Sean Woolfrey, tralac Researcher, comments on the recent termination of Swaziland’s eligibility for trade preferences under the AGOA

Late last month, United States President Barack Obama issued a proclamation withdrawing Swaziland’s eligibility for the African Growth and Opportunity Act (AGOA), effective 1 January 2015. The termination of Swaziland’s AGOA eligibility, which follows the country’s failure to address concerns raised by the United States regarding Swaziland’s lack of progress towards certain democratic standards stipulated in AGOA’s eligibility conditions, is likely to put pressure on the already embattled Swaziland economy, and, in particular, on the country’s garment industry, which has been a significant beneficiary of the market access preferences available under AGOA. The revocation of Swaziland’s AGOA benefits also highlights the dangers of an overreliance on unilateral preferential market access arrangements, and the importance of leveraging such advantages to enhance domestic productivity.

AGOA is a unilateral and non-reciprocal trade programme established by the United States in 2000 to support the economic development of countries in sub-Saharan Africa (SSA) through increased trade an investment. The programme provides duty and quota free access to the United States market for over 6000 products from qualifying SSA countries, covering the vast majority of United States imports from SSA. In order to be eligible for these benefits, prospective beneficiaries must meet a number of conditions, including demonstrating progress on: the establishment of a market economy and the rule of law, the elimination of barriers to trade, the development of policies to reduce poverty and corruption and efforts to protect human rights and worker’s rights. AGOA eligible countries are reviewed annually to ensure that they are meeting or making progress towards these goals. While AGOA is set to expire in 2015, talks have already begun to extend the programme.

Around 90 percent of AGOA eligible imports are oil or energy related, but certain SSA countries have also been able to use AGOA preferences to promote exports of manufactured goods, such as automobiles and apparel, to the United States. Swaziland is one of the main exporters of apparel under AGOA. The country became eligible for AGOA preferences in 2001, and as a as a lesser-developed country (LDC), is able to benefit from favourable rules of origin for clothing and textiles. In particular, it is able to enjoy duty-free access for clothing made from fabric originating anywhere in the world, while other non-LDC AGOA beneficiaries only gain such access if their clothing exports are produced using inputs sourced from the United States or the domestic market.

AGOA has been credited with boosting Swaziland’s garment industry, which reportedly employs around 17000 workers. The industry has also become one of Swaziland’s biggest foreign exchange earners, behind only sugar and sugar-based concentrates in terms of contributions to export earnings. According to data from the United States Department of Commerce and from the International Trade Centre, the value of clothing and textile exports from Swaziland in 2012 was around US$ 82 million, accounting for approximately 7 percent of total exports from the country in that year. About 92 percent of these clothing and textile exports was accounted for by exports to the United States under AGOA.

The decision to revoke Swaziland’s AGOA eligibility follows long engagement by the United States Government with the Government of Swaziland over the latter’s implementation of the AGOA eligibility criteria pertaining to workers’ rights. Having conducted an extensive review, the United States Government concluded that Swaziland had not demonstrated sufficient progress on the protection of internationally recognized worker rights and had failed to make progress on protecting freedom of association and the right of workers to organise. The United States Government also noted that the Swaziland Government’s use of security forces and arbitrary arrests to stifle peaceful demonstrations, and the lack of legal recognition for labour federations in Swaziland were factors in its decision to withdraw AGOA benefits.

The withdrawal of these benefits could have a significant and detrimental impact on the Swaziland economy. The Swaziland garment industry is highly reliant on preferential access to the United States market, and in the absence of preferential access is likely to contract. This would be particularly damaging given the industry’s contribution to export earnings and to employment in a country suffering from unemployment of nearly 40 percent. The experience of Madagascar is instructive in this regard. Madagascar had its AGOA beneficiary status revoked after a coup in 2009, at the time when the country was, like Swaziland, a major exporter of clothing and textiles under AGOA preferences. According to a paper by Takahiro Fukunishi of the Japan External Trade Organization (JETRO), the loss of AGOA eligibility saw Madagascan exports to the United States fall by around 70 percent, prompting job losses of almost 30 percent.

Although the United States Government has justified its decision to revoke Swaziland’s AGOA eligibility by pointing to the failure of the Swaziland Government to address its concerns and by noting that the Swaziland Government still has time to address these concerns before the revocation kicks in, the United States is nevertheless likely to face some criticism over the decision. This is because those who will suffer the most from the decision are likely to be workers in the Swaziland garment industry, who face the prospect of losing their jobs, yet these are the very people whose interests are meant to be advanced by AGOA eligibility conditions relating to worker rights.

Regardless of the merits of the decision to withdraw Swaziland’s AGOA benefits, two important and related lessons should be drawn from this episode. The first is that relying on unilateral trade preferences as the most central tool of industrial policy is an inherently risky venture given the fact that decisions on whether or not such preferences are renewed or revoked can generally be made based on factors partly or wholly out of the control of the beneficiary country. The fact that Côte d’Ivoire, the Democratic Republic of the Congo, Guinea, Guinea-Bissau, Madagascar, Mali, Mauritania and Niger have all had their AGOA benefits revoked (and in some cases restored) in the past, and for a variety of reasons, shows that such preferences cannot be taken for granted by investors, and as such are not a stable basis for promoting domestic industries in SSA.

Second, such preference programmes should always be seen as only temporary sources of benefit and should be leveraged to develop internal sources of increased productivity which are likely to be viewed as better reasons for investment in domestic industries by local and foreign investors. While the Swaziland garment industry may suffer a dramatic decline in the absence of AGOA benefits, falling export figures suggest that the industry has been struggling for some time already, with the failure to fulfil orders on time and to compete with producers in China and India given as two reasons for the industry’s woes. This suggests that Swaziland has not done enough to build on the advantages provided by AGOA eligibility by improving domestic productivity in the garment industry. In the absence of such initiatives, the long term future of the Swaziland garment industry will remain insecure, with or without AGOA benefits.

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Sources:

Agoa.info, ‘About AGOA’. Available: http://agoa.info/about-agoa.html

Bridges Africa, ‘Madagascar’s AGOA benefits reinstated, Swaziland’s loses status’, 2 July 2014. Available: http://www.ictsd.org/bridges-news/bridges-africa/news/madagascar%E2%80%99s-agoa-benefits-reinstated-swaziland%E2%80%99s-loses-status

Office of the United States Trade Representative, ‘President Obama removes Swaziland, reinstates Madagascar for AGOA Benefits’. Available: http://www.ustr.gov/about-us/press-office/press-releases/2014/June/President-Obama-removes-Swaziland-reinstates-Madagascar-for-AGOA-Benefits

Zenia Lewis and Amadou Sy, ‘Swaziland’s AGOA Status Revoked: Madagascar All Over Again?’ 23 May 2014. Available: http://www.brookings.edu/blogs/africa-in-focus/posts/2014/05/23-agoa-swaziland-madagascar-sy