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The African Union Opportunity Act (AGOA): A Review of Trade Controversies and Opportunities

The African Union Opportunity Act (AGOA): A Review of Trade Controversies and Opportunities

The African Growth and Opportunity Act (AGOA) is a unilateral agreement commissioned by the US, with the purpose of increasing the volume of trade between the United States and Sub-Saharan Africa. The objective of such an act is to encourage trade between the United States and qualifying Sub-Saharan economies by reducing tariffs and quotas for certain goods exported from Africa to the US. African countries, however, need to meet certain qualifications. The trade agreement enables the US President to designate countries as eligible based on the following criteria: “market-based economies; the rule of law and political pluralism; elimination of barriers to US trade and investment; protection of intellectual property; efforts to combat corruption; policies to reduce poverty, increasing availability of healthcare and educational opportunities; protection of human and worker rights; elimination of child labor practices” (U.S. Trade and Development Act, 2000). Since its adoption in 2000 under the Bush Administration, AGOA has been the centerpiece of U.S.-African trade relations (Paéz et al, 2010, p.1). Around the same time as the adoption of AGOA, the Chinese government inaugurated a “strategic partnership” with 44 African governments during the Forum on China-African Cooperation (FOCAC). According to the American Chamber of Foreign Affairs, the Chinese administration has promised to increase its imports to a total of $300 billion exclusively from Sub-Saharan Africa by 2024.

This unilateral agreement is an ambitious one, aiming for a more stable Western presence in Sub-Saharan, trying to combat, by proxy, the already deep-rooted Chinese ties present in the region. However, African economies remain the smallest in global economy and decreasing optimism and approval of AGOA calls for a re-examination of trade rules and criteria included in this preferential trading agreement (Zenebe et al., 2014, p.41).

The rivalry between China and the United States in Africa has been escalating throughout the years, with both nations claiming to be Africa’s greatest supporter. Currently, China is Africa’s largest two-way trading partner, with the U.S. trying to combat its influence throughout the continent. However, all efforts have fallen flat, especially with Africans who desire greater trade and deal investments, something that China can continuously provide (United States Institute of Peace, 2022). During the surges of coronavirus infections, both China and the United States claimed to be Africa’s greatest supporters. However, high profile donations by individual Chinese like entrepreneur Jack Ma during the coronavirus vastly exceeded US donations, while US aid spending in general is less noticeable, despite its level, than the Chinese one, since Chinese aid usually goes towards tangibles like infrastructure and buildings (BBC News, 2022). In the decade leading up to the AGOA bill, GDP growth in the SS region was half a percentage point lower than the global growth (2.7% vs 3.3%). Since this preferential trading agreement came into place, SSA’s growth averaged 6.3%, almost double the world average. However, the region still remains one of the poorest in the world, struggling in almost all sectors (Williams, 2015, p.13). 

Background, membership and controversies 

The Ethiopian case 

Many things can be said about membership in this trading agreement. Most countries that qualify for preferential trading clauses do not make use of their benefits and membership is tightly regulated through the series of aforementioned norms. Throughout the 23 years that the AGOA has been in place, countries throughout SSA have fallen in and out of favor with the United States. Maybe one of the most riveting examples is the case of Ethiopia, with its forceful exit being mandated by President Joe Biden in January 2022, based on violations of internationally recognized human rights as its motive for suspension. Ethiopia has been engaged in a massive civil war in the Northern region of Tigray ever since November 2020, when conflicts broke out amid a power struggle between Tigrayan leadership and the Prime Minister of Ethiopia, Abiy Ahmed Abiy. Over the course of the conflict, tens of thousands have been killed, while approximately 400,000 are facing famine in Tigray. These internal instabilities have prompted the White House Administration to withdraw Ethiopia’s membership right, along with Mali and Guinea, effective January 1st 2022. In 2020, Ethiopia registered exports of $525 million towards the U.S. alone, half of them being duty free under AGOA, which includes predominantly clothes, leather footwear, flowers and vegetables. From 2000 to 2020, Ethiopia’s exports through AGOA registered significant growth, averaging 43% per year. “Suspension from AGOA is already impacting this goal. Hawassa Industrial Park, the largest industrial park in the country, just lost its anchor investor in PVH (whose brands include Calvin Klein and Tommy Hilfiger)” (ACE Advisors, Addis Fortune news). 

