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DOCUMENTS
Speech for Hon. J Cuttaree, Minister of Industry and International Trade, “AGOA: The Way Forward” Wednesday 15th Jan 2003 Ambassador Zoellick The American Delegation African Ministers and Delegates Distinguished Guests Ladies and Gentlemen
It is a great pleasure for me to be here at the opening session of the Second AGOA Forum with so many friendly and familiar faces from both Washington and Africa around. It is also a great honour and privilege to share this platform with Ambassador Robert Zoellick, a key member of President Bush’s Cabinet, who has shown a commitment to Africa's development not quite equalled by any previous US Trade Representative.
We are here today to talk of AGOA, the way forward. We have had AGOA for two years. First, let us remind ourselves of the main objectives of AGOA and how we have been able to move forward since it became law.
The main thrust of AGOA, including its GSP provisions, is the promotion of export and investment in the manufacturing sector. The first imports under AGOA entered the US in 2001. Up to now, these imports have been dominated by energy-related products, with 83% percent of all imports under AGOA coming from the energy sector. However, while total AGOA exports to the United States increased by 23% in the first half of this year when compared to the same period in 2001, total exports from eligible countries to the United States decreased by 34% over the same period; hence we note the vital importance of AGOA.
As far as investment is concerned, the story is unfortunately a different one. Let us for example take the case of Lesotho, which has been a shining example of increased exports and job creation to the United States as a result of the AGOA provisions. Total employment reached 40,000 in 2002 as compared to 17,000 in 1999 and exports increased by some 63% over the one year period since 2001. However, the investment for this increase in production, exports and job creation came mainly from Taiwan, South Africa and South Korea. The same can be said of Madagascar, where exports to the US in 2001 increased by 83% with investment coming mainly from Europe and Mauritius. Similarly, foreign investment in Mauritius is coming mainly from local sources, Asia and Europe. Hence, the first priority on the way forward for AGOA is “How to increase US investment in the region”.
The Governments of Africa have taken decisive and often difficult steps to follow the guidelines of AGOA in political and economic terms. There is a great enthusiasm among Africans for AGOA and a belief that it will help create the sustainable economic development that we all seek in Africa, for all peoples, especially the youth. However, burdened as many of us are with massive debts, we must find foreign direct investment to develop their manufacturing industries. Indeed, I am surprised that American investment is not more forthcoming in the textile and apparel sectors. Despite industrial plants and technical skills lying idle in these areas in the US and the availability of abundant good quality cotton in the region, the synergy between the US and Africa in the field of yarn and fabric production is still being awaited when we are only a few months away from the end of the LDC provisions for third party fabrics.
Market access is meaningless without capacity to trade, which is the capacity to produce quality goods at competitive prices. In our region, this depends essentially on FDI. Indeed, we all know that SS-Africa's World share of foreign investment is very low, the lowest among all geographic regions, representing only 7.7% of global investment flows to developing countries. It is worth mentioning that in 2000, investments in SSA declined by over 9%. And US investments in SSA in 2000 went mainly to South Africa, Angola and Nigeria, mainly in the petroleum and mining sectors. The way forward, therefore, is to devise new schemes to encourage US investment in Africa. Double taxation agreements, common investment areas, tax-credit for US investors are some ideas which have been put forward. In the course of our discussions this morning, we hope to hear of some new ideas on this essential aspect of the US-Africa Partnership.
Let us now look at AGOA beyond its textile provision. One major area to be looked at closely is that of agri-business. America is the greatest producer of agricultural products and has a wealth of experience to transfer to Africa. Africa is also a producer of agricultural products but we cannot sell them in the United States, not because of price but because of non-tariff barriers, particularly the sanitary and phyto-sanitary regulations that effectively exclude any agricultural and livestock product from Africa. The difficulties that African exporters have had with the US Department of Agriculture and the Food & Drug Authority are legendary. There must be legislative and administrative provisions to tackle these problems. There should also be a vast program of administrative assistance and technology transfer from the US to Africa to help render agricultural products from the region marketable in the United States.
Information Technology, Financial Services, Transport & Logistics and the increased value-added sectors must be addressed in the context of AGOA. Should we not have creative incentives must be found to urge US businessmen to participate fully in the African Economic Renaissance? The Fund established by the Overseas Private Investment Corporation (OPIC) under AGOA must be increased and rendered more user-friendly. The President Bush Millennium Challenge Account must be extended in both its coverage and its value and to revise the criteria for the target countries, if the objective is to ensure greater regional cooperation and economic integration in the region.
In the minds of most people, AGOA is essentially a quota and duty-free market access legislation. Indeed, the philosophy behind this piece of legislation is that SSA cannot compete on a level playing field with other countries, even developing ones from Asia; hence the need for trade preferences for our countries. We are aware that since the Doha Trade Ministers Conference, trade preferences are under pressure. With the disappearance of quotas, our only remaining trade preference is tariffs. However, even the present level of tariffs may not be sufficient to give us a price advantage for our products. In fact, I have heard some US textile purchasing agents express the view that it might still be more profitable for them to source from countries like China as from 2005 even if the US maintains our tariff protection at the present level.
However, both the EU and the US have submitted proposals to the WTO for tariff compression on non-agricultural goods with a view to their elimination. I am sure I am expressing the views of the large majority in this gathering today if I were to say, not to put too fine a point on that, that these proposals will make of AGOA “an empty shell”. If we cannot attract US investment in the manufacturing sector with our present trade preferences, who will invest in SSA without them?
If we look at what is happening in the international field, it is clear that reciprocity in trade relations is the basic principle with large trading nations. That apart, SSA is getting swept along by the inexorable move towards trade liberalization even though its share of World Trade in 1999 was a mere 2%. When we consider the options in this situation, the development of free-trade areas does evoke some interest. The proposed SACU-US FTA, for example, aims at creating a free trade area but all SACU members are beneficiaries under AGOA. The view has been expressed by some US Authorities that a SACU-FTA area is an imperative for the US as South Africa is one of its main trading partners and since South Africa’s free trade arrangement with the European Union has come into force, exports from the United States have tended to decrease. So, the main objective of the proposed SACU FTA seems to be the reversal of this decreasing trend, or is it? A legitimate question, therefore, is whether the United States policy is in fact to replace AGOA by FTAs with the various SSA regions in 2008. Just like the European Union’s proposals for WTO-compatible regional economic partnership agreements with its ACP partners, also for 2008, when reciprocity in trade relations is to be the order of the day. And speaking of 2008, our colleagues who were in Washington for the last AGOA forum will surely remember the thunderous applause which greeted the statement of Secretary of State Colin Powell when he said that he would personally see to it that the AGOA provisions are extended beyond 2008. I believe the questions posed by these developments have to be addressed now as they are vital for the future of our trade and investment relationships with the United States.
As we all know, if there are no long-term certainties in market access, prospects for trade and investment are bound to be tenuous. Colleagues, let us therefore ask the mother of all questions. What is the way forward? The answer may come from Ambassador Zoellick.
Thank you.
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