[Senate Hearing 108-187]
[From the U.S. Government Publishing Office]
S. Hrg. 108-187
THE AFRICAN GROWTH AND OPPORTUNITY ACT
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JUNE 25, 2003
__________
Printed for the use of the Committee on Foreign Relations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
90-449 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON FOREIGN RELATIONS
RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee BILL NELSON, Florida
NORM COLEMAN, Minnesota JOHN D. ROCKEFELLER IV, West
JOHN E. SUNUNU, New Hampshire Virginia
JON S. CORZINE, New Jersey
Kenneth A. Myers, Jr., Staff Director
Antony J. Blinken, Democratic Staff Director
(ii)
?
C O N T E N T S
----------
Page
Alexander, Hon. Lamar, U.S. Senator from Tennessee, statement
submitted for the record....................................... 49
Amnesty International USA, statement submitted for the record by
Adotei Akwei, African Advocacy Director........................ 50
Harmon, Hon. James A., chairman, Commission on Capital Flows to
Africa, New York, NY........................................... 30
Prepared statement........................................... 34
Hayes, Stephen, president, Corporate Council on Africa,
Washington, DC................................................. 24
Prepared statement........................................... 26
Kansteiner, Hon. Walter H., III, Assistant Secretary of State for
African Affairs, Department of State, Washington, DC........... 11
Prepared statement........................................... 12
Responses to additional questions for the record from Senator
Feingold................................................... 56
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening
statement...................................................... 3
Liser, Florizelle B., Assistant United States Trade
Representative for Africa, Office of the United States Trade
Representative, Washington, DC................................. 5
Prepared statement........................................... 8
Responses to additional questions for the record from Senator
Feingold................................................... 54
Spencer, Rev. Dr. Leon P., executive director, Washington Office
on Africa, Washington, DC...................................... 40
Prepared statement........................................... 42
(iii)
THE AFRICAN GROWTH AND OPPORTUNITY ACT
----------
WEDNESDAY, JUNE 25, 2003
U.S. Senate,
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 9:30 a.m. in room
SD-419, Dirksen Senate Office Building, Hon. Richard G. Lugar
(chairman of the committee), presiding.
Present: Senators Lugar and Feingold.
The Chairman. This hearing of the Senate Foreign Relations
Committee is called to order. It is a pleasure today to welcome
our witnesses and distinguished guests to a hearing on the
African Growth and Opportunity Act [AGOA]. We're privileged to
have as our first panel Flori Liser, the Assistant U.S. Trade
Representative for Africa, and Walter Kansteiner, the Assistant
Secretary of State for Africa. Following their testimony, we
will hear from a second panel composed of distinguished
witnesses from outside the administration.
It has been nearly 3 years since AGOA went into effect. It
has been a notable success. In 2002, 94 percent of United
States imports from AGOA-eligible countries entered duty free.
The United States imported $9 billion in merchandise duty free
under AGOA in 2002, a 10-percent increase from 2001.
This improvement stands out even more sharply when
contrasted with the overall decline in global trade. There have
been remarkable individual success stories, including the case
of Lesotho, a nation of only 2.2 million people with AGOA
exports of $318 million in 2002, representing 99 percent of
that country's total exports to the United States. Six new
garment factories opened in Lesotho during 2002, and for the
first time in that country's history private sector
manufacturing employment exceeds government employment.
The experience of AGOA has taught us valuable lessons about
the path to enhanced investment and economic development, and
has confirmed a few of the principles that proponents of
market-based developments have used to guide policy. First, the
experience of AGOA has demonstrated that a commitment to good
governance and a positive investment climate is important to
economic growth. Countries such as Lesotho, which have made
significant efforts in recent years to promote economic reform
and stable democracy, have derived the most benefits from the
AGOA provisions.
Second, the experience of AGOA has demonstrated that
regional integration is an essential development, or is as
essential to development as access to the United States and
foreign markets. Using the infrastructure and economic
stability of South Africa as a base, neighboring southern
African countries have worked together to take advantage of the
benefits under AGOA.
Although AGOA has yielded positive results, sub-Saharan
African countries continue to lag far behind other developing
countries. Sub-Saharan Africa accounted for only 1.4 percent of
world trade in 2001, a percentage that has declined steadily
over the last two decades. Over the last decade, sub-Saharan
African trade has grown 39 percent, while world trade has grown
85 percent. Much more work remains to be done, obviously, to
integrate Africa into the global community.
I am committed to improvements that will make the AGOA
program more effective both through legislative expansion of
AGOA and through improved implementation of existing AGOA
provisions. It is important to extend the AGOA program beyond
2008, and we should take action on this extension soon.
Investors need to have certainty in making investment decisions
in Africa.
An even more immediate issue is the extension of the third
country fabric provisions for least-developed countries, due to
expire in 2004. The third country fabric provision is a complex
issue, and we must find creative approaches that will extend
the provisions for those least-developed countries that rely on
it, while still maintaining incentives for development of
textile manufacturing capabilities in Africa. This issue has
increasing urgency, with the approach of the elimination of
worldwide quotas on textiles and apparel in 2005.
While the current third country fabric provision is not set
to expire until September 30, 2004, we should not wait until
that expiration date to take necessary action. U.S. retailers
often place orders nearly 6 months in advance, and they will
want certainty before placing those orders. African
manufacturers will need time to build capacity in advance of
the 2005 deadline so they can compete with China and other
Asian economies when the quotas are eliminated.
As Congress develops legislative enhancements and
clarification of the AGOA program, we must work with the
administration to improve implementation of the program. Many
African countries and companies have had difficulties complying
with the requirements of the legislation. The United States has
provided technical assistance that has been effective in some
areas.
In particular, we have helped African countries develop
customs procedures that the legislation requires in order to be
eligible for textile and apparel benefits. Since 1999, the
United States has provided more than $345 million in trade
capacity building support to sub-Saharan African countries. We
need to do more through the appropriation process to increase
funding for trade capacity-building programs.
And finally, we need to find innovative ways to increase
investment flows to Africa. Trade is only part of the economic
impetus needed in African economies. Africa is not attracting
adequate foreign investments, a condition that seriously
hinders prospects for economic growth. Africa has approximately
10 percent of the world's population, but it receives only
about 1 percent of the world's foreign direct investment. Sub-
Saharan Africa's share was only .7 of 1 percent, and most of
that was invested in petroleum and in mining.
One of our witnesses today will be the chairman of the
Commission on Capital Flows to Africa, which has recently
released recommendations on a comprehensive 10-year plan to
enhance investment in Africa. I look forward to hearing the
commission's recommendations and the thoughts of all of our
witnesses on how to increase trade and investment with this
important continent.
[The opening statement of Senator Lugar follows:]
Opening Statement of Senator Richard G. Lugar
It is my pleasure to welcome our witnesses and distinguished guests
to our hearing on the African Growth and Opportunity Act. We are
privileged to have on our first panel Flori Liser, the Assistant U.S.
Trade Representative for Africa, and Walter Kansteiner, the Assistant
Secretary of State for Africa. Following their testimony, we will hear
from a second panel composed of distinguished witnesses from outside
the administration.
