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US/Africa: Trade Meeting, 1
AFRICA ACTION
Africa Policy E-Journal
January 14, 2003 (030114)
US/Africa: Trade Meeting, 1
(Reposted from sources cited below)
US/African meetings in Mauritius this week focusing on the African
Growth and Opportunity Act (AGOA) are proceeding without U.S.
President George W. Bush, whose promised Africa trip was postponed
suddenly in a brief announcement just before Christmas, Then
Secretary of State Colin Powell also backed out, leaving the U.S.
delegation to be headed by trade representative Robert Zoellick. On
Sunday, Mauritian Minister of International Trade Jayen Cuttaree
said Mauritius would make the best of the opportunity, and in the
opening session of the NGO forum, Minister of Women's Affairs
Arianne Navarre-Marie said, "African Women would like to know how
AGOA is going to provide the necesary support for making cheap
anti-retrovirals available to their brothers, sisters and children
who are dying of AIDS because thay cannot afford the price of such
drugs".
Unfortunately, both the reduced level of the U.S. presence in
Mauritius this week and the exclusive focus on trade accurately
reflect the realities of U.S. policy towards Africa. Strikingly,
Bush's balance sheet is deeply in the red even in the realm for
which the U.S. seeks to claim credit: trade policy. The damage done
by other U.S. trade policies far outweighs the impact of increased
AGOA imports from Africa, and an IMF study shows that even those
benefits are far less than they might be.
Today's series of two postings contains (1) excerpts from an IMF
working paper showing that the benefits in increased textile
exports from AGOA are only a fifth of what they could be without
the highly restrictive "rules of origin" imposed by the law (see
below), and, in a separate posting, (2) excerpts from articles by
allAfrica.com on the Mauritius meeting, a press release on the
latest report on US/African trade, and links to other sources on
related issues.
+++++++++++++++++end summary/introduction+++++++++++++++++++++++
2002 International Monetary Fund WP/021158
IMF Working Paper African Department
The African Growth and Opportunity Act and Its Rules of Origin:
Generosity Undermined?
Prepared by Aaditya Mattoo, Devesh Roy, and Arvind Subramanian
September 2002
[brief excerpts: The full paper,including tables, is available at:
http://www.imf.org/external/pubs/ft/wp/2002/wp02158.pdf]
Abstract
The views expressed in this Working Paper are those of the
author(s) and do not necessarily represent those of the IMF or IMF
policy. ...
This paper describes the United States recently enacted African
Growth and Opportunity Act (AGOA) and assesses its quantitative
impact on African exports. The AGOA expands the scope of
preferential access of Africa's exports to the United States in key
areas such as clothing. However, its medium-term benefits -
estimated at about US$100-$140 million, an 8-11 percent addition to
current non-oil exports - would have been nearly five times greater
(US$540 million) if no restrictive conditions bad been imposed on
the terms of market access. The most important of these conditions
are the rules of origin with which African exporters of clothing
must comply to benefit from duty-free access.
Authors E-Mail Addresses:
amattoo @worldbank.org, [email protected],[email protected]
...
INTRODUCTION
...
The African Growth and Opportunity Act (hereafter "AGOA"), signed
into U.S. law as Title 1 of the U.S. Trade and Development Act on
May 18, 2000, is a major plank of U.S. initiatives toward the
African continent. The Act aims at broadly improving economic
policymaking in Africa, enabling countries to embrace
globalization, and securing durable political and economic
stability. As an incentive for Africa to adopt these policy
changes, AGOA offers increased preferential access for African
exports to the United States. It envisages the possible conversion
of AGOA - which is essentially a one-way preferential arrangement
- into reciprocal free trade areas (FTAs) where feasible with
interested African countries.
The paper assesses the impact of AGOA. Its main conclusions are the
following:
- First, AGOA will provide real opportunities to Africa. Even on
conservative estimates about Africa's supply response, Africa's
non-oil exports could be raised by 8 Il percent.
- However, the gains from 2005 onward could have been much greater
if AGOA (i) had imposed the multifiber agreement (MFA) rule of
origin rather than the more stringent"yarn-forward" rule; and (ii)
not excluded certain items from its coverage. Our estimates suggest
that the absence of these restrictions would have magnified the
impact nearly fivefold, resulting in an overall increase in non-oil
exports of US$0.54 billion compared withthe US$100-$140 million
increase that is expected in the presence of these restrictions.
