Victor Mroczka
6 July 2009
opinion
Lagos — As the Obama Administration continues to build its trade policy, a movement is underfoot by those outside the administration that could have a significant impact on African stakeholders, whether African manufacturers/exporters, U.S. importers, or relevant investors. Later this year, both the U.S. General System of Preferences (GSP) and the Andean Trade Preference Act, two trade preference programs that allow goods to be imported into the United States duty-free if certain qualifications are met, are up for renewal. The programs are similar to the African Growth and Opportunity Act (AGOA) in that they allow duty-free access to the U.S. market for qualifying nations/exporters.
In April, twenty-nine businesses and nonprofit organizations came together and urged not only for the immediate renewal of the two trade preference programs, but also for the consolidation of the current half-dozen preference programs into one regime; this includes AGOA. This process began by a letter expressing these intentions being sent to United States Trade Representative Ron Kirk, and the chairmen and ranking members of the U.S. Senate Finance and the U.S. House of Representative Ways and Means Committees - the two committees in the U.S. Congress that have primary jurisdiction over U.S. trade legislation.
Why now? It is no secret in Washington that, given the various positions taken by countries during the Doha/WTO negotiations, the time may be right to start using the denial of trade preferences as a negotiating tool to get countries that do not necessarily agree with the U.S. negotiating position to start being more conciliatory. After all, why reward those countries (with duty free access to the U.S. market) if they are unwilling or unable to take a position that is consistent with that of the United States? Harmonizing the trade preference programs (by re-writing the eligibility rules so that certain countries no longer qualify for duty-free treatment) is one way to obtain this objective.
Why care? African stakeholders (manufacturers/ exporters, U.S. importers, and foreign investors) have every reason to closely monitor how this harmonization process will develop. For example, take textiles. Currently, African textile manufacturers get U.S. duty free preference while other developing countries do not (whether under GSP or otherwise). This duty free preference has allowed African textile manufacturers to remain in the U.S. market; without them, there would be no textile production, which means no jobs and no development of that industry. Operating under one trade preference regime could take all this away and reward other countries' manufacturers instead. In addition, African manufacturers/countries in other industries have consistently under-utilized AGOA in numerous products despite the duty-free advantage. If those entities do not even want to use the duty-free access given to them, why not just give it to someone else?
As you can see, this type of thinking could have severe repercussions. For those that have an established and large or even small/limited market share in certain product categories, that share can be greatly reduced or lost with new entrants into the market (and at a lower cost since they will no longer have to pay the duty). And for those where key investments have been made in anticipation of increasing the export quality of products or just the overall development of a certain product category, those investments can be in jeopardy if other well-established or more entrepreneurial manufacturers are given duty-free access to the U.S. market before the African exports are ready. All the investment then will be for naught as whatever U.S. demand exists will be taken by those already making their way to market. And good luck trying to get that market share back once supply chains are established.
What about the more developed African countries? Is this the end of AGOA (and duty free access to the U.S. market) for them? The devil, of course, will be in the details and what the eligibility criteria of the new trade preference regime will be. This is, as yet, unknown. Will South Africa be graduated under the new trade preference regime? What about Nigeria - a country that is grossly under-utilizing AGOA? Why should it continue to have access to the U.S. market if all it exports is oil and gas, where the duty rate is irrelevant? What about U.S. favorite Ghana? If Ghana is progressing as a diversified economic power as many say it is, then does it need AGOA after all? And what about Kenya, whose government has so consistently failed to take any significant measures after the 2008 post-election violence that it begs the question as to why a country such as this should continue to be rewarded for this type of (lack of) behavior?
Who is looking out for us? A major problem. Other developing countries are already taking steps to make sure that their interests are heard during the one-regime formulating process. Stakeholders with established interests in countries such as Cambodia, Bangladesh, Laos, Afghanistan, and Sri Lanka are already meeting with the Obama Administration and key members of Congress to advocate their cases. One question I hear with some regularity is "where are the Africans? Why are we not hearing from them?" This, in my opinion, is a dramatic failure on the part of African stakeholders that will cost them greatly in the long run if action is not taken soon. Hundreds of thousands of jobs have been created through AGOA and yet little has been done to preserve the progress so far. This can be corrected. As noted in a Trade Hound article last month (see "Where Are Africa's Trade Soldiers", May 12), now is the time for African stakeholders to let loose their trade soldiers - whether lawyers, lobbyists, consultants, government officials, embassy staff - and get in the battle of survival that is trade with the United States. If they do not do so, as with all battles, there will be casualties and the ground lost will be not only the U.S. market, but the livelihoods of thousands as the move to satisfy returning U.S. demand goes to others. Is this a battle that Africans want to lose? Only time will tell.
The views of Mr. Mroczka are his own and should not be attributed to any of his clients or that of his firm.
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