It has been nearly three years since AGOA has gone into effect. It
has been a notable success. In 2002, 94% of U.S. imports from AGOA-
eligible countries entered duty-free. The United States imported $9
billion in merchandise duty-free under AGOA in 2002, a 10% increase
from 2001. This improvement stands out even more sharply when
contrasted with the overall decline in global trade. There have been
remarkable individual success stories, including the case of Lesotho, a
nation of only 2.2 million people with AGOA exports of $318 million in
2002, representing 99% of Lesotho's total exports to the United States.
Six new garment factories opened in Lesotho during 2002. For the first
time in Lesotho's history, private sector manufacturing employment
exceeds government employment.
The experience of AGOA has taught us valuable lessons about the
path to enhanced investment and economic development and has confirmed
a few of the principles that proponents of market-based development
have used to guide policy. First, the experience of AGOA has
demonstrated that a commitment to good governance and a positive
investment climate is important to economic growth. Countries such as
Lesotho, which has made significant efforts in recent years to promote
economic reform and stable democracy, have derived the most benefit
from the AGOA provisions. Second, the experience of AGOA has
demonstrated that regional integration is as essential to development
as access to the U.S. and other foreign markets. Using the
infrastructure and economic stability of South Africa as a base,
neighboring southern African countries have worked together to take
advantage of the benefits under AGOA.
Although AGOA has yielded positive results, sub-Saharan African
countries continue to lag far behind other developing countries. Sub-
Saharan Africa accounted for only 1.4 percent of world trade in 2001, a
percentage that has declined steadily over the last two decades. Over
the last decade, sub-Saharan Africa's trade has grown 39% while world
trade has grown 85%.
Much more work remains to be done to integrate Africa into the
global community. I am committed to improvements that will make the
AGOA program more effective, both through legislative expansions of
AGOA and through improved implementation of existing AGOA provisions.
It is important to extend the AGOA program beyond 2008, and we should
take action on this extension soon. Investors will have the certainty
they need in making investment decisions in Africa. An even more
immediate issue is the extension of the third country fabric provision
for least developed countries, which is due to expire in 2004. The
third country fabric provision is a complex issue, and we must find
creative approaches that will extend the provision for those least
developed countries that rely on it, while still maintaining incentives
for the development of textile manufacturing capabilities in Africa.
This issue has increasing urgency with the approach of the elimination
of worldwide quotas on textiles and apparel in 2005. While the current
third country fabric provision is not set to expire until September 30,
2004, we should not wait until that expiration date to take action.
U.S. retailers often place orders nearly six months in advance, and
they will want certainty before placing those orders. African
manufacturers will need time to build capacity in advance of 2005 so
they can compete with China and other Asian economies when the quotas
are eliminated.
As Congress develops legislative enhancements and clarifications of
the AGOA program, we must work with the administration to improve
implementation of the program. Many African countries and companies
have had difficulties complying with the requirements of the
legislation. The United States has provided technical assistance that
has been very effective in some areas. In particular, we have helped
African countries to develop customs procedures that the legislation
requires in order to be eligible for textile and apparel benefits.
Since 1999, the United States has provided more than $345 million in
trade capacity building support to sub-Saharan African countries. We
need to do more through the appropriations process to increase funding
for trade capacity building programs.
Finally, we need to find innovative ways to increase investment
flows to Africa. Trade is only part of the economic impetus needed in
African economies. Africa is not attracting adequate foreign
investment, a condition that seriously hinders prospects for economic
growth. Africa has approximately 10% of the world's population, but it
receives only about 1% of the world's foreign direct investment. Sub-
Saharan Africa's share was only .7%, and most of that was invested in
petroleum and mining. One of our witnesses today is the Chairman of the
Commission on Capital Flows to Africa, which has recently released
recommendations on a comprehensive ten-year plan to enhance investment
in Africa. I look forward to hearing the Commission's recommendations
and the thoughts of all of our witnesses on how to increase trade and
investment with Africa.
The Chairman. It's a pleasure to yield to my distinguished
colleague, Senator Feingold, who has long either chaired or
been ranking member of the African Affairs Subcommittee, if he
has an opening comment or a greeting for the witnesses.
Senator Feingold. Well, I thank you, Mr. Chairman. I thank
you sincerely. It's such a pleasure working with you as
chairman of this committee, and in particular when it comes to
issues concerning Africa, that you have led for so many years,
and I thank you for holding this important hearing. I
appreciate this opportunity to take stock of the African Growth
and Opportunity Act and the impact it has had on U.S.-African
trade thus far.
As the chairman, of course, remembers, during the original
debate on AGOA I had some different ideas about what the best,
most mutually beneficial trade legislation for Africa should
contain. I supported an alternative, the Hope for Africa bill.
I wanted to see a more comprehensive package that would have
broadened the range of exports eligible for trade benefits and
addressed some of the larger contextual issues that impede
robust trade relationships and economic growth in the region,
but I did not prevail.
My disappointment, however, was greatly diminished by my
confidence in Chairman Lugar, who was AGOA's champion here in
the Senate. I know that Chairman Lugar shares many of these
same goals I was pursuing during the Africa trade debate, and I
commend him for his leadership and his consistent attention to
these issues. We worked through our process here in the
Congress, and in the end AGOA was enacted, and I've certainly
always wanted to see it succeed.
I am fortunate to have had many opportunities to meet with
African leaders in both the public and private sector here in
Washington and overseas, and I am always encouraged when they
tell me that AGOA is making an appreciable difference for the
better.
One way in which I hoped that an African trade bill would
make such a difference was by establishing a concrete and
positive incentive for reform when it comes to issues
surrounding human rights, labor rights, and corruption. I hoped
that the bill would be a new and powerful tool in the toolbox,
not just of American diplomats, but of Africans themselves,
holding out the promise of real opportunities, rather than
simply words of congratulations for those working toward
reform.
AGOA does condition eligibility for trade benefits on
progress in these areas, but I do have concerns about whether
or not these eligibility requirements are being taken
seriously. These are not findings or language in a preamble.
They are congressionally mandated conditions. The Congress
included them in this legislation because Members believed that
these requirements would further our policy goals by,
``focusing on countries committed to the rule of law,'' and
``facilitating the development of civil societies and political
freedom in sub-Saharan Africa,'' and here I'm quoting directly
from the legislation's statement of policy.
More broadly, I believe that respect for the rule of law
and for basic human and labor rights will make these countries
more stable, more prosperous, and in the end more valuable
trading partners.
Mr. Chairman, I was actually scheduled to chair a hearing
on the Subcommittee on African Affairs on the subject of AGOA
eligibility requirements on September 11, 2001. Obviously, the
hearing never happened, but I welcome this opportunity to
revisit this important issue today.
The Chairman. Thank you very much, Senator Feingold. I
think that Senator Feingold's reminiscences about the beginning
of the act and the legislation reflects how difficult it was.
He could have added more. I would just say that I have great
confidence that everybody who was involved in the debate feels
vindicated in some way or another, but we are grateful the
legislation happened in the two houses and was signed by the
President, and you are before us today to express what we ought
to do.