- Third, these restrictions, particularly on apparel, will come at
a particularly inopportune time, as Africa will be exposed to
competition from other developing countries when the quotas
maintained on the latters' exports under the MFA are eliminated in
2005. On the one hand, Africa's apparel exports will be lower by
over 30 percent with the dismantling of the MFA; if, on the other
hand, AGOA had provided unrestricted access, the negative impact of
the dismantling could be nearly fully offset.
This paper adds to the recent work on the benefits to sub-Saharan
Africa of preferential access granted by industrial countries (see
Ianchovicina and others 2001 and Hoekman and others 2001). The main
conclusion of these papers is that Africa stands to gain, but the
bulk of the gains come from preferential access to the Japanese and
European agricultural markets. These papers, however, do not
explore fully the gains from apparel exports and how these are
affected by rules of origin.
II. BACKGROUND: AFRICA'S EXPORTS
... A number of features stand out.
First, at about US$27 billion in 1999, the absolute level of
non-oil exports is very low (Table 1), reflecting a slow rate of
growth during the 1990s. Non-oil exports from the continent grew at
a glacial 0.6 percent per annum, consistent with notion of Africa's
marginalization from global trade (Subramanian and Tamirisa, 2001).
Second, while Europe remains the biggest market for SSA's non-oil
exports, absorbing about 55 percent, developing countries have seen
their share of SSA's exports rise from 25.6 percent in 1990 to over
30 percent in 1999. Interestingly, while the United States accounts
for a sizable share (23 percent) of total exports, it is actually
a much smaller market (7.4 percent) for non-oil exports. In other
words, the bulk of SSA's exports to the United States comprise oil
and related products.
Third, SSA's exports remain predominantly agriculture and natural
resource-based. Oil accounts for close to 50 percent of exports,
agriculture and other commodities for about 36 percent, and
manufacturing for a meager 12 percent. This composition has not
substantially changed during the 1990s. Clothing, a key sector
under AGOA, has been one of the most dynamic, growing at an annual
rate of close to 7 percent and has become one of the largest export
items.
Fourth, in terms of exports of textiles and clothing, there are
interesting differences in the composition and vibrancy of SSA's
exports to the three major markets - European Union, United States,
and developing countries. Developing countries are the largest
market for exports of cotton and textile fibers from SSA, with the
EU being the largest market for fabric and yarns and clothing but
particularly so for the former category. Exports of clothing have
grown most rapidly in the U.S. market, at about 10 percent per
annum, from US$187 million in 1990 to US$620 million in 1999,
compared with 6.5 percent for the EU (Table 3).
Finally, exports of clothing to the United States remain very
concentrated: in 1999 a few countries - those in the South Africa
Customs Union (SACU) and Mauritius - accounted for 80 percent and
another three countries for a further 17 percent, of SSA's exports
(Table 4).
III. AGOA's MAIN PROVISIONS
Prior to AGOA, 48 sub-Saharan African countries were granted
preferential access to the U.S. market - essentially paying a zero
tariff subject to certain conditions - for a range of exports under
the Generalized System of Preferences (GSP). In 2000, the GSP
covered about US$4 billion out of Africa's total exports of US$23
billion. The margin of preference - the advantage faced by African
exporters compared with other most-favored nation (MFN) suppliers
- was about 5 percent (the average MFN tariff rate). AGOA
represents two advances over the GSP scheme:
- First, the existing preferential access enjoyed by SSA countries
under the GSP schemehas been extended in time; and
- Second, it increases the range of products for which preferential
access is granted to include: petroleum products;apparel products,
previously subject to quotas under the MFA and tariffs; [and] a
range of other agricultural and industrial products. ...
In evaluating the benefits accruing under AGOA, however, it is
important to consider not just the import coverage but the
magnitude of current trade restrictions. For example, a large
portion of the increased coverage under AGOA is accounted for by
petroleum products, which faced average tariffs of only 1.5 percent
prior to AGOA. The elimination of these tariffs, which will
increase the price received by African suppliers (mainly Nigeria,
Angola, and Gabon) by about 1 percent, will not yield significant
benefits.
