two countries could engage in the Cotton-Apparel trade and benefit both parties equally.

The AGOA “agreements” are hindering much of African achievements. With those agreements still half of all beneficiary countries had utilized 2 percent or less, meaning 98% of U.S imports from those countries were subjected to U.S tariffs. For Africa to progress, it must get rid of “this kind” of trade agreements. Africa should focus on boosting its Intra-trade as the only way to boost its economy and its people’s social welfare.

 source: Modern Diplomacy