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"Beyond Oil & Gas: African Growth and Opportunity Act's Benefits to Africa"
Written Testimony by Katrin Kuhlmann
Senior Vice President, Global Trade Program
Women's Edge Coalition
Before the U.S. House Subcommittee on Africa and Global Health
July 12, 2007

Good Morning Chairman Payne, Ranking Member Christopher Smith and honorable members of the House Subcommittee on Africa. Thank you for the invitation to participate in today's hearing on the African Growth and Opportunity Act (AGOA). My name is Katrin Kuhlmann. I am the Senior Vice President for Global Trade at the Women's Edge Coalition. Prior to assuming this position, I worked for six years at the Office of the U.S. Trade Representative (USTR) and for several years as a trade attorney in private practice. I would like to thank members of this committee, particularly Chairman Payne, for your efforts to support economic development in Africa through initiatives like AGOA.

As the leading nonpartisan organization shaping U.S. policy to benefit poor women worldwide, the Women's Edge Coalition is in a unique position to comment on how U.S. trade preference programs, like AGOA, have helped impoverished women in the developing world and, more importantly, to analyze what can be done to improve these programs so that the poorest and most vulnerable populations may take full advantage of them. Women constitute the majority of those living in poverty in the developing world, and jobs for women translate into support for entire families. Decades of research and experience have shown that women reinvest their income in better health, education and nutrition for their families. A job for one woman actually supports an entire household.[1] For example, it is estimated that one woman's job in the apparel sector supports up to 15 people.

Trade does hold enormous potential to create economic opportunities for impoverished men and women, and AGOA and other trade preference programs are examples of this principle in practice. In my travels working for USTR and the Women's Edge Coalition, I have seen firsthand the results of America's efforts to spur development in places of desperate need. I have met craftswomen with beautiful wares but no market to sell them in and factory workers fearful that low cost production in advanced developing countries will send them back to gripping poverty. For these women, secure access to the U.S. market can literally mean the difference between surviving and starving.

While AGOA has led to inspiring success stories, Africa's potential to benefit from trade has not been fully realized. Africa faces particular challenges, and the need to generate sustainable development in Africa becomes more pressing each day. I would like to highlight how AGOA and other trade preference programs have worked to the benefit of impoverished women and men, look at how AGOA has succeeded in creating economic opportunities for Africa's poorest, describe areas where AGOA, and other preference programs, have fallen short of their potential, and outline four areas in which we believe legislative modifications can make preference programs, including AGOA, even more effective.

AGOA and Other U.S. Trade Preference Programs Benefit Impoverished Women and Men

Increased Trade Contributes to Economic Growth

Research shows that increased trade contributes to economic growth in a number of ways. First, international trade gives developing countries access to larger and wealthier markets. Demand for developing country goods, in turn, creates new, much-needed opportunities for employment. Increased trade also stimulates investment, which has a strong positive effect on growth and contributes to increased productivity.[2]

Trade is essential to the development of lesser-developed economies around the world, and preferential market access, as embodied in U.S. preference programs, is critical to actually increasing trade. Equally important, AGOA and the other preference programs established by Congress promote economic and legal reforms in countries around the world, to the benefit of stakeholders in the United States and abroad. The 1974 Generalized System of Preferences (GSP) legislation, on which AGOA builds, was a landmark in U.S. trade policy with its focus on helping poorer countries take advantage of the development benefits trade can offer.[3] Since then, other region-specific unilateral preference programs, including AGOA, the Caribbean Basin Initiative/Caribbean Basin Trade Partnership Act (CBI/CBTPA) program, and the Andean Trade Promotion and Drug Eradication Act (ATPDEA), have expanded on GSP's goal of promoting economic growth, poverty alleviation, and reform in poorer countries through increased trade.

Of the regional U.S. trade preference programs, AGOA, which expanded GSP product coverage to include over 1,800 additional tariff lines, is the most comprehensive of all U.S. preference programs The original AGOA legislation was signed by President Bush in 2000 and does not expire until 2015. In addition to expanding duty-free coverage for key products like apparel, AGOA also exempted beneficiary countries from competitive need limitations (CNLs), which terminate duty-free benefits once a country's exports of a particular product reach a certain threshold. With the addition of Liberia on January 1, 2007, 38 countries in sub-Saharan Africa are now eligible to receive AGOA benefits. On December 20, 2006, President Bush signed AGOA IV, the Africa Investment Incentive Act. This latest AGOA legislation encourages the development of a sustainable apparel sector in Africa by extending through 2012 the third-country fabric provision, which has been critical in preserving apparel jobs in least-developed AGOA countries, and establishing duty-free benefits for African textiles from lesser-developed AGOA beneficiary countries.

