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IB98015: African Trade and
Investment: Theodros Dagne and Lenore Sek Foreign Affairs, Defense, and Trade Division August 29, 2000
CONTENTS
On May 18, 2000, the Trade and Development Act of 2000 (H.R. 434) became P.L. 106-200. Title I of the Act extends certain trade benefits to sub-Saharan African countries and is known as the African Growth and Opportunity Act. The House had first approved H.R. 434 ("African Growth and Opportunity Act") with amendments by a vote of 234 to 163 on July 16, 1999. In the Senate, a comparable bill had been approved by the Finance Committee (S. 1387, "African Growth and Opportunity Act"), was folded into a package of trade bills, and offered as a manager's amendment to H.R. 434. The full Senate approved H.R. 434 as amended on November 3, 1999. The House version of H.R. 434 had dealt only with trade with sub-Saharan Africa, but the Senate version of H.R. 434 was substantially different. The Senate version included trade benefits for Caribbean Basin countries, reauthorization of the trade adjustment assistance and Generalized System of Preferences (GSP) programs, and several other trade-related provisions. The most contentious difference between the House and Senate versions dealt with imports of textiles and apparel. On April 13, 2000, the House Speaker and the Senate Majority Leader reached a tentative agreement on this issue. Congressional staff worked on a conference report, and after a second meeting of the House Speaker and Senate Majority Leader, a conference version of H.R. 434 was reached on May 2, 2000. On May 4, 2000, the House approved the conference version of H.R. 434 ("The Trade and Development Act of 2000") by a vote of 309-110. On May 11, 2000, the Senate approved the House-passed conference report by a vote of 77-19. On May 18, 2000, the measure was signed by the president and became P.L. 106-200. Title I ("African Growth and Opportunity Act") of P.L. 106-200 will extend certain trade benefits to countries of sub-Saharan Africa. It will extend benefits to sub-Saharan African countries committed to economic reform. It will establish annual high-level government meetings, require a report on the possibility of future free-trade talks, grant tariff-free entry to selected products, and call for further U.S. programs for sub-Saharan Africa. U.S. textile and apparel manufacturers were the principal opponents of the measure. They predicted transshipment from non-African countries would occur if textile and apparel imports from sub-Saharan Africa were given duty-free treatment. The measure includes provisions intended to prevent such transshipment. The Clinton Administration already adopted some of the provisions in the legislation. For example, the Administration initiated new equity and infrastructure funds for sub-Saharan Africa under OPIC and expanded programs under the Export-Import Bank. In early 1998, the Administration appointed an Assistant United States Trade Representative (USTR) for Africa. It also hosted a Cabinet-level U.S.-Africa Economic Forum. H.R. 434, H.R. 772/S. 1636 differ with regard to debt relief, development assistance, and measures to improve future trade relations. On May 18, 2000, H.R. 434 was signed by the President and became P.L. 106-200. On May 4, the House had approved the conference version of H.R. 434 by a vote of 309-110, and on May 10, the Senate had approved the House-passed conference report by a vote of 77-19. In the weeks before those votes, congressional leaders, including House Speaker Hastert and Senate Majority Leader Lott, had reached agreement on the textile and apparel provisions of H.R. 434 as amended. On November 3, 1999, the Senate approved H.R. 434 (76-19) as a package of trade bills that included the African Growth and Opportunity Act (S. 1387). The Senate-passed version, entitled the Trade and Development Act of 1999, included the Caribbean Basin Initiative-NAFTA parity proposal, reauthorization of trade adjustment assistance and the Generalized System of Preferences, and several other trade-related provisions. The House had already approved H.R. 434 on July 16, 1999, with amendments. The House-approved version included only the African Growth and Opportunity Act. U.S.