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Study Weighs Benefits of US-Africa Trade Reforms

Some of the items from an AGOA exhibit (Photo credit: US Dept of State)
Some of the items from an AGOA exhibit (Photo credit: US Dept of State)
Can the United States take a trade law that’s helping to increase African exports, and make it better? That’s what African and American politicians, economists and policy makers are discussing as they consider the future of the African Growth and Opportunity Act, or AGOA.

The legislation, which expires in two years, drops duties and tariffs on thousands of products from the continent. Supporters say it’s generated hundreds of billions of dollars in trade and investment opportunities.
Most African development specialists and policy makers would like to see AGOA extended, at least for another ten years. Some would like to add other low income countries outside Africa or include a wider range of products.

A new study by the Washington-based Brookings Institution looks at how changes to the law might affect US trade with Africa.

According to the report, failing to extend AGOA would be among the worst options.

Curtailing wealth creation

The Brookings study says it would lead to a two percent drop in Africa exports to the United States, or about one billion dollars.

African sectors affected by the end of AGOA -- and the return of tariffs -- would include meat and dairy, leather, textiles and manufactured goods. Limited gains made in economic diversification would disappear in many AGOA-eligible countries, as would associated employment gains. The act has been credited with creating over 300,000 jobs in Sub-Saharan Africa. Many of those would be put at risk.

Wages for unskilled agriculture labor would be harmed particularly in South Africa and members of the Southern African Customs Union, Nigeria, and East Africa. Pay for skilled laborers in the textile and apparel industry would drop in Mauritius and Malawi.

The advantages of extension

On the other hand, renewing AGOA would continue to improve African trade and revenues. Dropping all US quotas and duties on goods on AGOA-eligible countries would provide Africa with even greater gains.

Mwangi S. Kimenyi, a senior fellow and director of the Africa Growth Initiative at the Brookings Institution in Washington,DC., says Africa would benefit from increased trade with the US.

"There’d be a big change in total value of trade between US and Africa….and because Africa is a small global market player, the cost to the US for allowing these products to come into the US are extremely small, with no major [effects] on the US economy…”

In fact, he says opening the US market to these sectors would cost the US less than $10 million dollars per year, but increase African exports by $72 million dollars.

In another proposed trade reform, some want to drop the 14 middle-income countries that are part of AGOA today. The Brookings study shows that under this plan, several countries would see large drops in exports to the US.

Nigeria would lose $500 million per year from mining and energy, agriculture and food. Mauritius would lose about $95 million dollars, with a majority from textiles. South Africa alone would lose nearly $260 million dollars in exports (including meat and milk products), while the rest of the Southern African Customs Union would lose about $110 million.

Out of Africa

US lawmakers are also considering an extension of AGOA-like preferences beyond Africa to other lesser developed regions of the world .

The report finds that doing so could harm African countries already enjoying AGOA-provided access to US markets.

"What about if you give the same [duty and quota-free] preferences to low income developing countries …. like Bangladesh and Cambodia," he asks. "Particularly in the area of textiles.. we find that African economies would not be able to sell much to the US..In fact, there would be big losses to African countries."

Economic Partnership Agreements

The study also considers the effect of other trade pacts, including Economic Partnership Agreements, or EPA’s, between the European Union and the developing world.

They would create a free trade area with reciprocal preferential trade agreements between the EU and countries that would belong to five EPA-created regions: West Africa, Central Africa, East and Southern Africa, the Southern African Development Community and the East Africa Community.

Kimenyi says the report is not in favor of the agreements.

"Our model shows that….a lot of Africans would lose from EPA’s and if the US followed the same [idea], using EPA’s….it would be bad for Africa," he said..

The report says EPA’s encourage commerce within designated regions, but not between African countries belonging to different regional blocs. For example, some countries bordering each other, like Mozambique and Malawi, would belong to different EPA groupings, and would each maintain high tariffs on each other.

Free trade areas

But the report does cite another tool for boosting African exports: free trade areas, or FTA’s.

For example, it found that an FTA between the US and EU would increase world trade by up to $124 billion dollars. It says Africa could benefit from such a deal if it implements regional trade agreements, preferably a continent-wide free trade area, or CFTA.

The report says $36 billion dollars per year in new trade would be created by dropping all quotas and tariffs between and among all countries on continent.

The resulting increase in exports could work to help offset the large loss of revenues from dropping duties and tariffs.

The question now, say Africa watchers, is if there’s political will to enact the economic reforms.

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