Trade preference programs such as AGOA have directly led to much-needed job creation for women. In sectors such as many types of manufacturing and agricultural production, women do the bulk of the world's work. While U.S. preference programs have led to job creation for impoverished women in sectors such as apparel in Africa, jewelry production in Asia, and agricultural production in the Andean, African, and Asian countries, the potential of preference programs to generate growth is directly related to their ability to address women's work in the global economy. An important next step is to ensure that when jobs are created for women they are good jobs, with fair wages, decent benefits, and secure, safe and sustainable work environments. By encouraging both the creation of jobs for those living in poverty and, at the same time, further improving standards for protecting workers, AGOA has the potential to reach the poorest and most vulnerable members of society.

U.S. Trade Preference Programs Promote Legal Reform

Notably, AGOA and all U.S. preference programs include eligibility criteria aimed at promoting legal reforms in beneficiary countries. In many cases, these programs have provided an impetus for domestic reform and improvements in the rule of law. The mandatory and discretionary criteria in the preference program statutes, particularly the requirements that workers' rights be protected, have served as important leverage to bring about legal reform in beneficiary countries. The threat of losing benefits under one of the preference programs has often prompted countries to implement critical legal reforms, such as improvements to commercial laws or labor reform. Legal reforms are in the interest of both beneficiary countries and the United States and are essential components of the preference programs that ensure that their benefits reach the poorest members of society. By encouraging legal reform, preference programs also help set the stage for greater regional cooperation.

Importantly, U.S. preference programs have further helped promote the interests of women in developing countries through required labor criteria. While the existing labor requirements in all U.S. trade preference programs are not comprehensive enough and exclude critical protections such as protection against discrimination in the workplace, existing standards have encouraged governments to improve labor practices to the benefit of some of the poorest economic participants in these countries and help to ensure that the jobs created through preference programs are high quality and sustainable.

In addition to the standards included in the GSP legislation, which all AGOA countries must meet, AGOA country eligibility criteria require that countries adopt policies aimed at reducing poverty and increasing the availability of health care and educational opportunities.

The Importance of AGOA and Its Success Stories

Africa continues to warrant special attention, and U.S. trade and economic policies must address Africa's particular needs in order to achieve the greatest results. While the rest of the world looks on, Africa continues to suffer from disease, hunger, and conflict, which prohibit economic development from truly taking hold in the region. A staggering 41 percent of the African population continues to live on less than one dollar per day, and 200 million go hungry every day. In sub-Saharan Africa, where AGOA has created some notable success stories, 70 percent of the population still lives on less than 2 dollars per day.[4] Experts estimate that one-fifth of the farmers in sub-Saharan Africa will die of AIDS by the year 2020 and that one million children will die of malaria every year.[5] Women, in particular, continue to bear the burden of ongoing conflicts and the AIDS pandemic, with 12.2 million women infected with HIV in sub-Saharan Africa. In addition, women bear the double burden of caring for the sick and disabled.

In 2006, sub-Saharan Africa experienced an average economic growth rate estimated at 5.3 percent. Africa's economic potential, however, remains largely untapped. While home to 12 percent of the world's population, Africa currently accounts for only 1.7 percent of world trade. Although average growth rates in Africa have improved, they remain lower than average growth rates for other developing countries.[6] In addition, the economic growth that has occurred in Africa has not been evenly distributed across the continent. Some regions, like West Africa, have experienced strong growth due to recovery in the agricultural sector and positive industrial performance, yet others, like East Africa, continued to suffer from devastating circumstances like crop failure.[7] If sub-Saharan Africa could increase its share of world trade by a mere one percent, economists estimate the region could earn $70 billion more through exports each year, a sum several times greater than Africa's current foreign aid.[8]

AGOA Has Generated Notable Successes

The landmark AGOA program, which continues to form the "cornerstone" of U.S. trade and investment policy towards sub-Saharan Africa, [9] has been instrumental to U.S. trade and development policy with Africa. AGOA has led to the creation of jobs, many of which have gone to impoverished women with few economic opportunities and has facilitated greater cooperation between the United States and African countries, and, importantly, among African countries themselves.

