Working Paper Overview of AGOA's apparel provisionss in the context of US-Africa trade by Eckart Naumann TRADE BRIEF tralac Trade Brief No. S12TB05/2012 October 2012 Please consider the environment before printing this publication www.tralac.org info@tralac.org Twitter @tradelawcentre Copyright tralac, 2012. Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Copyright tralac, 2012. Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac This publication should be cited as: Naumann, E. 2012. Overview of AGOA's apparel provisions in the context of US-Africa trade. Stellenbosch: tralac. This publication has been financed by the Swedish International Development Cooperation Agency, Sida. Sida does not necessarily share the views expressed in this material. Responsibility for its contents rests entirely with the author. www.tralac.org info@tralac.org Twitter @tradelawcentre Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Table of contents Introduction...1 1. The apparel provisions under AGOA...5 1.1 Product coverage...5 1.2 Country eligibility...6 1.3 Eligibility for AGOA's wearing apparel provisions...7 1.4 Apparel Rules of Origin and other apparel provisions under AGOA...8 1.5 AGOA apparel quotas...11 2. Apparel trade under AGOA and pre-agoa...13 3. Recent legislative changes extension of the third-country fabric provisions...21 Annex 1. Overview of AGOA legislative amendments over the years...27
List of tables and figures Tables 1 Sample apparel categories qualifying for duty-free treatment under AGOA...5 2 Wearing apparel RoO categories...9 3 The 15 leading apparel products exported to the US under AGOA in 2011...17 4 Leading apparel exporters to the US (>US$1 million) 1996 and 2011...18 Figures 1 AGOA quota utilisation 2002-2012...12 2 Global apparel exports (preferential versus non-preferential) to the US 1996-2011...14 3 Apparel exports from AGOA beneficiary countries to the US 1996-2011...15 4 Total US apparel imports v US imports from leading Asian countries versus apparel imports under AGOA...20 5 Index of changes in apparel exports to the US for the 1996-2011 period...20
Introduction The African Growth and Opportunity Act (AGOA) forms a part of United States trade legislation that provides non-reciprocal preferential market access to the US market for qualifying exports made in African beneficiary countries. The legislation was enacted under former President Bill Clinton in 2000, and extended (and to some extent broadened) by President George Bush during his term in office. Under President Obama, important extensions were recently passed while the current US Administration's recently released Africa policy undertakes to promote an extension of AGOA beyond its current expiry date in 2015. While AGOA is largely focused on enhanced US market access (in support of trade flows) for African countries by removing US import tariffs and other restrictions, the legislation goes well beyond this aspect and is in effect a policy framework that also covers trade-capacity building, general development assistance, bilateral political and business engagement (for example, through the annual AGOA Forum), healthcaree assistance, investment support and financing, as well as securityand Dakar provide and related cooperation. Regional trade hubs located in Gaborone, Nairobi, Accra implement some of the support measures envisaged (and required) by the AGOA legislation. Although AGOA is very generous it also has numerous shortcomings, many of which lie in the fact that it represents US trade legislation, rather than a bilateral trade agreement. As a result, preferences are neither permanent nor necessarily predictable; recent experience and uncertainty around the extension of AGOA's apparel provisions in as far as they relate to the third-country fabric provision are a case in point, as are substantial gaps and other restrictions relating to the legislations' product coverage. The objective of this policy brief is to provide an overview of AGOA's wearing apparel provisions given their recent legislative extension, but also to place Africa's apparel exports to the US into broad context with regard to (a) trade flows trends since AGOA's inception, (b) Sub-Saharan African apparel exports five years prior to AGOA's inception compared to today, and (c) AGOAA apparel exports in the context of global apparel imports into the US market. 1
Summary of key observations: AGOA's apparel preferences translate into a sizeable preference margin, with the leading 15 apparel tariff lines (accounting for nearly half of all apparel trade under AGOA) benefiting from duty savings of between 14..9% and 32% compared to their Most Favoured Nation (MFN) tariff The AGOA wearing apparel provisions provide special Rules of Origin (RoO) requirements to qualifying less developed beneficiary countries, by allowing the use of fabrics sourced from third countries. This provision was initially time-bound but has been renewed three times, most recently in August 2012 (weeks prior to its expiry) and now terminates along with the general AGOA programme at the end of 2015 Apparel categories are generally not Generalised System of Preferences (GSP) eligible, therefore AGOA's apparel preferences are of even greater significance to beneficiary countries as is the incentive to implement and maintain the related (and required) apparel customs visa programme which is an important precondition While AGOA apparel exports are subject to a quota system based on volume (rather than value), the respective ceilings are set at a level that to date have not been of any consequence to apparel exporters; the quota system is therefore of no effect. At its peak, the combined quota utilisation reached 37.6% while utilisation of the Least Developed Country (LDC) sub- Global imports of apparel into the US continue to rise, with imports under preference currently quota (for exports using third-country fabrics) recorded 68.1% utilisation. accounting for 18% of the total (of this, AGOA apparel imports account for only 1%). At its peak in 2004, the share of preferential imports was 26% with the share of AGOA imports at 2.4%. The share of preferential imports was thus at its highest in the year preceding the phasing out of Multifibre Arrangement (MFA) quotas. AGOA apparel imports increased rapidly since AGOA's inception and peaked in 2004. Since then, aggregate exports from Sub-Saharan Africa have reached levels comparable to the first year of AGOA (2001). From 2005 onwards, the share of non-preferential apparel exports has declined to 1% (from 8% in 2004) while the share of exports utilising the recently renewed third-country fabric provision has increased from 76% to 92% over the same period. In 2001 2
