The African Growth and Opportunity Act’s (AGOA) Third-Country Fabric Provision (TCF) is set to expire in September, unless Congress intervenes to renew it. Not intervening could jeopardize nearly 300,000 jobs in sub-Saharan Africa (SSA) and greatly impact countless numbers of U.S. businesses that rely upon textile-related imports from the region.
The AGOA was signed into law on May 18, 2000 as Title 1 of the Trade and Development Act of 2000. The law seeks to compel countries in sub-Saharan Africa to continue opening their economies and building free markets. It does this by expanding the list of products which eligible countries in sub-Saharan Africa may export to the United States subject to zero import duty under the Generalized System of Preferences. In all, AGOA has expanded this list from 4,600 under the Generalized System of Preferences to more than 6,400. More importantly, at least with regard to this article, AGOA provides duty-free and quota-free treatment for eligible apparel articles made in qualifying countries (at least through 2015). Generally speaking, eligible apparel articles are those made from yarn and fabrics that come from either the U.S. or sub-Saharan Africa. However, recognizing the particular plight of lesser-developed countries in sub-Saharan Africa, Congress enacted the TCF, which allows eligible countries to qualify for duty-free and quota-free treatment for apparel articles assembled with yarns and fabrics that are neither U.S. nor regional (subject to a cap). Congress has repeatedly extended the TCF, most recently in 2006 and extended the provision through September 30th of this year.
To put the importance of the TCF in perspective, since AGOA’s inception, imports into the U.S. under the law have increased 500 percent, from a value of $8.15 billion to $51.8 billion. Although mineral fuels and crude oil imports account for roughly 94 percent of all imports under AGOA, imports of apparel, both woven and knit, have continued to play a strong role in AGOA trade, accounting for $445 million and $419 million, respectively.(1) It is estimated that the TCF accounts for more than 90 percent of apparel imports from sub-Saharan Africa under AGOA.
The reason that the TCF has played such a vital role in driving apparel imports from the region is that, in a zero-sum environment, those countries are not currently capable of competing on a cost-basis with their apparel producing Asian counterparts. The TCF makes countries competitive in that it essentially provides apparel manufacturers with a subsidy and a cost advantage over manufacturers in Asian countries which do not benefit from duty-free access to the U.S. market. Even in the wake of the expiration of the Multi-Fiber Agreement (MFA) in 2005, when apparel manufacturing and exports surged in Asia, the TCF provided a lifeline to both producers and enterprising apparel upstarts in sub-Saharan Africa.
In short, failing to extend the TCF would have a devastating and prolonged effect on the region. Even now, U.S. retailers, fearful of an impending expiration, have begun turning away from suppliers in sub-Saharan Africa and sourcing their apparel imports from Asia. Similarly, many factory owners and entrepreneurs there, a large portion of whom happen to be Asian expatriates, have chosen to either delay operations or cancel them altogether, for fear that an expiration of the TCF would wipe out the profitability of their investments. As if the loss of jobs were not devastating enough, it is estimated that 70 to 80 percent of employees in the apparel industry in sub-Saharan Africa are women, whose economic impact on the family tends to be significantly greater than in other countries and cultures.
In light of these facts, it is of paramount importance that Congress act to extend the TCF prior to September 30th. The TCF, and AGOA in general, have enjoyed nearly constant, bi-partisan support both in Congress and in the market, and to allow the TCF to expire because of inattention, or because it simply failed to find adequate and timely political footing, would be tragic.
Import figures available at here.