In 2006, U.S. imports from AGOA countries increased by 16 percent from 2005, reaching a total of $44.2 billion.[10] Excluding oil, other imports eligible for duty-free treatment under AGOA increased by 7 percent from 2005 to 2006, with several sectors of particular importance to women (footwear, agricultural products and cut flowers) experiencing increases.[11] In particular, AGOA has created enormous economic potential in the apparel and textile sectors. AGOA generated thousands of apparel jobs in sub-Saharan Africa - 45,000 in Swaziland, 26,000 in Lesotho, and 30,000 in Kenya - and 75 percent to 90 percent of these jobs have gone to impoverished women.[12]

Despite AGOA's success in generating opportunities in this sector, the global apparel and textile market continues to be volatile, and many small developing countries, including those in Africa, have seen jobs move to larger advanced developing countries in the wake of the recent expiration of the Multi-Fiber Agreement (MFA). With apparel quotas for China set to expire at the end of 2008, immediate attention needs to be paid to further developing Africa's capacity to compete globally. Improvements in infrastructure and transportation networks will benefit this sector and the African economy as a whole; while improvements in job quality will improve the lives of workers and the long-term capacity, productivity and viability of the African apparel sector.

AGOA has also encouraged trade amongst AGOA beneficiary countries,[13] although more could be done to facilitate regional cooperation. The current 35 percent value-added rule of origin, which applies to all products except apparel from lesser-developed AGOA beneficiaries, allows AGOA countries to count inputs from each other towards the value-added requirement, thereby encouraging local sourcing.

Success stories from the trade hubs in sub-Saharan Africa illustrate how AGOA has promoted economic policy reform, helped the private sector access markets, increased access to financial services, and facilitated investment in infrastructure.[14] As part of the AGOA infrastructure, USAID funds and manages four trade hubs in sub-Saharan Africa, located in Gaborone, Botswana; Nairobi, Kenya; Accra, Ghana; and Dakar, Senegal. These hubs assist local African entrepreneurs in navigating U.S. trade policy and provides financial and technical assistance often necessary to export to the United States.

Several additional examples exist of how capacity building programs have directly generated results. In 2005, USAID and the government of Ethiopia teamed up to send several Ethiopian textile, garment and handicraft companies to attend a major sourcing convention in the United States. With the opportunity to promote their products in the United States and international markets, the Ethiopian companies were able to secure $10 million in orders. Through another program, following the devastating genocide in Rwanda, USAID invested more than $10 million to rebuild the local infrastructure needed for Rwandan specialty coffee exporters to resume their business. As a result of this investment, the industry went from zero tons to 1,200 tons in 2004, and an estimated 40,000 farmers and their families have doubled their income as a result.[15] Finally, increased access to the U.S. market through AGOA has allowed companies, like the Phenix Factory in Kampala, Uganda, to provide sustainable, higher-paying jobs because of the opportunity to export to the United States. The Phenix Factory, which employs 260 workers, produces high-quality, organic cotton apparel and is able to pay employees $720 a year, a notable increase over the average annual income of $245. These opportunities are a direct result of increased trade with the United States.

As these stories illustrate, the market access and trade capacity building generated by AGOA have been drivers of economic opportunity in Africa. To build on these successes, more can and should be done to ensure that trade with and within Africa reaches its potential.

Where AGOA Has Fallen Short

According to the World Bank, "as producers, 70 percent of all Africans - and nearly 90 percent of their poor - work primarily in agriculture . As consumers, all of Africa's poor - both urban and rural - count heavily on the efficiency of the continent's farmers."[16] This is especially true for women, who dominate the agricultural sector throughout Africa, and are largely in charge of securing food for their families.

