US view of trade with Africa offers opening for China

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Illustration: Luo Xuan/GT

 

24 April 2018 |Song Wei  | Global Times

“In March, the US announced the termination of Rwanda’s zero-tariff treatment under the African Growth and Opportunity Act (AGOA) for 60 days, until Rwanda lowers tariff barriers to used clothing imports from the US.

This move shows that the administration of US President Donald Trump has begun to look at Africa based on its preference for bilateral trade agreements. The AGOA was extended in 2015 and will expire in 2025, so Trump could not ask Congress to repeal it, but his inclination to further weaken the bill’s aid-for-trade component has been very clear. A vast number of African countries will face a more severe development process under the US “trade equivalence” stick.

The AGOA, as its name suggests, was intended to enhance Africa’s growth capabilities as a way to create more opportunities for trade with the US. Among the 6,000 kinds of duty-free goods, the clothing industry is the main concern of African countries.

This is because most African countries have only developed garment industries with low technical content and labor-intensive production, because of long-term political turmoil, infrastructure problems and marginalization.

Based on this situation, previous US governments have fixed “third-party clauses” through four rounds of adjustments to the bill – that is, allowing African countries to use fibers produced by third countries, especially raw materials for cheap clothing produced in Asian countries. This has had a very positive effect on trade capacity in African countries.

First, it allowed Africa to expand exports to the US. The AGOA has long had strong support from both US political parties. Policymakers and trade officials noted that continued value creation of African products exported to the US has been the proof of its success.

In the 10 years since the program began, exports of AGOA countries to the US increased by nearly three times, from $22 billion to $61 billion. Despite the sharp decline in non-energy imports by the US, the US quadrupled its non-service trade with Africa, compared with 2000.

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Stacks of used clothing are seen in this African warehouse. The U.S. is retaliating against countries that are restricting the import of American used clothing, a marginal industry for the U.S. but a critical one for some African nations. (Shutterstock)

America’s petty policy on used clothes for Africa [Hawkins Bay Dispatch 20 April 2018]

Second, it allowed Africa to increase production capacity. The AGOA led to a surge in apparel production in Africa. For example, Kenya emerged as a garment center, and Ethiopia committed itself to creating an African garment processing center. Senegal invested $425 million to revive the national textile mill that had been closed for 15 years.

The AGOA has also helped several African countries achieve economic diversification. For example, South Africa’s automotive vehicles, parts, and engines exports to the US increased from $571 million in 2003 to $1.4 billion in 2017.

Third, the AGOA helped Africa create jobs. An American business expert, Fred Oladehinde, said the AGOA plan was to reduce unemployment through the creation of 20 million jobs in Africa annually, according to a report on AGOA.info last year.

This has also correspondingly increased the influence of the bill on African governments, because if they lose the status of being an AGOA beneficiary, they will inevitably suffer from large-scale unemployment and social unrest.

Although the AGOA was originally designed to promote trade for Africa, it also strengthened the interdependence of US-Africa economic and trade relations, and the US also obtained tangible economic benefits. In 2014, the US reassessed the AGOA, noting that the bill had greatly promoted the growth and diversification of US imports from Africa.

At the same time, the AGOA allowed trade-aid channels to promote better governance in African countries. For example, Madagascar’s beneficiary status was cancelled by the US because of a military coup in 2009, leading to high unemployment in that country. The government was unable to withstand the economic losses and was forced to resume holding elections.

Similarly, countries like Mauritania, Cote d’Ivoire, Guinea, Niger and Mali that have failed to meet US requirements for democratization have been disqualified from being a beneficiary country, and these countries were allowed to rejoin the AGOA after reforms.

In another example, Uganda passed legislation against homosexuality in 2014, and the US Congress immediately called on the government to wield the AGOA stick.

However, in the case of Rwanda, the Trump administration imposed tariff barriers on its secondhand clothing exports and withdrew the country’s AGOA’s eligibility status. This has clearly deviated from the original intention of the AGOA’s policy design and has caused panic among African countries, especially the least-developed ones.

Africa’s duties on secondhand clothing fully demonstrate the continent’s ambition to become the next “world factory” and to protect its own clothing industry. The Trump administration has continuously reduced its aid budget for Africa and gradually moved to a stance of aid for trade, which has diminished the outlook for African countries’ development financing.

China should study and improve its aid to Africa and build a community of shared future with the continent.

The author is an associate researcher with the Chinese Academy of International Trade and Economic Cooperation. bizopinion@globaltimes.com.cn

Original Link |  US view of trade with Africa offers opening for China

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