-Sub-Saharan Africa Trade and Investment *** GRAPHIC not shown here. See PDF version. *** According to data reported by the U.S. Department of Commerce, in 1999, U.S. exports to sub-Saharan Africa were $5.7 billion, 1% of total U.S. exports. U.S. imports from sub-Saharan Africa were $14.0 billion, 1% of total U.S. imports. The U.S. trade deficit with the region was $8.3 billion. Most of U.S. trade with sub-Saharan Africa is with only a few countries. In 1999, 70% of U.S. exports to the region went to five countries: South Africa (46% of U.S. exports to the region), Nigeria (11%), Angola (5%), Ghana (4%), and Equatorial Guinea (4%). The other 43 countries accounted for the remaining 30% of U.S. exports to the region. (See Table 1.) *** GRAPHIC not shown here. See PDF version. *** In 1999, 82% of U.S. imports from the region came from four countries: Nigeria (31% of U.S. imports from the region), South Africa (23%), Angola (17%), Gabon (11%). The other 44 countries accounted for only 18% of U.S. imports from the region. (See Table 2.) In 1999, major U.S. exports to the region were machinery and transport equipment -- aircraft and parts, civil engineering equipment, data processing machines -- but wheat was also an important U.S. export item. The United States imported largely basic commodities from sub-Saharan Africa. Leading U.S. imports in 1999 were crude petroleum (the leading import by far) and some refined oils, minerals and materials (led by platinum and diamonds), and cocoa beans. U.S. exports were much more diversified than U.S. imports. The top 5 export items were only 32% of all exports to the region, while the top 5 imports were 75% of all U.S. imports from the region. (See Table 3.) Table 3. Leading U.S.-Sub-Sahara Exports/Imports
U.S. foreign direct investment in Africa (excluding Egypt, Algeria, and Morocco) at the end of 1998 was $9.1 billion, or almost 1% of all U.S. foreign direct investment. Two-thirds of U.S. direct investment in Africa was in the petroleum sector. The largest levels of U.S. direct investment in sub-Saharan Africa were in South Africa ($2.4 billion) and in Nigeria ($1.9 billion). The U.S. government promotes trade and investment overseas through several programs. Three major programs are:
Beginning in 1994, congressional interest in trade and investment issues related to Africa began to increase, reflecting concerns over the impact of the Uruguay Round Agreements Act on Africa. Late in 1994, in legislation to implement the Uruguay Round trade agreements (P.L. 103-465), Congress called on the President to submit five annual reports on trade and development policy toward Africa. The African Growth and Opportunity Act (105th Congress) On April 24, 1997, several members of the Congressional African Trade and Investment Caucus introduced H.R. 1432, the African Growth and Opportunity Act. On May 21, 1997, Senator Lugar introduced identical bill S. 778. On June 25, 1997, the House Committee on International Relations passed H.R. 1432 by voice vote, and on February 25, 1998, the House Ways and Means Committee approved the bill. The House passed H.R. 1432 with amendments on March 11, 1998. H.R. 1432 would have eliminated U.S. quotas on textiles and apparel, expanded duty-free benefits, institutionalized cabinet-level U.S.-Africa dialogue, and directed the President to develop a plan for future free-trade agreements. It would have backed U.S. investment by encouraging equity and infrastructure funds, expressed support for development aid, and called for cancellation of debt owed the United States by the poorest countries. On June 21, 1998, the Senate Finance Committee reported original measure S. 2400, an omnibus trade bill. Title I of S. 2400 incorporated a number of provisions of H.R. 1432 with modification. S. 2400 also included "fast-track" procedures for trade agreements and other trade provisions. S. 2400 incorporated provisions on duty-free and quota-free benefits, although with more restrictions than the House bill in regard to textiles and apparel. (In contrast to the House bill, S. 2400 would have provided duty-free and quota-free treatment of apparel products only if the apparel were assembled in beneficiary countries from fabric that was made in the United States from U.S. -made yarn.) The Senate bill also included provisions on future free-trade agreements. It did not have some of the other provisions of the House bill. Partnership for Economic Growth and Opportunity In mid-June 1997, the Clinton Administration formally embraced the just-introduced congressional trade initiative (H.R. 1432) at a White House ceremony and launched its Partnership for Economic Growth and Opportunity. For example, the Administration initiative proposed to fund equity and infrastructure funds under OPIC direction with an estimated capital of $650 million. It also proposed to appoint an Assistant United States Trade Representative (USTR) for Africa and a senior official of the U.S. Ex-Im Bank to advise the Board of Directors; and it supported the establishment of a Cabinet-level U.S.