(when the first apparel preferences became available to AGOA beneficiaries) the third-country fabric rule utilisation rate was 'only' 28%. Earlier legislative amendments compelling AGOA beneficiaries to first utilise certain fabrics (specially designated to be) available in commercial quantities within the region were reversed not long after their original enactment without ever having been fully implemented and enforced. In its first application this provision related to denim fabric, and in effect compelled producers to first utilise the designated capacity of regional fabric prior to being able to utilise fabrics from third countries not part of the AGOA group (and not qualifying for preferences). This reversal somewhat reinforces the notion that in order to be and remain competitive in the US market, African exporters (often disadvantaged by logistic challenges, a lack of capital and other issues) depend on flexibility with regard to fabric sourcing, both in respect of cost/quality/variety as well as commercial value chain realities. While AGOA has led to increased exports (and likely reduced substitution of exports from African to other suppliers) it has not led to any significant change in the number of countries each shipping more than US$1 million worth of apparel to the US. While the aggregate number has grown from 10 to 11 (1996 compared to 2011), the list of countries has only changed slightly with two countries (Ethiopia and Ghana) not formerly on this list. Two countries that were significant apparel exporters to the US in 1996 saw a 98% and 99% (South Africa and Zimbabwe respectively) contraction in US exports by 2011. South Africa appears no longer able to compete without access to the third-country fabric concession; Zimbabwe is not an AGOA beneficiary country, the country's economicc and political situation having led to a decline of the sector more broadly. US apparel imports have remained on an upward trajectory with steady growth the 2008/2009 period being an exception. Much of the growth is the result of increased sourcing from Asian countries, while AGOA countries have seen their US-bound apparel exports decrease. When charting these trade flows on an indexed basis, the 2004 year (last year of Multifibre quotas) was clearly a watershed year, with the earlier rise in AGOA apparel exports being reversed, in strong contrast to the growth in US apparel sourcing in some of the Asian countries (China, Bangladesh, Vietnam and Cambodia). 3
The post-2015 period remains uncertain with regard to AGOA's continued existence in its current form. While the US Administration is supportive of AGOA and considers the legislation an important aspect of its Africa policy (while also recognising that many of the strongest growing economies are likely to come from Africa for some time still) ), the US has in recent years become more hawkishh on the extension of unilateral, non-reciprocal preferences and is known to actively seek deeper bilateral partnerships with African countries. While the expiry of the third-country fabric provisions will now only take place in 2015 along with the overall AGOA legislation, there is a strong likelihood that future renewals may be on different terms and that the preferences provided may not be as broad as is the case currently. For African apparel exports, this will remain a serious risk factor going forward. 4
1. The apparel provisionss under AGOA 1.1 Product coverage Apparel and certain textile products form part of a group of over 7000 tariff lines included under the AGOA provisions. Products covered by the legislation include motor vehicles and certain components, a variety of agricultural products such as cheese and vegetables, steel, chemical products, footwear, wine, footwear and watches. Duty-free status under AGOA often translates into a significant preference margin compared with MFN tariff status, as seen in the apparel examples below. A more detailed table of AGOA trade in apparel follows further down. Table 1 Sample apparel categories qualifying for duty-free treatment under AGOA Product tariff code Product description MFN tariff AGOA GSP 6106.1000 Women's or girls' blouses and shirts, knitted or crocheted, 19.7% of cotton 6105.1000 Men's or boys' shirts, knitted or crocheted, of cotton 19.7% Yes Yes No No 6203.4240 Men's or boys' trousers and shorts, not bibs, not knitted or crocheted, of cotton, not containing 15% or more by weight of down, etc. 16.6% Yes No 6204.6240 Women's or girls' trousers, breeches and shorts, not knitted or crocheted, of cotton, nesoi* 16.6% Yes No *not elsewhere specified or included AGOA builds on and extends the preferences granted under the United States Generalised System of Preferences (US GSP), which offers preferences mostly in the form of duty-free market access for approximately 4600 tariff lines. Under AGOA a further 1800 tariff lines weree added over and above what is already covered by the GSP, applicable to all AGOA beneficiary countries. AGOA also eliminates the Competitive Needs Limitations (CNLs) that apply to GSP products and affect other beneficiaries; this effectively places a cap on imports in each product category above where the preferences are suspended. The wearing apparel provisions, which apply only to countries that are designated as lesser developed 1 and that have fulfilled obligations relating to an apparel visa 1 "lesser developed" is the terminology used in the AGOA legislation 5