The DRC bias 

On the other hand, there is the example of the Democratic Republic of Congo, whose membership has been reinstated in January 2021. The DRC has had a bloody civil war for more than 25 years, with more than 122 rebel groups engaged in guerrilla warfare throughout the country, trying to get control of different regions. The conflict boils down to control: who gets to manage the two most important provinces in the Northern DRC? The Allied Democratic Forces (ADF), Mai-Mai and M23 are some of the deadliest groups in Northern Kivu and Ituri, two mining provinces bordering Rwanda and Uganda. On May 6 2021, President Félix Tshisekedi declared a state of siege, appointing military governors in the affected regions. In 2022, the Norwegian Refugee Council named it the worst refugee crisis for the second year running. At least 5 million people have been internally displaced and one more million have fled abroad, according to the organization. Yet, the DRC has maintained its member status ever since 2020, without so much as a slap on the wrist from the United States. This lax attitude towards the DRC could come down to its economic and trade implications for the United States. Congo-Kinshasa has an estimated $25 trillion in mineral reserves, making it a very important and strategic trade partner. The DRC’s main exports towards the U.S. consist of antiques, coffee and coffee beans, diamonds, propane and tantalum. However, North American exports account for only 0.1% of total exports registered in 2021 for the DRC. So why are Ethiopia, Mali and Guinea treated differently? A possible answer could be the role of the DRC in the global electronics industry, through coltan and other minerals, often extracted in harsh and exploitative conditions. The value of the minerals is relatively low, but their importance in the global supply chain for electronics is extremely high. 

Findings and resolutions 

Beneficiaries and the status quo 

Unsurprisingly, U.S. imports from AGOA countries are mainly constituted of crude oil, accounting for $1.88 billion from SSA countries in 2021, up by 165.9% compared to 2020. Among non-energy products, the apparel section is the second largest one, with AGOA countries being exempt from the usually high tariffs imposed for apparel exports to the United States. In particular, countries such as South Africa ($2.7 billion in trade), Nigeria ($1.4 billion), Kenya ($522.7 million), Ghana ($324.6 million) and Angola ($300 million) make significant use of such benefits. Apart from these two categories, South Africa is the main source of exports to the U.S. As the most developed economy in the region, South Africa has diversified its exports, with the most lucrative category being vehicles produced in South Africa and exported to the U.S. under the preferential trading agreement’s exemptions.

Despite these promising events, some challenges still remain. Some studies suggest that among the countries that make use and benefit from AGOA preferences, the low-skill apparel which has experienced continuous export growth has not led to the appearance of higher-skilled or higher added value work. It is clear to see that even though the countries benefit from market penetration in the U.S., labor conditions continue being just as they were, with low-skilled employees making low quality products in unregulated environments, with remuneration being the lowest in the world (an average of $78.2/month) and with the highest rate of child labor in the world (one fifth of African children are involved in labor, with 9% being involved in hazardous work) (International Labor Organization website).

Furthermore, eligible countries continue to export primary and semi-processed commodities, effectively undermining one of AGOA’s purposes: to create diversification and value-addition. Of the approximately 6,400 product lines that fall under the AGOA/GSP umbrella, SSA countries utilize only about five. (Kombora, p.9). Temptations to sign similar preferential trading agreements with other regions in the world are real (Schneidman, 2013, p.31). This would only lead to the collapse of AGOA, effectively ruining countries whose economies have become AGOA compliant and dependent. 

The Red Scare from the East 

Regarding the Chinese threat, it is clear to see why SSA has become a trade battleground by proxy between the East and the West. China invests more in infrastructure in Africa than in any other region. For instance, China finances more than 3,000 large critical infrastructure projects all over the continent. China has also extended more than $86 billion in commercial loans to African governments and state-owned entities between 2000 and 2014, an average of about $6 billion per year. China is today Africa’s largest creditor, accounting for 14 percent of Sub-Saharan Africa’s total debt stock (Schneidman & Wiegert, 2018).

