Originally written by Daniel Fisher in Forbes, July 20, 2011
One of the great things about Internet journalism is the dialogue it fosters among writers, readers and sources. At its best, the readers become sources and inform the writer with details he didn’t know when he set fingers to keyboard.
After publishing our list of the World’s Worst Economies — a feature that predictably generates nastygrams from officials of the named countries — I got this email from a Washington consultant who knows all about the trade woes afflicting bottom-of-the-list Madagascar. Some of them stem from the country’s ejection from the African Growth and Opportunity Act, which devastated that island nation’s once-growing clothing industry. AGOA is a free-trade deal that gives Americans access to cheaper clothes, but more importantly generates jobs in African countries. It’s up for renewal, but as Nathaniel Adams notes below, so far it’s suffered from “benign neglect.” That’s bad news for the tens of thousands of African clothing workers, most of them women, who depend on exports to the U.S. to eat. Full disclosure: Adams works for the Whitaker Group, whose founder, Rosa Whitaker, helped design AGOA while she was at the State Dept. Whitaker represents Lesotho in the U.S. but no clothing importers.
Nathaniel Adams reports:
Third-Country Fabric, AGOA, and the Risks of Inaction
Ten years ago, with the passage of the African Growth and Opportunity Act (AGOA), America shifted its Africa policy and embarked on an historic new trade- and investment-centered policy approach towards Africa. Enacted into law in 2000 and expanded three times since then, AGOA has consistently maintained strong bipartisan Congressional and public support because it is cost-effective and makes good policy sense.
AGOA removed all US tariffs and quotas from nearly all products made in Sub-Saharan Africa. Viewed through the lens of job creation, export growth and income generation — all critical pillars for Africa’s exit from abject poverty — AGOA has delivered impressive results, creating hundreds of thousands of jobs in Africa and nearly tripling African exports to the US over the past decade. At the same time, US exports to Africa have risen threefold, from $5.9 billion in 2000 to over $15 billion in 2009.
While US development aid to Africa has exceeded $3 billion over the past decade with dubious results, the relatively miniscule cost of foregone tariff revenues under AGOA, coupled with the undeniably dynamic effect on Africa’s economies, begs the question: Why isn’t renewing AGOA a higher priority for US lawmakers?
The African Garment Sector and the 3rd Country Fabric Provision
Africa’s garment sector over the past decade provides an overwhelming example of how trade policy can spur development. The garment sector is a particularly good sector to focus on, too – as we’ve seen before in Asia, garment production typically serves a bridge into more broad-based manufacturing and industrialization.
During the first five years of AGOA from 2000-2005, Africa’s garment exports to the US grew 102%, and in the process generated meaningful employment for 300,000 largely unskilled workers. When the WTO Multi-Fiber Arrangement was allowed to expire in 2005, lifting quotas on hyper-competitive Asian economies, the effect on African garment producers was severe. Practically overnight, Africa’s garment factories lost 42% of orders to lower-cost imports from Asia. The sector has been slow to regain ground ever since.
The bottleneck for Africa’s garment sector is the fabric itself. African countries lack the ability to produce the requisite commercial quantities of yarns and fabrics needed for garment production, so AGOA’s 3rd Country Fabric provision allows them to import fabrics and yarns from countries outside Africa to then assemble and export to the US with AGOA benefits. To date, the gains from this particular provision have been tremendous, and 95% of US garment imports from Africa fall under this provision’s purview.
For many countries in Africa, the stakes are now incredibly high. Lesotho, for example, relies almost exclusively on garment manufacturing for mass employment and income generation. As of 2009, the garment industry in Lesotho provides roughly 40,000 jobs. Moreover, 85% of these workers are women, and each is the sole breadwinner for her household, supporting between 4 and 8 family members. The timely renewal of the 3rd Country Fabric provision is understandably a matter of grave concern for a heavy percentage of Lesotho’s 2 million inhabitants.
And yet, given the clear and observable impact of AGOA, its renewal on the Hill suffers from benign neglect. This is ironic, given that the “Trade not Aid” mantra should have real resonance in today’s policy dialogue on US foreign assistance to the developing world.
Thankfully, last week Congressman Jim McDermott (D-WA) submitted a bill to renew 3rd Country Fabric to 2015. This is a step in the right direction, but it remains crucial for Congress to keep their attention on passing the bill on time and intact. Failure to do so would be catastrophic for Africa’s continuing battle against poverty, and Madagascar’s own economic tailspin could be mirrored around the continent.