Despite the importance of agriculture to Africa's livelihood, AGOA limits trade in a number of agricultural products, and, as a result, agricultural trade under AGOA continues to be minimal. While the reality of the African economy would suggest the possibility of greater trade in agricultural products, exports under AGOA have been concentrated in petroleum products and oil, which together make up 93 percent of trade under the program. Non-oil exports under AGOA totaled only $3.2 billion in 2006.[17] Moreover, while the majority of African countries are significant agricultural producers, only a few countries - Nigeria, Angola, South Africa, and the Republic of Congo - have captured the lion's share (nearly 85 percent) of preferential trade under AGOA. Of these countries, only one, Angola, is amongst Africa's poorest.

While apparel has been a relative success story under AGOA, the sector remains volatile for African countries and other smaller developing countires. As the World Bank and International Monetary Fund have noted, the increased global competition that followed the demise of the global system of apparel quotas with the expiration of the MFA Agreement on January 1, 2005 has led to declining values for African exports in this sector. [18] Despite preferential access under AGOA and a liberal rule of origin for Africa's least developed countries (LDCs), apparel jobs have already left Africa to move to large advanced developing countries. Other African countries have not captured these shifts in trade, nor have other smaller, lesser-developed countries. It is important to preserve and improve the vital apparel jobs that have been created under AGOA, yet the ability of this sector to continue to grow will depend upon investment and economies of scale. With the looming expiration of textile and apparel quotas for China at the end of 2008, a valid and relevant concern remains for the fledgling apparel and textile sectors in Africa, and more needs to be done to ensure competitiveness in these industries.

Experience has shown that increased trade can create economic opportunities for impoverished women and men, but barriers to accessing markets, lack of capacity, and supply-side constraints are particularly pronounced in Africa and have hampered economic development. Any markets, including those only minutes away, can be nearly impossible to access due to inadequate roads, poor services and energy infrastructure and lack of transportation networks. The inability to collect, analyze and disseminate market information, such as market prices, makes it difficult for small and large producers in Africa to compete locally, regionally and globally. Further, inefficient customs procedures and complex sanitary and phytosanitary (SPS) standards often delay the shipment of goods, making it particularly challenging for African producers to compete in perishable products, such as flowers, fruits and vegetables.

Weak labor laws and poor enforcement of existing labor standards have prevented the poorest in Africa from fully enjoying the benefits of trade. Studies show that respect for basic international labor standards have a positive effect on the long-term income and economic growth of countries. Both strengthening labor requirements to include all core International Labor Organization (ILO) standards, including prohibitions against forced and child labor, the rights to association and collectively bargaining, and protections against discrimination in the workplace, and increasing capacity building assistance would help ensure that the millions living in poverty in Africa see the benefits of AGOA and would enhance AGOA's overall ability to generate sustainable reform.

AGOA and Women's Untapped Economic Potential

Throughout the developing world, women face the greatest challenges to participating in global trade. Women are among the most impoverished, most vulnerable economic participants, precisely those whom the preference programs should help most. This is particularly true in Africa, where women represent an enormous untapped potential for the economic development of the region. Though women provide most of the continent's labor, their effectiveness is hindered by inability to access resources like financing, land, and education and an inability to exercise their legal rights.[19] Studies have noted that obstacles to women's participation in the private sector in Africa have hindered the development, productivity and competitiveness of industries on the continent. [20] In Africa, as in the rest of the world, women comprise the majority of the workers in the informal sector, a point of entry into the formal sector.[21] According to the Africa Commission Report, women have the greatest potential to contribute to economic development in Africa.[22] In order to tap into this potential, programs need to be put in place to build women's capacity and assets and to link women to markets.[23] For the craftswomen struggling to access markets or the workers who hope that they will not lose their jobs, capacity building and skills training can make the difference between a sustainable livelihood or ongoing struggle for the entire family. Human capacity building and programs aimed at improving labor standards and their enforcement can mean the difference between a job that lifts a woman out of poverty and a job that keeps her there.

Elements of the Current System of U.S. Trade Preference Programs That Have Limited Potential for the World's Poorest Countries

Notwithstanding the positive impact of existing preference programs like AGOA, these initiatives can and should be improved. While poverty reduction through increased trade is the primary goal of AGOA and all of the other U.S. preference programs, the programs do not fully achieve this aim because, as the example of the African agricultural sector illustrates, some very poor countries do not currently receive preferences for the products in which they have export potential, which are exactly those products that would help the poor the most. This is true of all countries covered by regional preference programs, including sub-Saharan Africa, and for the 15 least developed countries (LDCs) like Bangladesh and Cambodia that are eligible only for GSP and not for one of the regional preference programs. Despite AGOA's successes, sub-Saharan Africa continues to have poverty levels that warrant further special attention to ensure that sustainable development occurs. In addition, many countries simply lack the technical capacity to take advantage of potential benefits. Finally, all programs are temporary in duration and include different and onerous rules and eligibility requirements that make it difficult for small and large producers to navigate successfully.