The really important incremental benefits provided by AGOA relate
to the two non-petroleum categories in the lightly shaded panel in
Table 5. The first comprises exports of apparel products and the
second a whole range of non-apparel products, including footwear,
agricultural products, watches etc. ...
In both these categories, although current exports are low,
potential benefits are large because average protection is high:
...
In sum, the conclusions that can be drawn from the above are:
- First, while AGOA has increased the scope for preferential access
for African exports,this increase is important only for categories
of products which have significant protection. These currently
account for 5 percent of total exports and 23 percent of non-oil
exports.
- Second, even for these categories, the real medium-term benefits
will depend upon the impact of the rules of origin requirements
(see below);
- Third, AGOA's generosity was not all encompassing for Africa: for
about 1,067 tarifflines (1 percent of non-oil exports),
preferential access was not extended, For 893 of these lines
preferential access could have been meaningfbl because of the high
level of MFN tariffs,
A. AGOA's Provisions on Rules of Origin
As described above, the benefits of the incremental coverage under
AGOA - the extension of access to apparel and other products - will
hinge crucially on the rules of origin that African exporters will
have to meet. These rules vary across these two categories of
exports.
Rules of origin for non-apparel exports
Under the GSP scheme duty-free treatment is to be applied to any
designated article that meets the requirements of the basic GSP
origin and related rules. ...The key is a requirement of 35 percent
value addition within the customs territory claiming preference.
However, for non-apparel products eligible for duty-free access
under AGOA, the 35 percent value added content can be met also by
counting production or materials from other beneficiary countries
or the United States. The rules of origin clauses are supplemented
with implementation requirements. For example, an importer claiming
duty-free treatment must make and maintain (for a period of five
years from the date of entry) the records validating facts like
proof of production, value addition, shipping papers etc.
Rules of origin for apparel exports
AGOA's provisions on rules of origin relating to apparel are
different and are summarized in Table 8. They require essentially
that apparel be assembled in eligible sub-Saharan African countries
and that that the yarn and fabric be made either in the United
States or in African countries (as explained below this does not
apply to the least developed countries in Africa until 2004).
However, apparel imports made with regional (African) fabric and
yarn are subject to a cap of 1.5 percent of overall U.S. imports,
growing to 3.5 percent of overall imports over an 8-year period.
In addition a number of customs requirements need to be satisfied.
To receive the apparel and textile benefits of AGOA, a USTR-chaired
inter-agency committee must determine, inter alia, that countries
have an effective visa system and enforcement procedures to prevent
unlawful transshipment and the use of counterfeit documents.
There is an interesting difference between the rules of origin
under the Cotonou Agreement, which governs preferential access to
the European Union, and AGOA. The Cotonou rule of origin is based
is based on the concept of "double transformation" i.e., if two of
the processing stages (yarn into fabric weaving; and fabric into
apparel assembly) are done in the beneficiary country, duty free
entry into the EU can be enjoyed. Under Cotonou, therefore, yarn
can be sourced from anywhere in the world, whereas under AGOA the
yarn must come from a beneficiary SSA country or from the United
States.
IV. ECOMOMIC IMPACT OF AGOA'S APPAREL PROVISIONS
A. AGOA's Apparel Provisions and Their Timing
In order to quantify the economic impact of AGOA, it is necessary
to understand the provisions and their timing, which are summarized
in Table 9. In the apparel sector, AGOA distinguishes two
categories of SSA countries.
Lesser Developed Beneficiary Countries (LDBCs), namely those with
per capita GNP under $1500 in 1998 (based on the World Bank Atlas
method), and other SSA countries will see their quotas on apparel
exports eliminated beginning 200l. [Forty-two countries in
sub-Saharan Africa fall below the specified GNP level and hence
qualify as an LDBC under AGOA; another two countries Botswana and
Namibia have recently been designated as LDBCs despite their high
GNP levels. Thus, only the following four do not qualify: Gabon,
Mauritius, Seychelles, and South Africa.]
