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CRITICAL EVALUATION OF AGOA AND STRATEGIES IN MARKETING PRODUCTS

BACKGROUND

What is AGOA?

The United States US Government through the Trade and Development Act of 2000

developed the African Growth and Opportunity Act (AGOA. The act was signed into

law by the US congress on May 18, 2000. The main objective of AGOA is to offer

trade incentives for African countries in order to open their economies and create a

free market environment through trade in finished and unfinished products.

AGOA has undergone several changes since its inception. The first amendment was

undertaken in 2002 and is referred to as AGOA II. The Second amendment followed

two years later in 2004 and is known as AGOA III. The third amendment was made in

2006 and is known as AGOAIV.

AGOA helps in creating a suitable environment where African countries that are

making tangible reforms in business operations, elimination of corruption, have

embraced political reforms by adopting democratic rule are provided with access to

the US market without signing a Free Trade Agreement. As a result it ends up

supporting U.S. business while the African business doesn’t gain much return.

Since its implementation, AGOA has encouraged substantial new investments, trade,

and job creation in Africa through the development of export processing zones

where goods are manufactured specifically for the US Market.

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BENEFITS TO MEMBER COUNTRIES

Provision of duty free access to the US markets.

Provision of competitive edge over other countries that lack trade agreements

with the US as tariffs charged for items traded are costly and usually subjected

to predetermined US trade quota systems.

Promotes product diversification through provision of duty free and quota

free benefits on all products under AGOA.

Encourages expanded regional integration and production sharing among

beneficiaries leading to job creation, and eventual economic growth.

Enhanced relationships/partnerships with US based organizations.

Provides a sense of security in that markets for products are assured a ready

market up to September 2015

Creation of export processing zones leading to employment

Promotion of infrastructure programs through the creation of export

processing zones in areas that are largely undeveloped.

IMPLEMENTATION

An AGOA Implementation Subcommittee of the Trade Policy Staff Committee (TPSC)

was established to implement AGOA. Among the most important implementation

issues are the following:

Development of criteria that makes a country eligible for AGOA.

Development of criteria for the products eligible under the program.

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Development and implementation of US standards set by the US Trade.

Department and USDA in the development of products for the US market.

Development of the U.S.-Sub-Saharan Africa Trade and Economic Forum.

Development and determination of criteria for providing relevant requisite

technical assistance to help countries qualify for benefits.

COUNTRY ELIGIBILITY

The U.S. Government intends that the largest possible numbers of Sub-Saharan

African countries are able to take advantage of AGOA. President Clinton issued a

proclamation on October 2, 2000 designating 47 countries in Sub-Saharan Africa as

eligible for the trade benefits of AGOA. The proclamation was the result of a public

comment period and extensive consultations by the US and African countries that

were using the best practice policies to attract trade and investment.

The Act authorizes the President to designate countries as eligible to receive the

benefits of AGOA if they are determined to have established, or are making continual

progress toward establishing the following: market-based economies; the rule of

law and political pluralism; elimination of barriers to U.S. trade and investment;

protection of intellectual property; efforts to combat corruption; policies to reduce

poverty, increasing availability of health care and educational opportunities;

protection of human rights and worker rights; and elimination of certain child labor

practices.

These criteria have been embraced overwhelmingly by most African countries.

However it is critical to note that a country can lose its eligibility status due to

absence of economic reform, rule of law, human rights violations, shift in foreign

policy and emerging political circumstances.

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Eligibility is reviewed yearly based on progress of individual countries by the US

Government.

PHASES OF AGOA

AGOA I

The African Growth and Opportunity Act was signed into law on May 18, 2000. AGOA

I provided preferential treatment (duty-free, quota-free) for textile and apparel

articles that are imported directly into the United States from beneficiary SSA

countries. In particular, it allowed imports of apparel made of U.S. and regional fabric

from beneficiary SSA countries and apparel made of third-country fabric from LDB

SSA countries to enter the United States duty and quota-free, subject to a cap. The

third-country provision expired September 30, 2004. The other provisions expire

September 30, 2008.

AGOA II

The Trade Act of 2002 modified certain provisions of AGOA. With respect to textiles

and apparel, AGOA II clarified that “fabric” includes “knit-to-shape” components. It

expanded the third-country fabric provision to include fabric regardless of the origin

of its yarn. It designated Botswana and Namibia as LDCs. Hybrid cutting (cutting that

takes place in the United States and in AGOA countries) was allowed. The applicable

percentages for the caps were doubled.

AGOA III

The AGOA Acceleration Act of 2004 extended preferential access for imports from

beneficiary SSA countries until September 30, 2015, and extended the third-country

fabric provision until September 30, 2007. The cap remained at the FY 2004 level

during FYs 2005 and 2006; it was reduced by 50 percent in FY 2006. The Act

contained a number of clarifications that essentially provide for expanded access to

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the U.S. market. The Act also granted LDB status to Mauritius, but limited Mauritius

to a cap of 5 percent of the Special Rule cap. Mauritius lost its LDB status on

September 30, 2005.

