December 16, 2002
The much-hyped Africa Growth and Opportunity Act (AGOA), billed the most generous trade offer from the United States to any trading partner to date, may not be that good, after all according to a World Bank assessment.
The institution's assessment of the preferential market access initiative concluded that America's selfish provisions set out in the trade law are likely to undermine AGOA's impact on Africa's export revenues. The assessment report, dated October 2002, admits that AGOA will provide real opportunities to the continent, and probably increase its non-oil exports by about 8-11%.
'However, the medium term gains could have been much greater if AGOA had not imposed certain conditions and not excluded other items from its coverage,' said the World Bank. The donor agency says the previous scheme of generalised system of preferences would probably have been extended even without the AGOA initiative. The assessment report, The Africa Growth and Opportunity Act (AGOA) and its Rule of Origin: Generosity Undermined?, comes only shortly after the International Monetary Fund (IMF) reported that the US government had finally 'agreed' to stop subsidies offered to prospective exporters to the United States under the AGOA opportunity. The IMF and World Bank have been critical of the subsidies, saying they were not in line with the liberalisation policy and international best practice.
But the World Bank's new criticism of AGOA suggests that the donor agencies do not think it worth to waste scarce resources on an initiative that will not help a country like Uganda much. The assessment report cites among the stringent provisions the 'rule of origin' in the apparel (textile) sector, the key sector the Ugandan government is targeting to benefit from.
The rule of origin provision requires that exporters source certain inputs from within Africa or the United States. The United States last year imported goods worth $8.4 billion from sub-Sahara African countries under the AGOA market access arrangement, but about 20 countries that are poorly placed to fulfill its conditionalities are still in the cold.
Uganda was not among the 16 sub-Saharan African countries that exported to the US market under AGOA in 2001, and is not even likely to be among those that will export in 2002, as it continues to try to meet the conditions for export.
The New Vision Thursday quoted an official of the Agri-Business Development Centre as saying it would take Uganda between three and 15 years to for instance get export clearance for its fresh produce from US department of Agriculture, Animal and Plant Health Inspection Service.
World Bank estimates suggest that the absence of the rules of origin provision alone would for instance have magnified AGOA's impact on the textile exports fivefold, resulting in Africa's overall non-oil exports by $540 million a year.
This provision of rule of origin means for instance, that the Sri Lankan investors of Tri-Star Textile Factory at Bugolobi, to whom government has given more than $4 million in investment subsidies for AGOA export purposes, will not be able to export to the United States beyond next year, because the factory sources its materials from outside Africa and the United States. As of now, the factory has not started exporting, yet the rule of origin becomes effective 2004.
To make matters worse, these restrictions will come at a particularly inopportune time, when the export quotas maintained on other developing countries under the US's Multi-Fiber Arrangement (MFA) will be eliminated, exposing Africa to competition with more efficient producers in South America and Asia.
The World Bank estimates that Africa's apparel exports will be lower by over 30% with the dismantling of the MFA. If on the other hand, AGOA had provided unrestricted access, the negative effect of dismantling the MFA would be nearly fully offset.
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