Let me say, before I ask you to testify, that your complete
statements as prepared for the hearing will be made a part of
the record, and you may proceed in any way you wish to deliver
those statements. You may read portions of them or summarize
them.
I will call first upon Ms. Liser, the Assistant United
States Trade Representative for Africa, and then upon Mr.
Kansteiner. Ms. Liser.
STATEMENT OF FLORIZELLE B. LISER, ASSISTANT UNITED STATES TRADE
REPRESENTATIVE FOR AFRICA, OFFICE OF THE UNITED STATES TRADE
REPRESENTATIVE, WASHINGTON, DC
Ms. Liser. Thank you, Mr. Chairman, Senator Feingold. I
appreciate the opportunity to be before you today and look
forward also to working with you and others on the Senate side
as well as the House side as we move forward on AGOA.
It is a good thing to be talking about AGOA during this
week of the Corporate Council on Africa meeting. We had many
important people from Africa here, but we also have gathered
together many from the U.S. side, investors and officials of
all sorts who are here and, as I know, many of the others in
this room have been attending the roundtables and the sessions
and are benefiting from the opportunity to strengthen our ties
with African nations as we move forward.
Today I would like to focus on three major points. The
first is that AGOA is working, and it has become a major part
of our U.S.-Africa trade policy and our U.S.-Africa policy more
generally.
The second point is that although AGOA is succeeding, some
countries have actually not yet benefited, and many of them,
even those who are benefiting today, need some help, some
significant help in some cases, to become more competitive and
to address what are the supply side constraints.
And third, the administration will need to work with you
here in Congress, the private sector, African governments, and
other officials to identify how we can actually better utilize
and extend AGOA and make sure that they maximize the benefits
for themselves, as well as for the United States.
In particular there, one of the areas that we're hearing a
lot about from the Africans who are here, and we've heard it
before, is that they really would like to see more U.S.
investment in Africa as a result of AGOA. I think many of you
know that there has been a significant amount of investment,
largely from Asian countries, and the Africans have said that
they really would like to see what can be done to encourage
greater investment in Africa from the U.S. side.
On the issue of AGOA working and being successful, as you
very well said, Mr. Chairman, that we are seeing tremendous
results as a result of AGOA. AGOA-related trade and investment
has created over 190,000 African jobs and over $340 million in
investments in sub-Saharan Africa.
In terms of the points that you made, Senator Feingold,
about the eligibility requirements, I just wanted to assure you
that we do take them seriously. We look very carefully at it. I
just chaired a meeting the other day where we were looking at a
few countries and trying to determine whether we believe that
they are still in fact meeting the requirements in terms of
labor rights, human rights, poverty reduction, and all of the
other criteria, and we will continue to take those criteria
seriously. We do believe that they are the foundation on which
a number of these countries are, in fact, building their trade
and economic development.
In terms of the challenges that are there, though, I think
that many of us recognize that a number of countries are doing
well, but there are many countries on the continent that have
not even begun to take advantage of AGOA, and what I've been
saying to people is, if you look at the utilization rates, what
you see is that there is a fair amount of concentration among a
relatively small number of countries, and you also see some
concentration in terms of product areas, but we are seeing
certain countries like South Africa which are exporting a large
number of diversified products to the United States under AGOA,
and we would like to see that type of example duplicated in
other countries as well.
The main issue there for those countries that have duty
free access to the U.S. market for over 6,000 products but
aren't doing anything about it is that they don't have anything
that they are producing, or they don't have products that they
produce competitively that they can then sell in the U.S.
market, and these supply side constraints, along with issues
that have to do with transportation infrastructure, other
infrastructure issues, having the energy to actually
manufacture products, not being able to meet certain types of
standards, all of these constraints are keeping many of the
sub-Saharan African countries from taking full advantage of
AGOA.
One of the things that we will need to do as we move
forward in addressing these challenges in looking at AGOA III
is, what is it that we can do that would actually benefit them?
Trade capacity-building is clearly one of them. It is the best
combination of trade and aid, basically, is what trade
capacity-building is, and we're working very hard with a number
of agencies, State Department, USAID, TDA and others in trying
to effectively address the supply side constraints.
Finally, I wanted to mention the area of the future of
AGOA. All of us know, and were very pleased when President Bush
announced during the AGOA forum in Mauritius in January, that
he would like to work with Congress in extending AGOA beyond
the 2008 expiration date that exists at the moment. We are
working with industry, we're looking forward to working with
Congress and others in trying to identify how long that period
of time should be.
We're also looking at the issue of the third country fabric
provision and trying to balance, of course, the necessity to
allow apparel manufacturers on the continent to continue
sourcing from third countries, while at the same time trying to
do everything we can to encourage investment in the indigenous
textiles industry on the continent as well, so perhaps some
short extension of the third country fabric provision may be
needed as well, and we're looking at that issue now.
Many of the African countries, as you know, who have done
well under AGOA have done well because of the apparel exports
that have burgeoned and blossomed in sending to the U.S., and I
think that because textiles and apparel has always been a
gateway to industrialization, that we really do want to look
carefully at what we do under AGOA III to give them more time
to develop those industries and to be able, therefore, to play
a more active role in the global trading system.
We're looking at some other possibilities for AGOA III
provisions, perhaps certain tax benefits that would go to
companies that invest there, perhaps expanding the types of
products that are eligible for AGOA benefits, and then perhaps
providing some expanded flexibility for U.S. financing agencies
like OPIC and Ex-Im Bank to support AGOA trade. These are just
a few of the things that everyone is looking at.
And finally, again, perhaps more important is providing
some sort of technical assistance and trade capacity-building
and using that, having that be a provision under AGOA III as
well.
In conclusion, I believe that AGOA has worked well. It
could work a lot better. We believe that it serves as a
wonderful opportunity, and we want to work closely with the
Africans and with others in trying to ensure the fullest
benefit for them as well as the United States.
Thank you.
[The prepared statement of Ms. Liser follows:]
Prepared Statement of Florizelle B. Liser, Assistant United States
Trade Representative for Africa
Mr. Chairman, Senator Biden, and Members of the Committee:
Thank you for inviting me to appear before you today to discuss the
African Growth and Opportunity Act (AGOA).
INTRODUCTION
Over the past three years, the Office of the United States Trade
Representative (USTR) has continued to actively implement the far-
sighted African Growth and Opportunity Act, which Congress enacted in
May 2000 and expanded with the ``AGOA II'' provisions of the Trade Act
of 2002. Implementation of AGOA is a central component of the Bush
Administration's effort to promote free markets, free trade, and free
societies. AGOA is supporting this effort by stimulating economic
growth, helping sub-Saharan Africa integrate into the global economy,
increasing opportunities for U.S. exports and businesses, supporting
African reforms, and encouraging a solid U.S.-Africa trade partnership.
AGOA is successfully promoting African efforts to embrace free markets,
firmly establish the rule of law, reduce poverty, and strengthen labor
and human rights. Both the United States and sub-Saharan Africa are
benefitting from AGOA's success in expanding bilateral trade
opportunities and African development. The Administration looks forward
to Congress' continued support and guidance on AGOA implementation.
