AGOA is due to remain in force until 2015. However, one of its concessions, the third country fabric provision, a key driver of the apparel sector’s success, expires at the end of September 2012. Thousands of African apparel jobs and related livelihoods are under threat, as buyers and investors play a game of wait and see.
AGOA Apparel Exports
Textiles and apparel have played a major part in AGOA’s success throughout the last 11 years. After natural resources, the African apparel sector in particular is one of the largest industrialized sectors on the continent. Even so, African apparel exports only made up 1.16% of apparel imports to the US for the year ended December 2011; 86 percent of these depend on the third country fabric provision.
In order to export apparel to the US, an AGOA-eligible country must have a textile visa in place to satisfy U.S. authorities and prove compliance with AGOA rules of origin. AGOA apparel concessions have enabled African exporters to remain competitive in the American market. Key beneficiaries have been Kenya, Lesotho, Mauritius, Swaziland, Tanzania, Ethiopia, South Africa, Ghana, Botswana, Cameroon and Malawi.
Most sub-Saharan countries’ U.S. exports comprise either fabric sourced from the region, traditional handwoven fabric, ethnic printed fabrics or fabric sourced under the third country fabric exemption. This last category specifically excludes the more developed economies of South Africa, Mauritius, Gabon and the Seychelles.
Third Country Fabric Provision
The third country fabric provision essentially enables AGOA beneficiary lesser-developed countries to source yarn and fabric globally, assemble garments using the local workforce, and export them to the US duty-free. This allows poorer developing countries with limited capacity to spin or manufacture fabric, to get a foothold in the apparel value chains, without having to source the raw materials locally.
The third country fabric provision accounts for 86 percent of all apparel trade under AGOA. In Kenya, for example, exports of textiles and apparel under the third-country fabric provision account for about 70 percent of Kenya’s total exports into the United States.
Jobs and Factories at Risk
Since AGOA’s inception in 2000, exports of garments have risen exponentially; with around 200,000 thousand jobs created in the apparel sector throughout Sub-Saharan Africa.
The imminent expiry of the third country fabric provision threatens jobs in a sector where some 70-80 percent of the workforce are women. Miguel Chicas, Operations Manager of Lucky1888Mills clothing factory in Tema, Ghana which formally opened in 2011, stated the facts in stark terms,
“If they don’t extend the rule, we have to close. Right now we have 500 people working with us.”
As part of a Pakistani-US joint venture, Lucky1888Mills sources all its fabric from Pakistan.
“We still have orders. We have fabric, but if we want to source from the people we want to, we won’t get the exemption on taxes. We will have to pay.”
Buyers and investors are playing a game of wait and see – the uncertainty is bad for business. The Washington-based African Coalition on Trade, which represents exporters in nine AGOA countries, claims that African manufacturers have already lost more than 35 percent of their orders from U.S. customers due to the uncertainty surrounding the extension of the provision.
Writing on the Wall
With the frays already visible, time is of the essence so this sector’s hard won gains are not allowed to unravel.
Swift congressional action is required to pass the relevant bill which has been lying before Congress since July 2011. U.S. decision makers have legitimately questioned the inertia on the part of certain AGOA-eligible countries. Some have never used this arrangement in its 12 years of existence, while other African countries have not maximized its use.
Nonetheless the rationale for Africa-U.S. imports endures. The benefits for U.S. retailers are reduced costs and a diversified supply chain; for consumers, more low-cost apparel options. Beyond that, AGOA also generates goodwill towards U.S. companies and attracts investments to African markets.
The Mauritian and Zambian ambassadors to the U.S. recently sounded alarm bells that time is running out for the extension of the third country fabric provision.
The 40 trade ministers from Africa preparing to assemble in Washington for the annual U.S.-Africa AGOA forum have their work cut out for them. Beyond advocating for this provision’s extension, they urgently need to formulate strategies to maximize use of AGOA and make their apparel sectors more competitive by encouraging training, facilitating lower production costs, easier access to finance and introducing investment incentives to boost growth.
Author: Denise Awoonor-Renner
Source: West Africa Trade Hub – republished with permision