Understand the African Growth and Opportunity Act (AGOA)

agoa

Although we don’t have time to cover AGOA in the class, it is very beneficial for our FASH students to have some general background knowledge about this important trade agreement.

The African Growth and Opportunity Act (AGOA) is a non-reciprocal trade agreement enacted in 2000 that provides duty-free treatment to U.S. imports of certain products from eligible sub-Saharan African (SSA) countries. AGOA intends to promote market-led economic growth and development in SSA and deepen U.S. trade and investment ties with the region.

Because apparel production plays a dominant role in many SSA countries’ economic development, apparel has become one of the top exports for many SSA countries under AGOA.  Particularly, the “third country fabric provision” under AGOA allows U.S. apparel imports from certain SSA countries to be qualified for duty free treatment even if the apparel use yarns and fabrics produced by non-AGOA countries/regions (such as China, South Korea and Taiwan). This special rule is deemed as critical because most SSA countries still have no capacity in producing capital and technology intensive textile products.

Impact of AGOA on the SSA countries seems mixed, however. On one hand, without AGOA, the SSA countries would not have been able to compete with competitive apparel exporters such as China and India in the U.S. market. Increased apparel exports have also created many manufacturing jobs in the SSA countries, contributing to the local economic and social development. For example, Lesotho, one of the main apparel exporters under AGOA, saw manufacturing jobs rose from 19,000 in 1999 to 45,700 in June 2011.

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On the other hand, however, few SSA countries seem to have taken good advantage of the AGOA to build up their genuine export competitiveness and diversify their economic structure over the past decade. One recent CRS report asserts that “AGOA apparel production is concentrated in the lowest skill tasks with little knowledge transfer to local workers and that the global competitiveness of AGOA exports still depend on their preferential treatment”.

AGOA’s authorization is set to expire on September 30, 2015. Some members of the US Congress, the U.S. apparel industry and several other stakeholders of the agreement have shown interests in renewing AGOA. With respect to the apparel industry, many stakeholders call for a longer reauthorization for the “third country fabric provision” so as to provide a more stable and foreseeable market environment for businesses. However, according to the American Apparel and Footwear Association (AAFA), AGOA renewal is complicated by a number of other factors such as the passage of the trade promotion authority (TPA), the progress of several other free trade agreements currently under negotiation, such as the TPP as well as the U.S. congress/political schedule.

The following is the webinar provided by the AAFA on the history, benefits, and challenges of the current AGOA program and how it applies to apparel and footwear companies.

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Author: Sheng Lu

Professor @ University of Delaware

20 thoughts on “Understand the African Growth and Opportunity Act (AGOA)”

  1. Typically in the past, developments in textile industries have coincided with developments in technology. In the United States, for example, our textile industry was a result of the industrial revolution. This makes sense, because the development is technology is necessary for the ever growing textile industry. For this reason, I don’t believe AGOA is as beneficial to eligible countries as many believe it to be.

    Through AGOA, we have been able to create textile industries in many under-developed countries, such as Lesotho. We have stimulated their economies and, more or less, given these countries a chance to thrive. However, what happens when AGOA is finally not renewed? These countries that currently benefit from AGOA do not have the financial means to continue to grow. They are relying solely on this program to grow their economies. When AGOA runs out, they may be able to continue on for a small while. However, once more industrialized countries begin to develop new technology, Lesotho and its fellow AGOA countries will no longer stand a chance.

    In my opinion, AGOA has no long-term effects on eligible countries. Once AGOA runs out, these countries will go back to where they were before. Is it really worth supporting these countries through AGOA if the only way they really stand a chance is if we continue to do so forever?

    1. good thinking. Do you think there is no value to renew the AGOA? Do you think without the AGOA, those African countries will be better off? why or why not?

