3 Minutes with…..Economist Eckart Naumann
By Beru Lilako
In this special Q & A, DevDispatch Contributor Beru Lilako discusses the African Growth and Opportunity Act (AGOA) with economist Eckart Naumann. The discussion sheds light on AGOA developments and possible synergies with the AfCFTA.
Beru Lilako: Can you please introduce yourself
Eckart Naumann: I am an economist, focusing on various disciplines concerning international trade and trade agreements, particularly rules of origin and related customs issues. I also have a particular interest in the Africa-US trade relationship. For the past twenty years I have been working closely with the Trade Law Centre (tralac), of which I continue to be an associate.
Beru Lilako: How are you involved in shaping the African narrative under the AGOA?
Eckart Naumann: Shortly after the African Growth and Opportunity Act (AGOA) legislation was enacted more than twenty years ago, and with the support of tralac, I created (and still am responsible for) the AGOA information web portal. It serves a considerable user base across Africa and the United States, and many thousands of stakeholders use it each month, be it for better understanding AGOA and its associated rules, accessing trade data, downloading exporter resources or using its online tools to determine the classification codes and AGOA preference status for their products, which count among its many resources. It’s been widely acknowledged as contributing to a much deeper understanding of AGOA and helping to shape the discourse around it, is used by businesses, African governments, policymakers, international development organisations, journalists, service providers, members of Congress and their staff, and many others. It has become a public good and also represents the institutional record of AGOA.
Beru Lilako: What were your key takeaways from the recently concluded AGOA Forum in Johannesburg?
Eckart Naumann: By all accounts, the AGOA Forum was broadly successful on different levels. What struck me was that there was across-the-board agreement that the AGOA legislation should be renewed promptly, well ahead of its expiry, and that the parties both on the African and US Administration side seemed to share very similar views on this. There was also acknowledgement that AGOA has served several countries and industries very well, but that this set of preferences is still underutilised by many other countries, and that the renewal process presents an important opportunity to look at ways to update the legislation in a way that potentially enhances its value to exporters, while also supporting the continental integration agenda. The AfCFTA negotiations are at an advanced stage with the majority of its key provisions already finalised; AGOA can contribute to Africa’s development both directly as well as indirectly, for example through expanding the eligibility criteria to include North African countries, and allowing goods and materials produced there to contribute to meeting the local content requirements of exports from AGOA countries.
Beru Lilako: What is your assessment of AGOA since its inception in May 2000?
Eckart Naumann: AGOA has had a significant positive impact on several African countries, and in some countries, industries such as the clothing manufacturing business have wholly relied on these preferences in their growth and expansion. Through AGOA, a combined total of around 97% of all possible traded goods enjoy duty-free access to the US market, by removing US import tariffs on around 60% of all tariff lines, with most of the remaining goods (37%) already duty-free under general trade terms.
But while AGOA provides an important competitive advantage to Africa’s exporters, and gives US importers a waiver on import duties on such eligible products, by and large AGOA trade has been concentrated in the apparel sector, some industrial goods and a handful of agricultural products. South Africa is the exception and the largest AGOA exporter, with preferences being utilised by the automotive sector, some mining products especially ferro-alloys, jewellery, wine, various agricultural products such as citrus and nuts, the boatbuilding industry and many others.
AGOA has not resulted in an increase in Sub-Saharan Africa’s share of the US import market, which continues to hover around the 1% mark. But in countries like Kenya, Lesotho, Ghana, Madagascar, DRC and Malawi, where the vast majority of its US-bound exports qualify for AGOA access, the program has enjoyed critical success with high utilisation rates. This isn’t always obvious from the trade data, but proves that AGOA’s benefits are more important than the data sometimes suggests.
Beru Lilako: Beyond simply providing trade preferences, market access and political dimension, would you say the U.S – Africa relationship has improved under AGOA?
Eckart Naumann: Prior to AGOA, Africa enjoyed no special relationship with the US. While the US GSP entailed preferential market access, this was a somewhat more anonymous program shared with countries around the world. AGOA reset this relationship and since being written into law, there have been significant improvements also in the investment relationship, while the US continues to provide substantial support in other areas. A recent US initiative – Prosper Africa – brings together many different support programs under one roof. The Africa Trade and Investment (ATI) buy-in activity provides on the ground support to African enterprises in making them more export-ready, and connecting them with the US market. AGOA has strengthened the US-Africa relationship in some way based on shared values and standards.
Beru Lilako: For some AGOA countries, the U.S is now the most important export market, do you think this will continue past 2025, if the Act is not extended?
