Fatter margins, thinner AGOA

US clothing brands and retailers are lobbying Congress to rip the heart out of the African Growth and Opportunity Act next year.  African beneficiaries need to push back more aggressively than they have heretofore.

Of course, the lobbyists don’t describe what they are trying to achieve quite so bluntly. All they are proposing, they say, is “modernisation” of the US Generalised System of Preferences (GSP). They concede that Africa might get hurt in the process which is why they have thoughtfully included safeguards to mitigate the risk of that happening. Their solicitousness begs skepticism.

GSP has lately been drawn to SA’s attention  by the International Intellectual Property Alliance.   The Washington-based trade association has prevailed on President Trump to threaten SA’s AGOA privileges as a means of extracting concessions on copyright policy. 

A number of advanced economies have GSP programmes that offer the less developed duty-free market access on a non-reciprocal basis to help them become more developed. The US variant sets a range of eligibility conditions such as the one the IIPA is using to squeeze SA.

AGOA is simply US GSP on steroids, created as an extra boost for qualified GSP recipients in sub-Saharan Africa. It offers duty-free treatment for a much larger range of products, in particular, and most valuably,  clothing and textiles excluded by statute from ordinary GSP. The idea is to support Africa’s industrialisation by encouraging apparel companies to invest in and source from the continent.

Congress must renew the GSP programme by the end of 2020. As part of the renewal US importers want to extend AGOA’s textile and clothing benefits to any GSP country that wants them. That would include countries like Pakistan, Indonesia and Cambodia that already have a significant share of the American market.

Those three countries alone accounted for $8.5 billion worth of US apparel imports last year without preferential treatment. AGOA countries, with preferences, managed $1.2 billion, led by Kenya ($391 million) and Lesotho ($320 million). All told, non-African GSP countries supplied 21 percent of US imports in 2018, AGOA countries 1.4 per cent.

AGOA apparel benefits for everyone mean AGOA apparel benefits for noone and Africa would be back to square one. The comparative advantage that has been driving increased investment in and sourcing from East Africa, in particular, evaporates.  Sewing machines and the jobs that go with them are easily moved.

The proponents of GSP “modernisation” say it will help them diversify their supply chains away from China, by far the largest US import source at $28 billion last year, but now facing punitive duties as Trump wages his trade war.

That’s a lot of production looking for a new home.  But why do countries that are already major exporters at normal rates of duty need extra incentives to attract it? Why not let Africa reap the benefit as the act intended? And not just Africa, but US neighbours and free trade agreement partners in Central America and the Caribbean whose textiles and clothing also receive preferential access in part to stem illegal migration.

The lobbyists say GSP countries won’t receive the new preferences automatically. They’ll have to petition and satisfy the programme’s conditions, including intellectual property protection and labour standards. One can be fairly certain their applications will be rubber stamped as soon as the lobbyists have collected their fees.

As for those safeguards mentioned earlier, it is proposed that product lines only be made eligible for expanded duty free treatment if AGOA countries are the source of 10 percent or more of US imports. In other words, importers will have every reason to structure purchases so as to cap imports from Africa. Potential investors will know that.

As much as they try to pretty it up, the interests pushing for textiles and apparel to be included in GSP have only one object in mind and that is fatter margins.

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