Continued bi-partisan Congressional support for AGOA has been a
critical part of AGOA's success.
I would like to focus on three major points today: 1) AGOA is
working and has become a major component of U.S.-African relations; 2)
although AGOA is succeeding, some countries have not yet benefitted and
need help to become more competitive and address supply side
constraints; 3) the Administration will need to work with Congress, the
private sector, and African governments to identify how to better
utilize and extend AGOA (as President Bush has requested) in order to
maximize benefits for Africa and the United States.
AGOA IMPLEMENTATION PROGRESS
AGOA is supporting African countries as they recognize the value of
open markets and the important role that trade can play in national and
regional development strategies. AGOA continues to strengthen, foster,
and encourage U.S.-sub-Saharan African trade and investment, creating
new jobs and economic growth. Total U.S.-African trade was nearly $24
billion in 2002, with U.S. exports of $6 billion and U.S. imports of
$18 billion. U.S. imports under AGOA were valued at $9 billion in 2002,
a 10 percent increase over the previous year, despite a general decline
in imports from the region and an overall decline in global trade.
Increased AGOA trade is having a remarkable impact on sub-Saharan
Africa, while representing less than 2 percent of all U.S. merchandise
imports.
AGOA is promoting the African use of U.S. goods and services, as
well as U.S.-African joint-venture partnerships. U.S. merchandise
exports to sub-Saharan Africa were just over $6 billion in 2002,
greater than exports to the former Soviet republics, and nearly twice
those to Central and Eastern Europe. U.S. exports to South Africa alone
were larger than our exports to Russia.
The United States is a leading source of foreign direct investment
in Africa, supporting U.S. trade with the region and enhancing U.S.-
African business partnerships. AGOA-related trade and investment has
created over 190,000 African jobs and over $340 million in investments.
AGOA is also stimulating intra-African investment. It is encouraging
African firms in different countries to coordinate on regional
production and take advantage of the specific skills, resources, or
comparative advantages present in various individual African countries.
AGOA continues to support African economic, political, and social
reforms. It requires beneficiary countries to meet specific eligibility
criteria, including the establishment of a market-based economy,
political pluralism, the elimination of barriers to U.S. trade and
investment, efforts to reduce poverty, and the protection of
internationally recognized worker and human rights. Countries may be
added or removed from the list of beneficiary countries based on AGOA's
eligibility criteria. The Administration reviews sub-Saharan African
countries annually to determine their eligibility status. Thirty-eight
of the 48 sub-Saharan African countries are currently eligible for AGOA
benefits. Two new countries were added this year: The Gambia and the
Democratic Republic of the Congo.
AGOA has supported productive discussions with sub-Saharan African
countries on economic, political, and social reforms. Countries in the
region have liberalized trade, strengthened market-based economic
systems, privatized state-owned enterprises, and deregulated their
economies. These changes have improved market access for U.S. products
and services and benefitted African economies. African political
reforms have included measures to combat corruption and improve
governance. African countries have improved the protection of workers'
rights and efforts to combat the worst forms of child labor.
Additionally, many countries have begun to reform their customs regimes
in order to meet AGOA's apparel eligibility requirements, as AGOA
requires countries to establish an effective visa system before they
may receive apparel benefits. This requirement is helping to prevent
the illegal transshipment of goods and encouraging African countries to
improve their customs procedures. Nineteen countries are currently
eligible for AGOA apparel benefits. The Administration is actively
engaged with at least four other countries that are in the process of
meeting the requirements for AGOA apparel benefits.
The annual U.S.-sub-Saharan Africa Trade and Economic Cooperation
Forum, commonly known as the AGOA Forum, is also providing an excellent
opportunity for high-level consultations with African officials on
economic, political, and social issues. Ambassador Zoellick has used
the annual forum to engage African governments, the U.S. private
sector, NGO communities, and Congress in discussions on AGOA
implementation and U.S.-African trade policy. The AGOA Forum has
promoted a unique tripartite alliance among U.S. and African
businesses, civil society organizations, and governments. This alliance
has been critical to the success of AGOA.
In August 2002, President Bush signed into law important
enhancements to AGOA as part of the Trade Act of 2002. These ``AGOA
II'' revisions extended duty- and quota-free treatment to knit-to-shape
apparel, doubled the annual quantitative limit on apparel produced in
the region from regional fabric, and granted lesser developed country
apparel benefits to Botswana and Namibia. These important revisions
were the result of Congress' strong leadership and support from AGOA's
unique tripartite alliance.
AGOA is also encouraging U.S.-African cooperation in the World
Trade Organization (WTO), as African governments play an increasingly
important role in the WTO's Doha Development Agenda trade negotiations.
As AGOA strengthens U.S.-sub-Saharan African trade relations, it is
also helping the United States and Africa to recognize common WTO
interests.
The Administration views trade capacity building and technical
assistance programs as essential components of its trade and investment
policy. Sub-Saharan African countries need assistance in maximizing the
benefits they receive from AGOA. From 1999 to 2002, the United States
provided over $345 million in trade capacity building assistance to
sub-Saharan Africa. To improve the delivery of such assistance, the
U.S. Agency for International Development (USAID) has established three
Regional Hubs for Global Competitiveness in Africa. These hubs--located
in Botswana, Ghana, and Kenya--are central locations for trade-related
programs. They are providing technical assistance on trade and
investment, as well as designing and carrying out trade capacity
building programs. In addition to USAID, a number of other U.S.
agencies are involved in trade capacity building in Africa, including
USTR, the Bureau of Customs and Border Protection, and the Departments
of Commerce, Transportation, State, and Agriculture. For example, USTR
has held several trade capacity building seminars and workshops
throughout Africa over the past three years. These seminars have
explained AGOA's provisions, outlined ways to maximize AGOA benefits,
and described how key reforms would enhance AGOA's benefits.
AGOA instructed the Administration to pursue free trade agreements
(FTAs) with sub-Saharan African countries. Towards that goal, the
Administration has signed Trade and Investment Framework agreements
with Ghana, Senegal, Nigeria, South Africa, the West African Economic
and Monetary Union (WAEMU), and the Common Market for Eastern and
Southern Africa (COMESA). We have also recently started free trade
agreement (FTA) negotiations with the five members of the Southern
African Customs Union (SACU)--Botswana, Lesotho, Namibia, South Africa,
and Swaziland. The U.S.-SACU FTA is expected to create new commercial
opportunities for U.S. companies, farmers and workers.
AGOA IMPLEMENTATION CHALLENGES
AGOA has presented many opportunities, but it has also presented
challenges. We are challenged with the task of maximizing and realizing
tangible benefits from AGOA across all the countries in the region.
While AGOA is succeeding in some countries and in some industry
sectors, others are struggling to take advantage of AGOA's
opportunities. Some AGOA countries continue to be challenged with
creating competitive and investor-friendly commercial environments.
Promoting small business is another major challenge given the
important role of small business in economic growth and development.
Small businesses are critical, both in the United States and in Africa,
to achieving increased investment, job creation, and sustained economic
growth from trade.
