African Growth Act has Little Influence – USITC Report

Luca Galuzzi, CC BY-SA 2.5

Posted Monday, April 17, 2023 3:18 pm

A report to congress on the impact of the government's primary economic diplomacy vehicle for Africa concludes it has been modest at best.

The United States International Trade Commission (USITC) has released a report analyzing the African Growth and Opportunity Act (AGOA) program's usage and impact in sub-Saharan Africa (SSA).

While the program's influence throughout SSA has been minimal overall, there is evidence that AGOA may have positively impacted poverty reduction and job growth in some countries.

The investigation focused on the program's influence on regional integration, workers, underserved communities, economic development, job growth, and poverty reduction. The report included case studies on four industries: apparel, cotton, cocoa, and certain chemicals.

According to the report, the AGOA program's impact on beneficiary countries can be substantial, depending on the sector, particularly in the apparel industry. The program's effect was found to be significant among underserved groups, such as women. Losing AGOA eligibility due to non-compliance with program requirements was found to negatively impact beneficiary economies and regional integration.

Key findings from the report include:

- AGOA benefits are concentrated in a subset of countries and sectors within SSA. From 2014-2021, over 75% of non-crude petroleum imports under AGOA came from South Africa, Kenya, Lesotho, Madagascar, and Ethiopia.
- The SSA apparel sector has greatly benefited from AGOA. Textile and apparel imports account for the largest share of non-petroleum imports under AGOA. Duty savings of up to 30% and the third-country fabric provision have enabled several countries to expand their manufacturing capacity, providing employment opportunities for women.
- Agricultural products such as cotton and cocoa offer low income and are not reliable pathways for poverty reduction. Child work and child labor persist in these sectors, especially on family farms.
- The chemical industry's potential impact in the SSA region is limited due to infrastructure weaknesses. South Africa is the only AGOA beneficiary or SSA country with a diversified chemical industry.

AGOA is a trade preference program for 49 countries in the sub-Saharan region, with 36 beneficiaries in 2022. To qualify, a country must be eligible for the U.S. Generalized System of Preferences (GSP) program.

Imports from AGOA beneficiaries represent less than 1% of total U.S. imports, with crude petroleum dominating trade under AGOA. The U.S., being the third-largest global cotton producer and top exporter, imports negligible amounts of cotton from AGOA beneficiaries. The region's apparel industry also uses a negligible amount of domestic cotton due to limited mills in the region.

U.S. imports under AGOA and GSP are concentrated in medium-low and low-technological intensity manufactured goods, according to the report. Sub-Saharan countries have diversified their export destinations, with the U.S. now ranking as the fourth export destination after China, India, and South Africa.

“Somebody from a developing country said to me, ‘what we get from China is an airport. What we get from the United States is a lecture,’” former Treasury Secretary Lawrence Summers told Bloomberg Television last week.