African Growth and Oppertunity Act and Textile & Apparel

(In the video: Gail Strickler, former Assistant US Trade Representative for Textiles, highlights the immense opportunities created by the renewal of AGOA for duty free access to the massive US market for African textile and apparel producers.)

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. (note: non-reciprocal means SSA countries do not need to offer equivalent benefits to imports from the United States.)

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.  Like many trade agreements and trade preference programs, AGOA also set unique rules of origin for textile and apparel (T&A):

First, to enjoy duty-free and quota-free treatment in the US market, eligible T&A products made in qualifying AGOA countries need to be one of the following categories:

  • Apparel made with US yarns and fabrics;
  • Apparel made with Sub-Saharan African (SSA) regional yarns and fabrics, subject to a cap;
  • Apparel made with yarns and fabrics not produced in commercial quantities in the United States;
  • Certain cashmere and merino wool sweaters; and
  • Eligible hand-loomed, handmade or folklore articles and ethnic printed fabrics.

Second, under a special rule called “third-country fabric” provision, AGOA countries with lesser-developed countries (LDBC) status can further enjoy duty-free access in the US market for apparel made from yarns and fabric originating anywhere in the world (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. [Note: Although the US imports of apparel made with third-country fabric are subject to a cap, the cap has never been reached].

According to a 2014 comprehensive study conducted by the USITC, the “third-country fabric” provision has three major benefits to the AGOA members:

1) Increase exports of apparel. This can be evidenced by the fact that most US apparel imports under AGOA came from those countries that are eligible for the “third-country fabric” provision, such as Lesotho, Kenya, Mauritius and Swaziland. In comparison, because South Africa is not eligible for the “third-country fabric” provision, its apparel exports to the United States had significantly dropped since 2003 and only accounted for 0.6% among AGOA countries in 2013.

2) Encourage foreign investment. From 2003 to 2013, a total 21 T&A FDI projects were made in SSA, among which 18 projects (or 85.7%) were greenfield FDI. The third-country fabric provision is the main driver for these FDI projects. For example, many Chinese and Taiwanese investors had opened apparel factories in Ghana, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Namibia, Nigeria and Tanzania as a source of exports to the United States and the EU.

3) Enhance trade diversification. Theoretically, relaxing rules of origin (RoO) such as the third-fabric provision can free up companies’ resources and allow them to expand export product lines. As observed by a few empirical studies, AGOA’s third-country fabric provision helped related countries increase the varieties of apparel exports between 39 and 61 percent.

AGOA receives new authorization in 2015, which will last for 10 years until 2025 (including the 3rd country fabric provision). This ten-year renewal of AGOA is regarded as critical and necessary to encourage more long-term investment to the region. As put by Florizelle Liser, Assistant US Trade Representative for Africa “What we know is that African producers of apparel, like producers of apparel all around the world, need to have the flexibility to source their input from wherever of those can be produced most effectively, cost effectively for the products that they are sewing. So we want through the “third country fabric” provision to give the African producers of apparel that flexibility. We do know in terms of establishing textiles business on the ground producing those inputs right there in Africa and that more of that indeed is going to happen. The reason is that as U.S. buyers of apparel and this is an enormous market for apparel… as U.S. buyers of apparel source more of their apparel from Africa, then investors in textile mills, which are very expensive, will be incentivized and are being incentivized to actually establish those fabric mills right there in Africa, and then be able to save time, in terms of getting those inputs that are needed for the clothing that is being produced. So we see that happening already: it’s happening in Kenya, it’s happening in Ethiopia and around the continent. And that is what we need to have more of as we go forward in this ten-year extension of AGOA.”

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Author: Sheng Lu

Professor @ University of Delaware

33 thoughts on “African Growth and Oppertunity Act and Textile & Apparel”

  1. I find the third-country provision very interesting. Are there any other trade deals that have this provision or is it unique to AGOA?

    1. Great question! “Third country fabric provision” is unique to AGOA, but there are several other similar mechanisms in free trade agreement. For example, in CAFTA-DR, there is a mechanism called Tariff Preference Level (TPL) for Nicaragua, which allows a certain amount of Nicaraguan-made apparel to enter the United States duty free without regard to the source of the fabrics. Another popular mechanism is called “short supply list”, which Fibers, yarns, and fabrics determined not to be available in commercial quantities in a timely manner from within the FTA partner countries are allowed to be sourced from outside the FTA region for use in qualifying textile and apparel products.