Trade financing and access to credit also present a serious
challenge to AGOA implementation and trade development. In addition to
U.S. financing provided by the U.S. Overseas Private Investment
Corporation (OPIC), EX-IM Bank, and the Trade and Development Agency
(TDA), I am pleased at the progress made by many African countries in
setting up well-managed trade development and financing funds.
The HIV/AIDS pandemic is having an impact on AGOA implementation
and efforts to strengthen the U.S.-African trade and investment
relationship. This pandemic is a serious threat to African economic
development, productivity, and poverty alleviation. In some African
countries, HIV/AIDS is undermining the positive development gains
experienced over the last two decades.
Another challenge facing AGOA implementation is preparing for the
post-2005 phase-out of the country quotas under the WTO Agreement on
Textiles and clothing. The elimination of quotas is widely expected to
lead to greater competition and significant changes in the scope and
nature of global textile and apparel trade. The Administration has been
working with U.S. and African businesses to access the potential impact
of the impending quota elimination.
In addition to the challenge presented by quota elimination, the
expiration of AGOA's third country fabric provisions in September 2004
is causing some serious concern. AGOA currently provides Lesser
Developed beneficiary countries with duty-free access for apparel made
from third-country fabric. Many in AGOA's tripartite alliance are
requesting that the United States extend AGOA's third-country fabric
provisions beyond 2004, particularly since there was a delay in
countries obtaining their apparel visas and actually shipping apparel
under AGOA. U.S. and African businesses are actively examining which
products and fabrics will be most seriously affected by the expiration
of the third country fabric provisions.
THE FUTURE OF AGOA
AGOA's unique tripartite alliance has made a lot of progress on
AGOA implementation. AGOA's success is a direct result of our work
together on increasing the U.S.-Africa trade and investment
relationship. There are some legislative options available that could
have an important impact on the future success of AGOA.
One of the highlights of the recent AGOA Forum was President Bush's
pledge to work with Congress on extending AGOA beyond 2008. The
announcement was hailed as a further demonstration of the United
States' commitment to promoting African economic growth and
development. The Administration will continue to seek advice as it
works with Congress on extending AGOA beyond 2008. I look forward to
hearing about any initial views that Congress may have regarding the
extension of AGOA.
One immediate concern is the issue of the expiration of AGOA's
third country fabric provisions. As you may know, we are trying to
respond to concerns that ending the third country fabric provisions
will disrupt trade in the region. There are strong indications that
sub-Saharan Africa will lack the capacity to competitively supply its
fabric needs after the expiration of AGOA's third country fabric
provisions. Based on consultations with Congress, private sector
representatives, and African governments, we are trying to evaluate
this issue and review the possible effects of a short-term extension of
AGOA's third country fabric benefits. We are examining ways that an
extension could support current operations, while maintaining the
incentive to develop fabric and yarn industries in Africa.
There is already active discussion among the tripartite alliance
about the need for ``AGOA III'' legislation. Several views on possible
AGOA III provisions are being discussed by U.S. and African NGOs,
government officials, and private sector representatives. These
provisions include making additional technical corrections and
legislative clarifications, expanding the types of products eligible
for AGOA benefits, providing certain tax benefits, supplying more
technical assistance, supporting African compliance with U.S.
agricultural standards, and increasing the flexibility of U.S. trade
financing agencies to support AGOA trade. The Administration will
continue to consult with Congress regarding these proposed provisions.
CONCLUSION
The Administration has placed great emphasis on working to ensure
the full implementation AGOA. Through AGOA, African and American
businesses are working together to seek mutual benefits from expanded
growth and commercial opportunities in Africa. Together they are
addressing the challenge of maximizing and realizing tangible trade
benefits. USTR is committed to expanding America's economic links with
Africa. We will continue to build on AGOA's unique tripartite alliance.
We look forward to the continued advice, encouragement, and support
from Congress as we continue to work on AGOA implementation.
Mr. Chairman, Senator Biden, and Members of the Committee, thank
you for providing me with the opportunity to speak before you today. I
look forward to answering any questions you may have.
The Chairman. Thank you very much for that testimony.
Secretary Kansteiner.
STATEMENT OF HON. WALTER H. KANSTEINER III, ASSISTANT SECRETARY
OF STATE FOR AFRICAN AFFAIRS, DEPARTMENT OF STATE, WASHINGTON,
DC
Mr. Kansteiner. Thank you, Mr. Chairman, very much, and
thank you for hosting this and allowing us to share some of the
good news that is coming out of Africa. As you know, AGOA is
one of the pillars of our Africa policy, and so it is great
fun, and it is very important that we shine a little light on
it from time to time, and thank you for your leadership.
Senator Feingold, thank you for your continued concern and
interest and leadership in things African. It is a great
privilege to work with both of you, Senators, on issues that
face us on the continent.
If I could just spend a few minutes talking about some of
the success stories, Flori has done a very good job laying out
the objectives and some of the hard work we still have to do,
but I would just like to take a few minutes to tell some tales
from Africa and see what this thing called AGOA really does.
In Lesotho, a tiny little mountain kingdom in southern
Africa, we have 25,000 new jobs created because of AGOA. Most
of it is in textiles, and most of it is creating apparel,
simple apparel for the United States market, 25,000 new jobs,
and as you said, Mr. Chairman, now there are more people
working in Lesotho's manufacturing sector than in the Lesotho
Government for the first time ever. We have $100 million of new
investment in Lesotho, mostly because of AGOA, and AGOA is
making a true impact there.
South Africa, a very different country, right next door,
has a very sophisticated industry, automobiles. Their
automobile exports to the United States because of AGOA is up
sixteenfold, and 20,000 new jobs have been created in that
country because of the various AGOA products that now can come
into our country duty free.
Zambia. This is an interesting one. It doesn't show up on
any of our statistics, because what Zambia does is produce
cotton that is then exported to South Africa for apparel, to
spin into fabric and yarn and make apparel out of. That export
from Zambia to South Africa doesn't show up on any of our
tables, but it is very real for the Zambian cotton-growers and
the people that in fact are working those farms and creating
the jobs. It's been a big plus for the agricultural sector in
Zambia.
Cape Verde, a little island off the west coast, is now
producing, catching, canning, processing tuna and mackerel for
the United States. Hundreds of jobs have been created there.
In Uganda, a very interesting example that I saw outside of
Kampala, an apparel manufacturer that realized he really wanted
to get into more sophisticated apparel than just T-shirts, so
he decided he needed to find a niche in this giant American
market.
He came and did some research, and realized that
organically grown cotton, and organically constructed apparel
might be a sell. You know, California is a big place, they like
that stuff, and in fact he went up to northern and central
Uganda where he worked with some cotton growers, and they now
are growing organic cotton in Uganda. He brings it down to
Kampala, spins it into yarn and fabric, and is making some
very, very attractive sportswear, all-organic cotton sportswear
for the U.S. market. It's a great story internally, vertically
integrated, as we say, and creating hundreds of jobs.
