Tuesday, January 15, 2008

The African Question: AGOA and Missed Opportunities: How China's Investment Paradigm is Winning the Day in Africa

By Osman Aziz* (*Student intern at the Institute for Trade, Standards and Sustainable Development

Posted on Wednesday, January 9, 2008 at 05:45PM

A long forgotten aspect the Bush administrations international trade policy is the question of Sub-Saharan Africa. The last major implement, known as the African Growth and Opportunity Act was conceived of in 2000 with subsequent reports filed annually with regards to acquisition of eligibility on the part of African nations. Although trade with Africa has increased steadily over the years since AGOA has been implemented, the Bush administration has not invested the sort of necessary consideration that other nations such as China have been directing towards the region. Regardless, the trade statistics do seem hopeful.

“Since its inception, AGOA has helped increase U.S. two-way trade with sub-Saharan Africa. In 2006, U.S. total exports to sub-Saharan Africa rose by 17 percent over 2005 to $12.1 billion. U.S. total imports from Africa increased by 17 percent to $59.2 billion. In 2006, over 98 percent of U.S. imports from AGOA-eligible countries entered the United States duty-free.” [1]
Although the elimination of trade barriers and the dissolution of tariffs have contributed to an increase in overall trade with the United States for consumer products, the presence of natural resources in abundance has been the most significant factor contributing to increased interest from developing nations such as China and India. The same USTR report outlined an increase in non-oil related exports, a factor that may serve to place the debate surrounding Africa in perspective. Although FDI has increased steadily over the years [2] , US businesses and financial institutions have restricted investment in the region over concerns regarding stability.

On the other hand, China has made it abundantly clear that they are willing to play a completely different game than the US and some European nations.

“ The main consumer countries were South Africa (US$3.8bn), Nigeria (US$2.3bn) and Egypt (US$1.9bn). A look at the top three African exporters to China confirms the Chinese incentive in the relationship: oil producers Angola and Sudan occupy first and third place respectively, earning US$6.6bn and US$2.6bn in 2005, while gold and metals producer South Africa comes in second, with US$3.4bn. ” [3]

This sort of opportunist outlook has fueled criticisms towards China’s incentive based approach, however, with little reason to renege on its current strategy (it seems to be working wonders), China may be winning the day in Africa at the expense of the US and other developed nations. This scenario, which constitutes China’s trade paradigm, is a strategic development that has been met with underwhelming response from the Bush administration. Although TACA (Trade Advisory Committee on Africa) was re-chartered in 2006 in order to further address the criteria for African nations attaining AGOA acquisition, the US’s trade paradigm has remained relatively the same over the last few years despite the ascendancy of Chinese and Indian interests in the region.

Although AGOA was a bold step forward in eliminating trade barriers, Africa still is suffering from certain restrictions in the form of NTB (Non-Tariff Barriers).
“One example of increased barriers, allowed under the WTO, are more stringent phytosanitary standards. From the African perspective, those standards have become formidable non-tariff barriers (NTBs). The Dutch, for example, control the European Union (EU) market for flowers and have imposed high standards for producers to receive positive ‘eco-labeling’ on their flowers.” [4]

Although developed nations such as the US and the constituent members of the EU have made substantial claims regarding the reduction of trade barriers and tariffs, the existence of such NTB’s presents a major discrepancy to such a policy. While developing nations buy into the resource markets and return the favor with FDI, developed nations have been neglecting a major market for labor and specialized products. Although exports have risen steadily since the inception of AGOA, the level of exports to Africa has either plateaued or even dropped. [5]

China, on the other hand, has joined the ranks of the top three trading partners of Africa trailing both the US and France. [6] Although some may chalk up China’s progress to a natural need for resources and commodities, it doesn’t help explain China’s burgeoning role as provider for FDI.

The World Bank in 2003 lambasted US FDI efforts as being focused primarily on returns as opposed to long term growth. [7] The question of foreign trade policy in Africa is something of a paradox confronting policymakers in the USTR, the State Department, and the Department of Commerce. Pushing the agenda for advancing product export and goods trade comes at the disadvantage of undercutting a more robust trade portfolio.

On the other hand, a trade off of resources and FDI could stoke a debate from humanitarians who would shout foul. As with the formulation of any trade policy, a way forward must come from reforms of the decrepit and inadequate AGOA and the promotion of a series of FTA’s with African nations, a notion that has lost ground over the course of the implementation of the AGOA.

[1] United States Trade Representative. 2007 Comprehensive Report on US Trade Investment Policy Toward Sub-Saharan Africa and Implementation of the Africa Growth and Opportunity Act. Pg. 6 (May 2007)
[2] Ibid. Pg. 6
[3] Emerging Markets Online. Africa-China: A Key South-South Relationship.
[4] Carol B. Thompson. Review of African Political Economy. (September 2004)
[5] US Census Bureau. US Exports and Imports and Trade Balances with Africa. (2000-2007)
[6] International Herald Tribune. Growing Trade with China a Threat. (November 16th, 2006)
[7] World Bank. US FDI in Africa. (2003)

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