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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Apparel Sourcing Opportunities in Madagascar and Mauritius


Please feel free to share your thoughts on the following discussion questions:

  1. Why does the United States Agency for International Development (USAID) promote apparel sourcing from Africa?
  2. From the video, how do you see the social and economic impact of the textile and apparel industry on Madagascar and Mauritius?
  3. Do we need African Growth and Opportunity Act (AGOA)? Why or why not?
  4. With regard to the status of the textile and apparel industry in Madagascar and Mauritius, anything shown in the video interests or surprises you?

Does AGOA’s “third country fabric” provision discourage the development of Africa’s local textile industry?

African-textilesThe following Q&A is adapted from the 2015 AGOA Forum Preview (15m:44s)

Question: What is the principal obstacle to the development of a local yarn industry in an apparel exporting country such as Kenya? Does AGOA’s “third country fabric” provision in place for 13 years act as a disincentive to such a development?

Florizelle Liser, Assistant US Trade Representative for Africa: That’s a really good question, but the answer is no. 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.

What do you think?

Sourcing Opportunity in Africa

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Although Africa only accounted for 0.55% of world textile and apparel (T&A) exports in 2013(WTO, 2014), numerous studies have suggested that this is a region of strategic importance as a sourcing base in the long term. For example, according to one recent study released by McKinsey & Company, among 40 surveyed apparel chief purchasing officers from January to February 2015, around 40 percent expect to be sourcing a greater share of their portfolio from sub-Saharan Africa in the next 5 years.

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Africa is gaining attention as a sourcing base largely because of its growing working-age population, which is expected to surpass China today by 2035 (Note: In comparison, affected by its one-child policy, China’s labor pool could shrink by one-fifth over the next 50 years). The current wage level in Africa is around USD 120 to 150 monthly for garment workers, higher than Bangladesh (USD 91/month), but lower than Vietnam (USD 254/month) and China (USD 324/month).

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However, sourcing from Africa is not without challenges. One big disadvantage of African countries when competing with “factory Asia” is its nascent local textile industry, meaning most fabrics and raw material needed for apparel assembling in Africa has to be imported. As reported by the McKinsey & Company study, among those surveyed companies which involved in sourcing from Sub-Saharan Africa, only around 50% directly source from the region, 15% source via Asian suppliers’ headquarters and 32% source via agents.

Poor infrastructure in Africa further amplifies the problem of heavy reliance on imported fabrics, trims and other supplies. For example, It can add up to 40 days in transit, for fabrics manufactured overseas to come from abroad and make their way through customs and to the factory in Africa.

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Look into the future, the collaboration between local governments, suppliers and buyers is suggested as the key to fully tap the potential of Africa as a sourcing base. Particularly, the McKinsey & Company report suggests US and EU-based apparel companies to evaluate Africa as a strategic option and think about the region beyond the next 2-3 years. Improving workers’ productivity, upgrading the industry to go beyond cut-make-and-trim (CMT) and establishing long-term partnership with buyers are suggested to be prioritized.

TPP Textile Negotiation Updates (March 2015)

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According to Inside US Trade, negotiators continued their work on the technical details of the textile chapter under the Trans-Pacific Partnership (TPP) during the latest round of negotiation in Hawaii. Although progress has been achieved, key issues remain unsolved.   Exceptions to Yarn-Forward Rule of Origin Since the 807A program under the Caribbean Basin Imitative (CBI) enacted in 1998, the so called “yarn-forward” rule of origin has been adopted in almost all free trade agreement (FTA) and trade preference program (TPA) reached between the United States and its trading partners. “Yarn forward” rule requires that each step of apparel production from spinning of the yarn must take place in one of the FTA countries. At the same time, FTA/TPA often adopt exceptions in addition to “yarn-forward” rule so as to provide flexibility to importers, especially in the case when certain textile and apparel products are not available in commercial quantities from the FTA/TPA region. It is almost certain at this point that TPP will continue to adopt the “yarn forward” rules of origin. However, what kind of exceptions to the yarn forward rule will be allowed in TPP remain unclear: 1) How long will be the “short supply” list in TPP? Short supply list is a mechanism which allows fibers, yarns, and fabrics determined not to be available in commercial quantities in a timely manner from within the FTA partner countries to be sourced from outside the countries for use in qualifying textile and apparel products. According to Inside US Trade, some TPP countries want to declare the short-supply list complete as soon as possible so that they can shift the discussion to other possible exceptions to the yarn-forward rule. However, others doubt that the U.S. would be willing to contemplate additional exceptions and therefore believe that the best approach is to keep the short-supply list open and try to add as many products as possible. 2) Whether there will be other exception mechanisms in TPP in addition to the “short supply” list? According to Inside US Trade, there were some discussions on creating a separate mechanism such as the tariff-preference levels (TPL) in TPP. TPL allows for a certain quantity of textile and apparel goods (usually yarns, fabrics and cut pieces) from a third-country (a country who is not a party to the agreement) to qualify for the FTA benefits. Additionally, it is more than just Vietnam that is seeking more exceptions to the “yarn forward” rule in TPP. For example, Australia and New Zealand are also doing so, which may be in large part for tactical reasons — essentially holding up the textile talks as leverage to secure acceptable outcomes in other areas that are more important to them, for instance, agricultural market access or intellectual property. Tariff Phrase-out Mechanism Inside US Trade says that U.S. is sticking to the framework that it laid out in its initial tariff offer, which put products into three categories subject to different phrase-out schedule:

  • X-basket, which covers the most sensitive products that would be subject to an initial cut upon entry into force, but then remain in place until they are eliminated in the tenth year for knit apparel and fifteenth year for woven apparel
  • B-basket, which consists of slightly more sensitive apparel items that would be subject to a linear tariff phase-out over five years
  • A-basket, which consists of least sensitive items whose tariff rate would go to zero immediately upon TPP entries into force

Key questions remain as to which items the United States will place into what basket. Other issues in the textile chapter The TPP textile chapter may also include languages on the following two issues: 1) a special safeguard mechanism under which the importing country can raise tariffs up to the most-favored nation (MFN) level in the case of an import surge; 2) customs language on the inspection mechanism.

Global Apparel and Footwear Market Update—2014

According to the latest estimates from the Euromonitor International, the global apparel and footwear market grew by 5% in value terms in 2013 and will further increase by an incremental US$58 billion to 2018.  Several highlighted findings:

  • China will account for 50% of absolute growth over 2013-2018. It will overtake the US to become the world’s largest apparel and footwear market in 2017.
  • The Middle East and Africa region has also become a new frontier for growth. The region’s apparel and footwear sales are set to rise by US$17.9 billion over 2013-2018.
  • Outlook for the developed markets are mixed. The United States is forecast to be the second largest contributor to global value growth of apparel & footwear sales after China over 2013-2018, ahead of the other BRIC markets. The German market is forecast to contract by US$2.2 billion over 2013-2018. Market growth in Japan will remain static.  
  • Menswear mania continues to grip the global fashion arena. The category grew by 4.8% in 2013, marginally outperforming womenswear’s 4.5%. The trend was evident in major markets including the US, the UK and Germany.
  • The womenswear category was valued at US$684 billion in 2013, accounting for 48% of total global apparel sales. The category is set to expand by a further US$91.8 billion to 2018, with 58% of this increase coming from China alone. International labels Uniqlo, Gap and H&M were the most dynamic womenswear brands in China in 2013.
  • While still a quarter the size of the apparel market, value growth of footwear outpaced that of apparel in 2013, registering a 6.1% yearly gain compared to apparel’s 4.8%.

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Understand the African Growth and Opportunity Act (AGOA)

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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.