African Growth and Opportunity Act: briefing

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Trade and Industry

02 October 2001
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TRADE AND INDUSTRY PORTFOLIO COMMITTEE
3 October 2001
AFRICAN GROWTH AND OPPORTUNITY ACT: INFORMAL BRIEFING
 


Chairperson: Dr R Davies (ANC)

Documents handed out

Powerpoint presentation on Agoa

SUMMARY
The Committee was told of the opportunities for African countries including South Africa that could accrue from the US’s African Growth and Opportunity Act signed by former President Clinton last year. The Act continues to enjoy the support of the Bush Administration. Conditions for eligibility are democracy, the rule of law and workers’ rights. Only 35 African countries are eligible so far, with countries such as Zimbabwe and Angola not yet among those eligible.

MINUTES
In introducing the presenter, the Chairperson emphasised that this was not a formal meeting, but an informal briefing.

African Growth and Opportunity Act
Background to Act
Mr Robert F Godec, Minister Counselor for Economic Affairs at the US Embassy in Pretoria, noted that over the past 40 years and more especially over the last decade, the US has been providing assistance to Africa - investing in areas such as debt relief, HIV/AIDS and malaria.

Recently, the US has shifted emphasis to focus on trade and investment. On May 18, 2000 the Clinton Administration with the backing of Congress signed the African Growth and Opportunity Act (Agoa).

The Bush Administration also "feels strongly" about this Act which was to have been highlighted during the first US - Sub-Saharan African (SSA) Trade and Investment Cooperation Forum on 3-5 October this year but which had to be postponed due to the terrorist attacks in the United States.

Eligibility
Agoa is about creating wealth and prosperity. It aims at opening doors to new exports of goods from eligible African countries to the United States. Currently about 35 countries are eligible for Agoa. The requirements for eligibility are that countries should be committed to a market economy, the rule of law, the respect of property rights and so on. Among countries not eligible for Agoa are Angola, due to the continuation of civil war there, and Zimbabwe because of disturbances currently taking place there.

Market Access
Mr Godec specified that there are three categories permitted for the export of apparel to the US. Either clothing must be made in Africa from US fabric in order to have market access into the USA or the clothing must be made in Africa from African fabric. The third permitted category is clothing made from fabric from Least Developed Countries such as Mozambique.

Agoa was the extension of the Generalised Systems of Preferences (GSP), which the US extends to other developing countries besides those of Africa. Under the GSP, 5 000 products enter the US duty free. Agoa adds another 1845 new products to that list from eligible African countries. While the lifespan of Agoa is eight years, the GSP is renewable every year.

Benefits for South Africa
Mr Godec said Agoa gives South Africa a better advantage than other countries because South Africa produces more goods than most of the African countries combined. The other benefit that South Africa would derive from Agoa was that on apparel alone, 66 000 jobs could be created because of Agoa.

Trade
Trade generally between the US and Africa was increasing and involved a wide range of products. Between January and July this year trade to the US from Africa reached $2.7 billion - a big chunk of which was taken by petroleum.

However, other areas such as cut flowers, crafts, fabrics, baskets and so on were having a bigger share of the trade. Over the same period, South African exports to the US have more than tripled from $40 million over the first quarter of this year to about $200 million in July.

The unfortunate part is that South African companies were not claiming the benefits of Agoa as shown in the trade figures for apparel exported to the United States. Out of four countries, Lesotho, Kenya and Madagascar, South Africa was lagging behind these countries when it came to exporting apparel to the US.

Investment
US want to encourage investment in Africa. There were a number of investors interested in investing in South Africa. Currently they are involved in a series of investigations. Some of them are interested in investing in agriculture especially in the fruit and citrus fruit industry.

Region
On the African continent Mr Godec said Agoa has helped to create jobs in countries such as Lesotho, Kenya and Madagascar. In Kenya for example Agoa has created 50 000 jobs. The ability for South Africa to export fabric to Mauritius, for example, was due to Agoa.

Development
Mr Godec said there have been positive results. More goods were being shipped to the US under Agoa. Agoa has also helped to strengthen the customs services by providing training to South African customs services in order to stop illegal imports coming into South Africa.

One of the concerns of US officials was that they want the benefits of Agoa to flow not only to established business only, but also to new businesses that were found under the Small, Medium, Micro Enterprises (SMME) category.

How Agoa has helped South Africa: A case Study
Mr Godec gave an example of a South African businessman who had benefited from exporting to the US as the result of Agoa after the tariffs for his products were reduced from 20 percent to zero percent. These products enter the US without any problems, are sold in several cities around the US and over the last few months, his shipments reached the value of $3 million.

Kingsgate Clothing Company was another South African company that has benefited from Agoa. Based in Durban, this company which employs about 650 workers, exports shirts to the US at zero tariff rates after dropping from a 20 percent tariff - thanks to Agoa.

A new player that has benefited immensely from Agoa is a Black-owned company, New Beginnings, which exports wines to the US at zero percent tariff rates.

The Paarl based KWV was yet another example of a South African company utilizing opportunities offered by Agoa. KWV had opened a company in the US in order to market its South African produced wines more effectively in the US market.

Next Steps
The next step was to have been the Agoa Forum in October which had to be postponed.
Issues to be reviewed in the next stage are the status of eligibility and whether to expand it to encompass countries left out or not.

Discussion
Ms F Hajaig (ANC) asked if opportunities still exist with the slowing down of the American economy which has been exacerbated by the terrorist attacks. She requested further elaboratation on Agoa requirements for African countries.

Mr Godec responded that the US economy had been slowing down even before the attacks and a mild recession is expected in the fourth quarter of this year up until the second quarter of next year when the US economy should begin to pick up.

He pointed out that even though the US economy was in recession, it was still a large economy to reckon with - worth about $10 trillion - and opportunities for South African companies to export to the US remain.

The eligibility requirements were similar to the priorities of President Mbeki’s MAP and the New African Initiative which basically was about a free market economy, the rule of law, democracy and workers’ rights.

Dr R Davies (ANC) asked if any initiatives were forthcoming from the US Congress to include steel products in the list of products eligible under Agoa, as was the case with the EU’s "Everything But Arms" programme.

Mr Godec replied that the issue of steel products was a politically sensitive subject in the US. The Bush administration was willing to work with steel producing countries around the world but at the moment this was a difficult issue for the US.

Regarding extending the range, negotiations were taking place at WTO looking at phyto-sanitary requirements and "one will have to wait and see what the outcome of those talks would be". He further said the US was studying the EU’s "Everything But Arms" to see how they could fit it into the Agoa II or Super Agoa after 2008 when the first Agoa expires.

 

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