While AGOA is the most comprehensive U.S. preference program, products exclusions, including limitations on agricultural exports subject to tariff-rate quotas, continue to hinder development of vital sectors in Africa. Products that are currently subjected to tariff-rate quotas under AGOA include sugar, cotton, some dairy, peanuts and beef, with small quota limits for the amount of goods that can enter the United States duty-free. Many of these products, including cotton and sugar, could be produced competitively by some of the poorest countries in Africa if prohibitive tariffs, effective once the amount imported into the United States exceeds a certain quota, were eliminated under a duty-free quota-free program.

Beyond product exclusions and limitations, several other aspects of the preference programs impede their effectiveness in promoting trade with and development in less-industrialized developing countries. Short extensions and frequent expirations under preference programs create disincentives for long-term investment. This has greatly undermined the effectiveness of the programs in promoting trade and investment in marginal, developing countries. Simply put, investors and importing firms attracted by the opportunity of preferences will not invest in or source from countries if the status of the preferences is in doubt. In contrast, where preferences are stable, trade and investment have flourished. For example, U.S. preferences for the Caribbean and Central American countries, which are permanent and have been in effect continuously since 1984, have had a significant impact on investment.[24] While AGOA will not expire until 2015, and the third-country fabric provision, which allows AGOA beneficiary countries to source fabric from any country, will be in place until 2012, making AGOA permanent now could create the stability necessary for long-term investment in a number of industries.

Proposed Changes to Broaden the Benefits of U.S. Trade Preference Programs

We reiterate our strong support for the objective of promoting international economic development through trade. AGOA has promoted economic development and growth in low-income and least developed countries in Africa, and these benefits should be preserved. More could be done, however, to meet the challenges described above and ensure that AGOA reduces poverty to the greatest extent possible. We, therefore, believe that a more generous, comprehensive, and certain U.S. trade preference program, that includes enhanced provisions for AGOA-eligible countries, would increase opportunities for Africa and developing countries around the world.

In order to achieve the objective of broadening the use of preference programs, we propose that future legislation should include the following elements: (1) grant 100 percent access to the U.S. market (duty-free quota-free) for all sub-Saharan African countries currently covered by AGOA, LDCs, and low-income countries vulnerable to natural disaster and other shocks; (2) address Africa's unique needs through special benefits for sub-Saharan Africa ("AGOA Plus"); (3) provide for integrated and targeted trade capacity building assistance; and (4) consolidate current U.S. trade preference programs into one simple, permanent program with one set of comprehensive eligibility criteria and rules.

Provide 100 Percent Duty-Free, Quota-Free Access for the Poorest Countries

For the poorest countries in Africa and around the world, complete preferential market access would produce the greatest gains at very little cost. Comprehensive (i.e. 100 percent) access to the U.S. market, free of both duties and quotas ("duty-free quota-free"), would be of great significance, both in the context of ongoing World Trade Organization (WTO) Doha Development Round talks and as an improvement to the current system of U.S. preference programs. Careful research by the International Food Policy Research Institute (IFPRI) shows that if the United States were to extend 100 percent duty-free quota-free market access to LDCs, significant potential gains in export volume and real income could result for several countries, including Madagascar and Malawi.[25] IFPRI's study also shows that 100 percent duty-free quota-free treatment for all LDCs would overall result in increased, not reduced, export volume and real income gains for sub-Saharan African LDCs and would have almost no negative impact on U.S. producers of sensitive products, with some U.S. producers, such as cotton producers, showing gains through this increased access for LDCs.[26]

Further, IFPRI has found that if duty-free quota-free preferential market access moves forward multilaterally, and if all OECD countries were to implement a Doha package that included 100 percent duty-free quota-free access (instead of 97 percent), potential real income gains for all countries could increase by as much as 26 percent, with over half of these supplemental gains, or a seven-fold increase in real income, experienced by LDCs.[27] Realizing these gains, however, depends upon multilateral leadership and a clear commitment to implement 100 percent duty-free quota-free market access for the poorest countries in the world.

