The AGOA : assessing the opportunities'

Toich, Peter (2002)

Study project (MBA)--University of Stellenbosch, 2002.

Thesis

ENGLISH ABSTRACT: The African Growth and Opportunity Act was signed into law in May 2000 to allow qualifying SSA countries to export eligible products duty free to the US. The act is a non-reciprocal "agreement" designed solely by the US, with the objective of promoting increased trade and investment between the US and SSA. The US insist that trade will lead to development on the African continent if SSA countries liberalise their markets and become integrated into the global economy. The theory behind trade liberalisation is that it promotes allocative efficiency by exploiting comparative advantage. I however argue that trade liberalisation can realise its potential only if the US start dismantling the protectionist barriers that have been described in this report. The AGOA does reduce tariff barriers for a number of African products. However new non-tariff barriers have been erected which are less transparent, but just as effective as tariff barriers. The report documents the significance of existing trade barriers that seek to protect the US industries from harm, and evaluates the problems that are created in spite of the intentions of the AGOA. A number of specific issues that will be significant for the future outcomes of the Act were also dealt with. These included: the anti-dumping steel duties, US Farm Bill, NEPAD and the textiles and apparel debate. The problems found with the AGOA included: • Protectionism that is sector specific, involving the cases of the antidumping steel duties and the Farm Bill. • The unfavourable terms of trade associated with the Act, caused by the non-negotiable, non-reciprocal and temporary nature of the AGOA. • The eligibility conditions of the Act, which serve to bind African countries to the rules of the World Trade Organisation and exclude some countries on the African continent from obtaining benefits. • Internal reform problems within the SSA countries involving government departments, infrastructure and the macroeconomic environment. The evidence over the short time since it was enacted reveals that the SSA countries will not gain much from the extended trade benefits of the AGOA, unless their capacity to produce and supply the US market is enhanced. Furthermore, most of the AGOA benefits have gone to oil exporting countries and SA, who is the only non-oil country benefiting from a number of sectors at present. The Act has failed to increase trade flows from eligible countries to the US, as most of the SSA countries are not at the economic development to take advantage of the preferences that have been provided under the AGOA. Furthermore the liberalisation of many of the African economies has not been reciprocated by the US. The actions of many interest groups in the US indicate that they are "yes" to free trade but "not" at the expense of jobs and profits. This is evident, as the AGOA provides no exceptions to any of the US retaliatory measures and the fact that interest groups in the US influence many of the product decisions when domestic market share is threatened. One of the positive outcomes of the AGOA is the joint US Africa Trade and Economic Co-operation Forum that will provide future avenues for beneficial US-Africa trade relations.

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