Report: Renewing U.S.-Africa Trade Law Crucial

By Roy Maurer Aug 14, 2013

The United States is reviewing key trade legislation with nations in Africa while emerging economic rivals, such as Brazil, China and India, are building a strong presence on the fast-growing continent.

U.S. Trade Representative Michael Froman said on Aug. 5, 2013, that President Barack Obama wants to see a “seamless renewal” of the African Growth and Opportunity Act (AGOA), which offers African nations incentives to trade with the U.S.

Speaking at the Brookings Institution in Washington, D.C., Froman said the U.S. wants to use the next two years before AGOA is set to expire to review ways the law can be improved.

A Brookings report commissioned by the United Nations argues that extending AGOA is crucial to enable the United States to maintain a significant trade presence in Africa and that without an extension, there will be a decline in African exports, economic diversification and employment for many sub-Saharan African countries.

At the 2013 U.S.-Sub-Saharan Africa Trade and Economic Cooperation Forum, held Aug. 12-13, in Addis Ababa, Ethiopia, participants discussed the law’s future.

U.S.-Africa Trade Snapshot

Africa has recently emerged as the world’s fastest-growing continent, but the United States has seen its trade volumes with Africa drop, mostly due to lower oil imports from countries like Nigeria and Angola. In 2012, U.S. imports from sub-Saharan Africa decreased by 33 percent, falling to $49.7 billion and representing only 2.2 percent of total U.S. imports worldwide.

“The economic relationship with Africa is good but could be much more substantial,” said Froman. “The numbers are still quite small, and we should look at this next phase of AGOA to see what we can do to build upon the success of the last 13 years and take the relationship even further.”

Enacted in 2000, AGOA allows eligible African nations (currently 39) to export 6,400 products to the United States without paying duties or other levies.

The AGOA eligibility criteria are meant to improve labor rights and the use of a market-based economy. Each year the U.S. evaluates sub-Saharan Africa and determines which of its nations should remain eligible.

Noneligible African countries face a nearly 2 percent tariff barrier, while AGOA countries’ tariff barriers average just 0.15 percent, according to the Brookings report.

The African countries currently not eligible for AGOA advantages are Central African Republic, Eritrea, Sudan, Madagascar, Zimbabwe, Somalia, Mali, Guinea Bissau, the Democratic Republic of the Congo and the nations that make up North Africa.

Petroleum products continued to account for the largest portion of AGOA imports, representing an 86 percent share.

The top five AGOA beneficiary countries in 2012 were Nigeria, Angola, South Africa, Chad and Gabon. Other leading AGOA beneficiaries included the Republic of Congo, Lesotho, Kenya, Mauritius and Cameroon.

Despite AGOA’s being in place since 2000, in 2009, China surpassed the U.S. to become Africa’s second-largest trade partner, after the European Union.

Beyond 2015

If the act expires, it would mean the end of extended trade preferences for Africa and a return to earlier trade arrangements under the U.S. Generalized System of Preferences, a program that promotes economic growth in the developing world by allowing lower tariffs for the least-developed countries.

If AGOA is extended, several scenarios are possible, according to Brookings, some in which the law’s trade benefits would be restructured and others that would occur in a different trading environment.

The report, The African Growth and Opportunity Act: An Empirical Analysis of the Possibilities Post-2015, provides possible outcomes of U.S.-Africa trade under five scenarios:

  • Not extending AGOA beyond 2015.
  • Expanding product eligibility under AGOA.
  • Revising the list of eligible countries.
  • Restructuring AGOA to resemble the economic partnership agreements (EPAs) of the European Union.
  • Expanding international free-trade areas, either from an EU-U.S. free-trade agreement with an EPA-like arrangement with Africa or an African free-trade agreement.

Nonrenewal of AGOA

If AGOA were not extended and currently AGOA-eligible countries reverted back to the U.S. Generalized System of Preferences, it would be detrimental for these nations as a whole because their exports to the U.S. would be reduced by 2.1 percent ($1.3 billion) when compared with the baseline, according to the report. The trade losses, however, would affect African economies and sectors unequally. “A return to the GSP would greatly impair certain countries’ trade and wages, mostly in Southern and East Africa, while others would not see their access to the U.S. market worsen or their wages decline considerably,” the report said.

Wages for agricultural unskilled laborers would be negatively affected in South Africa, Botswana, Namibia, Nigeria and countries in East Africa. And skilled-labor wages would be negatively affected in Southern African countries as well as in Mauritius and Malawi, largely because of the changes in textile and apparel exports—.

Expanding Product Eligibility

The report concluded that expanding product eligibility for AGOA would have little effect on the exports of eligible countries unless total duty-free and quota-free market access were granted. Even if African exports were granted 99 percent duty-free access, there would be little change because the last 1 percent of the most protected exports to the U.S. (e.g., sugar, cotton) are the products from which Africa would gain the most.

Revising Country Eligibility

Brookings found that excluding middle-income countries that are currently eligible for AGOA or adding other non-African developing nations that aren’t eligible would result in considerable trade losses and increased competition for Africa.

Mauritius would be the most affected if it were to be removed from AGOA, with a more than 9 percent decrease in exports to the U.S.

Extending AGOA to all developing countries, including those outside of Africa, “would be a concern for African countries if the textile and apparel clause were to be granted to all, in which case the added competition would severely decrease African textile and apparel exports to the U.S.” East Asian economies, however, would see considerable trade expansion that would be relatively equally divided between Bangladesh and Cambodia, which would add another $2.2 billion and $1.9 billion in exports to the U.S., respectively.

Establishing Expanded International Free-Trade Areas

If a free-trade agreement were to be established between the EU and the U.S.—either in the context of an extension of AGOA in the U.S. (in addition to negotiated EPAs between the EU and Africa) or by the U.S. also taking on an EPA-like relationship with Africa—exports worldwide might be expanded.

“About half this gain would be captured by the EU alone, with the U.S. capturing the next largest piece,” the report states. “Africa, especially the countries that are currently AGOA eligible, would also benefit.” The rest of the world would see their exports reduced as a result of higher competition in the EU, U.S. and African markets.

The report stressed the importance of African countries pursuing deeper regional integration within the African continent in the form of an African free-trade agreement. “This move would strongly stimulate intra-African trade and help in the movement toward more industrialized economies. It would also help African countries be more competitive in the face of external trade agreements that will increase competition for African export destinations both on and away from the continent.”

Roy Maurer is an online editor/manager for SHRM.

Follow him at @SHRMRoy

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