Elimination of tariff rate quotas on sugar could lead to enormous gains for some of Africa's poorest countries, including Malawi, Mozambique, Uganda and Zambia. Currently, all LDCs are allowed to export a combined total of only 50,000 metric tons of sugar annually to the United States, even though the United States is a deficit producer of sugar. Of the 34 AGOA-eligible countries, 26 export sugar, and, of the 26, only 10 have any share of the U.S. sugar quota. Further, allocation of the sugar quota is based on outdated data and incorrect assumptions about global production, which translates into no potential for market access for countries that could be competitive now but were not between 1975-1981. This system has absurd results for Africa and means that 16 very poor African countries face burdensome tariffs when shipping any quantity at all of sugar to the United States. These policies also inhibit the ability of African LDCs to expand into the more valuable business of value-added processing. While the current system allows Africa to produce 70 percent of the world's cocoa, as soon as that cocoa is processed and combined with sugar it is subject to high tariffs and restrictive quotas when entering the U.S. market. A comprehensive duty-free quota-free initiative that corrects these inequities would unlock some of the greatest potential development gains for Africa.

Similarly, the current tariff rate quota system restricts the export of cotton, which could be produced competitively by some of the poorest countries in Africa. While Benin, Burkina Faso, Chad, Mali, Mozambique, Malawi, Senegal, Tanzania and Zambia (all with a per capita income below $900) are able to produce cotton competitively, the U.S. quota limits the amount of cotton that can enter duty-free from these countries. Under the current system, Tanzania, Burkina Faso and Zambia had 103,000 metric tons, 46,000 metric tons and 10,000 metric tons of cotton, respectively, that they were unable to export anywhere. Because cotton supports the livelihoods of over 10 million people in West and Central Africa, eliminating the current tariff rate quota system could alleviate poverty and lead to essential economic growth and development for these countries. For many of the farmers in Western and Central Africa, cotton is the only cash crop; in Benin, Chad, Mali and Burkina Faso it accounts for between 30 and 60 percent of all exports. Under the current tariff rate quota system, any cotton entering the United States over and above the quota of 76,545 metric tons is subject to a high tariff of 31.4 cents/kg, and some types of cotton face 4.4 cents/kg or 1.5 cents/kg tariffs even when they are within the quota.

Further, WTO discussions of duty-free quota-free have focused on LDCs, yet non-LDC sub-Saharan African countries and other impoverished countries such as Sri Lanka which are only marginally better off and remain vulnerable to economic shocks or natural disasters remain in dire need of the economic development that preferential market access can generate. Accordingly, duty-free quota-free treatment should apply not only to all LDCs but to vulnerable countries and all of AGOA-eligible sub-Saharan Africa as well.

Special Benefits for Africa: "AGOA-Plus"

As outlined above, Africa continues to warrant special attention, and a broad and comprehensive vision for U.S. trade and development policies requires enhancing the benefits of AGOA. Given the particular situation facing sub-Saharan Africa, additional market access should be created for countries in the region in order to build on the successes of AGOA to create lasting, sustainable change in the African economy. To encourage regional trade within Africa, these benefits should exist for all African countries, not just LDCs.

Under special provisions for sub-Saharan Africa ("AGOA-Plus"), AGOA countries should receive market access free of quotas and duties for all products and additional benefits beyond those available to other LDCs and vulnerable countries, including a special rule of origin with a lower value-added threshold. Apparel-producing AGOA LDCs should be allowed to continue to use the existing third-country fabric rule. AGOA Plus also should include a base amount of targeted aid for trade funding for eligible sub-Saharan African countries, beyond current levels, with a special emphasis on trade-related infrastructure deficiencies. U.S. trade and development agencies should be required to implement procedures to ensure that their activities have a positive effect on industry, growth and employment in sub-Saharan African beneficiary countries.

