Understand the African Growth and Opportunity Act (AGOA)

agoa

Although we don’t have time to cover AGOA in the class, it is very beneficial for our FASH students to have some general background knowledge about this important trade agreement.

The African Growth and Opportunity Act (AGOA) is a non-reciprocal trade agreement enacted in 2000 that provides duty-free treatment to U.S. imports of certain products from eligible sub-Saharan African (SSA) countries. AGOA intends to promote market-led economic growth and development in SSA and deepen U.S. trade and investment ties with the region.

Because apparel production plays a dominant role in many SSA countries’ economic development, apparel has become one of the top exports for many SSA countries under AGOA.  Particularly, the “third country fabric provision” under AGOA allows U.S. apparel imports from certain SSA countries to be qualified for duty free treatment even if the apparel use yarns and fabrics produced by non-AGOA countries/regions (such as China, South Korea and Taiwan). This special rule is deemed as critical because most SSA countries still have no capacity in producing capital and technology intensive textile products.

Impact of AGOA on the SSA countries seems mixed, however. On one hand, without AGOA, the SSA countries would not have been able to compete with competitive apparel exporters such as China and India in the U.S. market. Increased apparel exports have also created many manufacturing jobs in the SSA countries, contributing to the local economic and social development. For example, Lesotho, one of the main apparel exporters under AGOA, saw manufacturing jobs rose from 19,000 in 1999 to 45,700 in June 2011.

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On the other hand, however, few SSA countries seem to have taken good advantage of the AGOA to build up their genuine export competitiveness and diversify their economic structure over the past decade. One recent CRS report asserts that “AGOA apparel production is concentrated in the lowest skill tasks with little knowledge transfer to local workers and that the global competitiveness of AGOA exports still depend on their preferential treatment”.

AGOA’s authorization is set to expire on September 30, 2015. Some members of the US Congress, the U.S. apparel industry and several other stakeholders of the agreement have shown interests in renewing AGOA. With respect to the apparel industry, many stakeholders call for a longer reauthorization for the “third country fabric provision” so as to provide a more stable and foreseeable market environment for businesses. However, according to the American Apparel and Footwear Association (AAFA), AGOA renewal is complicated by a number of other factors such as the passage of the trade promotion authority (TPA), the progress of several other free trade agreements currently under negotiation, such as the TPP as well as the U.S. congress/political schedule.

The following is the webinar provided by the AAFA on the history, benefits, and challenges of the current AGOA program and how it applies to apparel and footwear companies.