AGOA III: Amendment to the African Growth and Opportunity Act
CRS Report for Congress
AGOA III: Amendment to the African Growth
and Opportunity Act
Danielle Langton
Analyst in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
On July 13, 2004, the “AGOA Acceleration Act of 2004” was signed by the
President and became P.L.108-274. This legislation amends the African Growth and
Opportunity Act (AGOA; P.L. 106-200, Title I), extending it to 2015. AGOA seeks to
spur economic development and help integrate Africa into the world trading system by
granting trade preferences and other benefits to Sub-Saharan African countries that meet
certain criteria relating to market reform and human rights. Congress first amended
AGOA in 2002 (P.L. 107-210) by increasing a cap on duty-free apparel imports and
clarifying other provisions. The new AGOA amendment, commonly referred to as
“AGOA III,” extends the legislation beyond its current expiration date of 2008 and
otherwise amends existing AGOA provisions. For further information on AGOA, see
CRS Report RL31772, U.S. Trade and Investment Relationship with Sub- Saharan
Africa: The African Growth and Opportunity Act and Beyond. This report will be
updated as needed.
Legislation to amend the African Growth and Opportunity Act of 2000 (Title I, P.L.
106-200; 19 U.S.C. 3701 et seq), the AGOA Acceleration Act of 2004 (H.R. 4103), was
passed in the House on June 14, 2004. On June 24, 2004, the bill was passed in the
Senate without amendment by unanimous consent. The President signed the bill on July
13, 2004, and it became P.L.108-274. Previously, similar legislation known as the United
States-Africa Partnership Act of 2003 (S. 1900) was introduced in the Senate on
November 20, 2003. The Senate Foreign Relations Committee held a hearing on this bill
on March 25, 2004. Another bill amending AGOA (H.R. 3572) was introduced in the
House on November 21, 2003.
Background: The African Growth and Opportunity Act
After two decades of economic stagnation and decline, some African countries began
to show signs of renewed economic growth in the early 1990s. This growth was generally
due to better global economic conditions and improved economic management.
However, growth in Africa was also threatened by new factors, such as HIV/AIDS and
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high foreign debt levels. The African Growth and Opportunity Act (AGOA) (P.L. 106-
Saharan Africa and to help integrate the region into the world economy. AGOA provided
trade preferences and other benefits to countries that were making progress in economic,
legal, and human rights reforms. Currently, 37 of the 48 Sub-Saharan African countries
are eligible for benefits under AGOA.
AGOA expands duty-free and quota-free access to the United States as provided
under the U.S. Generalized System of Preferences (GSP).1 GSP grants preferential access
into the United States for approximately 4,600 products. AGOA extends preferential
access to about 2,000 additional products by removing certain product eligibility
restrictions of GSP and extends the expiration date of the preferences for beneficiary
African countries from 2006 to 2015. Other than articles expressly stipulated, only
articles that are determined by the United States as not import-sensitive (in the context of
imports from AGOA beneficiaries) are eligible for duty-free access under AGOA.
Beyond trade preferences, AGOA directs the President to provide technical
assistance and trade capacity support to AGOA beneficiary countries. Various U.S.
government agencies carry out trade-related technical assistance in Sub-Saharan Africa.
The U.S. Agency for International Development funds three regional trade hubs, located
in Ghana, Kenya, and Botswana, that provide trade technical assistance. Such assistance
includes support for improving African governments’ trade policy and business
development strategies; capacity to participate in trade agreement negotiations;
compliance with WTO policies and with U.S. phytosanitary regulations; and strategies
for further benefiting from AGOA.
AGOA also provides for duty- and quota-free entry into the United States of certain
apparel articles, a benefit not extended to other GSP countries. This has stimulated job
growth and investment in certain countries, such as Lesotho and Kenya, and has the
potential to similarly boost the economies of other countries, such as Namibia and Ghana.
