CRITICAL EVALUATION OF AGOA AND STRATEGIES IN MARKETING PRODUCTS

BACKGROUND
What is AGOA?
The United States US Government through the Trade and Development Act of 2000
developed the African Growth and Opportunity Act (AGOA. The act was signed into
law by the US congress on May 18, 2000. The main objective of AGOA is to offer
trade incentives for African countries in order to open their economies and create a
free market environment through trade in finished and unfinished products.
AGOA has undergone several changes since its inception. The first amendment was
undertaken in 2002 and is referred to as AGOA II. The Second amendment followed
two years later in 2004 and is known as AGOA III. The third amendment was made in
2006 and is known as AGOAIV.

AGOA helps in creating a suitable environment where African countries that are
making tangible reforms in business operations, elimination of corruption, have
embraced political reforms by adopting democratic rule are provided with access to
the US market without signing a Free Trade Agreement. As a result it ends up
supporting U.S. business while the African business doesnt gain much return.

Since its implementation, AGOA has encouraged substantial new investments, trade,
and job creation in Africa through the development of export processing zones
where goods are manufactured specifically for the US Market.

BENEFITS TO MEMBER COUNTRIES

Provision of duty free access to the US markets.
Provision of competitive edge over other countries that lack trade agreements
with the US as tariffs charged for items traded are costly and usually subjected
to predetermined US trade quota systems.
Promotes product diversification through provision of duty free and quota
free benefits on all products under AGOA.
Encourages expanded regional integration and production sharing among
beneficiaries leading to job creation, and eventual economic growth.
Enhanced relationships/partnerships with US based organizations.
Provides a sense of security in that markets for products are assured a ready
market up to September 2015
Creation of export processing zones leading to employment
Promotion of infrastructure programs through the creation of export
processing zones in areas that are largely undeveloped.

IMPLEMENTATION
An AGOA Implementation Subcommittee of the Trade Policy Staff Committee (TPSC)
was established to implement AGOA. Among the most important implementation
issues are the following:

Development of criteria that makes a country eligible for AGOA.

Development of criteria for the products eligible under the program.

Development and implementation of US standards set by the US Trade.

Department and USDA in the development of products for the US market.

Development of the U.S.-Sub-Saharan Africa Trade and Economic Forum.

Development and determination of criteria for providing relevant requisite

technical assistance to help countries qualify for benefits.

COUNTRY ELIGIBILITY

The U.S. Government intends that the largest possible numbers of Sub-Saharan
African countries are able to take advantage of AGOA. President Clinton issued a
proclamation on October 2, 2000 designating 47 countries in Sub-Saharan Africa as
eligible for the trade benefits of AGOA. The proclamation was the result of a public
comment period and extensive consultations by the US and African countries that
were using the best practice policies to attract trade and investment.
The Act authorizes the President to designate countries as eligible to receive the
benefits of AGOA if they are determined to have established, or are making continual
progress toward establishing the following: market-based economies; the rule of
law and political pluralism; elimination of barriers to U.S. trade and investment;
protection of intellectual property; efforts to combat corruption; policies to reduce
poverty, increasing availability of health care and educational opportunities;
protection of human rights and worker rights; and elimination of certain child labor
practices.
These criteria have been embraced overwhelmingly by most African countries.
However it is critical to note that a country can lose its eligibility status due to
absence of economic reform, rule of law, human rights violations, shift in foreign
policy and emerging political circumstances.

Eligibility is reviewed yearly based on progress of individual countries by the US

Government.
PHASES OF AGOA
AGOA I
The African Growth and Opportunity Act was signed into law on May 18, 2000. AGOA
I provided preferential treatment (duty-free, quota-free) for textile and apparel
articles that are imported directly into the United States from beneficiary SSA
countries. In particular, it allowed imports of apparel made of U.S. and regional
fabric from beneficiary SSA countries and apparel made of third-country fabric from
LDB SSA countries to enter the United States duty and quota-free, subject to a cap.
The third-country provision expired September 30, 2004. The other provisions expire
September 30, 2008.
AGOA II
The Trade Act of 2002 modified certain provisions of AGOA. With respect to textiles
and apparel, AGOA II clarified that fabric includes knit-to-shape components. It
expanded the third-country fabric provision to include fabric regardless of the origin
of its yarn. It designated Botswana and Namibia as LDCs. Hybrid cutting (cutting that
takes place in the United States and in AGOA countries) was allowed. The applicable
percentages for the caps were doubled.
AGOA III
The AGOA Acceleration Act of 2004 extended preferential access for imports from
beneficiary SSA countries until September 30, 2015, and extended the third-country
fabric provision until September 30, 2007. The cap remained at the FY 2004 level
during FYs 2005 and 2006; it was reduced by 50 percent in FY 2006. The Act
contained a number of clarifications that essentially provide for expanded access to

the U.S. market. The Act also granted LDB status to Mauritius, but limited Mauritius
to a cap of 5 percent of the Special Rule cap. Mauritius lost its LDB status on
September 30, 2005.
AGOA IV
The Africa Investment Incentive Act of 2006 amends parts of the AGOA. It extends
textile and apparel provisions until 2015 and extends the third-country provision for
five years (through September 30, 2012). It contains amendments to section 112
regarding commercial availability. It also expands duty-free treatment for textiles or
textile articles originating entirely in one or more LDB SSA countries.
Source: www.agoa.gov