Those are some of the success stories. How about the
challenges? And I would yield to Flori's very good explanation
on the extension issues. We do have some dates coming up. We
want to work with you all to see what the best way forward is
on the third country fabric extension as well as the overall
2008 AGOA extension. We look forward to doing that. You know
our inclination. We need to deal with the politics of it all,
and so we look forward to working with you all.
Senator Feingold, the eligibility for AGOA is important. We
have had meetings, very recent meetings, as Flori mentioned,
where there are certain countries that in fact are on the list
now, that are being carefully reviewed and are being considered
not to retain their eligibility, so we do take it seriously,
and we are looking at it as we speak.
Finally, I'd like to conclude with a segue into the next
panel, and that is, does AGOA and does trade breed investment,
and Mr. Harmon, who has done a terrific job on his Capital
Flows Committee, will speak to this directly, but we do in fact
think that trade does lead to investment, and we want to see
that transition occur.
Investment in these AGOA countries is on the rise. It's not
as big or fast as we would like, and we are looking for ways to
improve that and encourage that. It's not only FDI, if I might
add. Foreign direct investment is critical to sub-Saharan
Africa, but portfolio investment is very important, too, and
that's why at the State Department and elsewhere in the
administration we're working hard to look at how do we create
the capital markets for Africa.
There are 18 stock markets right now in Africa today.
That's the good news, 18 places where an African entrepreneur
can go raise capital. The bad news is, there are 18 of them,
and they're all too small, except for one or two, all too few
liquidity, buy-in is low, and so we're looking for ways to in
fact integrate and harmonize these capital markets to make them
more attractive.
But thank you very much.
[The prepared statement of Mr. Kansteiner follows:]
Prepared Statement of Hon. Walter H. Kansteiner III, Assistant
Secretary of State for African Affairs
Mr. Chairman, Ranking Member Biden and members of the Committee,
thank you for inviting me to testify before the Committee today on the
African Growth and Opportunity Act (AGOA). It is a particular pleasure
to testify on AGOA before this Committee because it allows me to again
congratulate the Chairman and other members of this Committee who were
instrumental in enacting AGOA into law in 2000, and in the passing of
the ``AGOA II'' package as part of Trade Promotion Authority last
summer.
Mr. Chairman, you have asked me to address the impact of AGOA on
African countries. I am very pleased about the impact AGOA has had on
African countries.
First, a few trade numbers. Excluding energy products, our AGOA
imports including products covered by its GSP provisions rose 50% in
2002 to $2.2 billion. This is a relatively low level compared to our
overall imports of over $1.1 trillion in 2002, but this isn't trivial
for Africa. The United States is sub-Saharan Africa's largest single-
country market, the recipient of about one-quarter of sub-Saharan
Africa's exports.
Total AGOA imports increased 10% in 2002, to $9 billion, about half
of our overall imports from sub-Saharan Africa. About three-quarters of
that was oil.
Behind oil, the biggest AGOA import has been apparel. We imported
over $800 million in apparel under AGOA in 2002, more than double the
2001 figure, and overall imports in this sector from AGOA-eligible
countries are up over 50% from 2000. We have also seen under AGOA large
levels of imports of transportation equipment, minerals and metals,
agricultural products, and chemicals.
Increases in AGOA trade happened despite the fact that our overall
imports from sub-Saharan Africa have actually declined since 2000,
mostly due to the drop in key commodity prices--especially oil, which
accounts for about 60% of our imports from the region--and the general
slowdown in the global and United States economies, with a
corresponding slowdown in our overall imports.
While my testimony contains numerous examples of success stories,
we need to do a lot more to encourage African economies to diversify,
build the economic and policy infrastructure to conduct and facilitate
trade, and to attract foreign investment. AGOA, along with these other
initiatives, is in our view the right way to go.
In Africa, our overall commitment is to reduce poverty through
economic growth, and trade is one of the tools that can make this
happen. AGOA is a large part of the U.S.-Africa trade strategy where
the primary objective is to integrate African economies into the world
trading system. We want these countries to build strong partnerships
not only with the U.S. but with other countries around the world.
As AGOA goes forward, we also need to realize that the
Administration has several new trade-promotion initiatives--starting
with the President's Trade Initiative for Africa (Trade for African
Development and Enterprise). The U.S.-SACU (Southern Africa Customs
Union) Free Trade Agreement negotiations will serve as a building block
for future market-opening agreements with the United States. As a
leading trading nation, the United States has much at stake in making
these trade initiatives succeed.
Behind the trade numbers are many success stories and many examples
of how AGOA is helping Africans.
One we hear a great deal about is Lesotho. This small, land-locked
country of only 2 million was sub-Saharan Africa's second largest
exporter of manufactured goods to the United States in 2002. Last year
it sent $320 million in apparel products to the United States, over 99%
of it under AGOA. According to Lesotho's trade minister, AGOA has
created over 25,000 new jobs in Lesotho's apparel sector so far, and
over twenty plants have opened or expanded since 2000. A new plant is
opening in one of Lesotho's poorest rural districts that will employ
5,000 local residents. For the first time in Lesotho's history, more
people are employed in the manufacturing sector than by the government.
South Africa, the most important economy in Africa, has greatly
benefited from AGOA. It exported over $1.3 billion under AGOA in 2002.
Exports of automobiles have increased sixteen-fold since AGOA went into
effect, creating extra investment and employment in that industry.
Long-term declines in the South African textile and apparel sectors
have been reversed and workers hired as AGOA exports almost tripled in
2002. A small specialty ice-cream maker found a new market in the
United States and has greatly expanded its business. South African
agricultural products like oranges, fruit juices, and fruit candies
have for the first time found markets in the United States, and sales
of products like wine, household appliances, and footwear have
increased.
A South African economic consultancy last year estimated that AGOA
has been directly responsible for the creation of 19,000 new jobs and
indirectly for at least 40,000 others. Importantly, its AGOA exports
are concentrated in labor-intensive sectors, helping create jobs in a
country faced with persistently high unemployment rates.
Kenya saw its overall exports to the United States increased by 50%
last year thanks to greater apparel exports under AGOA. Kenya has
estimated that 30,000 people hold jobs directly related to AGOA, and
over 150,000 others have jobs indirectly linked to AGOA, in industries
that support companies manufacturing for export under AGOA. Even
manufacturers that aren't selling their products directly to the United
States are benefiting--for example, half of Kenya's sisal production is
used in dartboards that we import under AGOA. Kenya's export promotion
agency estimates they have seen over $45 million in such ``backward
linkages'' into Kenya's economy. And just this month, Kenya announced
it would for the first time export processed coffee to the United
States under AGOA. AGOA has increased employment, provided extra income
for urban and rural workers, and given a boost to Kenya's economy.
Uganda is another major coffee producer. Now under AGOA a new firm
is processing coffee before exporting it to the United States--the
first time Uganda has ever added value to its coffee exports, which
account for 2/3 of its export revenues. Also thanks to AGOA-inspired
investments, new exports of apparel to the United States began in 2002,
not only employing urban workers but also boosting income for Ugandan
cotton farmers.
