21 November 2016

Africa: How Africa Should Seek to Benefit from a Trump Administration

opinion

Cape Town — If the names of potential cabinet secretaries are any indication of where the relationship between the United States and Africa is going, the Donald J. Trump Administration shall not pay Africa trade policy much attention over the next 12-month period.

Johannesburg Institute of Advanced Studies’ Peter Vale even suggests that American aid to Africa could decline; even if said assistance is crucial for countries like Malawi. Instead, former Trump campaign advisors like Dan DiMicco – who might go on to serve as next United States Trade Representative – may, for instance, train their big guns on rebalancing America’s trade and investment partnership with China. DiMicco, et al will seek to fulfill General Election campaign rhetoric to readjust free-trade policies that have, ostensibly, increased America’s trade deficits, lowered American wages, and cost millions of American manufacturing jobs.

Ironically, in spite of uncertainty wrought by this Early Trump Era, Africa could herself rebalance her yet-to-ripe partnership with the world’s largest economy. In fact, if Africa proposed an innovative, mutually beneficial and uniquely transformational trade policy blueprint to augment the African Growth & Opportunity Act (AGOA), a real paradigm shift in the U.S.-Africa dynamic should occur over the next 12-month period.

The premise for this change is less on Trump’s stunning November Surprise, and much more on the fact that unlike 2001 when the U.S. unilaterally introduced AGOA, Africa today is much more sophisticated in its capacity to advocate, design, advocate and negotiate comprehensive trade pacts. Just look at significant integration milestones such as the rapid movement towards a common external tariff amongst the Economic Community of West African States (ECOWAS), and of course, the Tripartite Arrangement’s amalgamation of the 27 member states of COMESA, the EAC, and SADC into the Tripartite Free Trade Area (TFTA).

Seminally, in line with a push towards developmental integration under Agenda 2063 priorities such as industrialization, Africa’s blueprint proposal to the United States ought to be underwritten, first, by the continent’s capacity and viability at reducing America’s over-reliance on Far East light manufacturing inputs and outputs. Secondly, launching a continental free trade area (CFTA); essentially attain economies of scale necessary for American firms to invest in operating supply chains and distribution networks on African soil. An even rosier scenario should materialize if Africa can demonstrate that these duo-goals are attainable by 2020; that through the CFTA, intra-Africa trade will double between 2012 and 2022, and that agricultural trade will triple by 2025.

Seminally, Africa has already made substantial suggestions to the United States: The following ideas to include in a trade policy blueprint should only serve to strengthen the continent’s leverage with the Trump White House and Republican-led U.S. Congress:

1. Adjust AGOA Rules of Origin to Promote Africa’s Industrialization

In stipulating that tariff preferences are not nearly adequate to encourage export and manufacturing in Africa, the 2016 USTR Report on AGOA opens the door for the kind of ideas that would make AGOA truly transformational. Perhaps the most ground-breaking element to a new U.S.-African policy lies in adjusting AGOA origin rules to reflect realities of modern supply chains better. Amending origin rules should not just afford opportunities for Africa to participate in these supply chains, but encourage backward linkages in developing economies. Given that most non-apparel supply chains finish their products outside Africa, Trump, and Congress should remember that when AGOA was amended to include the innovative third country fabric provision, beneficiary countries like Mauritius, Kenya and Lesotho attracted substantial foreign direct investment to their respective light manufacturing sectors.

Remarkably, modifying origin rules could feasibly prompt even more supply chains to incorporate produced or assembled African component. The benefit to the supply chain would be that even if a product were finished elsewhere but contained identifiable African content, the final product would enter the American market at a duty reduction equivalent to the percentage of African value-added. More value-added should trigger further tax reduction. Interestingly, because China is making a move away from light manufacturing, there’s a chance that the world’s two largest economies shall embrace a bigger role for Africa in global value chains with arms open wide. Of course, this origin rule adjustment could optimally work in tandem with ideas such as making AGOA origin rule requirements less complicated and less restrictive; a mirror of the way Canada permits cumulation of value-added by countries amongst members of a free trade area. If Uganda and Lesotho, for instance, performed joint production within a TFTA, their product should qualify for duty-free access to the United States.

2. Avail AGOA/GSP Benefits to African Cash Crops Subject to TRQs

Because the U.S. seeks to provide Africa’s rural sector from a respite from economic instability and poverty, Africa must make a make an even stronger case for additional product coverage under AGOA, even if the Trump Administration intends to prioritize available resources for an ‘America First’ agenda. Like the Peterson Institute of International Economics notes, coverage of AGOA is also not as comprehensive as it might appear. AGOA beneficiaries, for example, export approximately 42 percent of their total exports to the U.S. under AGOA; a share boosted by the 82 percent share of oil and gas. While export of African apparel, transportation equipment, and leather-allied products is happening, manufactured goods and especially agriculture exports barely feature. That’s principally because AGOA coverage excludes Africa’s leading cash crops like cotton, leaf tobacco, sugar and dairy products – something that, on top of affecting rural employment, discourages African cocoa producers from processing cocoa beans into chocolate and other value-added products.

