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“Is the Africa Growth and Opportunity Act (AGOA) always a poisoned chalice from the United States of America?”, asks an editorial in The East African. The Kenya newspaper suggests it appeared to be so after the US allowed a petition that could see Tanzania, Uganda and Rwanda lose their unlimited opening to its market.

This follows the US Trade Representative assenting last week to an appeal by Secondary Materials and Recycled Textiles Association, a used clothes lobby, for a review of the three countries’ duty-free, quota-free access to the country for their resolve to ban importation of used clothes, the The East African continues.

The US just happens to be the biggest source of used clothes sold in the world. Some of the clothes are recycled in countries like Canada and Thailand before being shipped to markets mostly in the developing world.

In East Africa, up to $125 million is spent on used clothes annually, a fifth of them imported directly from the US and the bulk from trans-shippers including Canada, India, the UAE, Pakistan, Honduras and Mexico.

The East Africa imports account for 22 percent of used clothes sold in Africa. Suspending the three countries from the 2000 trade affirmation would leave them short of $230 million in foreign exchange that they earn from exports to the US.

That would worsen the trade balance, which is already $80 million in favour of the US. In trade disputes, numbers do not tell the whole story. Agoa now appears to have been caught up in the nationalism sweeping across the developed world and Trumponomics.

US lobbies have been pushing for tough conditions to be imposed since it was enacted, including the third country rule of origin which would require that apparel exports be made from local fabric.

The rule, targeted at curbing China’s indirect benefits from Agoa through fabric sales, comes up for a legislative review in 2025, making it prudent for African countries to prepare for the worst. Whether that comes through a ban or phasing out of secondhand clothing (the wording that saved Kenya from being listed for a review) is immaterial.

What is imperative is that African countries have to be resolute in promoting domestic industries. In textiles and leather, for instance, that effort should include on-farm incentives for increasing cotton, hides and skins output, concessions for investments in value-adding plants like ginneries and tanneries and market outlets for local textile and shoe companies.

The world over, domestic markets provide the initial motivation for production before investors venture farther afield. Import bans come in handy when faced with such low costs of production in other countries that heavy taxation still leaves those products cheaper than those of competitors in the receiving countries.

The US has also been opposed to heavy taxation of used clothes, which buyers say are of better quality and more durable. For Kenya to be kept out of the review, it had to agree to reduce taxes on used apparel.

These factors have left Agoa beneficiaries in a no-win situation: Damned if you ban, damned if you do not. With their backs to the wall, beneficiaries like Tanzania, Uganda and Rwanda have to think long term in choosing their industrial policies and calling the US bluff.

Beneficiaries must speak with one voice to effectively guard against trade conditions that over time hamper domestic industrial growth. Source: The East African, Picture: US GAO

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AGOA_W1Swaziland has lost its preferential trading status with the United States. US President Barack Obama announced (26 June 2014) that the kingdom would lose its benefits under the African Growth and Opportunity Act (AGOA).

He said this was because Swaziland was not ‘making continual progress’ in enacting civil, political and workers’ rights.

Swaziland is not a democracy and is ruled by King Mswati III, who is sub-Saharan Africa’s last absolute monarch.

The decision to withdraw Swaziland’s AGOA eligibility comes after years of engaging with the Government of the Kingdom of Swaziland on concerns about its implementation of the AGOA eligibility criteria related to worker rights. The statement said after an ‘extensive review’ the US, ‘concluded that Swaziland had not demonstrated progress on the protection of internationally recognized worker rights.

In particular, Swaziland has failed to make continual progress in protecting freedom of association and the right to organize. Of particular concern is Swaziland’s use of security forces and arbitrary arrests to stifle peaceful demonstrations, and the lack of legal recognition for labor and employer federations.

AGOA is a US preferential trade programme that provides duty-free access to the $3 trillion US market for thousands of products from eligible sub-Saharan African countries.