In order to qualify for this provision of AGOA, however, beneficiary countries must
develop a U.S.-approved visa system to prevent illegal transshipments. Of the 37 AGOA-
eligible countries, 24 are qualified for duty-free apparel trade (wearing-apparel qualified).
These countries may also benefit from Lesser Developed Country (LDC) status.
Countries that have LDC status for the purpose of AGOA, and are wearing-apparel
qualified, may obtain fabric and yarn for apparel production from outside the AGOA
region. As long as the apparel is assembled within the LDC country, they may export it
duty-free to the United States. Some LDC AGOA beneficiaries have used this provision
to jump-start their apparel industries. This provision was due to expire on September 30,
with a reduction in the cap on the allowable percentage of total U.S. apparel imports
beginning in October 2006. Countries that are not designated as LDCs but are wearing
apparel qualified must use only fabric and yarn from AGOA-eligible countries or from
the United States. The only wearing apparel qualified non-LDC countries is South Africa,
although Mauritius only qualifies for LDC status under AGOA for one year ending
1 The Generalized System of Preferences is a program offering trade preferences to less
developed countries, including those from Sub-Saharan Africa. See CRS Report 97-389,
Generalized System of Preferences, by William H. Cooper.
September 30, 2005, per the Miscellaneous Trade and Technical Corrections Act of 2003
(P.L. 108-429).
AGOA was first amended in the Trade Act of 2002 (P.L. 107-210), which doubled
a pre-existing cap set on allowable duty-free apparel imports. The cap was only doubled
for apparel imports that meet non-LDC rules of origin; apparel imports produced with
foreign fabric were still subject to the original cap. The amendment also clarified certain
apparel rules of origin, granted LDC status to Namibia and Botswana for the purposes of
AGOA, and provided that U.S. workers displaced by production shifts due to AGOA
could be eligible for trade adjustment assistance.
Three Years of AGOA: Successes and Challenges
U.S. duty-free imports under AGOA (excluding GSP) increased dramatically in 2003
— by about 58%, from $8.36 billion in 2002 to $13.19 billion in 2003 — after a more
modest increase of about 10% in 2002.2 However, 70% of these imports consisted of
energy-related products from Nigeria. Excluding Nigeria, U.S. imports under AGOA
increased 30% in 2003, to $3.84 billion, up from $2.95 billion in 2002. The increase in
AGOA imports since the law’s enactment is impressive, but it must be viewed in the
broader context of Africa’s declining share of U.S. trade over many years. AGOA has
done little to slow or reverse this trend — the growth in AGOA trade can be explained by
a greater number of already-traded goods receiving duty free treatment under AGOA.
One industry has grown substantially under AGOA: the textile and apparel industry.
Much of the growth in textile and apparel imports has come from the newly emerging
apparel industries in Lesotho, Kenya, and Swaziland.
Apart from the apparent success of the emergent apparel industries in some African
countries, the potential benefits from AGOA have been slowly realized. There has been
little export diversification, with the exception of a few countries whose governments
have actively promoted diversification. Agricultural products are a promising area for
African export growth, but African producers have faced difficulties in meeting U.S.
regulatory and market standards. Many countries have been slow to utilize AGOA at all.
Others, such as Mali, Rwanda, and Senegal, have implemented AGOA-related projects,
but have made insignificant gains thus far. In addition to lack of market access, there are
substantial obstacles to increased export growth in Africa. Key impediments include
insufficient domestic markets, lack of investment capital, and poor transportation and
power infrastructures. Other significant challenges include low levels of health and
education, protectionist trade policies in Africa, and the high cost of doing business in
Africa due to corruption and inefficient government regulation. Furthermore, the apparel
industry in Africa now faces a challenge in the dismantled Multifibre Arrangement quota
regime, which ended as of January 1, 2005. As a result, Africa must now compete more
directly with Asian apparel producers for the U.S. market. AGOA beneficiaries retain
their duty-free advantage, but they have lost their more significant quota-free advantage.
Apparel producers have reportedly already left Lesotho, with a loss of 7,000 jobs.3 This
makes export diversification in Africa all the more vital.
