Beyond AGOA: looking to the future of U.S.-Africa trade and investment
There have been significant changes in Africa and the global trade policy landscape in the nearly two decades since the African Growth and Opportunity Act (AGOA) – the cornerstone of our trade relationship with sub-Saharan Africa – came into effect.
Today, Africa, as a whole, is more prosperous, more developed, and better-connected to the global economy, and its growth prospects have improved. Moreover, African countries are generally moving towards greater market opening and regional economic integration, and more recently, integration with outside partners, including the European Union (EU). The trade landscape in the United States has been changing as well since 2000, with many more reciprocal free trade agreements in place with partners around the world, including with developing countries, and various multilateral and plurilateral trade initiatives underway. Given these changes, it is important to assess the trade policy framework that we have in place with sub-Saharan Africa and to determine whether new policies are needed for this new era.
“The question now is not whether AGOA is an important tool – it has been and, for many countries, will continue to be vital for the near future. The question is whether we also need to develop new trade policies for the new Africa, given the broad spectrum of countries that now make it up and the changing global trading system of which it is part.” – U.S. Trade Representative Michael Froman, Beyond AGOA Hearing, January 28, 2016
The case for deepening U.S.-Africa trade and investment ties
The case for developing new policies to strengthen the trade and investment relationship between the United States and Africa has never been stronger. Africa can gain significantly from partnering with the United States. Moreover, there are significant risks to Africa of not pursuing a diversified export strategy, which are already playing out in the slowdown Africa has experienced over the last year attributable to such factors as weak demand in China. At the same time, the United States also has much to gain from a rising Africa. Africa’s consumer market holds great potential for U.S. exporters across a wide range of industries, and investment in many African countries is now much more attractive. This potential could continue to grow as demographic trends, such as a dramatic increase in Africa’s labor force, manifest over the next 15 years.
Global trends underscore the need to rethink U.S. trade policies towards sub-Saharan Africa
A number of trends are particularly relevant as we think about our trade policy toward Africa. First, as sub-Saharan African countries establish closer trade ties with other countries both within and outside the continent, American businesses will be increasingly interested in strengthening their own ties to sub-Saharan African countries. Second, there is likely to be growing interest in the United States in reviewing unilateral trade preference approaches, particularly as an increasing number of beneficiaries of such programs enter into reciprocal trading relationships with others, including with the EU and China. This is also particularly likely as other important preference provider countries, such as the EU and Canada, move away from preferences with all but the poorest countries and towards free trade arrangements. Finally, while there has been a general global, African, and American trend towards more stable, reciprocal trading arrangements, there is also great variation in the kinds of arrangements countries have chosen, particularly as to scope, quality, and degree of implementation and enforcement. As the United States assesses policy prospects, it will be important to determine which approaches would be most effective in deepening trade and investment ties.
Learning from history – Lessons from Vietnam, South Africa, Peru, and Liberia
This report considers a number of case studies to shed light on the question of which policies and approaches will be most effective at encouraging deeper integration.
Vietnam has had significant success in transforming an agricultural economy damaged by post-war command socialism into one of the world’s major agricultural and light manufacturing export centers. The United States has been a key partner in this transformation. The Vietnam experience suggests three basic points for policymakers to consider: (1) ambitious trade liberalization programs are attainable for lower-income countries, (2) strong economic and strategic incentives foster political will for trade agreements, and (3) an incremental approach may offer a way forward.
The EU-South Africa and later EU-Southern African Development Community (SADC) negotiations highlight the complexities of negotiating reciprocal trading arrangements with sub-Saharan African countries with varying interests and levels of economic development. This case study suggests a number of conclusions: (1) regional agreements and commitments in Africa can be a significant complicating factor in considering new trade arrangements with sub-Saharan African partners, (2) regional leaders can play an important role, (3) taking on all of Africa at once with one single approach is unlikely to be effective, and (4) there have to be strong economic motivations on both sides in order for an initiative to work.
Peru’s experience with economic liberalization, its motivations for pursuing reforms, and the factors that allowed it to be successful offer a number of lessons. Peru’s path demonstrates that preference programs – while important – have their limits, incremental approaches towards deeper trade arrangements can be very effective, and focused leadership commitment to reform across changes in administration can be critical to economic integration into the global economy.