AGOA IV

The Africa Investment Incentive Act of 2006 amends parts of the AGOA. It extends

textile and apparel provisions until 2015 and extends the third-country provision for

five years (through September 30, 2012). It contains amendments to section 112

regarding commercial availability. It also expands duty-free treatment for textiles or

textile articles originating entirely in one or more LDB SSA countries.

Source: www.agoa.gov

MAIN PRODUCTS MARKETED UNDER AGOA

1. Apparel

This includes trousers, shorts, shirts, sweatshirts and sweaters. These are

largely cotton or derived from man made fibres.

Materials are classified under the US Harmonized tariff schedule (HTSUS)

number that is assigned to specific products. Each product has its own US

tariff rate.

Successful marketing can be attributed to the following factors;

Economic integration in that US markets are opened

Manufacturers provide competitive wages/ remuneration to employees

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Individual government policies are implemented to enhance market

expansion

Creation of export processing zones leading to employment

Promotion of infrastructure development programs

Challenges faced include;

Product predetermination by the US Government in that the materials

used must have been grown, produced, or manufactured by a

beneficiary country and must be directly exported to the US.

The products must meet the specific rules of origin requirements and

must be accompanied by import documents that specifically claim

AGOA benefits on the relevant shipping documents.

Beneficiary countries must adopt a US government approved visa

system and domestic laws and enforcement measures to prevent illegal

diversion of the export items as well as inclusion of counterfeit products

and documentation.

Expiration on quotas imposed on apparels manufactured in China will

increase competition as they are more technologically advanced.

2. Agricultural/ Horticultural Products

This includes but not limited to; wood, cocoa, tobacco, sugar, leather

products, spices ( vanilla, ginger, pepper), vegetables, fruit, wine, nuts

processed foods ( canned fruits, jams, spreads , honey, hot sauces, fruit

juices), cut flowers such as roses, carnations, chrysanthemums, lilies and

tulips.

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Like Apparel the Agricultural products are also assigned their own tariff

schedule. The products must meet the requirements highlighted under the US

Food and Drug Administration (FDA) standards that specify how products

should be handled from the farm to the market.

Successful marketing can be attributed to the following factors;

Increased demand for organically grown agricultural products.

Increased efforts to meet US FDA sanitary and phytosanitary

requirements

Increased investments in infrastructure and agricultural research

development

Increased government policies to promote competitive commercial

farming enterprise

Increased emphasis on value addition to products

Improved distribution/ transport networks through opening of markets

for agricultural produce

Provision of technical assistance through USAID agriculture Division

Coordinated marketing, harvesting and packaging

Government policies implemented to promote industry and

infrastructure improvements

Challenges faced include but are not limited to;

High transport/ shipping costs

Unavailability of direct flights to the US as leading to spoilage of

products

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Inability to sell products directly to the US market instead one has to

rely on traditional distribution networks in Europe.

Counter productive land tenure practices

Over reliance on rain based agriculture

Unreliable utility supply like fuel, electricity, water

Lack of technical capacity to meet international product requirements.

Inability to participate in US trade shows due to bureaucracy, travel

restrictions and lack of adequate finances.

3. Animal Products

This mainly deals with export of semi processed tuna.

Like the apparel and agricultural products the animal products also have their

own tariff schedule. The fish must be properly handled as per FDA rules.

Successful marketing can be attributed to the following factors;

Proper infrastructure development/investment in local processing

facilities

Capacity building of fish handlers

Through AGOA there are sourcing agreements with major US

companies.

Challenges faced include;

Inadequate infrastructure

Use of outdated technology

Declining global stocks and inability to manage supply

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Lack of proper storage equipment facilities

Non additional investment in local equipment

Competition from other developed nations

CHALLENGES FACED BY BENEFICIARY COUNTRIES IN MARKETING PRODUCTS

a. Internal barriers to trade prevent some countries from satisfying AGOA

eligibility requirements. Many of the Sub Saharan countries are not

politically stable and constantly facing civil war and anarchy.

b. Lack of clarity on rules governing international trade and marketing as

well as inadequate capacity by African countries to successfully operate

within the structural relationships created by AGOA and to extract gains

from them. The Policy decisions are usually skewered towards favoring

US business concerns against the African country’s own policy criteria.

c. Due to the specialization nature of AGOA, countries potential to

properly market their products is limited, as a result African businesses

experience limited growth as well as trade opportunities.

d. In the apparel manufacturing sector, the source of material has been

largely impeded by a provision that requires African manufacturers to

source their material from African or American Manufacturers. Only

those countries regarded as least developed are allowed to source for

materials from the world market. Export quotas placed on Asian and

South American countries under the Multi fibre agreement are soon to

be eliminated exposing African manufacturing industry to stiff

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competition from the more developed South American and Asian

markets.