-Africa Economic Forum, consistent with the trade bills. The Administration's strategy called for three levels of participation. At Level One, the Administration planned to assist sub-Saharan countries by providing enhanced market access and investment support through OPIC and by assisting regional organizations. Least developed countries would benefit from an additional 1,783 tariff classifications under the GSP program. (At the time, the GSP program allowed duty-free access to 4,600 products for less-developed countries.) The U.S. Agency for International Development would provide $25 million for "private sector and trade related" activities under the Initiative for Southern Africa program. Level Two participants could qualify to receive additional assistance in technical training and debt relief if they were "pursing aggressive growth oriented policies." Level Two participants would receive additional benefits under the GSP program by the "inclusion of some product groups that are statutorily excluded or products that have traditionally been excluded due to import sensitivity." Level Two participants would also take part in the U.S.-Africa Economic Forum, a cabinet/minister level annual meeting. Reform-oriented countries would also benefit from bilateral technical assistance, support for economic policy reform, and increased multilateral assistance in support of private sector investment and trade related activities. In what the Administration referred to as Level Three Participation, negotiations on free trade agreements with high-performing, growth-oriented countries would be pursued. In December 1999, President Clinton submitted to Congress the last of five annual reports on the Administration's trade and development policy toward sub-Saharan Africa. The report provides background and analysis about economic conditions in sub-Saharan Africa and describes recent Administration initiatives on trade and investment for sub-Saharan Africa. It concludes that there have been "very positive trends toward political and economic reform in sub-Saharan Africa" and reaffirms the Administration's support for the Partnership Initiative and the African Growth and Opportunity Act (see below). Legislation in the 106th Congress African Growth and Opportunity Act On July 16, 1999, the House approved H.R. 434, the African Growth and Opportunity Act, with amendments. The legislation focused on countries committed to economic reform and emphasized economic self-reliance through expanded private sector activities, increased trade and investment, and elimination of trade barriers. In the Senate, the Finance Committee ordered reported original measure S. 1387, the African Growth and Opportunity Act, on June 22, 1999. The provisions of S. 1387 were incorporated into a manager's amendment that Senate Majority Leader Lott offered during Senate consideration of H.R. 434. On November 3, 1999, the Senate approved H.R. 434 (Trade and Development Act of 1999) with the manager's amendment and other amendments. Title I of the Senate version of H.R. 434, entitled the African Growth and Opportunity Act, would extend trade benefits to sub-Saharan Africa. Other titles of the bill would make numerous other trade-related changes, such as extend trade benefits for the Caribbean Basin, reauthorize trade adjustment assistance and the Generalized System of Preferences (GSP) program, and establish agricultural negotiating objectives in the next round of multilateral trade negotiations. The House and Senate versions of H.R. 434 had many provisions in common regarding trade with Africa. Both proposed a United States-Sub-Saharan African Trade and Economic Cooperation Forum with the objective of convening annual high-level meetings between senior U.S. and African officials to discuss wide-ranging economic issues. Both also would have required the President to report to Congress or to congressional committees on possible negotiation of a free trade agreement with countries of sub-Saharan Africa. Both versions included enhanced benefits under the GSP program for eligible countries of sub-Saharan Africa. However, they differed with regard to imports of textiles and apparel. The House version would have allowed the President to grant duty-free treatment to textiles and apparel from eligible countries as long as the President, with the advice of the ITC, found that the products were not import sensitive. (They also would have eliminated existing quotas on textiles and apparel from sub-Saharan countries.) In comparison, the Senate version would have provided duty-free and quota-free treatment of apparel products only if the apparel was assembled in beneficiary countries from fabric that was made in the United States from U.S.-made yarn. The Senate version provided that the garment parts could be cut either in the United States or the beneficiary country; but if cut in the beneficiary country, then U.S.