AGOA moves forward: Reviewing last week’s reauthorization in the U.S. Senate

On Thursday of last week and with a vote of 97-1, the U.S. Senate approved the “Trade Preferences Extension Act of 2015,” which includes reauthorization of the African Growth and Opportunity Act (AGOA). With this action, the Senate seeks to reaffirm the “centerpiece of trade relations between the United States and sub-Saharan Africa,” as well as enduring bipartisan consensus for stronger commercial ties with the region.

The legislation now goes to the U.S. House of Representatives. As this bill moves closer toward becoming a reality, it is important to review the specific changes that the Senate’s version of AGOA reauthorization entails for African beneficiaries and their counterpart in the U.S. Here, we briefly evaluate the key revisions of the program, broadly classified as the “good” and the “to be determined.” Importantly, opportunities still exist to modify AGOA reauthorization, and several amendments could strengthen the bill.

The “Good”

Long-term extension:  AGOA reauthorization extends the program until September 30, 2025—a 10-year time horizon, which crucially also includes continuation of the third-country fabric program for the same period. Together, these provisions stand as the longest extension the bill has ever received. Short-term extensions and an uncertain renewal process have been the largest obstacles to AGOA’s success. The Senate’s new reauthorization bill provides exactly the type of stability and predictability required for beneficiary countries to utilize AGOA more effectively and for companies to make long-term investment decisions in the continent.

Targeted and flexible eligibility reviews: The Senate’s version of the AGOA reauthorization provides increased flexibility with and advance warning for a country whose eligibility is in question. In addition to an annual review and request for public comment on whether beneficiary countries conform to the eligibility criteria, the president may now initiate “out-of-cycle” assessments. The president must also provide the country in question a 60-day warning if its preferences are to be withdrawn. Additionally, the U.S. government will have more flexibility in dealing with beneficiary countries not meeting the eligibility criteria. The Senate legislation provides for the “withdrawal, suspension, or limitation” of duty-free treatment. This gives the president a more targeted way to penalize violations. For example, if this new approach had been in place during Madagascar’s 2009 coup, which led to the country’s exclusion from AGOA from 2010-2014, the U.S. may have been able to preserve the several thousands of jobs that were lost (largely by women), while pursuing more focused actions against the interests of those perpetrating political instability.  

A focus on agriculture and women: This AGOA renewal recognizes the critical role of the agricultural sector and specifically mandates support to “businesses and sectors that engage women farmers and entrepreneurs.” According to the World Bank, agriculture employs about 65 percent of the region’s overall labor force, with particularly significant incorporation of female workers. This hortatory language is important, but the Senate’s version of AGOA reauthorization also takes action to provide the type of technical assistance needed to help African agribusinesses gain access to U.S markets. In particular, the legislation lifts the cap on the number of countries that can receive American trade capacity-building support and urges the Department of Agriculture to increase the number of Foreign Agricultural Service personnel assigned to staff these important programs to 30. The Senate’s leadership on this issue is commendable, but the fulfillment of these provisions will ultimately hinge on the performance of the federal agencies involved in providing trade capacity building and, unfortunately, history is not the best guide. For many years, the U.S. Commerce Department’s Foreign Commercial Service on the African continent was understaffed, and this trend only recently changed under the leadership of Secretary Penny Pritzker. 

Movement toward reciprocal trade agreements: AGOA provides unilateral access for African imports into the United States. While this continues to be a stimulus for economic development and U.S. investment, there is a need to begin to move to a more mutually beneficial trade relationship with Africa, especially as many African countries have initiated reciprocal trade preference programs (the Economic Partnership Agreements) with the European Union. Sub-Saharan Africa remains one of the only regions in the world where the United States lacks any type of comparable free trade agreement (FTA). The Senate legislation appropriately requires the Office of the U.S. Trade Representative (USTR) to report on plans for negotiating such agreements within a year and to notify Congress of any African country that has expressed an interest in an FTA. While this is very positive aspect of AGOA reauthorization, the USTR reports should be issued more frequently than every five years, as presently provided for in the Senate legislation.

