AGOA: A Case of ‘If You Give a Mouse a Cookie’
African Growth and Opportunity Act (AGOA) is a United States Trade Act signed into law on May 18, 2000. The trade preference program currently provides market access to the United States for 38 qualifying sub-Saharan African (SSA) countries. Under this program, virtually all marketable goods produced in eligible countries, approximately 7,000 products are granted duty-free entry into the U.S. market.
AGOA is considered a cornerstone of U.S. trade policy with SSA but reaction across SSA to the opportunity can be likened to the children’s story “If You Give a Mouse a Cookie,” which presents the consequences of benevolence, charity, and humanitarianism. The book describes a Good Samaritan’s dilemma where a boy becomes exhausted by the mouse’s incessant demands and dependency.
The story goes, if you give a mouse a cookie, then he would ask for a glass of milk, and then a straw, and then a napkin, a mirror, a pair of scissors, a pillow, and then scotch tape and so on leading to a cycle of perpetual requests even beyond the book. The relationship between the boy and the mouse is similar to that between the U.S. and SSA where the SSA has become overly dependent on the U.S government regarding all responsibilities pertaining to the implementation of AGOA.
AGOA was meant to be a major paradigm shift in terms of boosting economic growth and diversifying African exports to the U.S. but unfortunately that objective has not been substantially accomplished considering the poor and declining trend of non-oil imports from SSA. According to data obtained from the U.S Department of Commerce, non-oil exports from SSA to the U.S. under AGOA have consistently declined since 2011. It decreased by four percent, two percent, ten percent and seven percent in 2012, 2013, 2014 and 2015 respectively.
Obviously at the time this Act was enacted, sub-Saharan African countries were unprepared to take advantage of this opportunity due to low level of industrialization, weak regional connections, compliance issues and technical barriers to trade. However, more than 15 years later, the implementation of the program across SSA has fallen short of expectations as many countries in the region still lack clear strategy on AGOA.
Apart from creating this non-reciprocal trade concession for SSA, the U.S. government through its various agencies provides trade capacity building assistance to industries in the region to boost utilization of the opportunity and complement other multilateral efforts to facilitate SSA’s integration into the global economy. Also, the provisions of AGOA has undergone several reviews and extensions since it was created to expand preferential access for imports from beneficiary SSA countries. It was again recently enhanced through some provisions and flexibility to increase utilization in September 2006.
Despite these efforts, SSA governments and stakeholders across the continent have expressed concerns about AGOA; attributing their shortcomings to many factors and requesting the U.S. to expand the list of eligible products allowed under the program, simplify the process and paperwork, clarify guidelines between U.S customs and the country of origin, relax the strict rules of origin and the 35-percent threshold on value addition, extend the treaty by a minimum of 15 years, broaden the act and apply significant changes, provide special assistance in the areas of standards, certification and buyer-seller linkages, review other trade rules and include products such as tobacco, sugar, peanuts and dairy; the list is endless, in order for them to maximize the benefits of AGOA.
The question then is, What are the responsibilities of SSA in implementing AGOA? Anyone familiar with the governance system in the region knows that these excuses would not stop. For a continent that has failed to address the fundamental issues of infrastructure deficit, standards, and regulations as well as trade capacity building, to be making such numerous demands is basically asking for more than a glass of milk after being given a cookie.
The real assistance SSA needs is foreign direct investment (FDI) which will deliver immediate impact in creating jobs, reducing poverty and facilitating market integration globally. According to the U.S Trade representative, Michael Froman, “market access is important but simply not enough. The U.S needs to do more to help the region overcome infrastructure, skill shortages and other supply-side constraints that infringe on Africa’s ability to compete and integrate successfully in the global trading system”.
Yes, the U.S. has to be more aggressive in its commitment to promote trade and investment in the region by encouraging its companies to invest in the continent. Many U.S. firms have not figured out the strategies to use to maximize the benefits of this huge potential market. Realizing Africa’s immense opportunities, Mark Zuckerberg of Facebook on his recent visit to SSA said, “Africa is where the future is going to be built.”
U.S. manufacturers have been relatively slow in responding to this horizon and now they are in a race to catch up with emerging economies already entrenched in the continent. The United Nations Conference on Trade and Development recently reported that textile and garment firms from Bangladesh, China, and Turkey seeking alternative production bases for export to the European Union (EU) and North America invested $2.2 billion in Ethiopia in 2015 especially because of its privileged exports under the AGOA Act and Economic Partnership Agreements (EPAs). Even though this FDI is a good development for Africa, it is an indication that AGOA is technically fueling the operations of U.S. trade competitors.
Trade competition within the African territory is becoming more challenging between firms from advanced economies and firms from emerging markets. AGOA should be considered a tool for strategic investment and U.S investors would have to move beyond trading and exporting to core value-addition by setting-up manufacturing operations in SSA in order to achieve strong strategic positioning in the market and also achieve the objectives of AGOA.