2 See U.S. International Trade Commission dataweb at [http://dataweb.usitc.gov/].
3 “Lesotho: New Trade Regime Threatens Economy,” AllAfrica.com, January 14, 2005.
Key Provisions in AGOA III
AGOA III extends the preference program to 2015 from its previous 2008 deadline.
AGOA III supporters claimed that many AGOA beneficiaries had only recently begun
to realize gains as a result of AGOA, and that extending AGOA benefits would improve
the stability of the investment climate in Africa. AGOA III also provides for apparel rules
of origin and product eligibility benefits; it extends the third-country fabric rule for LDCs,
and encourages foreign investment and the development of agriculture and physical
infrastructures.
Extension of Lesser Developed Country Provision. One of the more
controversial aspects of AGOA III was the extension of the LDC provision. If the LDC
provision had not been extended, LDCs would no longer have duty-free access to the
United States for apparel made from third-country fabric after September 30, 2004.
Supporters of the extension claimed that if the LDC provision was not extended, the
apparel industry may have contracted significantly, causing a loss of many of the gains
from AGOA, as apparel assembly plants were shut down. This might have occurred
because all AGOA beneficiaries would need to source their fabric and yarn from within
the AGOA region or from the United States in order to get duty-free access under AGOA,
and the regional supply of fabric and yarn would likely be insufficient to meet the
demand.4 Sourcing materials from the United States would not be a viable option because
it would entail greater costs. Some analysts argued for the LDC provision to be extended
to allow more time to develop a textile milling industry to support the needs of the apparel
industry in Africa, and to prevent the collapse of the emerging apparel industry.
Opponents of extending the LDC provision claimed that the expiration of the LDC
provision would provide an incentive for further textile milling investments in Africa.
They argued that the LDC provision has slowed fabric and yarn production investment
in Africa, because these materials could be imported cheaply from Asia for use in AGOA-
eligible apparel with no need for costly investments. They feared that an extension of the
LDC provision would provide a disincentive to textile milling investment in Africa,
because the deadline would lose its credibility as investors anticipated further extensions.
However, supporters of the extension argued that investment in the textile industry would
continue because of its inherent profitability, despite the availability of third-country
fabric. Others worried that looser rules of origin under the LDC provision might allow
companies to use Africa as a transshipment point between Asia and the United States.
The outlook for the development of a textile industry in Sub-Saharan Africa is
clouded by the phase-out of the Multifibre Arrangement (MFA) quota regime in January5
2005. Now that quotas have been eliminated, Africa will be competing more directly
with Asia for the U.S. apparel and textile market, though they remain eligible for tariff
preferences. Apparel plants are particularly sensitive to price conditions as they do not
require large capital investments and can easily and rapidly be shifted to areas outside
Africa. Textile plants are more capital-intensive and more costly to move, and are
4 Impact of AGOA Extending LDC Fabric Import Privileges Beyond 2004, Zambia Trade and
Investment Enhancement Project, supported by USAID, March 2003.
5 For further coverage of the phaseout of the MFA quota regime, see CRS Report RS20889,
Textile and Apparel Quota Phaseout: Some Economic Implications, by Bernard A. Gelb.
therefore likely to remain in Africa in the long-term. Thus, it is argued that the promotion
of vertical integration between apparel, textile, and cotton producers is necessary to keep
apparel plants in Africa, along with the jobs they provide. Vertical integration is a
challenging prospect regardless of the LDC provision extension. Some investment in
textile milling has occurred in Africa, but investors have found it difficult to consistently
source high quality cotton in large volumes. While there is agreement that vertical
integration is the key to a thriving African textile and apparel industry, the question is
how to facilitate this process.6
Agricultural Products. The growth of agricultural trade holds potential for
improved economic growth in Africa. Most Africans rely on agricultural production for
their income. It is estimated that 62% of the labor force in Africa works in agriculture, and7
in the poorer countries, that portion is as high as 92%. By exporting to the U.S. market,
African agricultural producers could receive higher prices for their goods. In order for
this to occur, the United States may need to further open its market to African agricultural
products, and provide technical assistance to help African agricultural producers meet the
high standards of the U.S. market.
