The Next Chapter in the U.S.-Africa Trade Relationship

By Katrin Kuhlman, Senior Advisor to the President, The Corporate Council on Africa

In 2000, the United States and the nations of sub-Saharan Africa (SSA) came together to focus on expanding trade and investment, and their tool was the African Growth and Opportunity Act (AGOA).  Designed to expand Africa’s access to the U.S. market, AGOA has had some notable successes, particularly in apparel trade. But as a one-way program focused on a singular aspect of trade (removal of U.S. tariffs on many African goods), it is increasingly viewed as one element of a much more diverse trade relationship. New models are emerging that hold the possibility of unlocking the potential for trade between the United States and sub-Saharan Africa, which remains largely unexplored. 

To put current trade in context, U.S.-SSA trade totaled $52.1 billion in 2014, with imports of $26.7 billion, representing only 1.1 percent of total trade. Through AGOA, 2014 U.S. imports from the 39beneficiary countries totaled $14.2 billion, 47 percent less than in 2013, mainly due to a significant drop in petroleum product imports (which make up 69 percent of AGOA imports). AGOA’s benefits have been quite concentrated, with the top five AGOA beneficiary countries (Angola, Nigeria, South Africa, Chad, and Gabon) capturing much of the gains (1). 

These numbers do not tell the full picture though, and the U.S.-Africa trade dialogue is changing, with more and more companies engaged and new tools for unlocking trade’s potential coming to the table.  In August, Gabon hosted the 14th AGOA Ministerial, an annual gathering for discussing the U.S.-SSA trade relationship.  Most years, the conversation has focused on AGOA’s coverage and use, with concerns around program renewal dominating the conversation. Speaking with companies and government representatives in Gabon this year, however, it was clear that there was a palpable shift from the mechanics of AGOA to the larger trade relationship.  It is true that the U.S. Congress had just reauthorized AGOA for ten years, obviating the need to focus on when and whether AGOA might expire. This alone does not explain the change, however, and the outlines of a trade relationship beyond AGOA began to take form. 

Regional harmonization, which holds promise for larger markets and economies of scale, is becoming a tangible reality.  If Africa maintains economic growth of six to seven percent, the projected continental GDP would reach $29 trillion by 2050, which is the current combined GDP of the United States and EU (2).  Several ambitious African trade agreements, both launched this June, could play a central role.  African leaders formally launched the Tripartite Free Trade Area (TFTA) that will unite Africa’s largest market in Eastern and Southern Africa, bringing together the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), and the Southern African Development Community (SADC).  On a pan-African scale, the African Union and leaders from across the continent launched a Continental Free Trade Agreement (CFTA) to bring together 54 markets across all of Africa’s regions, with a population of over a billion people and a combined GDP of over $3 trillion. The successful conclusion and implementation of the CFTA, which will cover trade in both goods and services (3), supported by efforts to streamline customs procedures and improve trade-related infrastructure, could lead to a 52 percent ($35 billion) increase in intra-African trade by 2022(4).

The TFTA will be a significant leap forward and will bring together 26 countries, with a combined GDP of more than $1.2 trillion dollars and a population exceeding half a billion people. It also integrates an area spanning 17.4 million square kilometers, almost twice the size of the United States. Trade within the TFTA is already on the rise and went from $30.6 billion to $102.6 billion between 2004 and 2014. Regional market growth holds the promise of spurring investment in Africa’s cross-border infrastructure, reducing the cost of doing business, encouraging industrial development, creating potential for new industries, and alleviating dependence on raw materials(5).

AGOA will also be linked with regional market development and may be a stepping stone to a deeper U.S.-African trade relationship. The new AGOA legislation calls for exploring bilateral trade agreements with the United States, including the possible negotiation of trade and investment framework agreements (such as the agreement between the U.S. and EAC discussed below) or even Free Trade Agreements (FTAs). The Office of the U.S. Trade Representative (USTR) has been directed to conduct a full review of these possibilities, with the results of this review appearing as early as summer 2015 (6).  The AGOA countries themselves have proposed to do national competitiveness and export strategies to determine where they should focus efforts for expanding trade. These could also be helpful in broader negotiations, whether at the regional level or in discussions with other trading partners.

This December, Africa will host its first World Trade Organization (WTO) Ministerial in Nairobi. This will be a landmark event, and the Ministerial will reflect the new focus on addressing non-tariff issues in the market, such as the customs, product standard, and regulatory issues that impact every trade transaction everywhere in the world. Central to this will be efforts to improve trade facilitation, essentially meaning the rules, procedures, and practices that allow goods to move within markets and across borders.  These important non-tariff measures are covered under the recent WTO Trade Facilitation Agreement (TFA), an early win in the long process of negotiations for a Doha Development Round.  The TFA Agreement, signed in Bali in December 2013, will enter into force once two-thirds of WTO Members, or at least 107 member states, have ratified it. To date, 17 out of 161 WTO Members have ratified the TFA, including the African states of Botswana, Mauritius, and Niger, the latter of which was the first least developed country (LDC) to ratify the TFA. 

Trade facilitation will reduce cost and time for trading, both of which are critical factors in modern global supply chains. The Organisation for Economic Co-Operation and Development (OECD) estimates that global trade costs could be reduced by 17.5 percent if the WTO TFA is implemented, with global incomes increasing by $40 billion for every one percent reduction in global trade costs, 65 percent of which would accrue to developing countries, including in Africa (7).