Provide Targeted Trade Capacity Building Assistance

As the Trade Hub success stories from Ethiopia and Rwanda noted above indicate, capacity building assistance is essential to improving trade opportunities for Africa. Due to trade capacity constraints in poor countries, many developing countries, especially in sub-Saharan Africa, cannot take advantage of the opportunities created by U.S. preference programs. Current U.S. trade capacity building assistance for sub-Saharan Africa reached $394 million in 2006 and represented a 95 percent increase from the year before.[28] In 2005, the United States also implemented the five-year, $200 million African Global Competitiveness Initiative (AGCI) to focus more directly on increasing U.S. investment in Africa and improving the competitiveness of private sector efforts on the continent. AGCI funds the four US Trade Hubs for Global Competitiveness.

A number of commitments to increase trade capacity building assistance have been proposed, yet few have been implemented. The G-8 has committed to increasing Aid for Trade funding to $4 billion by 2010 for all developing countries. In 2005, at the Hong Kong WTO Ministerial conference, the United States announced that it would double its trade capacity building assistance funding from $1.3 billion in 2005 to $2.7 billion annually by 2010. While these commitments are promising, they have not yet made reality and, even if implemented, do not go far enough to address developing countries' needs. The Commission for Africa recommends that sub-Saharan Africa alone needs $10 billion per year just to develop necessary infrastructure, [29] which supports the need for both enhanced trade capacity building funding and greater attention to Africa from multilateral donors such as the World Bank.

The majority of what is currently counted as U.S. trade capacity building assistance for Africa is provided through the Millennium Challenge Corporation (MCC), which innovatively bases eligibility for funding on comprehensive reform criteria and includes requirements for government consultations with civil society in the compact development process. While the MCC has promised $276 million for Africa, only a portion of the committed amount has been disbursed. In addition, the MCC currently focuses on individual compacts and does not evaluate programs based on their ability to support closer regional cooperation. In order to address Africa's capacity building needs, funding for the MCC should be continued and increased; however, since not every African country is eligible for MCC funding and the MCC is not currently designed to address all of Africa's capacity building challenges, additional, significant sources of trade capacity building assistance are desperately needed.

Not only is increased funding for trade capacity building assistance programs necessary to ensure the development and viability of African industry, AGOA's benefits could also be enhanced by better linking specific trade capacity building programs to the types of market access provided under AGOA. Although market access under AGOA and the other preference programs needs to be expanded to industries of particular importance, current preferences could be made more meaningful through linked capacity building. For example, lack of capacity building programs and training on AGOA contribute somewhat to the concentration of AGOA trade in petroleum products. If producers of other products were better assisted to utilize the existing program, trade in other products could increase. For example, women producers of handicrafts could benefit from such assistance.

All African countries and other developing countries around the world, need additional targeted capacity building in order to help these countries fully realize the benefits of the preference programs. Training programs to develop management skills and technical expertise and workshops and other tools to navigate the complex rules and regulations of international trade and the preference programs should be developed so that impoverished women and men can benefit from market access opportunities. Trade capacity building assistance would also help implement improvements to customs and trade facilitation, technical standards and sanitary and phytosanitary standards (SPS), all of which are necessary for economic growth. Improving trade-related infrastructure, including access to financial services and telecommunications, and hard infrastructure, including roads, in a manner consistent with addressing the different needs of women and the rural poor would enable many to access larger markets and a greater range of economic opportunities.

Further investment in human capacity development is also needed, and, along with more comprehensive labor standards in preference programs, could greatly contribute to improvements in quality of life for workers around the world. A portion of U.S. trade capacity building funds should be specially set aside to fund programs geared towards helping countries comply with labor standards required to stay eligible for AGOA and other preference programs. Assistance is needed to help the countries reform labor laws or make progress toward implementing standards. These programs could expand the capacity of labor ministries, bring in international expertise to help train factory managers, fund worker education programs, help upgrade facilities, set up monitoring mechanisms to ensure compliance with standards, improve judicial capacity to prosecute violators, and implement case management systems.

Consolidate U.S. Trade Preference Programs Into One Permanent Program With One Set of Clearly Defined Eligibility Criteria

The success of AGOA and all of the other U.S. preference programs in creating opportunities for the poor is undermined by the temporary nature of the programs, inconsistent criteria for termination of benefits, and inconsistent and restrictive rules of origin. Such difficulties impair the ability of beneficiary countries to promote long-term investment. One set of comprehensive, clearly defined eligibility criteria, with comprehensive protections for workers including protection against discrimination in the workplace, would help ensure that the benefits of the preference programs reach all members of society and that the jobs created under these programs are good jobs. In order to fully assess how developing countries can benefit the most from trade policies like the preference programs, the U.S. government should also put in place a comprehensive development review.

