The African Growth and

Opportunities Act

Tomasz Iwanow

Southern Africa Trade Hub

August, 24 2011

Introduction

This presentation will:

• Introduce to the African Growth and Opportunity Act (AGOA)

– Overview Basic Legislation.

– AGOA aims

– How AGOA works.

– Eligibility

– Rules of Origin

• US/Sub-Saharan Africa patterns of trade

• Tanzania/US trade and AGOA.

• AGOA successes (both SADC and Tanzania)

• Challenges and Opportunities

The AGOA: The basics

• AGOA is - a program of trade preferences:

• Signed in May 2000 as a part of legislation on Commerce

and Development.

• Unilaterally applied by US (vs EPAs)

• Not fully compliant with the WTO rules (LDC)

• What does AGOA do:

• Eliminates import tariffs on around 7000 products under

the General System of Preferences of the U.S.

• Extend GSP + 1400 products (footwear, luggage, handbags,

watches, and flatware)

• The most comprehensive and wide ranging US program

of trade preferences (without FTA)

• 98% of Sub Saharan African countries enter US duty-free

AGOA Legislation

• AGOA I (2000)

– Title 1 of The Trade and Development Act of 2000 offers tangible

incentives for African countries to their efforts to open their

economies and build free markets.

• AGOA II (2002) Trade Act of 2002

– Expanded Coverage of AGOA

• AGOA III (2004) – AGOA Acceleration Act

– Extended access for AGOA imports until 2015

– Extended 3rd Country Fabric Provision until 2007

• AGOA IV (2006) Africa Investment Incentive Act

– Extended 3rd Country Fabric Provision until 2012

– AGOA GSP Provisions in effect until September 2015

The aims of AGOA

• Supporting economic development and job creation in SSA through trade and investment. • Developing a commercial partnership rather than aid

dependency

• Eliminates tariffs on nearly all goods to the U.S. imported from sub-Saharan Africa

• Attracting new investors from U.S. and elsewhere to serve the US market.

• In order to fulfill AGOA‟s objective USAID created three Trade Hubs to provide technical assistance and support „development through trade‟.

AGOA Eligibility

• US President designates countries as AGOA eligible if they have established or are making continued progress towards establishing: – Market Based Economies

– Rule of Law and Political Pluralism

– Elimination of Barriers to US Trade and Investment

– Protection of intellectual property

– Efforts to Combat Corruption

– Policies to: reduce poverty, increase availability of health care and educational opportunities, protect human and worker rights and eliminate certain child labor practices.

• 37 SSA countries are eligible.

• Tanzania became AGOA eligible in 2001; Cote d‟Ivore, CAR, Eritrea and Madagascar are no longer eligible.

How AGOA works

Non African Country - AGOA ineligible

Produces good X with similar characteristics (price - $10, quality,

transport costs) to good Z coming from AGOA eligible country

Exports with out AGOA and pays 10% duty

Price on the US market $11

African Country –

AGOA Eligible

Produces good Z with similar characteristics (price - $10, quality and transport costs) to good X coming from

an AGOA ineligible country

Exports under AGOA and does not pay duty (0%)

Price on the US market $10

7

AGOA Rules of Origin

• “Wholly produced” with SSA

– “the article must have become the growth, product, or manufacture of a

beneficiary sub-Saharan African” .

• The article must be imported directly from a beneficiary sub-

Saharan African country into the customs territory of the United US.

• Material content rule: value-added must be more than 35%

– “the article must have at least 35 percent of its appraised value attributed to the

sum of the direct costs of processing operations performed in the beneficiary

sub-Saharan African country or in any two or more beneficiary sub-Saharan

African”

AGOA Special Provisions for the Textile and

Garment Industry

• 3rd Country Fabric Provision – specific for garment

manufacturers in AGOA LDC beneficiaries.

• Apparel made of U.S. yarns and fabrics

• Apparel made of sub-Saharan African (regional) yarns and

fabrics until 2015 (cumulation), subject to a cap; (caps large)

• Apparel made in a designated lesser-developed country of

third-country yarns and fabrics until 2012, subject to a cap;

• LDC (+ Botswana and Namibia), will enjoy duty-free/quota-

free access for apparel made from fabric originating

anywhere in the world.

• Visa system

• Established to avoid transshipment and use of counterfeit

documentation

• Requires African government to instituted required

enforcement and verification procedures.

US/Sub Saharan Africa Trade Patterns

• AGOA exports $US 86 Billion USD in 2009 increased from

US 21 Billion in 2000

• Less than 20% of these exports were covered under GSP

• Clothing and Vehicle parts and Transportation Equipment main

categories apart from energy related products

AGOA Exports by Sector

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Non-Energy AGOA Exports by Sector

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

AGOA Exports by Country

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

AGOA – The Tanzania's experience

• Tanzania exports to US totaled $43 million (small)

– Spices, coffee, precious stones, edible fruits and nuts, lac and

vegetable saps, and knit apparel.

• Small percentage of total AGOA exports.

• AGOA export were only $2.1. These duty-free imports

included apparel products, semiprecious stones, and

handicrafts.

• There is a common perception that opportunities

presented by AGOA are underutilized by Tanzania's

entrepreneurs.

