Investment

BILATERALISM AND REGIONALISM: FTA, AfCFTA , AND AGOA UNDER PRESIDENT BIDEN

By: Seye Akanmu-bode

AGOA , named for the African Growth and Opportunity Act passed in 2000 and extended to 2025  covers the Africa-US trade relationship. AGOA abolished import duties on more than 1,800 products manufactured in eligible countries sub-Saharan Africa (those with established or making continuous progress with market-based economy, rule of law and pluralism, elimination of trade and investment barriers to the U.S., human rights, labor standards, fight against corruption, and economic policy to reduce poverty among others). Another 5,000 products are eligible for duty-free access under the Generalized System of Preferences program. As of today, 40 African countries are AGOA-eligible.  Despite AGOA being the cornerstone of US-Africa , in January 2020, Kenya’s President Uhuru Kenyatta and his US counterpart Donald Trump announced their intention of signing a free trade agreement between the two countries despite AGOA.  This would be the second such bilateral agreement with an African country, following the Morocco -US trade agreement.  The Kenya-US FTA couldn’t be achieved before Trump lost his reelection. Though Kenya has maintained that the unilateral pursuit of  an FTA will bring predictability in trading with the US and that it serves as  model for other sub-Saharan African countries, nonetheless, the FTA has been criticized as part of Kenya’s  tendency to undermine the East Africa Community, of which Kenya is a member and whose treaty requires negotiating trade agreements as a bloc. If Kenya could opt for a FTA with the US by ignoring its sub-regional bloc, what fate awaits the AfCFTA from Kenya and other sub-Saharan African countries ?

The African Free Trade Area (AfCFTA) Agreement came fully into force this January. 

The African Continental Free Trade Area will be the largest free trade area since the establishment of the World Trade Organization in terms of the number of countries participating in the area. Most importantly, the AfCFTA will cover a market of 1.2 billion consumer and gross domestic product (GDP) of 2.5 trillion U.S. dollars.

The agreement seeks to achieve a gamut of objectives, inter alia, promoting and attaining sustainable and inclusive social and economic transformation of the African Union (AU) Member States; creating a continental single market for goods and services, movement of capital and natural persons and facilitating investments; enhancing the competitiveness of the economies of AU Member States within the continent and at the global market; and promoting industrial development through diversification and regional value chain development.

With the defeat of Trump and the ascendancy of Joe Biden as POTUS , the pertinent question would be if Biden will maintain the FTA with single African countries or engage the continent via the instrumentals of AGOA and AfCFTA.

 The African Growth and Opportunity Act (AGOA) is set to expire in 2025. That may be the distant future for some, but given the time  required to pass trade legislation in the US Congress, it’s the functional equivalent of tomorrow’s mid-day meal. Preparation for the post-AGOA trade relationship between the US and Africa needs to begin now.

AGOA has had important successes, but improvements need to be made to the programme.

The legislation, which removed all tariffs on 6,400 products available for export to the US, helped to move the US-Africa relationship from aid to trade, from donor-recipient to one of mutual benefit and gain.

In return, the US required only that the nearly 40 participating African countries be making progress on economic and political reforms and pose no threat to US national security. These conditions constituted a low bar as the number of AGOA countries has been relatively stable since the legislation went into effect in 2000.

In terms of promoting exports to the US, AGOA has had measured success. Some countries, such as South Africa, have benefited significantly. South Africa’s auto exports to the US under AGOA have created tens of thousands of jobs in that country and in the auto supply chain in neighbouring countries.

Apparel exports from other countries, such as Lesotho, Ethiopia, Mauritius, eSwatini and Kenya, have also created a similar number of jobs. These apparel exports are important not only for the jobs created but for the labels that say Made in Mauritius, Made in Lesotho and Made in Kenya, for example.When apparel from AGOA-exporting countries are found by American consumers in their favorite stores next to clothing from Canada and Mexico, not to mention China, they begin to think about African nations as reliable and cost-effective suppliers to American households.

AGOA’s shortcoming is that not enough African countries have benefited on a scale that genuinely moves the needle when it comes to job creation, exports of apparel and how Americans perceive the continent. Nigeria for instance exports crude oil to the US which constitutes over 90% of its exports and income. The call by Congress in 2015 for all AGOA beneficiaries to develop export strategies to take advantage of the programme has borne little fruit as barely half of AGOA countries have created such strategies.