  2. The idea of AGOA has a lot of potential. I do believe that if the AGOA were to get renewed and the goals stayed the same, in time, this act could promote economic growth and deepen U.S. trade ties within the region. The downside of the AGOA is the time that is required to reach the listed goals. The undeveloped/developing countries effected under this act, need a lot of time to get to the developed point they want to reach. If the AGOA is to get renewed, it would need to continuously be renewed until goals have been met, and the countries are developed. I do think there would be positive long-term effects, but the time needed to become fully developed is not practical. Many undeveloped countries have been working for years upon years to become developed. Since many other countries have started the development process before countries listed under the AGOA, by the time the AGOA countries are developed, the competition may be too high for them to even compete.I also agree with the comment posted above me, stating that without this act the countries will go back to how they were before and the only thing holding them on is the AGOA. These countries could benefit U.S. trade, and other trade regions as well, but the cost and time is a major factor.

  3. I believe that the AGOA is a great philanthropic act for the U.S. that also has some beneficial parts to it. I believe increasing the economic and social development for SSA countries is wonderful. Our country has the capability to do this for SSA countries and I believe we should continue to do so for the sole reason that we are helping others in need.
    On the other hand I do see some benefits from this agreement. With the current restrictions on the amount being imported from certain countries, AGOA provides great import opportunity. Although they may produce goods at a higher price than developing countries, like China, their prices are still competitive because of the duty free trade. In the future is SSA countries become more developed and increase production, the United States will already have one foot in the door by assisting them now. One foreseeable problem with this theory is that under the agreement SSA countries are allowed to import textiles from developing countries, again like China. However, I believe continuing this agreement is more beneficial than it is not.

  4. I believe that if this agreement is renewed the outcome will be beneficial. This agreement has the ability to strengthen economic growth between the United States and SSA nations. This act provides incentives for African markets to open and build their economy. New investments and an increase in production capacity resulted in an increase of supply and demand. Government policies pushed for rapid growth and industry expansion. Trade liberalization and tariff preferences provided an increase in exports of textiles/apparel and footwear.The value of exports decreased in some sectors due to a globally declining economy. Continued government assistance could provide continued growth. The textile and apparel industry is essential to developing countries. There will be an increase of opportunities in the global market place: through the exchange of market information, improved government relations and trade and investment. AAFA is known as a leader; promoting positive change and fair practice. Support from the U.Sin the development of Africa’s economic growth, will provide greater opportunities and a prosperous future.

  5. Since its inception in 2000, AGOA has given sub-Saharan African countries (SSA) opportunity for economic growth through trade benefits with the United States. We’ve seen this growth with an increase in manufacturing jobs and the U.S.’s increase in apparel exports from these developing countries. These advances however, have been slow but steady. That being said, the question that needs to be addressed when discussing AGOA’s renewal in 2015 is whether or not this investment is worth the amount of time it will take for SSA countries to fully develop. These countries have the potential to reach full economic growth with AGOA, but it is obvious that it will be a slow process. If the U.S. feels confident that the many years this will take for this to happen will be well worth it, then AGOA should be renewed. But if the U.S. does not feel confident in its end results, they should not renew it and move its import efforts elsewhere.

    1. Interested in your point “That being said, the question that needs to be addressed when discussing AGOA’s renewal in 2015 is whether or not this investment is worth the amount of time it will take for SSA countries to fully develop.” Why do you call renewal of AGOA as an “investment”? Who is making the investment and what are the expected returns? Also, in your view why does the development of SSA countries matter to the US? Particularly, do various stakeholders in the US (such as textile manufacturers and apparel retailers) want to see more apparel imports from AGOA? Why or why not?

      1. I referred to AGOA as an investment because there are many people who work hard forming these types of trade agreements, and if no one benefits from them then is it worth the trouble of making them? The development of SSA countries matter to the US and its stakeholders of apparel imports from AGOA because they have the potential to because a leading exporter in the textile and apparel industry.