AGOA, as outlined above, has successfully led to the creation of desperately-needed jobs, many of which went to impoverished women, through a permissive rule of origin on which many of the AGOA apparel exporters rely (the third country fabric rule). These jobs, however, have been threatened each time the third country fabric rule neared expiration. As industries like the African apparel industry and other budding industries struggle to grow, permissive rules of origin, permanence, and certainty will be essential if much-needed investment is to be attracted.

Conclusion

In closing, I thank the Committee again for the opportunity to present this testimony on such an important issue. The situation of women around the world highlights the potential of trade preference programs like AGOA and provides an illustrative case study for reforming and improving these programs as well. U.S. preference programs have helped create millions of jobs, both directly and in related industries and services, promoted rule of law, and fostered a more skilled and better protected workforce. These positive results would be made even more significant through the establishment of a more generous, comprehensive, and certain system of U.S. trade preferences with enhanced benefits ("AGOA plus") for Africa that enabled developing countries to benefit as much as possible from global trade. Implementing such a program could provide potential life-changing benefits for the world's poorest, including impoverished women in the developing world. Ultimately, it is in the interest of global stability and economic development to ensure that the benefits of trade and globalization are spread more equitably throughout the world.


[1] Progressive Policy Institute, Trade Fact of the Week, February 21, 2007, available at http://www.ppionline.org/ppi_ci.cfm?contentid=254199&knlgAreaID=108&subsecid=900003, accessed on March 14, 2007.

[2] See Judith M. Dean, "Do Preferential Trade Agreements Promote Growth: An Evaluation of the Caribbean Basin Economic Recovery Act," USITC Office of Economics Working Paper, No. 2002-07-A (Washington, DC: USITC, July 2002).

[3] For a brief history of the Generalized System of Preferences (GSP), see Assessment of the Generalized System of Preferences, General Accounting Office, Report 95-9 (November 1994), Chapter 1.

[4] Available at www.data.org/whyafrica, accessed on July 9, 2007.

[5] Id.

[6] Office of the United States Trade Representative, 2007 Comprehensive Report on U.S. Trade and Investment Policy Toward Sub-Saharan Africa and Implementation of the African Growth and Opportunity Act, Washington, D.C.: United States Trade Representative, 2007, 21.

[7] Id.

[8] Available at www.data.org/issues/trade_detail.htm, accessed on July 9, 2007.

[9] Office of the United States Trade Representative, supra note 6, at 7.

[10] U.S. Africa Trade profile, available at www.agoa.gov, accessed on July 4, 2007.

[11] "2007 AGOA Report Shows Growth in U.S.-Africa Trade." Office of the United States Trade Representative. May 18, 2007.

[12] UN Integrated Regional Information Network

[13] Office of the United States Trade Representative, supra note 6, at 29.

[14] "The African Growth and Opportunity Act: Achieving Success through the African Global Competitiveness Initiative, June 2006." Available at www.agoa.gov, accessed July 4, 2007.

[15] Id.

[16] Eleni Z. Gabre-Madhin and Steven Haggblade , "Successes in African agriculture : results of an expert survey," Washington, D.C.: International Food Policy Research Institute, 2001.

[17] Of these products, transportation equipment was significant, growing by 81 percent to $495.3 million of the $3.2 total, due to imports entirely from South Africa. Mineral and metal imports also increased by 21 percent to $596.3 million.

[18] Office of the United States Trade Representative, supra note 6, at 22.

[19] Bardasi, supra note 13, at 70.

[20] Id.

[21] Bardasi, supra note 13, at 81.

[22] The Commission for Africa 2005.

[23] Bardasi, supra note 13, at 70.

[24] Dean, supra note 2, at 5.

[25] Saswati Bora, Antoine Bout and Devesh Roy, International Food Policy Research Institute, Research Brief: Marginalization of Africa in World Trade (May 2007).

[26] Id.

[27] Id.

[28] Office of the United States Trade Representative, supra note 6, at 10.

[29] DATA, "The DATA Report 2007," (May 2007), available at http://www.thedatareport.org/, accessed on July 11, 2007.



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