Tanzania Imports and Export to/from US (in US$ „000)

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Exports

Imports

Tanzania Imports and Export to/from US (by sector) ($US „000)

0

10000

20000

30000

40000

50000

60000

Exports

Imports

Tanzania‟s Top 20 exports (in US$ millions)

Rank Product Value Share

1 Gold 818.59 20.9%

2 Precious metal ores and concentrate 497.68 12.7%

3 Coffee 115.20 2.9%

4 Fish fillets and other fish meat 104.45 2.7%

5 Coconuts, Brazil nuts and cashew nuts 90.90 2.3%

6 Unmanufactured tobacco 90.36 2.3%

7 Cotton 89.03 2.3%

8 Other oil seeds and oleaginous fruits 69.53 1.8%

9 Tea 68.14 1.7%

10 Dried leguminous vegetables 58.68 1.5%

11 Other furnishing articles, 53.03 1.4%

12 Twine, cordage, ropes and cables, w 37.96 1.0%

13 Electric instantaneous or storage water heater 33.28 0.8%

14 Wood sawn or chipped lengthwise 25.65 0.7%

15 Mineral or chemical fertilizers 24.50 0.6%

16 Electric generating sets and rotary converters 23.78 0.6%

17 Cotton, carded or combed. 21.93 0.6%

18 Precious stones (other than diamonds) 21.88 0.6%

19 Uncoated kraft paper and paperboard 21.04 0.5%

20 Cocoa beans, whole or broken 20.15 0.5% 17

Tanzania‟s Top 20 exports to US (in US$ millions)

Rank Product Trade Value Share

1 Coffee 13.26 27.7%

2 Coconuts, Brazil nuts and cashew nuts 5.97 12.5%

3 Machinery, not specified 4.52 9.5%

4 Electric instantaneous or storage water heaters 4.18 8.7%

5 Plants and parts of plants 3.31 6.9%

6 Warp knit fabrics 2.26 4.7%

7 Precious stones (other than diamonds) 1.91 4.0%

8 Raw fur skins 1.58 3.3%

9 Tanned or dressed fur skins 1.30 2.7%

10 Ivory, tortoise-shell, 1.01 2.1%

11 T-shirts, singlets and other vests, 0.83 1.7%

12 Bones and horn-cores, unworked, def 0.77 1.6%

13 Cocoa beans, whole or broken 0.71 1.5%

14 Fish fillets and other fish meat (w 0.69 1.5%

15 Locust beans, seaweeds and other algea 0.61 1.3%

16 Uncoated kraft paper and paperboard 0.46 1.0%

17 Tea, whether or not flavoured. 0.45 0.9%

18 Extracts, essences and concentrates 0.43 0.9%

19 Animal products not elsewhere specified 0.36 0.8%

20 Parts suitable for use solely or pr 0.28 0.6%

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AGOA Successes - Lesotho

• AGOA has resulted in phenomenal exports increases in

Lesotho garments.

• Key for the success was relaxed “single transformation”

Rules of Origin.

• Source fabric from the most competitive locations.

• Make it up into garments for large US retailers

(WalMart, Kmart, GAP)

• Lesotho‟s exports to the US rose from over US$ 100

million in 2000 to US$ 450 million in 2004.

• Employment 40,000 – 50, 000

• Problems: Little linkages with the rest of the economy

AGOA Successes – Madagascar/Kenya

• A similar rise in exports to the US as a result of AGOA has occurred in Madagascar.

• In 2007, Madagascar exported textiles and apparel worth US$ 287 million to the US.

• Due to political problems Madagascar became ineligible for AGOA benefits in 2010.

• In the first 11 months of 2010 Madagascar exported only US$ 53 million worth of apparel to the US.

Kenya experience:

• Kenyan exports of apparel to US exceeded US$ 200 million in 2010

AGOA – Tanzania Experience

• Sun-Flag factory (Arusha) (AGOA success)

– The completely vertically integrated clothes factories in Africa.

– Ring spinning, yarn twisting, circular knitting, warp knitting, yarn

and fabric processing, a woven made up unit, knitted garmenting

with in-house embroidery.

• „Marvelous Flotea‟,

– Dar es Salaam based handicraft manufacturer

– Increased annual income from $120 to producing 2,000 to 3,000

pieces a month with an annual income of $100,000.

– Nearly 50 percent of sales come from exports to the United

States, India, and Japan

AGOA opportunities

By looking at the current exports of Tanzania here is

where the AGOA opportunities may be:

• Apparel, Footwear, Leather products

• Fruits and nuts (cashew)

• Prepared vegetables

• Cut flowers (Arusha – directly to US and avoid duty)

• Prepared seafood (fish) (Tuna – Mauritius)

• Crafts

• Furniture

• Other manufacturing

AGOA is an opportunity …

• AGOA and in general globalization offer a wide range of opportunities to Tanzania‟s companies (big or small).

• The largest single market in the world the U.S. market (but is a very competitive).

• Everyone is looking for a share of this market

• Consumers expect the highest standards of quality and safety

• U.S. importers and consumers are not very familiar with the products coming from Tanzania or SADC.

• Both a challenge and opportunity.

• Opportunity to establish a name in the US market

• But adds to a challenge of penetrating the US market.

But also a challenge …

• Diversification beyond the energy and resource exports.

• Improving business climate that can decrease the preference margins of AGOA.

• Easy of doing business (Tanzania ranks 128th)

• Customs and trade facilitation

• Infrastructure/transport (% of final price)

• Export Strategy/Vison

• Strong entrepreneurship/professional management

• Improvements will allow Tanzania to take advantage of AGOA

• Predictability

• Standards, SPS

• But as shown in this presentation these challenges can be overcome.

Discussion

Do you have experience dealing with AGOA?

How do you think the outcomes of AGOA can be

improved?

Any Problems?

Do you have any other questions/comments?

THANK YOU

Tomasz Iwanow

tiwanow@satradehub.org