AGOA Held Hostage

The African Growth and Opportunity Act will be renewed before it expires in September. That’s a solid bet. When, exactly? For how long? And will South Africa treated the same as other African beneficiaries? Those are questions awaiting an answer.

Holding things up is strong opposition from most Democrats, and some Tea Party Republicans, to giving President Obama “trade promotion authority” (TPA). This he needs to conclude his Trans-Pacific Partnership (TPP), a trade agreement with 11 “like-minded” nations — China is not on the list — that rim the Pacific on both sides.

Republicans are using AGOA as a hostage to obtain the Democratic votes they need to give Mr Obama TPA, on which he and they are in rare agreement. Without TPA, there will be no TPP. Japan, New Zealand and other partners have said they will not make final offers without assurance that whatever Mr Obama gives them in return will not be tampered with by Congress after the deal is done.

The Democrats may be in the minority in both the House of Representatives and the Senate, but because of dissension within their own ranks, Republicans need help from the Dems to give Mr Obama what he wants. They have yet to get it.

The ALF-CIO, America’s COSATU, blames stagnant incomes and rising inequality on too much free trade. Pulling out as many stops as it has left — not that many these days — it has promised to withhold campaign money from any Democrat who votes for TPA. For some the threat is serious enough: there is no upside. Come 2016, business is going to fund their Republican opponents whatever they do.

Senator Elizabeth Warren, the new Pasionaria of the Democratic left, is sounding a lot like Trade and Industry’s Rob Davies in her opposition to the proposed TPP investor-state dispute mechanism that takes matters out of countries’ own jurisdictions.

House minority leader Nancy Pelosi says she won’t support TPA until she’s seen the final agreement. Senator Ron Wyden, ranking minority member of the gatekeeping Senate Finance Committee, wants a TPA clause that will allow Congress to make changes to any agreement before approving it.

It’s hard to judge at this stage what will happen to the AGOA hostage. Will it be released if the TPA standoff hardens into deadlock? Opinion is divided, but there is plenty of precedent for things going down to the wire in September, by which time AGOA-dependent clothing exporters like Lesotho stand to have lost orders worth hundred of millions of dollars.

The renewal legislation is still being drafted. Between the administration, most Democrats and the beneficiaries, the consensus is for a 15-year extension. Republicans want less, perhaps five years, for the sake of fiscal hygeine. There is also a view that long-term renewal of non-reciprocal access to the US market lowers incentives for African countries to open their own markets in return.

That could be taken care of by putting beneficiaries on notice, with deadlines, that Washington requires real progress towards reciprocity from countries that wish to remain AGOA-eligible. Care would have to be taken that this did not interfere, as the EU’s Economic Partnership Agreements arguably have, with regional integration.

As the cornerstone of Mr Obama’s Trade Africa initiative, foundations are being laid for a free trade agreement (FTA) with the East African Community (Burundi, Kenya, Rwanda, Tanzania and Uganda). This could set the standard required of everyone else.

American policymakers have never entirely rid their nostrils of the smell of skunk that lingers from the failure of the negotiations on a US-South Africa FTA encouraged by the original AGOA. Complaints from US multinationals that they now face higher tariffs in SA than their EU competitors have not helped clear the air.

Then, of course, there is the chicken matter, with its noisy champions in the Senate, along with ancillary niggles over beef and pork and other phytosanitary anxieties. And let’s not overlook the Obamacrats’ irritation over South Africa’s refusal to give up its stockpile of weapons’ grade uranium, which potentially puts it athwart AGOA’s national security clause.

Nor to be overlooked is the size and sophistication of the South Africa economy, or its much vaunted membership of BRICS or the ruling clique’s concomitant contempt for America or the fact the no one saw AGOA being used by locally subsidised German carmakers to improve their US margins. All told there’s a case to be made by anyone who’d want to make it for SA to be treated differently in the new Act.

The good news is that US companies are lobbying hard for South Africa’s continued inclusion. The rest of Africa is largely supportive as well. Botswana sells leather to those German carmakers.

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