Two American companies have invested in plants in Ghana to finish
and re-export socks to the United States--these first-time investors in
Africa are employing 400 Ghanaians. Another American firm manufactures
dried soup mixes in Ghana for export to the United States, and
investors from Malaysia and Mauritius are preparing operations with an
eye on the American market.
In Cape Verde, American and Portuguese firms have expanded fish
processing businesses and are exporting locally-caught, high-quality
tuna and mackerel to the United States. Cape Verde began exporting
shirts under AGOA just last December.
Foreign companies have invested over $250 million in spinning
operations in Namibia, creating some 20,000 jobs by 2005. In the past
few months we have seen large increases in exports to the United States
under AGOA as these operations come on-line. AGOA is diversifying
Namibia's economy beyond diamonds, minerals, and subsistence farming.
A small handicraft company in Tanzania has boomed since AGOA.
Before AGOA, it employed 25 people and exported $20,000 a year worth of
arts and crafts to the United States. Now, it has increased its exports
to the United States ten-fold and has created new jobs and provided
income for 125 poor Tanzanians, mostly women.
Not all AGOA-related successes involve exports directly to the
United States. AGOA is also stimulating intra-regional trade and
investment. For example, Namibian plants produce parts that are
included in South African cars exported to the United States.
Zambian cotton exports to South Africa more than doubled in 2002
thanks to increased demand generated by AGOA. This doesn't register as
an AGOA export but thousands of Zambian farmers have nonetheless seen
their incomes rise thanks to increased demand for their cotton. Also in
Zambia, a local manufacturer is now exporting yarn to South Africa--
without AGOA, the owner of this factory said they would have gone out
of business, and hundreds of Zambians would have lost their
livelihoods.
We have witnessed increased African investment in other African
countries thanks to AGOA. Mauritian firms have been especially active.
They are investing in Mali to build a plant that will produce yarn from
Malian cotton. This will employ Malians, boost incomes for Malian
cotton farmers. Its product will then be used by apparel plants in
Mauritius for products destined for export under AGOA. Mauritian
companies have invested in Madagascar, Mozambique, and Ghana, and are
looking at Senegal, all due to AGOA.
As we look at various AGOA success stories, there is no avoiding
the fact that with a few exceptions, the biggest beneficiaries have
been in the textile and apparel sector operating in southern Africa. I
suggest a couple of reasons for this.
Major winners from AGOA like South Africa, Namibia, and Lesotho
have a combination of factors in their favor. They have reasonable
commercial frameworks that allow businesses to set up and operate
relatively freely, and governments that have encouraged investment and
trade. A company won't invest if the obstacles are too great, or the
fear of effective expropriation by unreasonable regulation or
corruption too high.
These countries are also for the most part relatively large
markets--or are tied to larger markets such as the Southern Africa
Customs Union, in the case of Lesotho, Swaziland, and Namibia. They
have also been stable politically.
Some countries have seen little benefit from AGOA. Some are simply
poor, isolated countries with relatively little economic activity, or
little capacity to effectively produce and market products that might
find buyers in the United States.
Unsurprisingly, countries with poor governance and/or political
instability have not been able to benefit from AGOA. An unfortunate
example is Madagascar. Dubbed the poster-child for AGOA in December
2001 by the Wall Street Journal because of its booming apparel
industry, Madagascar slid into six months of instability and unrest
soon after due to a political crisis. Even though the political
situation has stabilized and the new government is doing well,
Madagascar's AGOA-based exports are down by a third for the first
quarter of 2003 over 2002.
Other countries have simply failed to exploit advantages they enjoy
to benefit from AGOA. Nigeria is an example. They are by far the
largest exporter under AGOA in dollar terms, but that is almost
entirely because of oil--which would be sold to the United States even
without AGOA or GSP. Although they have a vibrant private sector, they
have done relatively little under AGOA. Other countries like Zimbabwe,
which until recently was a very competitive African economy, have of
course failed to even gain AGOA benefits due to their failure to meet
the eligibility requirements.
Quite simply, AGOA benefits have largely accrued to those countries
that have done the most to help themselves, encouraging investment and
trade, and maintaining stability. We have worked with other countries
to try to improve the results of AGOA through our trade capacity
building programs and will continue to do so, but ultimately whether a
country can benefit from AGOA is largely in their own hands.
We hope to see greater agricultural trade between the United States
and Africa. To do this we are working with African countries on food
security issues and on U.S. sanitary and phyto-sanitary (SPS)
requirements in particular. The Department of Agriculture and its
Animal and Plant Health Inspection Service (APHIS) have, with the
support of the U.S. Agency for International Development, stationed an
APHIS scientist at the USAID trade hub in Botswana to help governments
and businesses in southern Africa meet our SPS standards. Soon, two
additional APHIS scientists will be providing similar services through
the trade hubs in eastern and western Africa.
Trade and employment numbers are the most obvious way of measuring
the impact of AGOA, but we shouldn't forget the non-quantifiable
impacts. For example, most AGOA-eligible countries have established
local AGOA committees, usually involving governments and businesses,
and frequently our Embassies. The creation of U.S.-market oriented
organizations such as these, and the sheer volume of news and
commentary in African countries about AGOA demonstrate a shift in
thinking. Several countries have credited AGOA's textile visa system
for helping them to upgrade and improve the operations of their customs
service--a nice side effect.
The AGOA Forum has also been great. We held the first one in
October 2001. It was the first major international conference hosted in
Washington after the attacks of September 11. The participation of the
President and half of the Cabinet, including Secretary Powell and
Ambassador Zoellick, plus several members of Congress, demonstrated our
commitment to Africa and AGOA.
The second AGOA Forum was in Mauritius this past January, and was a
smashing success. In addition to a very lively governmental Forum,
which Chairman Thomas and four other House Members attended, the
Mauritians helped organize a private sector event that attracted over
900 businesspeople, mostly from the U.S. and Africa, including small
African enterprises and American giants like Microsoft and Boeing. The
fact that Mauritius volunteered to host this event demonstrated African
buy-in to AGOA. I must note that although we have not decided whether
we would ever consider having another AGOA Forum outside of the United
States, African countries are already volunteering to host future
forums.
AGOA is well underway. Now we are considering the future of AGOA,
keeping in mind President Bush's videotaped announcement at the
Mauritius AGOA Forum of his desire to see AGOA extended beyond 2008.
There are three key dates to remember.
The first is September 30, 2004, when the third-country textile
benefit is due to expire. Many AGOA beneficiaries have used textiles
from places like China in their U.S.-oriented apparel sectors, and have
expressed concern that this benefit is ending too soon. On the other
hand, there have been major investments in textile plants in Africa
made explicitly with this date in mind. We will need to work together
on this question. Currently we in the Administration are exploring
whether or not to recommend extending the benefit. Of course we very
much want to hear Congress's views as well, and will discuss this with
other interested parties in the United States and Africa.
The second date is January 1, 2005, when the WTO Agreement on
Textiles and Clothing expires--and with it, the current global system
of quotas on textiles and apparel. Our experts in government and in
industry are assessing the effect this will have on the global apparel
market, and on African producers. It is expected that the share of
global production for large, cheap producers like China and Vietnam
will rise dramatically, and high-cost, inefficient producers can expect
to go out of business, accelerating a decades-long trend toward more
efficient producers. Artificial quota-driven operations such as plants
in the United Arab Emirates run and staffed entirely by workers from
Sri Lanka will likely disappear very quickly.