In connection with its WTO accession, Liberia has committed to an extensive and, in some ways, demanding set of trade policies that reflect a significant level of ambition for an extremely low-income country recovering from conflict. Liberia’s commitments pro vide a sense of the minimum standards that might be sought in future trade arrangements with sub-Saharan African countries, as well as insight as to the greater level of reciprocal engagement that could be expected of the continent’s larger and more advanced economies.
Policy building blocks
The framework we put in place to deepen U.S.-African ties is unlikely to be effective if it does not include strategies to improve the conditions for trade. Accordingly, in developing such a framework, U.S. and sub-Saharan African policymakers should consider incorporating commitments in a number of policy areas such as trade facilitation, intellectual property, labor, sanitary and phytosanitary measures, market access, services, investment, environment, technical barriers to trade, and transparency and anti-corruption. These are “building blocks” that, together, can help to expand trade and attract investment. The policy blocks can be part of different trade instruments – from free trade agreements, to cooperative arrangements like Trade Africa, to preference programs, to possible hybrids and alternative approaches in between – and commitments within each building block can be scaled up as countries develop and increase their capacities. This report explores scalable standards within each potential building block area that could serve as the basis for reform.
Potential structural and strategic options for moving beyond AGOA
Finally, policymakers will need to consider policy instruments that are most appropriate for U.S.-Africa trade and investment. AGOA has supplied the policy architecture for nearly two decades. But, while AGOA has had important successes, our experience suggests that it is unlikely to be sufficient for achieving transformative changes in trade and investment. To deepen and expand the U.S.-African trade and investment relationship over the long term, we will need more effective mechanisms to address both tariff and non-tariff constraints to trade, at the border and beyond.
The United States, the European Union, sub-Saharan trading partners, and others have used a number of different policy instruments to seek to deepen trade and investment ties, from: (1) comprehensive U.S.-style trade agreements, which may be an option for sub-Saharan African partner countries that are willing and able to undertake the generally higher standards of such an approach; to (2) limited, asymmetrical EU-type agreements, which have no precedent in the United States and may offer limited benefits on both sides; to (3) collaborative arrangements like Trade Africa that may be useful “stepping stones” for countries with limited capacity to undertake comprehensive trade agreements in the near term; to (4) preference programs with policy-based eligibility criteria. U.S. and African policymakers should consider the advantages and disadvantages of the full spectrum of approaches in determining a way forward.
Further, as U.S. and African policymakers assess a future trade policy architecture, they may wish to consider certain guiding principles and some of the key lessons from U.S. and African experiences building trade relationships in recent years. Specifically, a new U.S.-Africa trade and investment policy architecture should:
Support African regional economic integration. The goal of creating viable regional markets in sub-Saharan Africa is both an African and a U.S. priority. While initiating expanded trade discussions with one regional leader may be the best first step, as the EU did with South Africa, the goal should be to expand to a more regional footing over time.
Move toward greater reciprocity. As more reciprocal arrangements go into effect within sub-Saharan Africa and between African countries and other developed country partners, the pressure to consider more stable, permanent, and mutually beneficial alternatives to AGOA will grow in the United States as well.
Support African value-added production and promote diversification of exports. Africa’s economic future depends, in important part, on its ability to add value on the continent to its vast natural resources and agricultural commodities, as well as on its ability to diversify its exports.
Include African reforms across a broad range of policy areas. As the Vietnam and Liberia case studies confirm, developing countries – even the least developed among them – are capable of taking on significant policy reform obligations and drawing powerful benefit from them in growth, economic diversification, and the alleviation of poverty.
Promote African integration into the global trading system. There is a strong correlation between developing countries that have reformed, liberalized, and integrated their economies into the global trading system and those that have experienced the most significant improvements in development outcomes. This includes developing country U.S. FTA partners.
Account for different levels of readiness and capacity across the region. Sub-Saharan Africa is comprised of a diverse group of countries at differing levels of development, wealth, and readiness for expanded trade engagement. The next generation trade framework with sub-Saharan Africa will need to recognize this and avoid a “lowest common denominator” approach, while also helping to bring standards up in all countries over time.
This report has sought to make the case for reinvigorating the U.S.-Africa trade and investment relationship and for reimagining the policy architecture to propel this relationship into the future. This is the start of an important conversation, which policymakers on both continents need to engage in with the same spirit of shared commitment, pragmatism, and urgency that spurred on the creation of AGOA nearly two decades ago.