system, further increase the number of qualifying product categories by adding the garment product lines. The US GSP on which AGOA builds is subject to periodic renewal by the US Congress and contains various limitations, including quota restrictions and measures where countries and products can be migrated out of GSP qualification. The GSP was formally conceived on 1 January 1976 under the US Trade Act of 1976 but was recently allowed to lapse for much of 2011, until it was re-authorised (with preferences backdated) by US President Obama during October 2011 through to the end of July 2013. During this period of uncertainty (and loss of GSP preferences), the AGOA preferences were of particular benefit to beneficiary countries. The latest extension is again of relatively short duration, providing little predictability and certainty. 1.2 Country eligibility The AGOA legislation authorises the US president to designate countries as eligible to receive trade preferences under the US Trade Act. For this an annual review is undertaken and the list of countries re-authorised or amended. Currently 41 countries are AGOA eligible, up from 34 at the time that the Act was passed by the US Congress late in 2000. In order to be AGOA eligible, countries also need to (already) qualify under the US GSP. All but one of the 48 sub-saharan African countries are currently GSP eligible. Over the years numerous countries have gained, and lost, AGOA eligibility. For example, Côte d'ivoire was not part of the original group of AGOA beneficiaries and was added in May 2002, but subsequently lost eligibility in January 2005, only to be reinstated in October 2011. Countries that have lost eligibility include the Democratic Republic of Congo (DRC), Madagascar and the Central African Republic (CAR), while other temporary suspensions have included Mali and Guinea. Madagascar had been until its suspension one of the largest garment exporters under AGOA. These changes to the country eligibility list underscore not only the unilateral, and ultimately temporary, nature of AGOA preferences but also give some effect to the preconditions relating to AGOA. These criteria as assessed by the US include respect for the rule of law and political pluralism, the protection of human and worker rights, efforts to combat corruption, the elimination of barriers to US trade and investment and the protection and respect for intellectual property rights. 6
1.3 Eligibility for AGOA's wearing apparel provisions The majority (26 out of 40) of countries currently eligible for AGOA have also qualified for the special wearing apparel provisions. While the GSP does not include textiles and apparel products, AGOA makes provision for qualifying countries to ship articles of clothing to the US duty-free when certain qualifying conditions are met. For AGOA beneficiary countries to be considered eligible, they need to demonstrate the establishment of a product visa system that is able to monitor and track the sale and sourcing of textile inputs, and prevent the illegal transhipment of textile goods and materials and the use of counterfeit documentation through adequate enforcement and verification procedures. There are two aspects to the AGOA apparel provisions: general apparel preferences and special concessionary preferences (also known as the third-country fabric rule, set out in next section) to less developed beneficiary countries. These special provisions are only available to countries with a Gross National Product (GNP) per capita of less than US$1 500 in 1998 as measured by the World Bank, although a concession was made to Mauritius in 2008 which as a result also qualifies under the more flexible fabric rules. 2 Namibia and Botswana are also eligible for the special wearing apparel provisions and have been since shortly after the inception of AGOA through a special provision that exempted them from the GNP rule (see Trade Act of 2002 summary in Annex 1). However, the rule means that countries like South Africa and the Seychelles do not benefit and are subject to far stricter requirements around the input materials used in qualifying garments. 2 See Public Law 110-436 of October 2008. 7
1.4 Apparel Rules of Origin and other apparel provisions under AGOA AGOA permits clothing made in qualifying African countries to enter the US duty-free subject to a number of conditions and qualifications. These provisions have been instrumental for large parts of the African garment industry given the flexibility of the RoO and the substantial preference margins that have resulted from exporting duty-free under the legislation. There are a number of qualifying conditions under which apparel may enter the US duty-free. Specific RoO categories are outlined first, followed by the general provisions. Eleven apparel RoO categories currently qualify under AGOA. By far the largest category in terms of trade and utilisation of benefits pertains to apparel made from foreign fabric produced in a less developed country (HTS code 9819.11.12). While 95% of all apparel exports from AGOA-eligible countries entered the US under AGOA, more than 93% were shipped under the third-country fabric provision. Apparel made from regional fabric from US or African yarn was the third largest category in terms of trade volume. Apparel made from fabric or yarn not available in commercial quantities in the US was the third largest category, even though the latter two accounted for only 7% of qualifying AGOA apparel exports. The only other category of any significance is apparel made from fabric or yarn deemed (by the US) to be in short supply, and contributing 2% to the total in 2011. 8
