Agoa comeback under threat from Africa free trade deal
Sunday December 11 2022
The US government is exploring ways of renewing a preferential trade programme that gives countries in sub-Saharan Africa preferential access to US markets, allowing them to export products tariff-free.
President Joe Biden wants to improve on the African Growth and Opportunity Act (Agoa) which comes to an end in 2025, to tap into Africa’s expanding integration.
The proposals could be put on the table as Biden prepares to host his first physical US-African Summit to be held on December 13 in Washington.
This is despite the fact that, after nearly two decades of Agoa benefits, many East African Community states have failed to fully utilise the programme.
Rwanda, Ethiopia, Guinea and Mali, across the continent, were even suspended from the trade facility. Now these countries are a part of the fledgling Africa Continental Free Trade Area Agreement (AfCFTA), a 2018 trade deal meant to link up regional blocs to one another through trade.
The AfCFTA, if successful, could challenge the very US offer in Agoa by providing easier markets in the neighbourhoods of countries that struggled to meet standards into the US.
But it could offer Washington an opportunity to influence geopolitics by supporting open trade between African countries.
In its latest strategy report titled US Strategy Towards Sub-Saharan Africa August 2022, the US government has pledged to support Agoa and the implementation of the African Continental Free Trade Area agreement (AfCFTA).
“We will work with willing African partners to deepen and broaden our trade relationship, including trade negotiations, to deliver equitable and inclusive prosperity,” the report reads in part.
“We will work with the Congress on the future of Agoa, which expires in 2025, and will support the AfCFTA’s implementation.”
The US pledged to assist African countries to more transparently leverage their natural resources, including energy resources and critical minerals, for sustainable development while helping to strengthen supply chains that are diverse, open, and predictable.
“Africa will shape the future — and not just the future of the African people but of the world,” said Antony Blinken, the US Secretary of State.
In addition, the United States will work closely with African and multilateral partners to address the drivers of food insecurity and boost food production to mitigate the risk of malnutrition and famine that the UN estimates are affecting nearly 800 million Africans.
The US also intends to “promote customs-to-business partnerships, increase the use of US Government trade transit cargo security measures, and expand data sharing with African partners.”
The continent will be home to one quarter of the world’s population by 2050 and hosts vast natural resources, including the world’s second-largest rainforest and 30 percent of the critical minerals that power the modern world.
The strategy outlines four objectives to advance US priorities in concert with regional partners in sub-Saharan Africa during the next five years.
“The United States will leverage all of our diplomatic, development, and defence capabilities, as well as strengthen our trade and commercial ties, focus on digital ecosystems, and rebalance toward urban hubs,” the strategy reads in.
Yet to benefit fully
However, despite plans to improve Agoa, most of the African countries including Kenya and Rwanda are yet to benefit fully from the Agoa.
Trade experts are of the view that Ethiopia has benefited more from Agoa compared to the EAC countries despite the country having been locked out of Agoa since January this year.
Explaining why Ethiopia, though suspended from the Agoa has benefited more, Prof James Thuo Gathii who has served as a professor of Law and the Wing-Tat Lee chair in International Law at Loyola University Chicago says Ethiopia’s industrialisation policy gave it an upper hand compared with the rest of EAC partner states.
“Ethiopia is only one of the countries that has benefited from Agoa. Other countries such as Kenya have not done as much to take full advantage of the opportunity to export into the US duty-free,” said Prof James Thuo Gathii.
“If you look at Ethiopia’s industrialisation strategy and its general commercial policy it has been less open to investors to come and establish or bring in things Ethiopia thinks it can produce.”
Unwarranted goods and services
Prof Gathii, a researcher in international trade law says Kenya lacks a trade policy that would protect her from unwarranted goods and services. “Kenya is open to the rest of the world compared with the US where one can’t buy things from the Middle East for instance.”
Agoa is likely to benefit more from the AfCFTA than the bilateral agreements the US is trying to have with Kenya.
“Agoa is necessary because African countries trade much in smaller trade volumes than say the US. And so countries like the US on their own discretion and under the World Trade Organization rules can allow importation into their economy without requiring Kenya to give compensation in concessions,” said Prof Gathi.
The American Apparel and Footwear Association, which represents more than 1,000 name brands, retailers and manufacturers in June last year wrote a letter and urged Congress to renew Agoa for another 10 years.
Struggled to attract investments
Kenya has struggled to attract long-term, capital-intensive investments under the Agoa deal with the US largely because of the pact’s expiry clause, because big-ticket investors have not been keen on setting up factories for duty- and mostly quota-free exports into the expansive US market, given the short expiry date of Agoa in 2025.
The agreement provides duty-free access to the US market for eligible sub-Sahara African nations. In June 2015, the US government authorised Agoa for an additional 10 years.
It has helped eligible nations grow, diversify their exports to the US, and create employment and inclusive economic growth. Under Agoa, eligible countries can export products, including value-added manufactured items such as textiles, to the US duty-free. Currently, all five EAC Partner States are eligible for the Agoa benefits. Burundi’s eligibility was revoked from January 1, 2016.