With this changing trade landscape, new models will be needed.  The U.S.-EAC Trade and Investment Partnership, a pillar of the Obama Administration’s Trade Africa initiative, has proven to be one of these models, as has the Trade Working Group launched by The Corporate Council on Africa (CCA) to bring the private sector’s voice into this agreement.  The Trade and Investment Partnership model enabled the U.S. and EAC governments to more quickly to deepen collaboration on key non-tariff issues, namely trade facilitation, sanitary and phytosanitary measures (SPS) and technical barriers to trade (TBT).  The CCA Trade Working Group has coordinated a diverse private sector group, including in collaboration with its partner the East African Business Council (EABC), to channel private sector interest in these issues.  The private sector’s efforts, represented in a set of recommendations developed and presented in summer 2014, provided an impetus for policy reform in the form of a Cooperation Agreement between the U.S. and EAC on Trade Facilitation, SPS, and TBT. 

The CCA Trade Working Group also provided a partner for the Commercial Dialogue portion of these initiatives, led by the U.S. Department of Commerce, which could connect growing business interest throughout Africa’s markets with a new trade policy tool that could deliver results. The private sector has not only developed concrete recommendations for improving transparency and rule of law, customs administration, border cooperation, and capacity building (with training sessions offered by FedEx, IBM, and Visa), it has also developed a road map for implementation with its government partners. Next in line is a Cold Chain Symposium in Nairobi in mid-October designed to facilitate development of this critical part of the supply chain. The Trade Working group is a model that is unique in its collaboration between the U.S. and African business sectors, ongoing private-public process for implementing real change in the market, and deep technical focus on trade issues, which enables the group to work in the context of the TFA and other trade agreements (8)

The Trade Africa initiative, which includes the U.S.-EAC Trade and Investment Partnership and enhanced Trade and Investment Hubs in several locations in SSA, is also a promising model that is now being scaled up.  Trade Africa will expand to include other trading partners, including Ghana, Senegal, Mozambique, Côte d’Ivoire, and Zambia, as well as support to the Economic Community of West Africa (ECOWAS) to improve regional trade (9).  

Going forward, new approaches to trade with sub-Saharan Africa will be needed more than ever before. Lessons from the new models that are emerging, as well as from AGOA itself, suggest that the focus should shift to the rules and processes in the market.. This market-driven approach, particularly when applied in a way that reaches as many enterprises as possible, will not only complement African plans to strengthen regional trade areas, it will address some of the most pressing issues for U.S. and African enterprises, and forge a new path for expanding and accessing trade’s potential. 

 


Footnotes: 

1. U.S. Trade with sub-Saharan Africa, U.S. International Trade Administration (January – December 2014). http://trade.gov/agoa/pdf/2014-us-ssa-trade.pdf.

2. Juma, Calestous and Mangeni, Francis. “The Benefits of Africa's New Free Trade Area." Technology + Policy (June 11, 2015). http://belfercenter.ksg.harvard.edu/publication/25444/benefits_of_africas_new_free_trade_area.html.

3.  Luke, David, Sodipo, Babajide. “Launch of the Continental Free Trade Africa: New Prospects for African Trade?” Bridges Africa, vol. 4, no. 6. International Centre for Trade and Sustainable Development (23 June 2015). http://www.ictsd.org/bridges-news/bridges-africa/news/launch-of-the-continental-free-trade-area-new-prospects-for-african.

4. Luke, David, Sodipo, Babajide. “Launch of the Continental Free Trade Africa: New Prospects for African Trade?” Bridges Africa, vol. 4, no. 6. International Centre for Trade and Sustainable Development (23 June 2015). http://www.ictsd.org/bridges-news/bridges-africa/news/launch-of-the-continental-free-trade-area-new-prospects-for-african.

5.  Juma, Calestous and Mangeni, Francis. “The Benefits of Africa's New Free Trade Area." Technology + Policy (June 11, 2015). http://belfercenter.ksg.harvard.edu/publication/25444/benefits_of_africas_new_free_trade_area.html.

6.  “House Votes Final Passage of the Reauthorisation of AGOA.” Bridges Africa, International Centre for Trade and Sustainable Development (1 July 2015). http://www.ictsd.org/bridges-news/bridges-africa/news/house-votes-final-passage-of-the-reauthorisation-of-agoa and 114 P.L. 27, available at http://www.pkrllp.com/wordpress/wp-content/uploads/2015/07/Legislation-enacted-last-month.pdf.

7.  The WTO Trade Facilitation Agreement – Potential Impact on Trade Costs. Organisation for Economic Co-Operation and Development (February 2014). http://www.oecd.org/trade/tradedev/OECD_TAD_WTO_trade_facilitation_agreement_potential_impact_trade_costs_february_2014.pdf.

8.  Kuhlmann, Katrin. Reframing Trade and Development: Building Markets Through Legal and Regulatory Reform. Think Piece for the E15 Task Force on Development and Finance.  Publication Forthcoming. The E15 Initiative of the International Council for Sustainable Development and World Economic Forum, 2015.

9. White House Fact Sheet: Deepening the U.S.-Africa Trade Relationship, July 26, 2015 https://www.whitehouse.gov/the-press-office/2015/07/26/fact-sheet-deepening-us-africa-trade-relationship

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