Table 2 Wearing apparel RoO categories HTS Code* Product Description / Rules of Origin category 9802.00.8068 Articles assembled from any fabric cut in the United States 9819.11.03 Apparel assembled from US cut fabric & yarn, further processed 9819.11.06 Apparel cut and assembled from US fabric, yarn & thread 9819.11.09 Apparel from regional fabric from US or African yarn 9819.11.12 Apparel from foreign fabric made in a lesser developed country 9819.11.15 Cashmere sweaters, knit-to-shape 9819.11.18 Merino wool sweaters, knit-to-shape 9819.11.21 Apparel from fabric or yarn in short supply 9819.11.24 Apparel from fabric or yarn N/A in commercial quantities 9819.11.27 Hand-loomed, handmade and folklore articles 9819.11.33 Textile articles wholly formed in one or more LDCs 9819.15.10 Apparel from fabric deemed to be in abundant supply (denim).(suspended) * as used for preferential trade purposes (the US tariff schedule was amended accordingly) Specific provisions relating to apparel exports include a de minimis (value tolerance) rule and certain administrative requirements. The de minimis rule allows a qualifying article to contain certain interlinings of foreign origin provided that the value of such interlinings 3 (and findings and trimmings 4 ) does not exceed 25% of the cost of components making up the assembled article. Otherwise qualifying garments will are also not be ineligible for preferences simply because the article contains fibres or yarns that were not wholly formed in the US or in one or more AGOA- fibres and eligible countries; this concessionn applies as long as the weight of the non-originating yarns does not exceed 10% of the weight of the article (this threshold was increased from 7% 3 Only a limited number of interlinings are permitted under this provision, and the benefit depends on these not being available in commercial quantities in the US. The permitted interlinings are a chest type plate, a hymopiece or sleeve header. This must be constructed of woven or weft-inserted warp knit construction and be of coarse animal hair or man- strips. made filaments. 4 Findings and trimmings include buttons, hooks, zippers, decorative lace trip and certain elastic 9
previously). The AGOA legislation was also amended under the AGOA III legislation 5 to include collars, cuffs, drawstrings, shoulder pads, waistbands, belts attached to garments, straps with elastic, and elbow patches not producedd in an AGOA eligible country (see summary of AGOA Acceleration Act of 2004 in Annex 1). Administrative requirements relate to record keeping and the certification process. Exporters are obliged to keep records relating to the materials used in the production of qualifying exports for at least two years after the export of such products. These goods must also be accompanied by a special 'certificate of origin'. Abundant supply provisions were introduced under the AGOA IV legislation (see the Africa Investment Incentive Act of 2006) and sought to declare certain yarns and fabrics, upon application by any interested party, as being produced in commercial quantities within the (AGOA) region and thus available to be used in the production of AGOA-eligible goods. The legislation would then require exporters under AGOA to first utilise this available supply in the quantity previously determined as being available prior to exporting garments made from foreign fabric inputs under the third-country fabric rule. At the time of this legislative amendment, denim fabric was found to be available in commercial quantities (30 million square meter equivalents annually, as from 1 October 2006), although this denim fabric determination was subsequently scrapped in 2008 6. While AGOA does not include textiles per se, an exception is made for certain folklore and handmade fabrics. Ethnic printed fabrics were added to this provision by the AGOA III legislative amendments. These provisions are more technically and collectively known as Category 9 articles (Categories 1-8 relate to mainstream garments produced through normal commercial means). Category 9 eligibility is granted on an application basis and requires a country to be compliant with the AGOA apparel visa system (or be in the process of implementing one, with formal application on the apparel eligibility status having been submitted). Currently there are 20 countries that are eligible for Category 9 benefits (out of 27 that qualify under the wearing apparel provisions). With respect to the (currently) third largest apparel trade category by value apparel made from third-country fabric that cannot be supplied in commercial quantities in a timely manner by US supplier (HTS 9819.11.24), such a determination (on yarn or fabric) is made by the Committee for the 5 An overview of AGOA legislative changes is provided as an annex 6 See Public Law 110-436 of 16 October 2008. 10
Implementation of Textile Agreements (CITA). Under the AGOA IV legislation specific benefits or categories may be withdrawn again where it is later found that the process to remove the restrictions (and determine commercial non-availability) was subject to fraud. Under AGOA, the US President is authorised to proclaim duty-free and quota-free benefits for apparel that is both cut (or knit-to-shape) and sewn or otherwise assembled in beneficiary countries from fabric or yarns not formed in the United States or a beneficiary country, if the president has determined that such yarns or fabrics cannot be supplied by the domestic industry in commercial quantities in a timely manner. 1.5 AGOA apparel quotas While AGOA as a general rule removes quotas on eligible goods (tariff-rate quotas remain for certain sensitive agricultural products), the wearing apparel provisions remain subject to a formal quota regime. This quota is based on the aggregate imports into the US of apparel from all sources and is expressed as a volumetric measure (square meter equivalent SME) rather than by value. The AGOA legislation (as amended in 2007) increased this cap to 7% of total US apparel imports, with a sub- provisions. quota of 3.5% placed on articles of apparel that utilise the third-country fabric With growing US apparel imports (from all sources) over the years, the AGOA quota has grown significantly in absolute terms. Some changes to the AGOA legislation also increased the percentage threshold. The AGOA quota year runs from October to September of each year and the quota determination is made based on the previous annual period's US imports. In the October 2001 to September 2002 period, the AGOA quota was set at 313 million SME (the original AGOA legislation 7 did not differentiate between RoO categories in the application of the quota) ). The AGOA legislation initially set the cap at 1.5% for the 2000/2001 quota period, to be increased in equal increments to 3.5%. As indicated above, later legislative amendments increased the cap to 7%, although the LDC sub-quota remains at 3.5%. In the 2011/2012 quota period (ending end September 2012) the quota stood at 1.877 billion SME while the sub-quota for LDCs was set at half that amount. In terms of quota effectiveness, the trade data shows that quota utilisation rates are declining, and not once did the quota ceiling become an effective barrier to preferential trade under AGOA. In 2004/2005, the period when textile and apparel quotas were phased out under MFA, combined 7 See Public Law 106-200 of May 18, 2000. 11