e. Foreign investors are reluctant to make major long term investments in

African countries because AGOA is not a free trade agreement and can

be withdrawn at the pleasure of the sitting US President.

f. AGOA provides multinational corporations with unlimited access to

African markets whereas small African companies are incapable of

taking advantage of the opportunities offered by AGOA.

g. AGOA does not make provisions for transfer of appropriate technology

by the US to Africa, a vital element to foster trade and development.

h. According to a Study conducted by Ikaara M. and Ndirangu L. of KIPRA

in 2003 they made the observation that AGOA in its very nature has a

provision where national obligations and security could end up

compromised in that, foreign interests would have the right to be

notified considerably in advance of the introduction of any new

measures affecting services in such areas as water, health and

education. A consultation process would have to be set up for them and

they could demand to have their inputs given due consideration before

the measures are implemented. This is tantamount to giving foreign

interests rights in setting domestic policy.

i. Government subsidies are important not only in infrastructural

development, but also increasing market favorability for local products.

Through AGOA the African countries cannot subsidize their products in

the long run this will ensure that foreign traders thrive without local

competition. If a government subsidizes an indigenous trader, this

enables the trader to market goods at a lower rate, thus providing stiff

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competition and ultimately forcing reasonable rates from the foreign

traders.

j. Section 104 (1) (C) of AGOA provides for the elimination of barriers to

US investment. The provision is ambiguous, therefore giving room for

multiple interpretations to suit US interests. (Source www.agoa.gov)

k. As a key requirement AGOA also contains a section that states that for

any country to become eligible they should have in place a system to

combat corruption yet at the same time the African country should not

undermine US national security or foreign policy interests. This kind of

provision hinders African states' sovereignty and freedom of association

and trade. Stated simply means that only the US's friends and foes

should be the same for any country wanting to benefit from this trade

act. This in essence means an upgrading of the term of neo-

colonization.

l. The conditions are only designed to benefit US private corporations

through free-trade principles, market liberalization and privatization.

m. There is no guaranteed sustainability of market opportunities due to

the very nature of AGOA as it seeks to increase US exports to sub-

Saharan Africa, while at the same time ensuring that African markets

are minimally open to US business. AGOA also grants extensive rights

and benefits to transnational corporations operating in Africa, but does

nothing to benefit the workers, business and export opportunities for

these countries.

n. The infrastructure in Sub Saharan Africa especially the trade transit

corridors efficiency is limited due to high cost of transport, poor road

networks, poor transit facilitation, limited use of technology. Restrictive

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trade policies in terms of red tape and contradictory trade policies,

sanitary and phytosanitary standards and qualities vary from one

country to another.

o. Limited access to finances causes a higher percentage of business

entities to be unable to access adequate funding for operations. In line

with this many financial institutions in Africa have not developed

products/ incentives to better serve the value chain players to enable

trade.

p. Over dependence on single commodities /lack of value addition to

products.

q. Exclusion of Africa’s major export products from beneficial US market

access. Product coverage is low with key agricultural products excluded

from AGOA.

r. AGOA inhibits market penetration in that American owned companies

dominate the product life cycle by setting prices, quality, delivery as

well as overseeing production. The buyer uses low cost labor to

perform less profitable function such as production of standard

garments or parts of them. The price gain is therefore below production

cost forcing some ventures to close down. (Source: www.agoa.gov)

s. Many parts of the product life cycle are disorganized and lack adequate

capacity to earn substantial returns.

t. AGOA in its nature is solely a US provision and can be withdrawn at any

time. It functions solely to benefit the US. Uncertainty caused by

possibility of withdrawal discourages long term investment.

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u. Collapse of cooperatives has left farmers without marketing outlets

thus exploited by middlemen. Domination by buyers, low demand for

products, low prices, unreliability of market and lack of proper market

information.

v. Unfair competition by tax evading imports.

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REFERENCES

1. Ikiara M Moses, Ndirangu K Lydiah: PDF Discussion Paper No.24 on

Prospects of Kenyan Clothing Exports under AGOA after 2004:

Kenya Institute of Public Policy and Research; Kenya (January 2003).

2. Gerstenfeld Arthur, Raphael N. Njoroge; AGOA An Assessment of

AGOA and its Implications; Kenya (July 2007).

3. Nouve Koffi , John Staatz : Has AGOA Increased Agricultural Exports

from Sub Saharan Africa to the United States: a Paper Presented at

the International Conference on Agricultural Policy reform and the

WTO ; Michigan University Dept of Agricultural Economics, US (June

2003).

4. Fahr David & Klugh Zachary:Vol 14:125-148 IMF and Agoa A

comparative Analysis on conditionalities; Duke Journal of

Comparative & International Law, US (May 2004).

5. Eckart Neuman : Agoa at nine some reflections on the Acts Impact

on Africa US trade; US ( 2007).

6. www.agoa.gov

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