US African Growth and Opportunity Act needs to do more for agriculture
27 August 2012
The influential Brookings Institution has compiled a report reviewing the accomplishments of the African Growth and Opportunity Act (AGOA) in the light of the debate on its renewal for the period beyond 2015. It concludes that ‘AGOA continues to be the cornerstone of the U.S.-African commercial relationship and should be extended for 10 years’. However, it calls for implementation of AGOA to be increasingly harmonised with the ‘Increasing American Jobs through Greater Exports to Africa Act’, which has recently been introduced in Congress and which calls on the Obama administration to develop a comprehensive trade and investment strategy for Africa.
The report finds that agricultural products account for less than 1% of AGOA exports. Although this is in part because many agricultural imports face low most-favoured-nation tariffs. the report also cites evidence that ‘AGOA’s agricultural benefits are constrained by quotas that predate AGOA and by the exclusion of some agricultural products from AGOA.’ In addition, according to the report, more support is needed to help countries to meet the USA’s SPS requirements, and to this end there should be coordination of ‘the activities of the U.S. agencies that provide this support.’ However, while one of the report’s recommendations is that ‘Congress should amend AGOA to mandate that the activities of the U.S. Department of Agriculture support the implementation of AGOA’, there is no recommendation for the removal of the residual trade barriers.
The report concludes that ‘agriculture has not played a central role in the accomplishments of AGOA’, with the US needing to do more to address problems faced, such as pre-existing quotas, the exclusion of some products, and the provision of more assistance in meeting SPS standards.
Meanwhile, the EAC Ministers and US Trade Representative Ron Kirk have jointly resolved ‘to pursue a new trade and investment partnership between the United States and the East African Community’ which ‘will build on the foundations of our existing trade and investment relationship, including the African Growth and Opportunity Act (AGOA), and the U.S.-EAC Trade and Investment Framework Agreement’.
This was followed by the signing of a trade and investment framework agreement by US and South African trade representatives in mid June 2012. Areas of cooperation highlighted included anti-dumping measures, SPS issues, energy, infrastructure and investment. The US is South Africa’s third largest trading partner, with trade worth US$22 billion. South African exports to the US have increased by 15.7% since 2010, with 48% of exports entering the US market duty-free under AGOA.
Editorial comment
AGOA has a broader importance for the future of EU–ACP agricultural trade policy than would be imagined from the low level of farm exports from Africa to the USA. This importance stems from the light that the AGOA experience throws on the effect of preferences on trade flows and the role of the rules of origin in determining the type of economic activity they create. AGOA provides one of the few empirical examples of ‘before’ and ‘after’ and a comparison with a ‘counterfactual’ (‘with’ and ‘without’). Before AGOA, exports of clothing from the non-established suppliers (such as Mauritius) were trivial; afterwards they boomed. The key change for the ‘lesser developed economies’ was that the rules of origin were changed so that, for the first time, they could use non-originating (Chinese) cloth in garments without losing the preferences. The Cotonou rules of origin did not change (and continued to remove preference from clothing consignments made from non-originating cloth). Exports to the EU did not boom.
In terms of the agro-food sector, ACP exports of processed agricultural goods (to both the EU and USA) remain constrained by origin rules that often prohibit the use of imported raw materials. Reform of agriculture and food product rules of origin are therefore required to support movement up value chains.
A further lesson emerging from the AGOA experience relates to the continued scope for trade preferences in an era of preference erosion. The Brookings Institution report claims that ‘on average more than 70 percent of Sub-Saharan Africa’s exports to the U.S. have been duty free under AGOA or GSP.’ This leaves almost 30% that are not duty free, including some agricultural goods, and suggests that there remains considerable scope for further tariff preferences for ACP exporters. While a far higher level of ACP exports to the EU enter duty free, if some non-LDCs fail to implement an EPA by 1 January 2014 then this situation could change (see Agritrade articles ‘ Commission unveils proposal for new GSP’, 10 June 2011 and ‘ Revisions to the EU Generalised System of Preferences’, 25 October 2011).