  2. I think its very interesting that this is an agreement that took until 2015 to take place. If this proves to be beneficial to Africa, are there other countries that would also benefit from this same type of agreement? And, is it possible that it could end up hurting America’s economy and trade relationships if they continue to form duty-free trade agreements?

    1. AGOA was initially enacted in 2000. But not like free trade agreement, AGOA is “temporary” and requires reauthorization when it gets expired. the latest renewal was last year. But it is reported that a list of sub-Saharan African countries that have expressed interest in negotiating a free-trade agreement with the United States. http://www.politico.com/tipsheets/morning-trade/2016/05/froman-heads-to-rwanda-hatch-cant-get-no-satisfaction-eu-commissioner-undeniable-china-is-not-market-economy-214241

  3. The third country provision is very interesting and seems as though it would be very beneficial to lesser-developed countries. This provision should be implemented into other trade deals as well in order to continue to stimulate growth for these countries.

  4. Learning that third country provision took until 2015 to be enacted upon concerns me. It also makes me wonder why haven’t we come up with this before. Why don’t we incorporate it into more trade agreements if it helps developing countries prosper? Is it possible we are afraid it may work too well?

  5. The article states that apparel production plays a dominant role in many SSA’s countries economic development. If the AGOA proves to be as successful as predicted, and these countries make great economic strides, will they still continue to focus on apparel production as the main source for economic growth? Is it possible they shift from labor intensive countries to capital intensive countries in the near future?

    1. good question. there has been some studies on the impact of AGOA on African countries’ export diversification. the results are mixed. It seems it will take a while before they can move up to the next level. Apparel will remain a critical sector for Africa.

  6. This article is extremely interesting to me. It seems as though more and more trade agreements are being implemented within the textile and apparel industry, in order to benefit both the United States textile market, as well as both industrialized and lesser developed countries world-wide. Why has it taken us as the United States so much time to establish a provision such as this, when both parties will benefit so highly from it? Why do we feel the need to implement so many different agreements? Why wouldn’t one of the other existing trade agreements in place adopt the ideas from this agreement, or even make amendments in order to benefit the African countries as well?

  7. Hearing about the third country provision took until 2015 to be enacted really blew my mind. This is because it seems that this provision would be very beneficial to lesser-developed countries. I believe this provision should and could be implemented into other trade deals. Many agreements now are for trade and are being implemented within the textile and apparel industry, in order to benefit both the United States textile market. This agreement can also help.

    1. great comment. As many cases we’ve discussed in class, trade policymaking is never a black and white world. Even for AGOA, many in Congress have grown tired of extending one-way trade preferences to Africa without gaining reciprocal access for U.S. goods. And the US textile industry is never a very supporter for AGOA, especially the “third-country” fabric provision. Remember, the US textile industry wants to export more textiles to the western hemisphere whereas most fabrics contained in the apparel imported under AGOA come from China and other Asian countries… Plus, when AGOA renewal was under discussion, there were several other trade bills that need to get passed in the Congress…

  8. I never would have guessed that foreign investment return in Africa is higher than any other place in the world.I think the renewal of AGOA is a great thing for both the U.S. as well as Africa. This is because Africa will be able to quadruple its exports and the U.S. is given duty free access to these materials, as well as access to a new variety of apparel from this third-world country. Additionally, the third-world country provision seems to be a very beneficial to their country. I wonder if NAFTA and CAFTA have considered enforcing something similar.

  9. The third country provision is a very interesting idea. I think It is important that this has finally been implemented because it seems to be very beneficial to African countries as well as the U.S. textile industry. It is important to support these developing countries in order to help the world economy as a whole. Similar to other comments, I am questioning why it has taken this long to implement such an agreement and I am also wondering if this type of agreement will spread to other countries that the U.S. has trade relations with? How will this impact the economy and apparel industry as a whole?

  10. I’m glad to see AGOA was renewed until 2025! It seems like this agreement could really do a lot for Africa and for the United States as well. I think it is very important for our country to avoid putting all their eggs in one basket and so the enhancement of trade diversification is extremely necessary. This is also giving Africa a great opportunity to further its development and as we learned in class, the addition of these jobs for the African people will do great things for their people and their country. It is crazy to think that this idea was only brought to life in 2015! I would not be surprised if this agreement is renewed past 2025, especially as Africa continues to develop and gain more momentum in the industry.