utilisation reached 37.6% while utilisation of the LDC sub-quota (for exports using third-country fabrics) was 68.1%. Since then, quota utilisation declined to 12% for the 2010/2011 period (at time of writing, full-year data for the 2011/2012 quota year was not yet available). Fig. 1 below shows the changes in the AGOA apparel quota (and LDC third-country fabric sub-quota), and the declining share (in nominal and relative terms) of quota utilisation. Almost the entiree quota utilisation falls under the AGOA wearing apparel provisions (third-country fabric), with little apparel trade taking place in the other RoO categories. With aggregate quota utilisation at the 10-12% mark (and LDC sub-quota utilisation twice that), AGOA's apparel quotas remain de facto of no consequence to exporters. Fig. 1 AGOA quota utilisation 2002-2012 2000 1800 1600 1400 1200 1000 800 600 400 200 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total Quota Utilisation: General Quota Quota Utilisation Unit: Square Meter Equivalent (SME) million LDC Sub-Quota Utilisation: 3rd Country Fabric Quota 2011 2012 Source: Office for Textiles and Apparel (2001-2012) 12
2. Apparel trade under AGOA and pre-agoa Preferential US market access under AGOA has for many African countries been the primary driver of the domestic apparel manufacturing industry. Over the 1996-2011 period, US$15.7 billion worth of apparel was exported to the US from AGOA beneficiary countries, of whichh US$11.5 billion (since 2001) qualified for duty-free AGOA preferences. Since 2001, 88% of all apparel export was shipped under AGOA preference. Despite the substantial benefits accruing to traders in the US and Africa when utilising these preferences, from the US perspective AGOA makes up only a very small share of total US apparel imports under preference, let alone its apparel imports from all sources. Total US apparel imports (based on apparel chapters HTS 61+62) in 1996 were worth US$37.8 billion and more than doubled to US$76.5 billion in 2011. US imports under preference were US$2.4 billion in 1996 (or 6.3% of total imports), growing almost sixfold to US$13.8 billion in 2011 (or 18% of total imports). The largest beneficiaries of US apparel preferences (measured in terms of volume of trade under preference) was the Central America Free Trade Agreement (FTA) (DR-CAFTA) with a 7.8% share of preferential trade, followed by the North American Free Trade Agreement (NAFTA) (5%) and West Bank/Gaza preferences (1.3%). African countries under AGOA for the year 2011 collectively make up the fourth largest share of apparel preference receipts (1.3%). AGOA's share of total US apparel imports was 0.6% in 2001, and 2.7% of total US apparel preference receipts. The graph below shows that the share of preferential treatment on apparel imports into the US grew rapidly between 1999 (11% of total) and 2002 (22.5% of total). In the period following expiry of the MFA quotas (2005 to present), preferential apparel imports as a share of total apparel imports into the US decreased from 24.9% to 18.1% in 2011. This is mainly due to the rapid rise in imports from South-East Asian countries, whichh generally have no preferential access into the US market. 13
Fig. 2 Global apparel exports (preferential versus non-preferential) to the US 1996-2011 (data based on HTS chapters 61+62), with percentages indicating share of exports entering under a US preference scheme 80 000 70000 60000 50000 40000 30000 6.3% 7.3% 7.9% 11% 12.9% 22.5% 25.3% 25.9% 26.4% 24.9% 22.7% 20.5% 20.1% 18.8% 17.8% 18.1% 20 000 10 000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total US apparel imports No preferences claimed Preferences claimed AGOA preferences US$ million Source: Office for Textiles and Apparel (2012) AGOA has had a significant impact on African apparel exports to the US. A review of these exports for the period from1996 onwards (AGOA apparel preferences only started in 2001, with the first countries qualifying under the visa programme) reveals a number of interesting trends. The following graph provides an overview of apparel exports from AGOA-eligible countries for the period 1996-2011. Aggregate apparel exports to the US from AGOA countries were valued at US$355 million in 1996. While the graph uses the AGOA group (as appropriate for each year) as the reference point, this figure very closely resembles apparel exports from the Sub-Saharan Africa group (SSA) over the same period, and which were valued at US$360 million in 1996, growing to US$859 million in 2011. In that year the only significant non-agoa SSA exporter of apparel to the US was Madagascar, which lost its beneficiary status at the end of 2009. Madagascar's exports to the US were worth US$40 million in 2011 (down from US$209 million in 2009). 14