The most valuable exports from China to Sub-Saharan Africa are electrical machinery and equipment, mechanical machinery and equipment and vehicles. This data shows the lack of technological autonomy that Africa has, being forced to rely on imports from other partners and using, at best, second-hand technology. The absence of improvement in the technological sector deals a massive blow to the African continent, due to its reliance on Eastern partners for machinery that is otherwise an important step in the industrial production process. The top three categories of China’s imports from Africa are made up of mineral fuels, mineral ores and pearls. This tendency and vicious cycle of exporting raw materials is the basis of Africa’s poverty. This region cannot become more competitive and well-developed without changes, improvements, and investments in the less-developed areas, such as higher value added industry. Relying on commodities is a very risky strategy, as seen in the case of Venezuela and its oil-export dependency that, eventually, led to economic disaster. The demand and price of raw materials is volatile and prone to depressions in prices based on macroeconomic factors.

Taking into account China’s powerhouse economy and the administration’s tendency to invest in Africa, it is no wonder that China has remained SSA’s number one partner in almost all categories, such as loans, trade and productive aid. As of 2022, there are 10,000 Chinese firms operating throughout Africa. Moreover, China’s development banks have provided $23 billion in financing for infrastructure in Sub Saharan Africa, more than double the amount provided by the West, the U.S. included (Foreign Affairs Committee). In 2021, the American government helped close more than 800 two-way trade deals for an approximate $18 billion ( fact sheet). These values just cannot compete with their Chinese rivals, taking into account that China is also heavily investing in Africa as part of its “Belt and Road Initiative”, with China having built the Mombasa-Nairobi Standard Gauge Railway in Kenya. Moreover, China is investing in other projects in Sub Saharan Africa, such as ports, motorways and airports (Xinhua Net). It has become apparent that Asian countries were in the lead when it came to FDIs, with their share growing from 5% in 2002 to 23% in 2018. Out of all Asian FDI sources, China accounts for almost half of all Asian inflows into Sub Saharan Africa. (World Bank, 2021). It is obvious that the potential for growth has not been exploited adequately. Illustratively, only three African countries (South Africa, Nigeria and Angola) accounted for eight percent of total AGOA exports to the U.S. (AGOA Info). 

What’s next? 

One can come to the conclusion that Africa represents an engine block for the supply of some industrial raw materials and some fuel to Western countries, while the advanced societies of Europe and American supply the African countries with second hand skills and technology. This interdependence leads to an unequal footing in world politics and relations, with SSA economies especially becoming “periphery” economies (Wallerstein,1974). The aforementioned details paint the following picture: AGOA is a unilateral agreement implemented by the United States for qualifying African countries. Some might say that the practical result is effectively rendering SSA an American colony. The vast majority of beneficiaries under AGOA are not impoverished countries, but the wealthy multinational companies operating in already developed countries. AGOA’s removal of trade barriers could have meant easier access for African economies to high-tech technology and foreign capital, which could have helped its low-skill labor markets to evolve and expand, eventually bringing progress. Instead, under the disguise of free trade, U.S. companies were able to freely bid on concessions and government contracts at discounted prices compared to Western alternatives (James, Ejor & Halidu, 2020, p.17). Given their high capital reserves, they were able to block out African competitors, making them extinct. By involving African economies into global capitalism, AGOA managed to link them to external economies, thereby discouraging links and relations in the internal market.

Finally, AGOA is endangered by future challenges, such as competition arriving from Europe under the guise of the European Union Economic Partnership Agreements (EPAs). These PTAs involve a diverse number of regions, ranging from Eastern and Southern Africa (ESA) to Caribbean countries in Central America. Conditions under these EPAs are much more lenient, with bilateral relations between countries, tolerance policies (15% in ex-work price of the final product) and flexible rules regarding apparel and textiles (e.g.:” a textile product can enter the EU duty-free if at least one stage in its production – such as weaving or knitting – took place in an EPA country.”) (European Commission). With respect to this, AGOA is much more stringent and demands higher standards from its recipients. One could clearly see how EPAs and other agreements such as AfCFTA (African Continental Free Trade Area) could take AGOA’s place after its expiry date in 2025. It remains to be seen whether or not the U.S. Administration will decide to ratify the agreement once more. 

Photo source: Taryn Elliott


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