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Apr 255 min read

Strengthening U.S. – Africa Economic Relations: Bill Proposes 16-year AGOA Extension with Improvements



On April 11, the African Growth and Opportunity Act (AGOA) Renewal and Improvement Act of 2024 was introduced in the U.S. Senate to renew and update the AGOA program which expires on September 30, 2025. The AGOA, enacted in 2000 and renewed in 2015 for a period of 10 years, has played a key role in U.S. efforts to deepen economic ties with sub-Saharan Africa. The unilateral preferential trade program, which enjoys bipartisan support in the U.S., provides eligible African countries with duty-free access to the U.S. market for almost 7,000 tariff lines, from around 17,000 unique tariff lines. 32 African countries are eligible for AGOA preferences in 2024.[1] Trade with the U.S. under AGOA (including GSP) has, however, stagnated at around USD 10-15 billion as shown in Figure 1. While most products exported under AGOA used to consist in oil products, this has since dwindled, and now the majority of trade consists of non-oil products.


Figure 1: Goods Trade under AGOA (2002-2022)


Source: USTR[2]


Figure 2: Top ten African Exporters to the U.S. in 2022















Source: IEC TradeInsights based on UNSD Comtrade[3]


Figure 3: Top Products Exported by Africa to the U.S. in 2022


Source: IEC TradeInsights based on ITC TradeMap[4]

Note: Only products with an export value of greater than $300M are shown in the chart.


The proposed Bill seeks to extend AGOA for 16 years. This unprecedented longer extension aims to “provide businesses the certainty needed to invest in sub-Saharan Africa, supporting economic growth and development in the region.”[5]  With the momentum to diversify U.S. supply chains away from China and the African Continental Free Trade Area (AfCFTA) offering promising investment opportunities on the continent, this extension is positioned to enhance U.S. economic involvement in the region. This is an engagement that Africa eagerly anticipates, as highlighted by South African President Cyril Ramaphosa’s statement at the AGOA Forum in November 2023: “We would like you to look at an extension of AGOA for a sufficiently lengthy period … to act as an incentive for investors to build factories.” [6]


The Bill also proposes amendments to the process for evaluating and enforcing eligibility to benefit from AGOA preferences. First, it seeks to reduce the frequency of the AGOA Eligibility Review from annually to biennially with the aim of dedicating more resources to effective AGOA implementation and enforcement of the program’s requirements. Nevertheless, the Bill maintains the authority of the President to undertake an out-of-cycle review at any time and extends this right to Congress. It also empowers the President to assign responsibility for AGOA reviews and enforcement to be jointly handled by the Secretary of State and the U.S. Trade Representative.


The Bill shifts from completely suspending AGOA benefits if a country fails to meet the eligibility criteria to providing a series of options for enforcement. The termination of the AGOA program for the Central African Republic, Gabon, Niger, and Uganda effective January 1, 2024, had sparked debates. And the eligibility of South Africa, a top AGOA exporter and a key supplier of critical minerals to the U.S., is also highly contested. A World Bank study finds that the abrupt termination of AGOA benefits can lead to 65% drop in exports for countries with pre-suspension utilisation rates above 30%.[7]  The Bill appears to address economic concerns due to loss of preferential access by granting the President the authority to terminate benefits only for specific products, issue a warning letter indicating termination of benefits in the following year if corrective actions are not taken, and choose to take no action if it is determined to be in the best interest of the U.S . It also offers the option of terminating all benefits. In a bid to increase transparency around the enforcement process, the Bill also mandates that the Executive Branch provide a comprehensive report and briefing to explain the termination or restoration of a country’s AGOA preferences. Furthermore, the Bill aims to enhance clarity of the broad AGOA eligibility criteria by referencing other U.S. laws and policies.


The new Bill places strong emphasis on enhancing utilisation of AGOA and aims to integrate AGOA with the AfCFTA to support development of intra-African value chains. The 2015 AGOA reauthorisation promoted the development of AGOA utilisation strategies. However, several AGOA-eligible countries are yet to establish such a strategy, and many of those that have developed one have not implemented it.  The Bill incentivises the development and implementation of AGOA utilisation strategies by offering capacity building assistance to countries to execute these strategies. To support regional integration in Africa, the Bill also proposes to amend the Rules of Origin to allow inputs sourced from North African AfCFTA members to count toward the regional value content rule of 35%.[8] North African countries would have to fulfil the AGOA eligibility criteria regarding governance, human rights, and foreign policy to be considered in the extended rules of origin scheme. Additionally, the new legislation would mandate the U.S. International Trade Commission to conduct a study on the economic impacts of expanding the list of covered goods, in view of updating the list originally created in 2000.  


The Bill seeks to ensure that countries do not lose their AGOA eligibility until they have maintained the high-income status for five consecutive years. The current AGOA legislation stipulates that countries lose AGOA preferences once they attain high-income status, as determined by the World Bank's GDP per capita measure. Recognising the potential fluctuations in the GDP of developing economies and the far-reaching economic implications of loss of access to AGOA for both for the country concerned and the region, the Bill proposes two key changes: 1. maintaining AGOA eligibility up until a country has sustained high-income status for five consecutive years and 2. offering the option to extend a country’s eligibility for an additional maximum of five years to allow for the negotiation of a Free Trade Agreement. This proposed amendment, which enhances investor certainty, is also a welcome development for upper-middle income countries like Mauritius and South Africa which trade significantly with the U.S. under AGOA.


While the Bill is yet to be adopted, it presents significant improvements to the existing trade arrangement and is expected to boost trade in countries that effectively use the AGOA. The predictability provided by the unprecedented 16-year extension is a welcome development for Africa’s industrialisation. Additionally, the marriage of aid with trade to promote AGOA utilisation will certainly contribute to maximising the gains of AGOA preferences.  The extension and the Bill’s support for the AfCFTA demonstrate the strategic U.S. interest in the African single market. However, the support for regional integration falls short as the Bill does not extend AGOA to all African countries but only allows for cumulation of origin with North African countries.


Figure 4: Map showing AGOA Eligible Countries for 2024






















Authors: Paul Baker, Chairman – Africa Trade Foundation and Smita Bheenick, Fellow – Africa Trade Foundation



References:



[2] USTR (n.d.), Goods Trade between the United States and sub-Saharan Africa, Available at: US Trade with sub_Saharan Africa 11162023_0.pdf 


[3] UN Comtrade Database, Available at: https://comtradeplus.un.org/ 


[4] ITC TradeMap, Available at: https://www.trademap.org/Index.aspx


[5] Sens Chris Coons & Jams Risch (2024), AGOA Renewal and Improvement Act, Available at: https://www.coons.senate.gov/imo/media/doc/two_page_summary_agoa_renewal_and_improvement_act_of_2024.pdf 


[6] Klomegah (2023), South Africa’s AGOA forum: Crafting future pathways for US-Africa trade partnership, Available at: https://agoa.info/news/article/16398-south-africa-s-agoa-forum-crafting-future-pathways-for-us-africa-trade-partnership.html 


[7] World Bank (2023), Uncertainty in Preferential Trade Agreements – Impact of AGOA Suspensions on Exports, Available at: https://documents1.worldbank.org/curated/en/099212404272329040/pdf/IDU0e80fbc010cd72049ca0a9560a77e6c4bf776.pdf 


[8] Note: Under AGOA, the regional value content rule of 35% rule applies to all products except textile and apparel.

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