Fig. 3 Apparel exports from AGOA beneficiary countries to the US 1996-2011 (data based on HTS chapters 61+62) 1800 1600 1400 1200 1000 800 600 400 200 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total AGOA apparel exports No preferences claimed AGOA Apparel using 3rd country fabric US$ million Source: Office for Textiles and Apparel (2012) African countries' growth in apparel exports to the US predates the inception of AGOA and by the time that the legislation was enacted, trade was already on an upward trajectory. In the year (2000) prior to AGOA's apparel benefits becoming available to beneficiary countries, apparel exports from SSA countries were valued at US$729 million. During 2001, the first beneficiary countries earned their duty-free status by meeting the AGOA apparel visa programme requirements and with this apparel exports under AGOA accounted for US$583 million, with a further US$264 million not claiming preferences (mostly due to not having qualified for apparel preferences, or not meeting the apparel RoO). In that year, some leading exporters (for example Lesotho) only met the wearing apparel visa conditions in April of that year, or later. Kenya and Mauritius were the first to comply with the administrative visa system formalities on 18 January 2001. The data shows that the value gap between apparel exports that utilise AGOA's third-country fabric waiver (applicable to LDCs, Namibia, Botswana and, more recently, also Mauritius) and total apparel exports from AGOA beneficiaries to the US has declined over the years. In 2002 8, 55% of AGOA apparel exports were made from third-country fabric while in 2011 this share had increased to 92%. 8 One year previously, in 2001, only 28% used third-country fabric but given that numerous countries had not yet met the AGOA apparel visa requirements, 2002 is used as a more useful year for comparative purposes. 15
This highlights the fact that without flexible sourcing potential access to fabric made outside of the AGOA group little US-bound apparel trade takes place. Evidence from the small number of countries that do not benefit from the third-country fabric concession notably South Africa is compelling: US apparel exports decreased by 98% between 1996 and 2011 and are now worth a little over US$ 1 million per annum. That neighbouring Lesotho and Swaziland combined exported almost 400 times more apparel to the US last year merely re-enforces this point. Overall, in the period to 2004, African apparel exports to the US under AGOAA grew rapidly reaching US$1 753 million with over 92% of that figure qualifying under AGOA. Some of the growth can be attributed to developments in the global trading system, where the MFA quota system was due to be phased out under the provisions of the WTO Agreement on Textiles and Clothing (ATC). The last and most important tranche of quotas had to be removed by 1 January 2005; this means that the de facto protection provided to competing countries exporting textiles and apparel to the US (including those situated in Africa, and whichh were not quota-constrained) came to the end as well. With respect to AGOA apparel exports by category, the following table provides an overview of the leading 15 apparel items by value that were exported to the US during 2011. Men's and women's cotton trousers and men's shirts were the leading three categories and a combined US$384 million was shipped in that year, or 45% of total AGOA apparel exports in that year (total under AGOA: US$849 million). The preference margins, as shown in the table, are significant in most categories, ranging from 14.9% to 32%, givingg exporters under AGOA a sizeable competitive advantage. 16
Table 3 The 15 leading apparel products exported to the US under AGOA in 2011 Product tariff code Product description 62034240 Men's trousers / shorts, not knitted or crocheted, of cotton, <15% by weight of down, etc. 62046240 Women's or girls' trousers, breeches and shorts, not knitted or crocheted, of cotton, nesoi 62052020 Men's shirts, not knitted or crocheted, of 19.7 cotton, nesoi % 61103030 Sweaters, pullovers and similar articles, knitted or crocheted, of manmade fibres, nesoi 61102020 Sweaters, knitted or crocheted, of cotton, nesoi 16.5 % 61046220 Women's trousers/shorts, knitted or crocheted, 14.9 of cotton % 61046320 Women's trousers, breeches and shorts, knitted or crocheted, of synthetic fibres, nesoi 61051000 Men's or boys' shirts, knitted or crocheted, of 19.7 cotton % 61052020 Men's shirts, knitted or crocheted, of manmade 32% Y fibres, nesoi 61034315 Men's trousers, breeches and shorts, knitted or crocheted, of synthetic fibres, nesoi 61099010 T-shirts, singlets, tank tops and similar garments, knitted or crocheted, of man-made fibres 61091000 T-shirts, singlets, tank tops and similar garments, knitted or crocheted, of cotton 62046335 Women's trousers, breeches and shorts, not knitted or crocheted, of synthetic fibres, nesoi 62092030 Babies' trousers, breeches and shorts, except those imported as parts of sets, not knitted or crocheted, of cotton 62034340 Men's trousers, breeches & shorts, of synthetic fibres, <15% weight down etc. < 36% weight wool 61023020 Women's overcoats, capes, windbreakers and similar articles, knitted or crocheted, of manmade fibres, nesoi MFN tariff 16.6 % 16.6 % AGOA Y Y Y 32% Y 28.2 % 28.2 % Y Y Y Y Y 32% Y 16.5 % 28.6 % 14.9 % 27.9 % 28.2 % Y Y Y Y Y GSP US$ value (million) N 141 N 126 N 117 N 73 N 62 N 49 N 41 N 31 N 28 N 26 N 18 N 17 N 15 N 12 N 10 N 9 Source: US International Trade Commission 17
A further observation relates to the number of SSA countries in 2011 that were exporting apparel of any significant value to the US, compared to 1996. In 1996, 10 countries exported apparel valued at more than US$1 million to the US (worth a combined US$357 million) while in 2011, that number had (only) increased by one to 11 countries (including Madagascar, which is no longer an AGOA beneficiary). The value of US apparel exports by this group has increased to US$896 million. As shown in the table below, only one country (Zimbabwe) is no longer in the 1996 group (its apparel exports to the US having droppedd by 99%), while Ethiopia and Ghana are now part of this group with the former having increased its apparel exports by over 2000% over this period. South Africa lost 98% of its US export market for apparel; the country does not benefit from the AGOA third-country apparel provisions. Table 4 Leading apparel exporters to the US (>US$ 1 million) 1996 and 2011 Country 1996 US exports Country 2011 US exports US$ (actual) US$ (actual) Percentage change 1996-2011 Lesotho 64856744 Kenya 27122326 Mauritius 164724293 Swaziland 11449761 Madagascar 11005132 Botswana 7056785 Malawi 1272405 Ethiopia 426066 Tanzania 4106032 Ghana 875972 South Africa 60353761 Zimbabwe 4874867 Lesotho 315323323 + 386 % Kenya 260539092 + 861 % Mauritius 156897340-5% Swaziland 76835846 + 571 % Madagascar* 39833585 + 262 % Botswana 15475230 + 119 % Malawi 13487971 + 960 % Ethiopia 10013286 + 2250 % Tanzania 5282679 + 29 % Ghana 1575748 + 80 % South Africa 1069733-98% Zimbabwe 59519-99% Fields marked in bold > US$ 1 million * Madagascar lost AGOA eligibility at the end of 2009 and above trade flows took place under normal tariff relations. In 2009, its apparel exports to the US were worth US$209 million. 18
