Corporate Council on Africa (Washington, DC)

7 April 2014

Africa: Obama's African Trade Problem

Blog

Washington, DC — An important trade agreement with Africa is causing headaches for the administration.

With the first ever U.S.-Africa Head of State Summit inching closer by the day, the Obama administration has a problem: the African Growth and Opportunity Act. The act was passed in 2000 and it is set to expire this year. It is the only Africa-specific economic development and trade agreement legislation ever passed by Congress, and it has been the cornerstone of our overall policy towards Africa for the past 15 years.

Some have called it the North American Free Trade Agreement for Africa, but it differs significantly from NAFTA, which essentially provides two-way trade and investment. The African Growth and Opportunity Act, meanwhile, was designed exclusively for African development and as a political incentive tool, primarily by opening the U.S. market to African products. Unlike NAFTA, there was never an agreement of reciprocity. Indeed, that would have required a different agreement with each of the nearly 40 African nations that qualified, an impossibility in 2000 and not much easier now.

With the exception of textiles, however, the African Growth and Opportunity Act has been rather ineffective as a development tool and trade between Africa and the United States has not increased significantly. For the most part, Africa has lacked the infrastructure capacity to use the act, and some would also say that the political will to make those changes has been slow in coming, as well.

This is no secret to the Africans nor to all but the most ardent supporters of the act. Yet for years, both sides have praised it, citing statistics that have included oil in the figures. The problem with including oil is that it was almost entirely tariff-free before the act, and there has been little benefit to the oil industry since its passage.

Oil comprises about 93 percent of all African Growth and Opportunity Act trade figures. For that reason, the more cynical often believe that it was simply a tool for the oil industry. In this political era, it is not easy to dismiss the cynics, but in this case the cynics are wrong. The oil companies benefit little from the act and eliminating it would not affect their bottom line measurably.

The administration's problem, then, is two-fold. If the act is not renewed before the summit in August, the U.S. stands to be embarrassed, bringing together nearly every leader in Africa while it still looks uncertain if the main U.S. policy anchor towards Africa will be continued. The Obama administration will need to have a package that would either replace the act, or be able to reassure Africa that its interests are better served through relations with the U.S. over China, Europe, the so-called "BRICs," India and the Middle East, all of which are putting significant investment and incentives into Africa. To many in Africa, no renewal, perhaps unfairly, equals a sign of a lack of commitment by the Obama administration to Africa.

The second part of the dilemma is what to do with oil in the act's formula. Many believe that oil should not be a part of the statistics.

Its inclusion gives the impression that the act is only about oil, when in fact that was never the intention. The statistics become more accurate and useful without the inclusion of oil. However, they also become significantly lower too, raising the question of whether the act should be continued. Plus, if one removes oil from the equation, then Nigeria and Angola, sub-Saharan Africa's two largest oil producers, may both feel that they are unfairly being penalized by the administration.

Having two of Africa's fastest growing and largest economies feeling that way wouldn't be helpful to our political relations either. Nigeria is a key to our security concerns in Africa, and the Angolans are playing an increasingly positive role as mediator and benefactor in the war-torn Congo area.

The decision whether to include oil in the act's formula will largely be within the realm of the U.S. Trade Representative Michael Froman. The decision whether to extend the act at all, meanwhile, will be Congress', where many lawmakers are skeptical of its worth, particularly when we seemingly receive little benefit to our own economy. Some argue for a two-year extension of the current trade agreement, giving the administration time to set in place a more effective trade regime with Africa, while also saving face at the summit. Others say that to do this solves nothing.

What is clear is that work behind the scenes between Congress and the administration will be intense over the next three months. Our relationships with Africa for years to come may depend how adeptly the administration handles the African Growth and Opportunity Act and prepares for the U.S.-Africa Summit.

Stephen Hayes is president and CEO of the Corporate Council on Africa. This post was first published in his blog for U.S. News & World Report.

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