LESOTHO and other African Growth and Opportunity Act (AGOA) beneficiaries risk losing their competitive advantage if a trade agreement between the United States and Pacific Rim countries is consummated.
AGOA gives duty-free and quota-free access to the United States market to eligible Sub-Saharan African countries including Lesotho. The legislation, which was approved by the US Congress in May 2000 is meant to incentivise African countries to open their economies and build free markets.
It was recently renewed for another 10 years as the AGOA Extension & Enhancement Act (AEEA) on 25 June with President Barack Obama signing it into law on June 29. The facility was amended to allow the US to withdraw, suspend or limit benefits if designated AGOA countries do not comply with its eligibility criteria.
Lesotho is among the 37 nations benefitting from AGOA through its textile industry which employs an estimated 35 000 workers.
However, the US is set to ink another 12-country trade agreement called the Trans Pacific Partnership (TPP) with negotiations currently ongoing in Hawaii. Japan, Brunei, Malaysia, Vietnam, Singapore and Australia are among the nations involved in the TPP negotiations. The others are New Zealand, Canada, Mexico, Chile, and Peru.
If completed, the Trans Pacific Partnership would reduce tariffs and trade rules among the countries involved. It would also allow very competitive economies such as Vietnam to do more business with the US under the same privileges AGOA beneficiaries currently receive.
While the TPP mechanism is likely to be different, many Vietnamese garment exports to the United States would receive similar benefits like those in AGOA’s third country fabric provision. Analysts warn that countries like Vietnam would ultimately displace some African exports given that they have a much more competitive apparel industry than any of the African countries.
Vietnam’s apparel exports to the USA increased by 244 percent during the 10-year period between 2005 and 2014 with a turnover of 20 billion dollars a year. The country has around 4 000 garment factories employing about 2.5 million workers. This is in contrast to Africa’s apparel exports to the US which total less than $1 billion.
According to international trade expert Stephen Lande, sub-Saharan AGOA beneficiaries like Lesotho will need to implement “aggressive” utilisation strategies.
“As reflected in AEEA of 2015, the United States is keen to negotiate free trade agreements with African countries, or groups of countries that are ready for the process,” Mr Lande said.
“With AEEA in place, the United States and Africa should work within the WTO (World Trade Organisation) in developing a more effective origin rule regime for preferential agreements which better enables Africa to attract economic activities beyond China and other Asian locations due to the shifting comparative advantage.”
He added: “Of utmost importance is that given the level of African development, more advantageous rules of origin would be such as those provided under regular free trade agreements: This would be accomplished by a special provision that recognizes that least developed countries have difficulty in adding value to products.”