Apparel exports from AGOA countries peaked in 2004, after which they declined in 2005 and 2006 before stabilising briefly, and then declining further. The sharp drop between 2008 and 2012 is often attributed at least partly to the global financial crisis, which also resulted in a contraction in overall US imports. However, this contraction in apparel exports to the US did not take place entirely in parallel with US imports. Whereas AGOA apparel exports declined between 2005 and 2010, US apparel imports grew between 2005 and 2007 as sourcing from previously quota-constrained countries intensified, declined slightly in 2008, and then recorded a sharp drop in 2009. However, in 2010, apparel imports were up to the levels preceding the difficult international business climate and in 2011 recorded strong growth to reach their highest level on record. AGOA apparel exports also recovered in 2011, but the decline in the previous period took place against the backdrop of recovering US imports and strong growth in US apparel imports from Asian countries, China, Bangladesh, Cambodia and Vietnam. The following graphs provide some context to these trends. 19
Fig. 4 Total US apparel imports versus US imports from leading Asian countries versus apparel imports under AGOA (dataa based on HTS chapters 61+62) 80000 70000 60000 50000 40000 30000 20000 10000 0 1996 1997 1998 1999 20000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total US apparel imports China+Vietnam+Cambodia+Bangladesh US$ million AGOA Aggregate Source: Office for Textiles and Apparel (2012) Fig. 5 Index of changes in apparel exports to the US for the 1996-2011 period (data based on HTS chapters 61+62) 500 450 400 350 300 250 200 150 100 50 0 Index: Asican countries (China, Bangladesh, Vietnam, Cambodia) Index: AGOA 2001 2002 2003 2004 2005 2006 2007 2008 2009 Index: US apparel imports 2010 2011 INDEX: US Apparel imports INDEX: China/Vietnam/Cambodia/Bangladesh apparel INDEX: AGOA apparel INDEX: 2001=100 Source: Office for Textiles and Apparel (2012), own calculations 20
The indexed data of aggregate US apparel imports against AGOA apparel imports and apparel imports from leading Asian producers (China, Vietnam, Cambodia and Bangladesh) shows important trends particularly for the post-2004 (post-quota) period. While AGOA countries' apparel exports increased rapidly since AGOA's inception, peaking in 2004 and declining since (the trend was reversed in 2011 and early indications are that 2012 AGOA exports will be very similar to 2011 levels), US imports of apparel have been increasing at a steady rate (apart from 2008-2009). Over the period of review, Asian countries have made substantial gains in the US apparel import market, with indexed export gains being substantial and revealing a more than fourfold increase during this period. 3. Recent legislative changes extension of the third-country fabric provisions The AGOA legislation is often associated more with apparel exports than with those from other sectors. Reasons for this include the very substantial preference margins offered to qualifying exporters, the ground-breaking paradigm shift that led to flexible RoO, thus enabling producers to tie in with global value chains prevailing in the sector, the significant number of countries that continue to benefit from these preferences (their apparel sector is often entirely dependent on AGOA), and the uncertainty surrounding the legislation over the years which has kept the issue in the limelight, so to speak. AGOA was initially enacted for the eightyear period to 2008, while the apparel provisions which granted a waiver from normal RoO and permitted the use of third-country fabrics were set to expire after four years already. These provisions were intended to be of a provisional nature, enacted to allow manufacturers in beneficiary countries to develop upstream textile manufacturing capacity that would later be able to supply the downstream apparel manufacturing business. This expectation has not been met and given global developments in the sector not least the expiry of the MFA which was expected to substantially reduce the attractiveness of Africa as a sourcing destination of apparel for the American market US lawmakers agreed to extend AGOA's thirdcountry fabric provisions to 2007. As shown earlier, African apparel exports to the US contracted in the post-mfa period while Asian countries rapidly expanded their foothold in that market and becamee increasingly intense 21
competitors to African producers. While the competition had always been there and African exports were a mere fraction of US imports from other sources, the ability to source from low-cost African locations remained attractive for various reasons not least for competitivee and strategic reasons. But amid some of the relative preference (quota protection) having been lost in 2005 notwithstanding African exporters still having duty-free access to the US market, the US Congress for a second time extended the wearing apparel provisions, this time to September 2012. (See summary of legal changes in Annex 1). With 92% of AGOA apparel exports entering the US under the third-country fabric rule 9, the expiry of the provision at the end of September 2012 again threatened to seriously affect Africa's apparel exports under the programme. This time, however, the economic and political climate was different. The US was emerging from a serious financial crisis (and by some accounts remains economically distressed) which to some extentt had moved US lawmakers towards a more US-focused approach that was altogether more hawkish on issues such as the extension of nonreciprocal trade preferences to third countries. It also finds itself in a presidential election year, which given the respective Republican and Democrat majorities in the House of Representatives and Senate respectively typically means that less legislation is passed amid political manoeuvring and the role that Congressional voting records often play in election-year politics. Any US legislation must pass both Chambers of Congress through identical texts (as well as the scrutiny of respective committees dealing with this type of trade legislation) before being submitted for signature to the US President; notwithstanding the bipartisan history that had to date ensured continued passage of the AGOA legislation, serious challenges were encountered. The delays in extending the legislation meant growing uncertainty among traders both in Africa and the US particularly within a sector where orders and associated planning are often undertaken many months in advance, also given the required lead times and logistical considerations. The uncertainty also once again highlighted the entirely nonreciprocal nature of the legislation which can be extended, amended or terminated virtually at any time by the US Congress. 