Media in Swaziland have predicted that as many as 20,000 jobs in the kingdom’s textile industry could be lost as a result of the withdrawal of AGOA benefits that comes into force on 1 January 2015. The textile industry in Swaziland is dominated by Taiwanese companies which were drawn to the kingdom by the availability of cheap labour and the AGOA agreement. Source: Swazi Media Commentary

AGOA_W1The Africa Growth and Opportunity Act intends to support African exports to US markets. It is helping savvy Chinese companies too. US-Africa trade received a boost with the signing of the African Growth and Opportunity Act (AGOA) back in May 2000, which enabled African countries to export over 4,000 products, including apparel, quota-free and duty-free to the US.

Geared to support the integration of African countries into global markets, AGOA has enjoyed broad cross-party support in a usually fraught US legislature – especially on issues of foreign trade – and has been renewed several times. Helping Africa, it seems, is something everyone can agree on.

But they might, unwittingly, have been helping China too. Research by Lorenzo Rotunno and colleagues at the Centre for the Study of African Economies, Oxford University, suggests that savvy Chinese companies have set up shop in Africa as a route to get their products into the US with all the AGOA benefits.

The entrepreneurs’ logic is impeccable. Not only could an Africa platform get them duty free access to US markets, they could also avoid heavy quotas on China’s exports to the US, imposed through previous protectionist measures by the rich world, such as the Multi-Fiber Agreement.

Because AGOA did not contain ‘rules of origin’ provisions, the door is wide open for such creative thinking. “Restrictive quotas on Chinese apparel exports in the US and preferential treatment for African exports resulted in quota-hopping transhipment from China to the US via AGOA countries” the researchers say.

Chinese and Taiwanese producers are now said to comprise the bulk of a textile “diaspora” in Lesotho, Madagascar and Kenya. In one Kenyan processing zone, 80% of the 34 garment plants had Asian owners. While some outfits doubtless have in-country assembly – and therefore generate jobs and incomes for Africans – a number are little more than transporting docks for foreign-sourced, fully assembled goods ready to go to their final destination, tax free.

Chinese entrepreneurs made no bones about it. In one survey, they gave ‘taking advantage of international trade agreements’ in their top five list of motives for investing and operating in Africa. Source: AllAfrica.com 

FTW Online recently published an update on recent developments occurring along the Trans-Kalahari Corridor (TKC). It suggests that customs systems throughout the SADC region could soon be talking to each other through the Internet, if the pilot project between Namibia and Botswana is successful. During July 2011, the Southern African Trade Hub unveiled a plan to initiate a pilot programme to link the ASYCUDA systems of Namibia and Botswana via Microsoft’s Cloud Computing technology. Both Microsoft and USAID are partners in this initiative seeking to enable the two customs systems to communicate with each other through a secure portal. View the keynote presentation at the 2011 World Customs Organization IT Conference and Exhibition – Seattle, Ranga Munyaradzi (SATH) and Namibian Customs Commissioner, Bevan Simataa, were invited on-stage to elaborate on this initiative – click here!

According to Oscar Muyatwa, executive director of the Trans-Kalahari Corridor Secretariat, the initiative holds the prospect of opening up African opportunities in the United States for exports, as it is being supported by USAID as part of the African Growth and Opportunities Act (AGOA). Both Namibian and Botswana Customs officials are to be trained in Cape Town over the next few months. The TKC Secretariat believe this initiative will bring about its vision of a ‘automated corridor’. Further ahead the TKCs envisages the establishment of One Stop Border Posts (OSBPs) to reduce border dwell and transit times. Muyatwa says ‘The ‘cloud’ will maintain vast volumes of transit data that will assist future planning along the corridor as well as revenue and budgeting forecasts’. Source: FTW Online.

Comment: lest there be any confusion amongst Customs users, traders and carriers, the concept of cloud computing in the Customs sphere is very ‘clouded’ at this point. What needs to be considered is the ‘ownership’, rights to ‘access’ and ‘integrity of use’ of such information. Furthermore, as this is a first-of-its-kind initiative (in Africa at least); it would be highly recommended that the participants and developers ‘share’ details of the approach with other SACU members in order to better understand the programme. Up to this point it is very unclear how the developer has gone about the integration of customs information, for instance, since ‘users’ have not been fully involved in the scope, proof-of-concept or design of the system. 

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