-made thread had to be used in assembly. (Authentic handmade or folklore items were excluded.) Both versions would have established (somewhat different) requirements that beneficiary countries have adequate visa systems to protect against transshipment of textiles or apparel. In addition, the Senate version would have required that a beneficiary country enact legislation or regulations to permit U.S. Customs Service verification teams to have access necessary to investigate allegations of transshipment. The Senate version also included a safeguard provision that would have provided temporary relief if increased U.S. imports of textiles and apparel threatened the domestic U.S. industry. Both versions of H.R. 434 included eligibility criteria that countries would have to meet to receive benefits, but the eligibility criteria and benefits covered were somewhat different. Both versions also expressed the sense of Congress that the HIV/AIDS crisis in sub-Saharan Africa deserved urgent attention, although the versions were not identical. The Senate version of H.R. 434 did not include some provisions that were in the House version: for example, the Senate version did not include the sense of Congress regarding equity and infrastructure funds, nor did it include House provisions calling for officials of the Ex-Im Bank, OPIC, and the USTR to have knowledge or duties relating to Africa. (Some of these provisions were implemented already by the executive branch.) On April 13, 2000, the House Speaker and the Senate Majority Leader reached an agreement on the textile and apparel provisions. Following the April 13th political agreement, Congressional staff were charged with writing the conference report. On May 3rd, after press reports of further difficulties resolving the two versions and a second high-level political meeting with Senate Majority Leader Lott and House Speaker Hastert, a conference version was reached (H.Rept. 106-606). The conference version of H.R. 434 ("The Trade and Development Act of 2000") contained provisions on sub-Saharan Africa, the Caribbean Basin, and other trade programs. On May 4, 2000, the House approved the conference report, and on May 11, the Senate approved the House-approved report. The measure was signed by the President on May 18, 2000, and became P.L. 106-200. The title of P.L. 106-200 that pertains to sub-Saharan Africa (Title I; "African Growth and Opportunity Act") provides that: (1) trade benefits will be granted to countries that are found to meet the qualification criteria; (2) high-level U.S. officials will meet with officials from beneficiary countries to discuss trade and other economic matters; (3) market entry for goods (including textiles and apparel in restricted conditions) from beneficiary countries will be increased under the Generalized System of Preferences; and (4) illegal transshipment of textiles and apparel will be prohibited. The measure directs that greater attention be given to sub-Saharan Africa in OPIC and the Ex-Im Bank programs and more Foreign Commercial Service officers be tapped for the region. The provisions also encourage U.S. initiatives toward sub-Saharan Africa in areas such as debt reduction and HIV/AIDS assistance. On February 23, 1999, Representative Jesse Jackson, Jr. introduced H.R. 772, the Human Rights, Opportunity, Partnership, and Empowerment for Africa Act, or HOPE for Africa Act. On September 24, 1999, Senator Russell Feingold introduced companion bill S. 1636. Both bills, like the House and Senate versions of H.R. 434, would have increased duty-free benefits for products from sub-Saharan Africa under GSP, would have encouraged equity funds for investment in sub-Saharan Africa, would have attempted to discourage illegal transshipments of textiles and apparel, and would have directed certain U.S. agencies to increase programs for sub-Saharan Africa. The HOPE for Africa Act, however, was distinctly different from H.R. 434 (both versions) in some major respects. First, the HOPE for Africa Act included extensive provisions for debt relief. Second, it set a minimum level of appropriations for U.S. development assistance in sub-Saharan Africa. Third, it did not require that countries in the region meet eligibility criteria, and fourth, it did not include some provisions in H.R. 434 related to trade, such as a plan for future free trade talks. Textile and apparel imports are subject to a special control regime of quotas and higher-than-average tariffs. Prior to passage of P.L. 106-200, Kenya and Mauritius were the only African countries that had U.S. quotas. Some analysts believed the possibility of future new quotas could be inhibiting present investment. Aside from these special restraints, U.S. importers of foreign textiles were excluded from programs, such as the Generalized System of Preferences, that allowed the foreign products to enter under lower or no tariffs. In the case of the North American Free-Trade Agreement (NAFTA) and the Caribbean Basin Initiative (CBI), strict rules of origin and other provisions virtually assured that apparel products