From this perspective, the next few months could see an even more efficient AGOA if the program’s duty-free provisions were extended to so-called ‘sensitive’ products like sugar, cotton, peanuts, leaf tobacco and even diamonds. Like the African Union, UNECA and Brookings note, granting DFQF access for the 1 percent most sensitive import products to the U.S. would generate most benefits to Africa. As the U.S. Congress demonstrated in amending Section 503 (b) of the Trade Act with little opposition to designate individual cotton articles as eligible for duty-free treatment in 2015, Trump should recognize that admitting additional cash crops into the United States does neither disadvantages integrity, nor competitiveness of American agriculture. Invariably, the major entry challenge to African cash crops is not from American farmers, but from third countries that already hold most small duty tariff rate quota (TRQ) allocations they no longer need.

The keys to Africa’s case are; (i) how archaic Section 505(b) of the Trade Act of 1974 prohibiting the U.S. President from designating certain articles as eligible for duty-free treatment is, and (ii) how Africa’s economic agenda garners high levels of bipartisan support in the U.S. Congress. On top of encouraging exports from South Carolina to Angola, allowing African cash crops to enter the U.S. market strengthens a major ally in the global fight against terrorism.

3. Publicize Africa’s Integration and Assets in the U.S. via a Joint Meeting of Congress

The purpose of a Joint Meeting of Congress has usually been for Congress, and of course, the American people to hear from a prominent figure – generally a visiting foreign leader. As Congress permitted Israel, India, and more recently the Holy Father; Africa must make a vigorous case to address a joint meeting of the U.S. Congress.

In what would be a historic address, the African Union Commission Chairperson could, as Africa’s top civil servant, inform a prime time American audience of progress on, first, ECOWAS’ movement towards a common external tariff. In the same vein, the Chairperson could highlight Tripartite Arrangement’s success at integrating 27 African countries under three regional communities, and relatively, the clear and present prospects for these leading to the world’s largest CFTA that should make economic sense to American businesses keen on greater and more efficient markets.

Aside from how much publicity an address to Congress would give Africa, the rationale to a timely granting of this audience is that economic development is the most efficient way to nurture peaceful society, reduce refugee flows, ameliorate humanitarian crises, and expand markets for American exports. In the same space, safeguard human rights and other core American values.

Three interlocking factors underpin our calculus: that the African Union Commission elects an eloquent, charismatic and well-spoken Chairperson, and that by October 2017, Africa’s trade negotiators will have made significant progress regarding the CFTA. This address to Congress is leveraged to discuss the demographic dividend, Agenda 2063, the African middle class, and the continent’s sophisticated private sector as business partners to their American counterparts.

An address of this sort should also highlight opportunities to invest in Africa’s infrastructure and energy sectors, and risk mitigation elements. Like happened when India’s prime minister made his pitch to the American people, we have no doubt that Africa would, at the very least receive the important second look by potential global investors.

Other ideas Africa should include in a blueprint proposal are:

(i)  Because large sums remain abroad as a result of corporate profits often not taxed until returned to the U.S., Africa could propose that Trump avail American investors in Africa with tax relief on repatriated profit. Africa can argue persuasively that any profits not repatriated to the U.S. during the grace period but invested in infrastructure or employment-creating investment in Africa not be taxed whenever returned to the US even if outside the grace period.

(ii)  Africa must insist that American aid goes towards the sort of policies and infrastructure that facilitate African trade, both regionally and with the United States. Doing this would recognize that America’s active participation would be address failure to implement agreements or fundamental aspects like sanitary and phytosanitary issues because of poor customs administration, deteriorating infrastructure, opaque regulatory regimes, and endemic corruption.

(iii)  Perhaps the most active part of a Trump Administration may lie in infrastructure development. If Africa could develop an infrastructure plan that promoted PPPs between African countries and American companies, such initiatives would attract support if positioned to increase opportunities for American and African firms to collaborate in meeting third country competition.

Conclusion

Ultimately, although one must not prognosticate around Donald Trump, a look at the global trade agenda reveals that while TPP is practically dead in the water, and Brexit further hobbles any hope for the Trans-Atlantic Trade and Investment Partnership (TTIP), the prospects for a vibrant Africa trade agenda remain bright. As the only global power not demanding reciprocity, Africa could work with Trump to assure flexibility when it comes to implementing the EU’s economic partnership agreements. Africa must emphasize that she does not intend to endanger duty-free access and that the possibility of entering into an FTA with the U.S. will not be the divisive or hostile affair promoted by the EPAs.

The next twelve-month period allows sufficient time for Africa to develop mutually beneficial initiatives – ultimately graduating Africa from being dependent on the West to becoming a co-partner. But a year may not be sufficient to bring sub-Saharan Africa together to generate a blueprint. Africa is busy with her agenda, and ought not to pay too much heed to Trump World intricacies.

These are distractions: Africa must know that she has supporters and strategic stakeholders in the United States. The effort to achieve a new blueprint must start now.

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