In discussing the empirical findings, an important complication
needs to be borne in mind. The changes unleashed by AGOA will be
accompanied by other important changes to the external trading
environment, most notably the dismantling of the MFA under the
Uruguay Round, scheduled for 2004 (shown in italics in the table
above). In reality, the impact on African countries will be a
combination of these two sets of changes. In the following analysis
we shall attempt to isolate the different effects so that the
marginal contribution of AGOA can be established. In other words,
we shall analyze (i) the marginal impact of AGOA, holding other
factors constant and (ii) the total impact of AGOA in conjunction
with the dismantling of the MFA.
D. Results
The results are illustrated in Table 12. For a country
such as Mauritius, the impact can be summarized as follows
2001-2004
The impact of AGOA during the period 2001 and 2004 will be to raise
exports relative to the pre-AGOA situation by about 5 percent. Had
there been no rule of origin requirement on Mauritius, the increase
in exports due to the tariff preferences accorded by AGOA would
have been 36 percent, substantially higher than with rules of
origin.
2005-2008
In 2005, when the MFA quotas on Mauritius competitors are
eliminated, its exports will be about 26 percent lower than they
otherwise would have been. But if AGOA is modified to eliminate the
rules of origin requirement, the decline in exports would be 18
percent.
For a least developed country such as Madagascar, the results are
more dramatic both on the up side and down.
2001-2004
The impact of AGOA during the period 2002 and 2004 will be to
increase exports relative to the pre-AGOA situation by about 92
percent.
2005-2008
In 2005, when the MFA quotas on Madagascar's competitors are
eliminated, its exports will be lower by about 19 percent compared
with the pre-AGOA situation. But if AGOA is modified to eliminate
the rules of origin requirement, exports in 2004 could actually be
higher than they are currently despite the elimination of the MFA.
V. REVEALED APPAREL TRADE UNDER AGOA
... Apparel exports have recorded a substantial increase following
AGGA: both in terms of values and quantities, exports in 2001 were
about 27 percent higher than in 2000. It is striking that the most
impressive gains have been recorded by the least developed
beneficiary countries: as the table shows, Madagascar, Kenya,
Swaziland, and Lesotho have recorded gains varying from 47 percent
to 83 percent. In contrast, South Africa and especially Mauritius,
have posted more modest growth. ...
A striking feature of the data is that a very small portion of
total exports (9-14 percent) from South Africa and Mauritius have
benefited from the tariff preference, whereas for the least
developed countries not subject to the rule of origin requirement
the corresponding share is close to 50 percent, highlighting the
restrictive impact of the rules of origin. ln other words, close
to 90 percent of the exports of South Africa and Mauritius did not
meet the rules of origin requirement.
Given the fact that the LBDCs will be subject to the same rules of
origin in 2004, the above serves as a cautionary reminder about the
likely effects for the poorer countries after 2004; in other words,
export growth may be considerably muted for the LBDCs after 2004 as
the rules of origin kick in. ...
VI. OVERALL ASSESSMENT AND CONCLUSIONS
AGOA's impact can be evaluated against two possible benchmarks. The
first is current trade and the other is "what might have been" -
that is, trade that would have resulted had all restrictions on
SSA's exports been eliminated. ...
AGOA will raise the level of non-oil exports by between 8 percent
and 11 percent, depending on the restrictiveness of rules of origin
in the non-apparel sector. Most of this increase is accounted for
by the apparel sector, which is expected to see higher cxports of
about 8.3 percent.
We can, however, be a little less circumspect when we compare AGOA
against the second benchmark, of fully unrestricted access, which
is the level that Africa's trade would have attained had the United
States (i) not excluded any product from the scope of AGOA2 and
(ii) not imposed stringent rules of origin requirements to qualify
for the benefits under it. ... AGOA as it is now stands will yield
only 19-26 percent of the benefits that could have been provided if
access had been unconditional. Nearly 80 percent of this shortfall
is accounted for by the rules of origin requirements in the apparel
sector which will significantly reduce exports below SSA's full
potential. ...
+++++++++++++++++++++Document Profile+++++++++++++++++++++
Date distributed (ymd): 030114
Region: Continent-Wide
Issue Areas: +economy/development+ +US policy focus+
The Africa Action E-Journal is a free information service
provided by Africa Action, including both original
commentary and reposted documents. Africa Action provides this
information and analysis in order to promote U.S. and
international policies toward Africa that advance economic,
political and social justice and the full spectrum of
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