imported under these programs were assembled from fabric (and yarn) that is made in the United States. The textile and apparel industries historically provide the first step toward industrialization in many countries. This is because production is relatively simple, can be done on a small scale, and often uses locally abundant raw material (e.g. cotton). Most importantly, apparel stitching is labor intensive, and low wages in the developing countries confer a significant competitive advantage. For these reasons, proponents of the strategy of "trade not aid" believe a liberalization of textile and apparel trade is necessary, if it is to be seriously pursued. However, at the same time, this could possibly cause difficulty for some segments of the U.S. textile and apparel sector, and some opponents argue that it would shift jobs from low income Americans to Africans. Although wages in the U.S. industry are low compared to the rest of the U.S. manufacturing, they are high compared to the African level. The industry is therefore considered "import sensitive," and the import control regime has been implemented. Hence, the difficult trade-off embodied in the trade-not-aid strategy. It is difficult to assess the potential of Sub-Saharan Africa for growing a textile and apparel sector. In general terms, it is likely to have only a small effect on the domestic U.S. industry in the short run, if only because it starts from such a small base -- less than 1% of imports from all sources and a fraction of a percent of domestic production. Longer term, according to the International Trade Commission, elimination of tariffs and quotas could expand African exports to the United States by $100 to $175 million per year (from a current base of $380 million). This estimate is based on a static analysis that assumes many variables would remain fixed, including investment. It is possible that investment in an expanding textile/apparel sector could become substantial, and with it exports. These might be partially offset, though, by decreases in other sources, notably East Asia. In addition to Africa's export potential, the issue of transshipment has been raised. That is, some African countries may find it easier to become an intermediate shipping point for Asian-produced goods than to develop their own indigenous industries. In this way Asian producers could get around quotas that are limiting their exports -- either legitimately or fraudulently. Legitimately, production in Africa would only need to contribute 35% of the final product cost in order to be exempt from tariffs and quotas. This could be just about the cost of stitching for many products, so fabric originating in Europe, Asia or elsewhere could thus enter the United States duty-free, indirectly. As to fraud, opponents of the bills assert that it would be very difficult to verify the origin of goods over the expanse of a continent. In the long run, the effects of such trade liberalization will depend on the Agreement on Textiles and Clothing (ATC), a component of the agreement establishing the World Trade Organization. The ATC established a transitional phase already underway, according to which the elimination of all textile import quotas is to occur by 2005. If implemented as planned, the quota phaseout would nullify Africa's competitive advantage from having quota-free entry (although it would still enjoy a tariff advantage). If a large expansion of exports occurred from countries that are now limited, Africa's exports could actually fall. On the other hand, some argue that the ATC schedule presents a window of opportunity for the African nations to build up their expertise and infrastructure for a long-term future in manufacturing. Four Members of Congress in a report to the House International Relations Committee expressed their opposition to the passage of the Africa trade bill in early February 1999. The Members argued that H.R. 434 "creates a new incentive to tranship and commit customs fraud in the form of dramatic savings from duty reductions for Asian textile and apparel manufacturers." They asserted that the bill would open the U.S. market "without providing reciprocal benefits to U.S. workers." The enforcement mechanisms are flawed, they charged, including the visa system which supporters of the bill consider as an effective preventive mechanism against transhipment. The authors of the report referred to a U.S. Customs estimate that Asian manufacturers have used eight sub-Saharan African countries as transshipment routes. The Members noted that H.R. 434 "violates commitments made by the Clinton Administration to the domestic textile industry." They also argued that President Clinton "promised the textile and apparel industry that it would receive gradual and even staging of tariff reductions and quota integration." P.L.