Publishing utilization strategies: Despite success in key areas and important improvements, AGOA-eligible countries have struggled to utilize their preferential access to U.S. markets. The AGOA reauthorization seeks to address this issue by requiring participating countries to develop and publish “utilization strategies,” which designate the sectors in which each country believes it can be competitive and how it plans to take advantage of this potential. This is a welcome initiative. Not only will it give more focus and content to the annual AGOA forums, but it will provide businesses, from Africa and the U.S., more opportunities to engage governments on how to take advantage of the program. USTR is also required to submit an AGOA utilization report to Congress on a biennial basis. These new reports could support increases in the use of the program, especially if the private sector and civil society are actively involved in the discussion.

The “To Be Determined”

The role of South Africa: The ongoing dispute over U.S. poultry exports to South Africa has been one of the most significant obstacles to AGOA reauthorization. Lawmakers ultimately compromised over the issue by including a provision on the AGOA reauthorization that requires the president to commission a review of South Africa’s participation in the program within 30 days of the AGOA extension. In many respects, this is the best outcome given the others that reportedly were being considered, such as excluding South Africa altogether or extending the benefits for only three years. Given South Africa’s FTA with the EU and the growing number of U.S. companies filing complaints to USTR about barriers to accessing the South African market, Pretoria and Washington need to use this moment to forge a blueprint for a more mutually beneficial trade relationship.

Support for regional integration: AGOA reauthorization seeks to support Africa’s regional integration agenda through improved rules of origin provisions, but more could be done to back the region’s ambitious efforts to enact a continental free trade agreement by 2017. While many remain skeptical about the timeline for this initiative, leaders of the East African Community, the Southern African Development Community, and the Common Market for East and Southern Africa are expected to sign a “Tripartite Free Trade Area Agreement” on June 10, 2015, which will incorporate half of the African Union’s member countries overall, with a combined population of 600 million people and an integrated domestic product of almost $1 trillion. More integrated African economies could be a “game changer” for the region, and AGOA could still provide a better articulation of what the United States could do to support this process and align U.S. trade policy with the region’s goals.

Import sensitivities and tariff rate quotas: Perhaps the most impactful provision of an AGOA reauthorization would be to expand product eligibility for AGOA beneficiaries. Import-sensitive sectors like sugar and cotton are areas where Africa could gain the most in terms of expanded trade with the U.S. In fact, in August of last year, USTR identified 316 specific tariff lines as priorities for possible inclusion in an AGOA renewal, but this call to action does not seem to have resonated in Congress yet. A 2013 brief from our colleagues at the Brookings Institution concludes that full duty-free, quota-free access to U.S. markets would increase African exports by $72.5 million, while costing the U.S. only $9.6 million. A similar Brookings brief highlights many areas where more could be done in terms of allocating additional quotas for agricultural exports to AGOA-eligible countries. As feasible, legislators could still consider these areas as measures to improve AGOA.

Next steps

The Senate’s move to reauthorize AGOA is a major milestone for the program, but it is still far from certain that bill will ultimately pass. There are indications that the House of Representatives will move to vote on the Trade Promotion Authority before AGOA, leaving the bill in a somewhat precarious position leading up to President Obama’s trip to Kenya in July. In the interim period, most proponents of the program will likely continue to concentrate their energies on urging Congress to take quick action. While the focus on AGOA continues, U.S. legislators have taken other important actions to improve U.S. investment policy in Africa. Last Thursday, Senator Richard Durbin (D-IL) filed an amendment to the Senate’s version of the Trade Promotion Authority, which would require the president to establish a strategy to increase U.S. exports to the region. This amendment builds on Senator Durbin’s previous bill, “Increasing American Jobs through Greater Exports to Africa Act of 2012,” (with parallel action taken in the House by Representative Chris Smith (R-NJ)), which also called for a “Special Africa Export Strategy Coordinator” to be placed in the White House and act as a principal lead on implementation of efforts to support U.S.-Africa trade. The American legislators who voted overwhelmingly to support AGOA last week should take a serious look at this amendment as they consider the TPA before the Memorial Day recess.