The Need for an AGOA Renewal

Africa

The African Growth and Opportunity Act (AGOA) is set to expire in September 2015, and last week at the United States-Africa Business Forum, President Obama pitched the idea of an early renewal, building on the growth of the Administration’s “Doing Business in Africa Campaign.”  AGOA is the cornerstone of U.S. trade and investment with Africa; over its 14 year history, the program has contributed to a doubling of U.S. trade with Africa.  In 2013, U.S. goods imports from sub-Saharan Africa under AGOA and the Generalized System of Preferences (GSP) program totaled $26.8 billion, more than three times the amount in 2001, the first full-year of AGOA trade.

Indeed, by providing duty-free entry into the United States for almost all African products, AGOA has helped expand and diversify African exports to the United States, while at the same time fostering an improved business environment in many African countries through streamlined eligibility requirements. These eligibility requirements remain important in the renewal process though, as part of increasing the desirability of African countries as a business destination lies in making sure that these nations have an environment that fosters growth and investment. Congress never intended AGOA to be a blank check for all African countries, without regard to performance. It was meant to offer tangible incentives for African governments to improve their political and economic governance, not to underwrite poor policies.  AGOA authorizes the President to designate countries as eligible to receive AGOA’s benefits if they are determined to have established, or are making continual progress toward establishing, the following:

  1. market-based economies
  2. the rule of law and political pluralism
  3. elimination of barriers to U.S. trade and investment
  4. protection of intellectual property
  5. efforts to combat corruption
  6. policies to reduce poverty, increasing availability of health care and educational opportunities
  7. protection of human rights and worker rights
  8. elimination of certain child labor practices

While these criteria have been embraced overwhelmingly by the vast majority of African nations, most of which are striving to achieve AGOA objectives, the renewal process gives the United States an opportunity to review the existing criteria and strengthen the law to benefit both U.S. and African businesses. Especially considering the level of Chinese investment in sub-Saharan Africa, making sure that AGOA is formulated correctly is important to developing a system of free and fair trade, one in which all countries play fairly, worldwide. Though the President has never had a problem exercising his discretion to remove countries in AGOA (since 2001, several countries have been moved on and off the eligibility list for various reasons), it is perhaps time to reassess the criteria’s effectiveness.

One area of improvement that stands out is the general vagueness on “barriers to U.S. trade and investment.”  For example, in 2010, Nigeria, a member of AGOA since 2004, introduced localization requirements on digital services through its Oil and Gas Sector Local Content Development Act. The Act establishes a Nigerian Content Development and Monitoring Board to enforce requirements for Nigerian content, defined as a specific percentage of total funds spent, labor hours, or input volume, for any operator in the oil and gas sector. For digitally traded services, the Act specifies that 50 percent of the amount spent on ICT management consultancy services must be local. The same is true for data management services, with the figure rising to 60 percent for data and message transmitting services and to 100 percent for general banking, auditing, and life insurance services.

As ITIF has discussed in its review of the renewal process of GSP, whether or not a country is blatantly using mercantilist trade policies needs to be considered. As perhaps the greatest threat to the global trading system, the spread of mercantilism (and its popularity among countries like India and China) makes sub-Saharan Africa (arguably an area which is poised to continue to grow and become an ever-more important trading partner for the United States) especially vulnerable to a belief that adopting these practices will only help them.  However, as ITIF has documented again and again, mercantilism not only hurts a nation’s partner countries, it also hurts the nation itself.  As a result, practices like those described above by Nigeria need to be viewed as unacceptable for countries wishing to receive AGOA benefits.

AGOA typically enjoys broad bipartisan sport on the Hill, which means that, unlike GSP, renewal should not be a difficult process. But the benefits offered from using this early renewal period to renew and strengthen the law should not be overlooked. The United States cannot afford to miss out on developing this emerging region into a strong trading partner, but more importantly, it cannot afford to lose the global war against mercantilism.

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About the author

Michelle Wein is a Trade Policy Analyst at ITIF, specializing in the connections between international trade, innovation, intellectual property and economic productivity.