Eckart Naumann: From a sectoral perspective, AGOA has helped make the US a key market for exports from some countries. For example, three quarters of US imports of shelled macadamia nuts come from just two countries – South Africa and Kenya – all under AGOA preference. Most of Lesotho’s clothing production is exported to the US – all under AGOA – and it is the second largest US exporter after Kenya amongst the beneficiary countries. South Africa is the second largest supplier of oranges to the US market – all enters the US market under AGOA.
Without AGOA, not all of these trade transactions would be lost. The potential impact requires a much more nuanced sector-by-sector analysis, and involves key questions such as, what is the preference margin (under AGOA), the general competitiveness of the product, seasonality of production (for example, oranges grown in the southern hemisphere sold in the northern hemisphere, when there is little local production at the time), etc.
A loss of AGOA would be detrimental to Africa and to the US, economically, politically and strategically. It’s a relatively small concession by the US yet with significant positive impact.
Beru Lilako: Does AGOA’s impact extend only to Africa’s economic development in beneficiary countries?
Eckart Naumann: AGOA’s impact is mainly in countries that are eligible for preferences. However, while US import data reflects only trade between itself and eligible African countries, this hides the fact that AGOA exports from one country often contain inputs produced in another country. The AGOA legislation allows full cumulation of production among beneficiary countries, which means that while a product being shipped under preference must fulfil the AGOA eligibility criteria. The general rule is that at least 35% of the material and processing must be of local sources, but the 35% may comprise both local materials, as well as materials originating in other African beneficiary countries. The AGOA renewal proposals currently on the table are looking at ways to extend AGOA’s reach beyond Sub-Saharan Africa, and is considering allowing the use of AfCFTA countries’ inputs to count as originating content under AGOA. This would give effect to AGOA supporting Africa’s economic integration.
Beru Lilako: Would you advocate for countries to negotiate as blocs e.g EAC, SADC, COMESA etc under AGOA (what would be the merits and demerits) keeping in mind the Customs Unions agreement in some blocs?
Eckart Naumann: It’s important to bear in mind that AGOA is not an agreement, and nothing was negotiated and signed between the US and African beneficiary countries. Such arrangements would transition countries from receiving non-reciprocal preferences to something that is more permanent, is reciprocal (i.e. African countries would open their markets to US exporters, through preferential access) and likely extend far beyond trade in goods (and cover investment, trade in services, digital trade, standards, and other disciplines). There’s no compelling reason for countries to “negotiate” anything under AGOA but rather, could provide a unified voice on proposals for an AGOA extension, and likewise, focus on providing a more open environment for regional trade, which in turn can help build African value chains that are better suited to produce competitive goods for the US market. Customs unions have to negotiate trade agreements with other parties as a bloc, and there may at some point in future be a compelling case for countries (or customs blocs) to engage with the US with a view to concluding a reciprocal trade agreement, with the necessary checks and balances in place given African countries’ more vulnerable economic position in such a scenario.
Beru Lilako: How can the AfCFTA collaborate with AGOA going forward?
Eckart Naumann: The United States Trade Representative (USTR) signed a Memorandum of Understanding with the AfCFTA Secretariat on the sidelines of the US-Africa Business Forum late in 2022. It is facilitating closer cooperation on trade and investment and includes an annual high-level engagement between the US and the AfCFTA Secretariat. It also includes technical working groups that will engage on fostering a closer working relationship between the parties. With respect to linking AGOA with the AfCFTA, one proposal on the table currently is that AGOA should allow goods and materials produced in non-AGOA countries on the African continent – those that have ratified the AfCFTA – to count as originating content when exported to the US from an AGOA beneficiary country. This would be subject to conditions, such as the country having to meet AGOA’s eligibility standards. However, this would potentially facilitate greater intra-regional trade, whereby – to use a simple example – a South African automotive manufacturer and exporter could source certain auto components from a producer in Morocco, and count these as qualifying local content for purposes of meeting AGOA’s rules of origin requirements. Such an arrangement supports the formation of intra-African value chains while also still offering the final product duty-free access to the US market.
Beru Lilako: Any parting words?
Eckart Naumann: The next few months are critical for a timely renewal of AGOA, but the chances of this happening are relatively good. Through AGOA, beneficiary countries face almost no tariff-based barriers in the US market. To better utilise this opportunity, though, the question isn’t about how can AGOA be improved but rather how can African countries better beneficiate their products, package and market their products internationally, navigate the US regulatory environment better, and how can African governments and the private sector contribute towards more efficient ports, customs procedures, logistics and services on the African continent, thereby helping make Africa’s products more competitive internationally.