Renewing and Expanding Trade Opportunities in Africa

As African leaders converged on Washington earlier this week for the first U.S.-Africa Leaders Summit, it has been refreshing to see strong bipartisan support in the Congress for something. Renewal of the African Growth and Opportunity Act (AGOA) has generated significant support on both sides of the aisle so far, as seen in congressional hearings last week in the House and the Senate. But it’s necessary to add the qualifier “so far” because any policy that requires legislation is so challenging. And the act will expire next year unless Congress decides to extend it.

Renewal of AGOA is a key piece of the broader U.S. strategy to help the American and African economies grow closer, as well as to promote greater regional integration within Africa. The region is home to some of the fastest-growing economies in the world and has a GDP of $1.5 trillion, a population of more than 900 million people, and the fastest-growing middle class on the planet. A number of regional organizations are already active in fostering closer cooperation on economic issues. These include the Common Market for Eastern and Southern Africa, the East African Community, the Southern African Customs Union, and the West African Economic and Monetary Union. The United States has focused much of its attention on the East African Community—composed of Burundi, Kenya, Rwanda, Tanzania and Uganda—and established the goal of boosting intra-regional trade by 100 percent and exports to the United States by 40 percent.

Fulfilling AGOA’s Potential

AGOA has been the cornerstone of an expanding U.S.-African commercial relationship since its adoption in 2000. The legislation was intended to promote economic development and growth in the region by removing tariffs on a wide range of African goods entering the U.S. market. While it has promoted dramatic growth in overall trade, its potential remains unfulfilled, and ways to improve its effectiveness are being examined.

Africa’s current share of U.S. imports remains low at 2 percent. As a recent Government Accountability Office report outlines, U.S. imports under AGOA and other programs grew 300 percent between 2001 and 2008.
Since then, however, they have declined by 53 percent. Most of AGOA’s benefits have accrued to a handful of countries. For example, 100 percent of exports of machinery and transport equipment come from South Africa. And more than 90 percent of textile and apparel exports come from Lesotho, Mauritius or Kenya. More encouragingly, while petroleum exports account for about 80 percent of African exports and still dominate the relationship, diversification in non-petroleum products has started to increase.  

The act has become a powerful symbol of America’s political and strategic commitment to Africa. We have already seen the role that greater trade and investment opportunities can play in helping African countries promote economic growth, development and jobs. We know also that greater prosperity can assume a role in strengthening fragile democracies and spreading stability in a region. The summit this week focused on both of these critical aspects of the U.S-Africa partnership, which take on particular significance as tensions in other regions intensify.

If AGOA is to fulfill its huge potential, three important, interconnected issues need to be addressed. First, AGOA needs to work better for the majority of African countries. Second, both sides should explore ways to ensure that unilateral U.S. trade preferences for African exports do not place U.S. exporters at a disadvantage with respect to their competitors in Europe and China, whose governments have pushed hard for their own access to African markets. Third, AGOA is only part of the answer to the question of how to achieve greater growth. While the act’s extension is vital for the health of the region and trade relations with the United States, it cannot be a substitute for addressing other problems that are hindering more trade and investment. These challenges include developing infrastructure to facilitate transport, cutting red tape at the border, increasing the availability of trade financing, fighting corruption and establishing stronger regulatory cooperation.

The Need for Congress to Act

Since there are significant differences of opinion in Congress and elsewhere over how best to update AGOA, renewal cannot be taken for granted. By January, this Congress may have passed fewer pieces of legislation than in any other term since recordkeeping began.
The recent track record of Congress on other pieces of trade legislation is hardly reassuring. The U.S. Generalized System of Preferences program, which waives tariffs on several thousand products from the least developed countries, including in Africa, expired a year ago and has no immediate prospects for renewal. A bill to provide Trade Promotion Authority to “fast-track” new trade agreements through Congress has been languishing in Congressional committees. And renewal of the Export-Import Bank’s authorization, which runs out in less than two months, has run into a buzz saw of political opposition.

For AGOA to avoid the fate of the Generalized System of Preferences and other trade legislation, the Obama administration and advocates in Congress must move swiftly to coordinate, propose improvements and win votes. AGOA could even be the spark that helps light a political path forward for other trade legislation of great potential value for the United States.

[1] See generally African Growth and Opportunity Act: Observations on Competitiveness and Diversification of U.S. Imports from Beneficiary Countries GAO-14-722R (July 21, 2014).

[2] P. Kane & Z. Goldfarb, “House clears way for lawsuit against Obama,” Washington Post A2 (July 31, 2014).