106-200, H.R. 434
(Crane) S. 666
(Lugar) S. 1387
(Roth) H.R. 772
(Jackson)/S. 1636
(Feingold) CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS U.S. Congress. House. Committee on International Relations. African Growth and Opportunity Act; report together with dissenting views to accompany H.R. 434. 106th Congress, 1st session. H.Rept. 106-19, Part 1. Feb. 16, 1999. Washington, U.S. Govt. Print. Off., 1999. 27 p. U.S. Congress. House. Committee on International Relations. Subcommittee on Africa. America's Stake in Trade and Investment in Africa. Hearing, 106th Congress, 1st session. Feb. 9, 1999. Washington, U.S. Govt. Print. Off., 1999. 45 p. ---- H.R. 434, The African Growth and Opportunity Act of 1999 . Hearing, 106th Congress, 1st session. Feb. 11, 1999. Washington, U.S. Govt. Print. Off., 1999. 31 p. U.S. Congress. House. Committee on Ways and Means. African Growth and Opportunity Act; report to accompany H.R. 434. 106th Congress, 1st session. H.Rept. 106-19, Part 2. June 17, 1999. Washington, U.S. Govt. Print. Off., 1999. 49 p. U.S. Congress. Senate. Committee on Finance. African Growth and Opportunity Act. March 16, 2000. Hearing, 106th Congress, 2nd session. June 17, 1998. Washington, U.S. Govt. Print. Off., 1998. 124 p. U.S. Congress. Senate. Committee on Finance. African Growth and Opportunity Act; report to accompany S. 1387. 106th Congress, 1st session. July 20, 1999. Washington, U.S. Govt. Print. Off., 1999. 21 p. Nitschke, Lori. Third World Trade Bill Likely to Have Limited Impact. CQ Weekly. May 6, 2000. Pgs. 1020-1027. U.S. General Accounting Office. U.S. Textile and Apparel Importers' Reactions to
Trade Preference Options. Report to the Chairman, Subcommittee on Trade, Committee on
Ways and Means, House of Representatives. July 1998. GAO/NSIAD-98-217. 19 p. U.S. International Trade Commission. Likely Impact of Providing Quota-Free and
Duty-Free Entry to Textiles and Apparel From Sub-Saharan Africa. Investigation No.
332-379. Publication 3056. September 1997. ---- U.S.-Africa Trade Flows and Effects of the Uruguay Round Agreements and U.S.
Trade and Development Policy. Investigation No. 332-362. Fifth Annual Report.
Publication 3250. October 1999. U.S. Office of the U.S. Trade Representative. A Comprehensive Trade and Development
Policy for the Countries of Africa. The last of five annual reports by the President
of the United States to Congress. December 1999. CRS Report RL30029 . Africa Backgrounder: History, U.S. Policy, Principal Congressional Actions, by Raymond W. Copson. CRS Issue Brief IB95052. Africa: U.S. Foreign Assistance Issues, by Raymond W. Copson CRS Report RS20329. African Development Bank and Fund, by Raymond W. Copson. CRS Issue Brief IB10050. AIDS in Africa, by Raymond W. Copson CRS Report RL30449 . Debt and Developing in Poor Countries: Rethinking Policy Responses, by J. F. Hornbeck. CRS Report 98-568 . Export-Import Bank: Background and Legislative Issues, by James Jackson. CRS Report 97-389 . Generalized System of Preferences, by William H. Cooper. CRS Report 98-567 . The Overseas Private Investment Corporation: Background and Legislative Issues, by James K. Jackson. CRS Report RS20063 . U.S.-Sub-Saharan Africa Trade and Investment: Programs and Policy Direction, by Lenore Sek. Return to CONTENTS section of this Issue Brief. |
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