ICTSD | 19 July 2018
US, African officials prepare for post-AGOA trade future
African and US officials, private sector representatives, and members of civil society organisations gathered last week in Washington for the 17th African Growth and Opportunity Act (AGOA) Forum, with discussions addressing options for a “post-AGOA” model from 2025 onwards, including the possibility of crafting free trade deals.
This year’s event was held under the theme “Forging New Strategies for US-Africa Trade and Investment.”
Referring to the future of US-Africa trade ties after the current version of AGOA expires in 2025, US Trade Representative (USTR) Robert Lighthizer explained that any new vision should recognise that sub-Saharan Africa has evolved substantially in the nearly two decades since the AGOA system began.
The AGOA is a unilateral scheme of preferences dating back to 2000, and has served as the bedrock of trade relations between the US and sub-Saharan Africa. It grants eligible African countries duty-free access to the US markets for thousands of products.
The preference regime was renewed in 2015 for a full decade, which was welcomed by many trade observers across the African continent, given its potential developmental benefits and the additional certainty provided by a long renewal period. Some provisions in the updated legislation did draw particular scrutiny, however, such as shorter windows for addressing alleged violations of AGOA commitments. (See Bridges Africa, 3 September 2015)
On a separate note during the AGOA Forum, African trade ministers reportedly questioned their US counterparts over the possible adverse implications for their economies resulting from the recent Section 232 tariff measures on steel and aluminium, according to a summary issued by the South African Department of Trade and Industry (DTI).
Towards a comprehensive US- Africa FTA?
Last week in Washington, Lighthizer described the United States’ “desire” to pave the way for a free trade agreement between Washington and sub-Saharan African countries.
“We are excited about the prospect of entering into a successful free trade agreement with an African country. We believe that this will be good for the United States, the FTA partner, and ultimately Africa,” he said during the opening plenary.
Lighthizer said that he is looking to “announce exploratory talks soon,” without confirming which countries might be first on the docket for such an initiative. He did, however, indicate that the Trump administration would look to craft a bilateral deal with a “willing partner” that could serve as a template for other accords with countries in the region, so long as the deal also supports economic integration across the African continent and in the particular regions implicated.
“One-way tariff preferences can only do so much to drive trade and investment. When corporations decide where to invest and do business, much more goes into the equation,” explained Lighthizer, who also stressed the potential future investment opportunities in Africa for US companies. He referred to infrastructure and other development projects on the continent in particular.
Additionally, he pointed to the fact that many African countries have already signed free trade agreements with other major economies, including the EU and China, meaning that the US is actively looking to maintain and develop its own competitiveness in the region.
Sources explain that this observation partly refers to the reciprocal economic partnership agreements that the EU for example, has advanced or concluded with several African regional economic communities, namely the East African Community (EAC), the Southern African Development Community (SADC), and West Africa.
Bringing certainty for investments
During his intervention, Lighthizer explained that an FTA with the US would “lock in the benefits of AGOA,” highlighting in particular the value of having a long-term system that creates more predictable business conditions. Since US lawmakers must draft and endorse AGOA renewal legislation periodically, which the US president then must sign, the process has often sparked questions among trade observers and companies alike over how this may affect the investment climate, particularly given the need to make business decisions some months or years ahead of time.
“Establishing a more stable, permanent, and mutually-beneficial trade and investment framework with the United States could be transformative for Africa,” added Lighthizer.
According to administration sources cited by Covington’s Global Policy Watch, a branch of a US law firm working on various policy issues, Kenya, Ghana, and Côte d’Ivoire could be early contenders for a trade accord with Washington.
Currently around 40 countries are eligible for AGOA benefits, though they are subject to various requirements covering topics beyond purely economic concerns, such as by ensuring rule of law, labour rights protections, and political pluralism, according to a summary of the accord published by the Trade Law Center (tralac).
Impact of AGOA
The impact of AGOA on Africa’s exports to the US has generated some debate over the years. According to some trade experts, there are indications that AGOA exports of textile and clothing have spurred industrial growth in, and exports from, countries like Kenya, Lesotho, Mauritius, Kenya, and Swaziland.
“The AfCFTA is a game changer for the Continent as it promotes structural transformation through development integration,” said South African Minister of Trade and Industry Rob Davies.
Some observers note, however, that AGOA could do more to facilitate the economic transformation of African economies, given its objective of doing so . Research published by the International Centre for Trade and Sustainable Development (ICTSD) suggests that AGOA has had a limited impact when it comes to spurring greater manufacturing in the beneficiary countries. The report cited the “structure of tariff preferences” as part of the challenge, noting that the scheme “excludes a number of products in which African countries are known to be competitive.” (Editor’s note: ICTSD is the publisher of Bridges.)
According to a factsheet from the Office of the USTR, last year the top five sub-Saharan African exporters under AGOA were South Africa, Nigeria, Angola, Côte d’Ivoire, and Botswana, though the range of exports varied significantly. South Africa and Nigeria topped the list at US$7.8 billion and US$7.1 billion, respectively, while Botswana sent US$772 million worth of exports to its North American partner.
AfCFTA context, other regional developments
Meanwhile, this past March, African leaders launched the African Continental Free Trade Area (AfCFTA), a trade accord that would slash tariffs on the vast bulk of products traded within the continent, among other provisions. (See Bridges Weekly, 22 March 2018)
Advocates say that the AfCFTA presents the advantage of having a potentially unified trade regime for the continent, while slashing business costs and tariffs, as well as creating economies of scale. The establishment of the AfCFTA could offer new ground for African leaders to press for a comprehensive accord with the US, one trade observer told Bridges.
Regarding the AfCFTA, while the signatories have begun the ratification process, they are also looking at the technical work needed to bring this free trade agreement into effect. Negotiators will reconvene next month to discuss competition, investment, and intellectual property rights. Preparations are underway to bring the deal into force soon, officials say, with the hope that it could be in effect next year, though experts note that achieving the accord’s envisioned potential will still require much work ahead. (See Bridges Africa and Bridges Weekly, 24 May 2018)