US Senate votes AGOA re-authorisation for next 10 years; South Africa subject to review

26 May 2015

The US Senate passed legislation on 14 May to extend duty-free access to the US for Sub-Saharan African countries through the African Growth and Opportunity Act (AGOA) for another decade.

The US Senate passed legislation on 14 May to extend duty-free access to the US for Sub-Saharan African countries through the African Growth and Opportunity Act (AGOA) for another decade.

“I am very glad that we have found a way to get them to this point,” said US Senate Finance Committee Chairman Orrin Hatch following the vote.

AGOA expands upon the US Generalized System of Preferences (GSP), a set of formal exceptions from the WTO’s most-favoured nation (MFN) principle, which allows developed countries to offer developing countries preferential treatment on specific goods. The current version of AGOA is due to expire on 30 September, unless re-authorised beforehand.

The bill, passed by a margin of 97 votes to 1, includes the renewal of several trade preference programmes: the GSP, expired since July 2013, will now be renewed through 31 December 2017; AGOA, including the third-country fabric (TCF) provision and preferential duty treatment programme for Haiti, will be extended until 30 September 2025. (See Bridges Africa, 27 April 2015)

The legislation will still require approval by the House of Representatives and President Barack Obama before it can become law.

New features

The general rule of origin under the new AGOA retains a value-added requirement of 35 percent.

This provision entails that products may integrate materials sourced from outside countries – in other words, non-AGOA-beneficiaries – provided that the "direct costs of processing" undertaken in one or more designated AGOA-beneficiary countries equal at least 35 percent of the product's appraised value.

While those lawmakers who crafted the legislation argue that such a provision is likely to increase the utilisation rate of the scheme and promote greater regional integration, some experts contend, however, that such a requirement is still likely to be difficult for small developing countries to meet.

Generally, preference–receiving LDCs in the context of AGOA have shown a relatively high utilization rate only in a few sectors – particularly in textile and clothing – and have therefore pushed for a revision of the US rule of origin in the context of AGOA. (See Bridges Africa, 5 November 2014)

The new version also includes language on the promotion of the role of women in social and economic development in sub-Saharan Africa as part of the eligibility criteria of the scheme.

The bill gives the US President the authority to designate “certain cotton articles” as eligible articles for least developed countries under the GSP programme. A Senate Finance Committee report associated with the legislation links this undertaking to the WTO implementation commitments on duty-free quota-free treatment for certain cotton products originating from LDCs.

Under the new text, beneficiary countries will be expected to develop biennial AGOA utilisation strategies in order to “more effectively and strategically utilise benefits available under AGOA,” the bill says, which additionally cites the possibility for Regional Economic Communities to be involved in this exercise.

Such strategies would mainly review opportunities and challenges around exports under AGOA, obstacles to regional integration, and establish a plan to increase the utilisation of benefits under the Act.

Focus on “good faith progress”

“I share many of my colleagues’ belief that benefits under AGOA should go to countries making good faith progress towards meeting the programme’s eligibility criteria,” said Hatch last week, before explicitly raising concerns over recent policy changes in South Africa which, he argued, contradict specific AGOA’s provisions.

Hatch added that the creation of a mechanism under the AGOA programme that would allow for benefits to be “scaled back” in case a country is found to not be making “good faith progress” on certain issues was “important.”

The AGOA provides now greater flexibility to the White House to withdraw, suspend, or limit benefits under the scheme if it determines that such action would be more effective than termination.

For example, the bill requires the President to notify and explain to Congress his intention to terminate a country’s designation as a beneficiary at least 60 days before the decision takes effect.

The bill provides for a petition process allowing interested parties to file petitions at any time with the Office of the US Trade Representative regarding compliance of a beneficiary country. Regarding public hearings, the inclusion of public comments will be required during reviews of a country’s AGOA eligibility.

The new AGOA will also allow the US President to conduct out-of-cycle reviews of any beneficiary country to determine whether it is making continued progress towards meeting the scheme’s eligibility criteria.

Since AGOA was put in place, 13 countries have lost their eligibility, although seven eventually had it restored, according to a report by the US Government Accountability Office (GAO), an independent agency providing audit and evaluation to Congress.

Six countries – Central African Republic, Democratic Republic of Congo, Eritrea, The Gambia, South Sudan, and Swaziland – lost their eligibility primarily due to political reasons and have not regained it to date. (See Bridges Africa, 27 April 2015)

South Africa subject to “out of the cycle” review

Although South Africa remains eligible for AGOA under the new legislation, the bill specifies that some concerns have been raised about the country’s compliance with certain provisions of the Act. An “out-of-cycle” review of South Africa will therefore be undertaken 30 days after AGOA’s enactment.

In the context of such review, if the President determines that South Africa does not meet certain requirements, the country’s eligibility could be either withdrawn, suspended or limited.

Earlier talks over AGOA’s renewal had move slowly due to a dispute between Pretoria and Washington on poultry trade, following South Africa’s decision to impose anti-dumping duties on certain imported US poultry products. (See Bridges Africa, 27 January 2015)

Additionally, according to a report by the US Senate Finance Committee, South Africa recently indicated its intention to renegotiate its commitments under the WTO’s General Agreement on Trade in Services requiring foreign-owned companies to relinquish 51 percent ownership to South Africans. Moreover the country has developed proposals for policy changes with regard to intellectual property rights laws that could result in several “shortcomings.” These issues will be taken into account during the review of South Africa’s eligibility, the report says.

ICTSD reporting.

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