Yet other important benefits have been generated by AGOA. It put trade and investment at the centre of the US-Africa relationship, which the Trump administration tried to deepen through its Prosper Africa initiative. 

Passage of the legislation also created an enduring bipartisan consensus between Democrats and Republicans in Congress, based on the recognition that the US has interests in Africa worth investing in.This bipartisan consensus funded the President’s Emergency Plan for AIDS Relief (PEPFAR), the creation of the Millennium Challenge Corporation and, most recently, led to the establishment of the $60bn United States International Development Finance Corporation, in addition to a host of other programmes. 

The principal challenge to AGOA, apart from the fact that only a small number of nations have taken advantage of the legislation, is the dramatic changes that have occurred in Africa in the 20 years since President Clinton signed the law into effect.

The region has become home to half of the world’s 20 fastest-growing economies and a middle class in the tens of millions.

The African Continental Free Trade Agreement (AfCTA) is poised to significantly increase intra-regional trade.

In addition, China has overtaken the US as the continent’s leading trade partner, the European Union is implementing Economic Partnership Agreements (EPAs) across the continent, and countries such as Turkey, India and Russia have become significant commercial actors on the continent.It is time, therefore, to update the AGOA framework.

Most specifically, reciprocity needs to replace the non-reciprocal structure of the current trade relationship. AGOA 2.0 also needs to be developed in a manner consistent with the implementation of the AfCFTA. AGOA’s benefits should be extended past 2025 as long as agreement has been reached on  mutually reciprocal trade benefits. The phase-in periods should be different for Africa’s low-income, lower-middle-income and upper-middle-income countries.

Revising the AGOA framework should be a priority in the US-Africa relationship as US goods and services are being increasingly discriminated against in Africa – at a time when the commercial relationship should be deepening. Given the EPAs, for example, a refrigerator or tractor being exported from an EU country will enter the South African market with a 4.5% tariff. That same refrigerator or tractor coming from the US will face an 18.4% tariff. Not only does this stifle the US-Africa commercial relationship, but it also discriminates against African consumers and companies, who will automatically find American products to be more expensive.

Perhaps, with his “Make American Great Again ” and “America First ” , the  Trump administration had no choice than to find a single African government with whom to negotiate a “model” free trade agreement.

US goods now more expensive compared to goods from the EU countries despite AGOA.

The task of AGOA 2.0, therefore, is not only to level the commercial playing field for US goods and services in Africa, but to do it in such a way that it facilitates the implementation of AfCFTA. Supporting the implementation of the AfCFTA and ensuring American competitiveness in all of Africa’s markets is the most immediate and important US commercial objective in the region.

 President Joe Biden has sent strong indications of plans to annul many of President Donald Trump’s policies, cutting across trade, environment and geopolitics.

Anxiety in Nairobi was exacerbated by the unexpected resignation of U.S. ambassador to Kenya Kyle McCarter, who espoused President Trump’s belief in deepening trade and commercial engagements with Africa. “The Trump administration valued bilateral approach to policy but the Biden administration has promised a return to multilateralism and alliance-building. While Kenya might want to continue the pursuit of an FTA, there is no guarantee of Washington being interested,” said Ken Gichinga, chief economist at Mentoria Economics.  

He added that while the need to neutralize China’s influence in Africa is something the new U.S. administration would want to pursue, the need to broaden the spectrum of trade and commercial interests through the African Continental Free Trade Area (AfCFTA) looks more feasible. Cooperation through AfCFTA will revive the importance of the African Growth and Opportunity Act (AGOA), which has failed to flourish under the Trump administration. Total two-way goods trade between the U.S. and Africa declined from $36.9 billion in 2015 to $34.7 billion in 2019. 

Of importance to note is that AGOA,  was renewed during the Obama administration in 2015 when Biden was the vice president.

With the US battling with the Covid-19 pandemic, Sub-saharan  African countries may have to wait for some time for the Biden administration to roll out its foreign policy on Africa especially on trade and investment.

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