  11. Im honestly in shock that it took this long to implement this kind of trade deal. A trade agreement that could increase exports of apparel, encourage foreign investment, and enhance trade diversification, is something that could be beneficial all over the globe, especially for least developed countries. In regards to other comments, I really think if the trade agreement is successful with African countries, then it should be implemented in other trade agreements with other lesser developing countries.

  12. This trade deal seems like an amazing way to boost developing countries trade relationships. It is a great trade off between the US and Africa and benefits both sides. It is sad it hasn’t been implemented sooner because it is so beneficial. Why does it need to have a ten year renewal contract?

  13. It is very interesting that they are offering this opportunity to specifically Africa. This will definitely benefit trading between the US, Africa and Europe. By going from upwards of 35% to duty free products is very motivational for these apparel companies. Is it plausible to consider that the AGOA is a way for the United States and the EU to try to get Africa into agreements like the WTO, and maybe the TPP? Also why is it even though the US is in agreement of NAFTA and CAFTA that they can make a deal with Africa and not include those countries?

  14. AGOA sounds like a great opportunity for the U.S. and Europe to take part in. Not only has Africa showed that it is ready to further develop, they have showed much success as well. The three major benefits of AGOA are stated as increasing exports of apparel, encouraging foreign investment, and enhancing trade diversification. Much success has come out of the act in these three areas already. It is great to see the world coming together to invest in these lesser-developed countries as a benefit to the apparel industry as a whole. With this 10 year extension in place, it is a wonder to see how the not only the industry and the country will further develop in the coming years.
    However, since AGOA has already been in effect for 16 years I don’t quite understand how this is the first I have heard of apparel production in Africa. Why is it that with these rules in place, a large portion of American apparel is still made in Asian countries? Why hasn’t America moved further into the African manufacturing sphere or at least make a more pronounced effort? Also, there is always a concern in this industry about fair labor and fair wages. How does Africa stay competitive to other manufacturing countries? Are there any fair labor rules in place to ensure ethical treatment?

  15. Third country provision is very interesting to me. The AGOA seems to be very beneficial to African Countries and the rumored push for a free trade agreement between Africa and the US sparks my interest. I wonder what this kind of agreement would do for the US economy? Many democratic Americans seem to always be in favor of supporting underdeveloped nations, I am curious to see if implementing a free trade policy with Africa would attract these same people of turn them towards a different direction.

    1. you raised a very good question, which I have no answer yet. you also remind me of other good example, that is the generalized system of preferences. “officially”, this program intends to give least developed countries preferential market access (such as waiving import tariff) so that these countries can reduce poverty and grow economy through trade. But ironically, textile and apparel, which account for 70–90% of these developing countries’ merchandise exports are EXCLUDED from the program. this is largely because us textile industry doesn’t want to see rise of apparel imports which could post a threat to the western-hemisphere supply chain…

      https://ustr.gov/issue-areas/trade-development/preference-programs/generalized-system-preference-gsp

  16. I think AGOA is a huge opportunity because it enhances market access to the United States for qualifying SSA countries. Having duty-free access will increase trade and exports. I think the eligibility qualifications are fair but somewhat overwhelming. How does AGOA benefit U.S. firms? Does the U.S. have the right to set eligibility criteria?

    1. “how does AGOA benefit US firms”? this is an excellent question. It seems us apparel firms are very excited about Africa as a potential sourcing destination because of AGOA, but not too much for the US textile mills… Most apparel made in Africa use fabrics from “third-party” like China…

  17. I am finding the Third Country Provision very interesting as it seems to be helpful for the the developing countries. I am wondering is this utilized in other trade policies such as NAFTA, CAFTA, and WTO? If not then why?

  18. The AGOA is a United States Trade act, and the legislation significantly enhances market access to the US for qualifying Sub- Saharan African countries. I think that this act is an extremely big opportunity because of its enhancement to the United States for qualifying SSA countries. This will only increase the trade and exports . So since this act has been in place for almost 20 years, why isn’t more of our apparel from African manufacturers instead of Asian manufacturers?

  19. I like the idea of the third country provision, and find myself wondering what other countries this could benefit besides Africa. There are plenty of developing countries with the resources to create textiles, yet they may not have the means or money to do so. Agreements such as this benefit both parties involved, and could work wonders for other countries as well. I am curious to see if more agreements like this will stem from this success.

  20. The third country provision in AGOA seems like a promising and exciting opportunity for the apparel industries of African countries to grow. It also seems to be beneficial for American apparel companies. I wonder which large American apparel brands will be the biggest major participants in this trade deal.

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