EAC pushes for long-term trade pact with the US to replace Agoa
Saturday September 05 2015
The East African Community is pushing for a long-term preferential trade agreement with the United States that will remove uncertainties surrounding the Africa Growth and Opportunity Act (Agoa).
The five member states have submitted their request to the United States Trade Representative (USTR) on the modalities and the time to start negotiations on the pact.
According to EAC Director General of Customs and Trade Peter Kiguta, the USTR is expected to present the request at the next US Congress meeting. If accepted, the region expects to increase the volume of trade and the number of products exported to the US.
“For EAC partner states to expand their trade partnership with the US market, there has to be a reciprocal free trade agreement like the one with the European Union,” said Mr Kiguta.
READ: Region to export products under Agoa as a bloc
“The challenge with Agoa is that it is unilateral; it can be withdrawn any time and the 10-year period is very short and limiting for trade. So we need to have a long-term trade partnership that is more predictable,” he added.
Peter Njoroge, the director of economics at Kenya’s Ministry of EAC Affairs, Commerce and Tourism, said that the East African countries have not been able to fully utilise the US quota-free market under Agoa because the agreement does not comply with the World Trade Organisation’s framework for free trade agreements because of its 10-year period of operations.
With a preferential trade partnership like the EAC-EU Economic Partnership Agreement (EPA), Mr Kiguta said member states will be protected from undue competition, and that producers of the most sensitive goods — mainly agricultural goods — will enjoy protection from competition with US imports.
“Under the trade partnership, services and foreign investment will be included not only for trade in goods, but also for issues relating to development,” he added.
The Agoa pact has been renewed for a further 10 years starting this October. The current agreement expires at the end of September.
READ: US Congress votes to extend Agoa by 10 years
It accords preferential market access system to 39 countries in sub Saharan Africa, including all the East African countries.
At the recent Agoa ministerial meeting in Gabon, the US urged partner states to formulate their national trade strategies. It was agreed that the USTR will report to Congress on the trade status between Africa and the US every year.
EAC member states are already working on a joint strategy to consolidate their products to export as a bloc to the US.
According to James Kiiru, an external trade officer at Kenya’s Ministry of Foreign Affairs, partner states will give up their current national Agoa strategies and change to the regional one.
“The aim of the joint strategy is to take advantage of economies of scale to supply the US market,” said Mr Kiiru. “It will reduce the cost of exporting to the US, especially in transport, and save time for exporters.”
In July, the US Department of State said it was reviewing Burundi’s eligibility for the trade preferences available to it under Agoa.
“We will be taking into consideration ongoing violence and instability and the government of Burundi’s lack of respect for the rule of law in determining their eligibility for these trade preferences moving forward,” the US State Department said.
Trade between the EAC countries and the US was $2.8 billion in 2014: US exports to the EAC were $2 billion, and imports from the region, which rose by 52 per cent from 2013, were $743 million.
According to Victoria Crandall, a soft commodities analyst at Ecobank Capital, Agoa exports are being slowed down by high production costs.
“Kenya, for example, is unlikely to meet its target of $1 billion by the end of 2017 in earnings from textile exports,” she said.
Kenya produces 25,000 181-kg cotton bales per year, requiring imports to meet demand of 200,000 bales.
“The country would require a sweeping, holistic approach to develop cotton production from scratch. Consequently, Kenyan textile manufacturers will need to import cotton fibre from South Asia, pushing up production costs,” said Ms Crandall.
She added that, despite its advantages, Kenya is facing stiff competition from Ethiopia, which is attracting more investors owing to its lower costs of power and labour.
Currently, more than $385 million’s worth of apparel including jeans and towels exported to the US is manufactured in Kenya’s export processing zones.
READ: East Africa still a niche market for garment makers
The main agricultural exports to the US are cocoa paste and powder, citrus fruits, edible nuts, wine, unmanufactured tobacco, horticultural products and vegetables.
Under Agoa, the US retains various trade barriers and high tariffs on goods such as sugar and cotton.
Sugar, meat, dairy, vegetables, processed fruit and other processed goods such as dried garlic, apricots, shea butter, yoghurt, ghee, cashew nuts, sugarcane products, sugar-containing cocoa products, oil seeds, shrimp and prawns, bananas and mangoes face trade barriers to US markets.
“The priority in the negotiations for a preferential trade agreement will be on the stringent measures imposed by the US on agriculture exports, especially the sanitary and phytosanitary measures that raise the cost of exports to negate competitiveness gained through lower tariffs,” said Mr Kiguta.
The US has imposed stringent SPS measures for agricultural products such as fresh produce and beef, and the majority of East African producers are often unable to meet the high standards.
This has made it difficult for the East African countries to lobby for even more products to be added to the Agoa list, since approval takes a long time.