MAIN PRODUCTS MARKETED UNDER AGOA

1. Apparel
This includes trousers, shorts, shirts, sweatshirts and sweaters. These are
largely cotton or derived from man made fibres.
Materials are classified under the US Harmonized tariff schedule (HTSUS)
number that is assigned to specific products. Each product has its own US
tariff rate.

Successful marketing can be attributed to the following factors;

Economic integration in that US markets are opened
Manufacturers provide competitive wages/ remuneration to employees

 Individual government policies are implemented to enhance market

expansion
Creation of export processing zones leading to employment
Promotion of infrastructure development programs

Challenges faced include;

Product predetermination by the US Government in that the materials
used must have been grown, produced, or manufactured by a
beneficiary country and must be directly exported to the US.
The products must meet the specific rules of origin requirements and
must be accompanied by import documents that specifically claim
AGOA benefits on the relevant shipping documents.
Beneficiary countries must adopt a US government approved visa
system and domestic laws and enforcement measures to prevent illegal
diversion of the export items as well as inclusion of counterfeit products
and documentation.
Expiration on quotas imposed on apparels manufactured in China will
increase competition as they are more technologically advanced.

2. Agricultural/ Horticultural Products

This includes but not limited to; wood, cocoa, tobacco, sugar, leather
products, spices ( vanilla, ginger, pepper), vegetables, fruit, wine, nuts
processed foods ( canned fruits, jams, spreads , honey, hot sauces, fruit
juices), cut flowers such as roses, carnations, chrysanthemums, lilies and
tulips.

Like Apparel the Agricultural products are also assigned their own tariff
schedule. The products must meet the requirements highlighted under the US
Food and Drug Administration (FDA) standards that specify how products
should be handled from the farm to the market.

Successful marketing can be attributed to the following factors;

Increased demand for organically grown agricultural products.
Increased efforts to meet US FDA sanitary and phytosanitary
requirements
Increased investments in infrastructure and agricultural research
development
Increased government policies to promote competitive commercial
farming enterprise
Increased emphasis on value addition to products
Improved distribution/ transport networks through opening of markets
for agricultural produce
Provision of technical assistance through USAID agriculture Division
Coordinated marketing, harvesting and packaging
Government

policies

implemented

to

promote

industry

and

infrastructure improvements
Challenges faced include but are not limited to;
High transport/ shipping costs
Unavailability of direct flights to the US as leading to spoilage of
products

 Inability to sell products directly to the US market instead one has to

rely on traditional distribution networks in Europe.
Counter productive land tenure practices
Over reliance on rain based agriculture
Unreliable utility supply like fuel, electricity, water
Lack of technical capacity to meet international product requirements.
Inability to participate in US trade shows due to bureaucracy, travel
restrictions and lack of adequate finances.

3. Animal Products
This mainly deals with export of semi processed tuna.
Like the apparel and agricultural products the animal products also have their
own tariff schedule. The fish must be properly handled as per FDA rules.

Successful marketing can be attributed to the following factors;

Proper infrastructure development/investment in local processing
facilities
Capacity building of fish handlers
Through AGOA there are sourcing agreements with major US
companies.
Challenges faced include;
Inadequate infrastructure
Use of outdated technology
Declining global stocks and inability to manage supply

 Lack of proper storage equipment facilities

Non additional investment in local equipment
Competition from other developed nations

CHALLENGES FACED BY BENEFICIARY COUNTRIES IN MARKETING PRODUCTS

a. Internal barriers to trade prevent some countries from satisfying AGOA
eligibility requirements. Many of the Sub Saharan countries are not
politically stable and constantly facing civil war and anarchy.
b. Lack of clarity on rules governing international trade and marketing as
well as inadequate capacity by African countries to successfully operate
within the structural relationships created by AGOA and to extract gains
from them. The Policy decisions are usually skewered towards favoring
US business concerns against the African countrys own policy criteria.