AGOA III seeks to improve African agricultural market access to the United States
by providing assistance to African countries to enable them to meet U.S. technical
agricultural standards. African agricultural producers have previously faced difficulties
in meeting these standards. The AGOA Acceleration Act calls for the placement of 20
full-time personnel to at least 10 countries in Africa to provide this assistance. Some
observers are skeptical about the effectiveness of technical assistance without increased
market access. Others are concerned that U.S. technical assistance is hindered by laws
restricting agricultural technical assistance to products that would compete with U.S. farm
products. However, technical assistance proponents point to the low institutional capacity
in Africa as the main obstacle to African export-led development. They feel that U.S.-
provided technical assistance can be an important factor in improving Africa’s agricultural
development and export performance.
6 Joop A de Voest, Background Information on Effects of Extending and Not Extending the
September 2004 Deadline for Less Developed AGOA Qualified Countries to be Able to Import
Fabric from Outside the AGOA Region and Still Be Qualified to the USA Under AGOA, Zambia
Trade and Investment Enhancement Project, supported by USAID, Mar. 2003.
7 World Resources Institute, as cited on Nationmaster.com. See [http://www.nationmaster.com/
gr aph-T / agr_lab_sha/AFR].
Table 1. Provisions from the AGOA Acceleration Act of 2004
AGOA Acceleration Act (P.L. 108-274)
Extends AGOA to 2015 (from 2008).
Extends LDC Rule to 2007, with cap of allowable imports set at 2.64% of total volume of U.S.
apparel imports for the one-year period following October 2004, 2.92% from October 2005,
and reduced to 1.6% in the final year following October 2006.
Final cap of allowable apparel imports meeting yarn forward rules of origin (no third country
fabric) remains at 7% (as set in AGOA II) after 2007.
Makes eligible previously disqualified apparel goods that contain cuffs and/or collar
components from third countries.
Clarifies that apparel articles that contain fabric both from U.S. and AGOA beneficiary
countries are eligible for benefits, if they are otherwise eligible.
Adds ethnic printed fabrics to list of eligible Category 9 folklore and handmade items. To
receive duty-free treatment, ethnic fabric must have a width of less than 50 inches, be sold by
the piece, and have designs, symbols and characteristics of African prints normally produced
for the local African market.
Increases the de minimus level of non-AGOA originating inputs for apparel from 7% to 10%.
Clarifies that fabrics and yarns listed in Annex 401 to NAFTA may be used in AGOA-eligible
apparel imports, regardless of the source of such materials. Materials listed in Annex 401 to
NAFTA are recognized to be in short supply in the United States.
Modifies the yarn forward rules of origin so that inputs such as yarn and fabric from “former
AGOA beneficiary countries” are considered the same as inputs from AGOA beneficiary
countries and apparel items composed of such products may receive duty and quota free
treatment under AGOA. “Former AGOA beneficiary countries” are defined as countries that
are no longer AGOA beneficiaries because they have entered into a free trade agreement with
the United States. This provision anticipates a concluded free trade agreement with the five
members of the Southern African Customs Union.
Directs the President to assign at least 20 U.S. personnel to no fewer than 10 AGOA eligible
countries, to help exporters meet sanitary and phyto-sanitary (SPS) requirements for
agricultural imports to the United States.
Directs the President to support infrastructure projects to assist the development of the
ecotourism industry.
Directs the President to develop policies that encourage investment supporting transportation
projects in AGOA beneficiary countries, transportation links between Africa and the United
States, information and communications technologies among beneficiary countries, and
agricultural processing activities and capacity development.
Directs the President to complete a study on each eligible beneficiary country, identifying
sectors of the economy with the greatest growth potential, barriers to achieving that growth,
and recommendations for U.S. technical assistance to assist in overcoming such barriers.