Thursday, March 30, 2017

The Future of AGOA

A file photo of workers at the Ricardo EPZ textile factory In Athi River.
Source: The Star

The Future of AGOA

The African Growth and Opportunities Act allows eligible African countries to export a wide range of goods to the US duty free. The tenure of the trade agreement runs until 2025 when it will either be renewed or terminated. Speculative concerns the new Trump administration may affect the agreement negatively are largely unfounded. Excluding oil and gas products, AGOA accounts for only two per cent of the US total global trade, making it a low priority for the new administration.

Kenya ranks fifth among the 38 beneficiary countries of AGOA. Nigeria, South Africa, Angola, and Chad take the lead. Oil-related products dominate the exports for Nigeria, Angola and Chad, with more than 95 per cent of their exports in this category. Textiles are the bulk of the Kenya exports and accounted for more than 80 per cent of the total export to the US in 2015.

The sector provides more than 40,000 jobs, mainly low and unskilled labor in the EPZ. Although the program has been in place since 2000, the potential to stimulate the cotton industry has remained untapped, with close to 90 per cent of the inputs currently imported. It remains one of the available opportunities to revive the cotton sector, boost businesses by encouraging exports and creating employment.

While the benefits to African countries are obvious, there are minimum incentives for the new administration to backtrack on it. The agreement is the centerpiece of US trade policy for Africa and the most significant American initiative in the history of US-Africa relations. It is non-reciprocal and unilateral in the sense that countries do not directly concede market access to the US.

However, the agreement comes with stringent country eligibility requirements that are reviewed on an annual basis at the sole discretion of the US. The most critical condition is for a beneficiary to make progress towards the elimination of barriers to US trade and investment. Also in the raft of conditions is the promotion of a market-based economy that protects private property rights and minimizes government interference in the economy through such measures as price controls, subsidies, and government ownership of economic assets.

Then there are the human rights and governance conditions in the mix. This implies that countries have to contend with the prospects of having eligibility withdrawn or granted at the discretion of the US. Frankly speaking, a country can only second-guess whether or not it meets eligibility in the “eyes of the US”. Despite the potential that it presents to Africa, the conditions make it highly unpredictable at the least.

That said, the putting America first policy by the new administration increases the already existing unpredictability of AGOA. Like in other policy issues in the new administration, Kenya and other beneficiary countries are hopeful that AGOA will not only continue in the new administration but its effectiveness will be addressed.

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