c. Due to the specialization nature of AGOA, countries potential to

properly market their products is limited, as a result African businesses
experience limited growth as well as trade opportunities.
d. In the apparel manufacturing sector, the source of material has been
largely impeded by a provision that requires African manufacturers to
source their material from African or American Manufacturers. Only
those countries regarded as least developed are allowed to source for
materials from the world market. Export quotas placed on Asian and
South American countries under the Multi fibre agreement are soon to
be eliminated exposing African manufacturing industry to stiff

competition from the more developed South American and Asian

markets.
e. Foreign investors are reluctant to make major long term investments in
African countries because AGOA is not a free trade agreement and can
be withdrawn at the pleasure of the sitting US President.
f. AGOA provides multinational corporations with unlimited access to
African markets whereas small African companies are incapable of
taking advantage of the opportunities offered by AGOA.
g. AGOA does not make provisions for transfer of appropriate technology
by the US to Africa, a vital element to foster trade and development.
h. According to a Study conducted by Ikaara M. and Ndirangu L. of KIPRA
in 2003 they made the observation that AGOA in its very nature has a
provision where national obligations and security could end up
compromised in that, foreign interests would have the right to be
notified considerably in advance of the introduction of any new
measures affecting services in such areas as water, health and
education. A consultation process would have to be set up for them and
they could demand to have their inputs given due consideration before
the measures are implemented. This is tantamount to giving foreign
interests rights in setting domestic policy.
i. Government subsidies are important not only in infrastructural
development, but also increasing market favorability for local products.
Through AGOA the African countries cannot subsidize their products in
the long run this will ensure that foreign traders thrive without local
competition. If a government subsidizes an indigenous trader, this
enables the trader to market goods at a lower rate, thus providing stiff

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competition and ultimately forcing reasonable rates from the foreign

traders.
j. Section 104 (1) (C) of AGOA provides for the elimination of barriers to
US investment. The provision is ambiguous, therefore giving room for
multiple interpretations to suit US interests. (Source www.agoa.gov)
k. As a key requirement AGOA also contains a section that states that for
any country to become eligible they should have in place a system to
combat corruption yet at the same time the African country should not
undermine US national security or foreign policy interests. This kind of
provision hinders African states' sovereignty and freedom of association
and trade. Stated simply means that only the US's friends and foes
should be the same for any country wanting to benefit from this trade
act. This in essence means an upgrading of the term of neocolonization.
l. The conditions are only designed to benefit US private corporations
through free-trade principles, market liberalization and privatization.
m. There is no guaranteed sustainability of market opportunities due to
the very nature of AGOA as it seeks to increase US exports to subSaharan Africa, while at the same time ensuring that African markets
are minimally open to US business. AGOA also grants extensive rights
and benefits to transnational corporations operating in Africa, but does
nothing to benefit the workers, business and export opportunities for
these countries.
n. The infrastructure in Sub Saharan Africa especially the trade transit
corridors efficiency is limited due to high cost of transport, poor road
networks, poor transit facilitation, limited use of technology. Restrictive

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trade policies in terms of red tape and contradictory trade policies,

sanitary and phytosanitary standards and qualities vary from one
country to another.
o. Limited access to finances causes a higher percentage of business
entities to be unable to access adequate funding for operations. In line
with this many financial institutions in Africa have not developed
products/ incentives to better serve the value chain players to enable
trade.
p. Over dependence on single commodities /lack of value addition to
products.
q. Exclusion of Africas major export products from beneficial US market
access. Product coverage is low with key agricultural products excluded
from AGOA.
r. AGOA inhibits market penetration in that American owned companies
dominate the product life cycle by setting prices, quality, delivery as
well as overseeing production.

The buyer uses low cost labor to

perform less profitable function such as production of standard

garments or parts of them. The price gain is therefore below production
cost forcing some ventures to close down. (Source: www.agoa.gov)
s. Many parts of the product life cycle are disorganized and lack adequate
capacity to earn substantial returns.
t. AGOA in its nature is solely a US provision and can be withdrawn at any
time. It functions solely to benefit the US. Uncertainty caused by
possibility of withdrawal discourages long term investment.

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u. Collapse of cooperatives has left farmers without marketing outlets

thus exploited by middlemen. Domination by buyers, low demand for
products, low prices, unreliability of market and lack of proper market
information.
v. Unfair competition by tax evading imports.

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REFERENCES

1. Ikiara M Moses, Ndirangu K Lydiah: PDF Discussion Paper No.24 on

Prospects of Kenyan Clothing Exports under AGOA after 2004:
Kenya Institute of Public Policy and Research; Kenya (January 2003).

2. Gerstenfeld Arthur, Raphael N. Njoroge; AGOA An Assessment of

AGOA and its Implications; Kenya (July 2007).
3. Nouve Koffi , John Staatz : Has AGOA Increased Agricultural Exports
from Sub Saharan Africa to the United States: a Paper Presented at
the International Conference on Agricultural Policy reform and the
WTO ;Michigan University Dept of Agricultural Economics, US (June
2003).
4. Fahr David & Klugh Zachary:Vol 14:125-148 IMF and Agoa A
comparative Analysis on conditionalities; Duke Journal of
Comparative & International Law, US (May 2004).
5. Eckart Neuman : Agoa at nine some reflections on the Acts Impact
on Africa US trade; US ( 2007).

6. www.agoa.gov

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