9 Classified under HTS 9819.11.12 'Apparel from foreign fabric made in a lesser developed country'. 22
With seven weeks to go before the expiry of the third-country fabric provisions, both the House and Senate eventually agreed to and passed identical versions of legislative amendments 10 to extend the apparel benefits from 2012 to 2015 to coincide with the overall expiry of AGOA. The process was nearly derailed by a last-minute challenge (in the Senate). This action sought to block passage of the legislation essentially by having the 'cost' associated with the AGOA preferences, estimated at US$192 million by the Congressional Budget Office, financed through an equivalent withdrawal of funding from various trade-relatedd government agencies. This challenge did not receive the required majority support within the Senate 11 and based on prior agreement the original legislation was then allowed to remain unchanged and to pass the Senate vote by default. The latest extension of the AGOAA third-country fabric provisions by three years to September 2015 provided a welcome boost to the apparel manufacturing sector in Africa. Without an extension, prospects for a continuation of African apparel exports to the US would have been extremely poor. In some countries again using the example of Lesotho the sector has become by and large dependent on preferential US market access under current terms and conditions but is also the largest manufacturing sector in the country, and single largest employer. What happens beyond 2015 when AGOA is set to expire altogether is uncertain. Extensions of the apparel legislation have, to date, been supported to some extent by the overall programme term that also expires then. Both the US Administration and Congress now have a somewhat different outlook on trade preferences than was perhaps the case at the inception of the AGOA legislation. Economic conditions in the US are more challenging today than they were in 2000 and Congress more generally appears intent on placing a greater emphasis on promoting its own market opportunities as well as policies that directly promote local manufacturing and job creation. Recent legislative proposals include the Increasing American Jobs Through Greater Exports to Africa Act of 2012, which sought to triple American exports to Africa, or initiatives to substitute outsourced jobs for local ones by offering tax cuts to qualifying firms (for example the Bring Jobs Back to America Bill, although this was blocked by Congress). 10 Senate Version S.3326 and House of Representatives Version H.R. 5986. 11 The amendment failed to carry by a vote of 40:58. Some Democrat senators supported the intervention while a comparably larger number of Republicans voted against it (the sponsor of the amended text is Republican). Indications are that proponents of the (late) intervention were somewhat appeased through an informal undertaking that issues around the US cotton and wool trust funds which support local sourcing given cotton s duty- free status would be revisited later. 23
Evidence of an increasing focus on bilateral reciprocal engagement with African countries can also be noted. The current Obama Administration, like others before it, recognises that many of the fastest growing economies globally are in Africa and this is likely to remain so for many years. There has been an increase in bilateral investment treaties with African countries, while others have been updated (the Southern African Customs Union SACU updated its agreement with the US in June on the sidelines of the AGOA Forum). The Obama Administration also released its 'US Strategy Towards Sub-Saharan Africa 12 in June 2012 although to a large extent this merely reinforces existing trade policies. The 'Doing Business in Africa campaign in harmony along with its National Export Initiative are features of this policy, which also undertakes to work closely with Congress to extend AGOA beyond 2015. There remains a reasonably high likelihood that should AGOA be renewed beyond its current term in 2015 the focus will be more on lower-income beneficiaries. Higher income countries like South Africa may well be graduated out of the programme; South Africa is currently the third largest beneficiary of AGOA preferences and by far the most diversified exporter under the act. Its automotive exports to the US alone, under preference, were valued at US$2.1 billion in 2011 and accounted for more than one-fifth of the country's combined US exports. South Africa is also a significant net exporter to the US. Engagement between SACU and the US on a deeper reciprocal treaty has been ongoing for a number of years, mainly at the technical level. Material differences, however, remain on the depth of coverage of any such proposed agreement and it is known that SACU, and South Africa in particular, favours a more regional integration based strategy for now. South Africa has for some time (intensifying its efforts in 2012) been lobbying the US to be included under the third-country fabric waiver. South Africa based apparel manufacturers to date remain subject to the far stricter RoO requirements than the rest of the AGOA beneficiary group. 12 'US Strategy towards Sub-Saharan Africa' available at http://www.agoa.info/download.php?file=117&viewnow=true 24