  6. I think that the AGOA is definitely an important tool in generating economic success in Africa, especially because the apparel industry employs so many people there. When it comes to renewing it though, I think that America should be cautious with how long the terms are. Africa is a growing market in our industry and may start to take advantage of our willingness to grant them duty-free importing.

  7. As mentioned in assignment #4, I do believe that the AGOA is a beneficial and important way to help Africa, because of their underdeveloped country facing so many conflicts. I believe that it is important for all countries to want economic growth for all of those involved with the economy, but to a certain point. By focusing on a country who is so underdeveloped, it is not necessarily a priority for other countries to ensure their success by granting them free imports. I do not believe that the AGOA is beneficial to the U.S. because it is a non- reciprocated trade agreement. While we are a country that tries to be on good terms with everyone, I do not believe that it is in our best interest to make a trade agreement that has generally no benefits to us. There are many ways in which we provide aid to those in Africa, and there are not many ways in which they can help us in return.

  8. I believe the AGOA is an important aid for developing countries in that it gives them a chance to thrive. I think supporting the AGOA will help the developing counties become stronger in-terms of their global markets, and I also think it can potentially create benefits for the U.S. For the U.S., the AGOA can deepen trade and investment within the region. The U.S. can benefit from the duty-free access in U.S. market imports provided by the agreement.

    On the other hand, I do believe that if countries do not put in the effort to allow this agreement to help their markets thrive, nothing will change. Very few countries have seem to taken advantage of the agreement, which ultimately, if this continues, there will be no value at all to the agreement.

  9. I think that it is in the interest of the United States textile and apparel industry to get the African Growth and Opportunity Act renewed for several reasons. I believe that giving certain SSA countries duty free treatment will give them a chance to compete with the more developed countries such as China and India in the apparel industry. The AGOA being renewed could also have a positive effect because it could improve the U.S. trade with these African countries. By renewing this act the United States would be able to help the developing countries’ economy progress. I think that the renewal will have a positive effect on Africa’s economic growth and in turn improve the global economy.

  10. The aid that the U.S. is providing through the AGOA, is important however it is understandable that the decision to renew is difficult, not only does it take into account issues between U.S. And Africa countries but the entire global market, by helping out these countries growing economies the U.S. is helping future imports. However, are we playing fair, and is it nessisary to give so much aid.

  11. I think that if the AGOA program is renewed that there should be some changes made to the programs. Most of the apparel is coming from countries that can use yarns and textiles from other countries whereas it should ALWAYS be coming from the US. otherwise the program has no benefits for the US to support it, all the benefits go to the African countries. I also think that if we were to allow the yarns be bought from anywhere then there should be a low quota on the amount we allow the smaller countries to buy from non US yarn makers.

  12. I think that the African Growth and Opportunity Act is a good jump start for the least developed countries in Africa because it allows them to have more access to the global export market with low overhead. Instead of being required to use US textile products or ones made within the region they are able to purchase cheaper textiles from countries like China but still have the advantage of duty free access to the US import market. This will help the least developed countries build a stronger economy and become players in the global marketplace.

  13. I believe the U.S. should renew this agreement ” to enable a more stable and foreseeable market environment for businesses”. Once SSA gets on their feet, they could be a really good country to have close ties with. First off, there continent is huge so once there economy starts to thrive and industrialize they could really use that land to make warehouses and factories to become a main producer in the textile and apparel industry. Second with many people and low wages, SSA can essentially be the next “India” per se and dominant the industry in production.

  14. Although we have not discussed this topic in class, I think that it is an interesting topic. Creating these different agreements with different countries benefits them in one way or another. It was stated above that “On one hand, without AGOA, the SSA countries would not have been able to compete with competitive apparel exporters such as China and India in the U.S. market. Increased apparel exports have also created many manufacturing jobs in the SSA countries, contributing to the local economic and social development.” I think that this is great for the SSA countries because it allows them to grow and strengthen in ways that they would not have been able to on their own. This creates jobs and competition in these countries which will ultimately help to better stabilize their economy and put them in a better stage.

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