Why Congress Should Extend the African Growth and Opportunity Act Now

Over two years ago at the AGOA forum in Zambia, then-U.S. Secretary of State Hillary Clinton committed the Obama administration to a “seamless renewal” of Africa Growth and Opportunity Act (AGOA), the cornerstone of the U.S.-African commercial relationship.

However, AGOA’s extension has become needlessly protracted and increasingly uncertain, notwithstanding the current political dysfunction in Washington.

To ensure that AGOA does not expire on September 31, 2015, as currently scheduled, the administration and Congress should work together to extend the legislation as soon as possible, in its current form, for another five years, until 2020.

Complicating Factors

Before submitting to Congress legislation that would extend the act, the administration plans to undertake a full review of AGOA’s strengths and weaknesses. The idea is that the review will be completed in time for discussion at the summit of African leaders in 2014, which President Obama announced during his trip to Africa this past July. The expectation is that the summit will be held in the August-September time frame.  Following the summit, revised AGOA legislation will be sent to Congress.

Unfortunately, the Congressional calendar does not work in favor of the administration in its mission to extend AGOA.

For one, it is unlikely that Congress will act on what presumably will be a significantly revised piece of trade legislation in its 2014 fall session. After all, it took Congress more than a year to extend AGOA’s third country fabric provision in 2012, a provision that had already been extended twice. While the provision was eventually extended, it happened at the 11th hour, leading to the cancellation of contracts and the loss of jobs in AGOA-eligible countries.

More probable is that the debate over extending AGOA will slip into 2015.  At best under this scenario, AGOA’s extension will be yet another cliffhanger, creating uncertainty about U.S. commitment to the African continent and strengthening the commercial advantage of America’s competitors, especially Chinese companies that are rapidly establishing their market share in Africa.

The prospective renewal of the Generalized System of Preferences (GSP), which expired last July, further complicates AGOA’s extension.

Nearly 5,000 of the 6,800 product lines that AGOA allows into the U.S. duty free and quota free are “scored,” or credited to GSP.  This keeps AGOA’s cost to the American taxpayer relatively low, at approximately $300-400 million per year.

The cost of AGOA would nearly triple if renewed before GSP.  Even so, AGOA would remain one of the most cost-effective economic development programs ever initiated by the United States.

Minimizing Uncertainty

There is no question that the administration’s review of AGOA is timely and necessary.  For one, the review will engage all stakeholders, including Congress, U.S. government agencies, the private sector and civil society organizations.

The review will also tackle a range of important issues.  For example, why have only an estimated 300 of the total product lines been utilized by AGOA beneficiaries?  Should AGOA create investment incentives for U.S. companies to strengthen productivity and manufacturing in AGOA-eligible countries?  What are the implications for AGOA if African countries move forward and sign the European Union’s Economic Partnership Agreements?  For how long should AGOA be extended?  These and many other similar issues are in need of deliberate consideration.

Nevertheless, the results of this review can be addressed in separate pieces of legislation.  For example, if the administration and Congress wanted to provide tax incentives to stimulate more investment in the region, this would presumably be done under tax legislation.  If there was an interest in allowing more agricultural products into the U.S., the Farm Bill would again presumably be the vehicle.

AGOA was signed into law in 2000, at a time when there was negative economic growth in Africa, conflict was pervasive and there was little competition for the African market.  However, with 6 of the 10 fastest growing economies in the world today and the emergence of a consumer class on par with those found in China and India, there is no question that AGOA needs to become more relevant to the U.S.-African commercial relationship.

Crucially, this increased relevance can be achieved without compounding the uncertainty and sense of risk that most American investors have when it comes to investing on the continent.

Extending AGOA in Early 2014

Therefore, AGOA’s extension in its current form for five years should be included in other trade legislation, such as the Trans-Pacific Partnership agreement, that is likely to come before Congress early next year.

Extending AGOA as soon as possible would bolster U.S. commercial relations with Africa.  It would enable President Obama to use next year’s summit of African leaders to focus on a broad range of trade and investment issues, in particular the steps African governments need to take to more fully utilize AGOA, without having the extension issue be a distraction.  Finally, an extension would not prevent the administration from revising AGOA, as should occur.  An extension now would be a clear signal that the U.S. is serious about being a long-term commercial partner to one of the world’s most dynamic regions.