But we are not convinced that all production will immediately leave
Africa. First, tariffs will remain in place. That means AGOA producers
will have a roughly 17% cost break compared to non-AGOA countries in
the U.S. market.
Second, not all buyers will want to switch immediately to China or
Bangladesh. Many buyers have relationships with producers in other
countries that meet their needs well, and can be expected to continue.
Also, companies will probably wish to have some diversity in where they
source their apparel, in order to reduce vulnerability to shocks caused
by natural disasters or political changes. The recent interruption in
trade caused by the SARS outbreak in China is an example of this risk.
Taiwanese firms, major players in Africa that are uniquely subject
to pressure from China, can be expected to maintain operations outside
of China. Taiwanese firms continue to make new investments in places
like Lesotho and Mauritius. Finally, the terms of China's accession to
the World Trade Organization allows some temporary special measures to
constrain disruptive surges in exports from China.
There is no question that African producers will have to compete
more effectively, and not all will be able to do so. They will have to
rise to this challenge, but I do not believe they will all fold in
2005.
The third date is September 30, 2008, when the trade provisions of
AGOA are due to expire. We are considering what is being called
informally AGOA III, the extension of AGOA. As we do so, we should
consider other factors in our trade and economic relationship with
Africa.
Should AGOA III cover more than just trade in goods? Should it
expand to include trade in services, or to consider investment
incentives? Are there other elements of economic cooperation that could
be included in AGOA, or should we stick to its emphasis on trade?
Again, we are just now beginning consideration of what shape AGOA
III should take, and of course look forward to close consultation with
Congress as we try to shape this new phase for AGOA, and for our
economic relations with sub-Saharan Africa.
But there is another date, somewhat farther off, that we must also
be aware of. In 2015, we hope that through the WTO we will have
achieved a virtually duty-free system for international trade.
Preference programs such as AGOA will no longer help developing
countries. We--and they--need to move to solidify and advance economic
gains in these states to prepare them for the opportunities and
competition of a truly global free-trade environment.
I am very pleased at the positive effects of AGOA these past 2\1/2\
years. It is helping to create a new dynamic in Africa, to deepen the
economic ties between those eligible countries and the United States.
And it has given Africans new hope.
Again, Lesotho is a great example of the progress countries can
make. Lesotho has been regarded by some as a sleepy backwater. Now it's
increasingly seen not as an object of pity, but as a model to emulate.
I am confident other African countries, with the right mixture of wise
policy-making, improved market access, and well-targeted assistance,
can also make this leap. Thank you.
The Chairman. Senator Feingold.
Senator Feingold. I just wanted to indicate that Senator
Biden wanted to be able to join us today but he could not, and
he has asked that written testimony from Amnesty International
USA be entered into the record.
The Chairman. It will be entered into the record in
full.\1\
---------------------------------------------------------------------------
\1\ See page 50.
---------------------------------------------------------------------------
Senator Feingold. I want to thank the witnesses. I have to
go to a Judiciary hearing.
The Chairman. Would you like to ask some questions before
you go?
Senator Feingold. I am going to have to go about now, but I
will submit some questions for the record if I may, Mr.
Chairman. I thank you for holding this hearing. I thank the
witnesses.
The Chairman. Thank you for attendance in the midst of all
the responsibilities.
Let me begin the questioning, then, by asking, I suppose
obviously, if we are to move to extension of AGOA, how long? We
have 2008 mentioned as the point of departure for this new
amendment. In terms of your administration or the political
seasons or what have you, as you mentioned, what advice can you
give on those critical elements?
Ms. Liser. Thank you, Senator. We actually in the
administration are just beginning to look at some of the
proposals that are coming forward. There is an AGOA III
coalition that has formed. They meet regularly. They've been
coming up with a list of potential items. The date of extension
is one of the things that they have addressed. It's also
addressed in the capital flows report that just came out.
Some people think an additional 10 years is good. Some
people think that perhaps the date 2015 makes sense, because
there are some other proposals that are on the table in the WTO
that have 2015 as a point at which the whole world would be
duty free on, for example, industrial products, so perhaps 2015
as an extension date for Africa to have duty free access to the
United States makes sense.
We're looking at the full range of proposals, and we would
like to have a chance to speak with you and others about how
long you think makes sense as well.
Thank you.
The Chairman. Do you have anything to add, sir?
Mr. Kansteiner. I think 2015 is a date floated quite
frequently, and it seems like it makes some sense to us, but we
would like to work with you on it.
The Chairman. In any event, you have identified a coalition
that is thinking about this in a concerted way, and thinking
about not just the date, but likewise the contents of what we
might want to achieve going to the well again to try to get the
two houses to support this extension.
You have mentioned success stories, and obviously some
problems. The fact is, there are many countries in Africa that
have not been involved in AGOA. One of the good things that
comes from our hearings for potential American ambassadors to
all of the countries of Africa is an opportunity to ask each
one their views on AGOA, first of all if they have views, if
they're aware of the whole business, and each really I found is
quite knowledgeable. Frequently countrymen come to the hearings
of the country that is being considered that day and affirm
informally that this has been a remarkable success. This is
always heartening to the champions of AGOA.
On the other hand, there are a good number of blank spots
on the map. What do we do about that? What sort of advocacy
evangelism or extension is required here on the part of African
nations, on our parts--these being the two major players in
this equation?
Mr. Kansteiner. It is something that we drill into our
ambassadors, every one of them, before they go out and so I'm
glad to hear that they are sensitive to it and well versed in
it.
There's a good example of Senegal. About 2 years ago,
Senegal was demonstrating very little opportunistic building on
AGOA. I mean, they just weren't doing that much with it. They
have a wonderful tradition of textiles in Senegal and
throughout West Africa, so it was a natural. They are
geographically that much closer to the east coast of Africa
than other major textile producers that have emerged, certainly
closer than, say, Lesotho, and yet Senegal hadn't done
anything, and so we, our ambassador did a very good job of
putting together these Senegalese with some American and
Mauritius capital.
Now, Mauritius has been a great example of taking full
advantage of AGOA. In fact, they were a real mover and shaker
in getting it through, as you know, and in fact Mauritian
capital went to Dakar, Senegal, and they formed a limited
partnership, and now we're seeing Senegalese textile
manufacturing getting set up and in fact competing very
vigorously.
So it's that kind of, sometimes putting people together is
one of our jobs, and I hope every one of our embassies is
trying to do that.
Ms. Liser. I think another thing that, as I, as being
relatively new in this position, as I have been meeting with
trade ministers from the African countries as well as with
their ambassadors here, and even some industry people as I have
traveled, started traveling throughout Africa, I have said to
them that it is very important for them to have a strategic
plan for AGOA, how to take advantage of AGOA, and in a number
of cases, some of them, AGOA happened, and they just sort of
sat there thinking that something was going to happen sort of
automatically as a result of AGOA and not understanding that
there were certain things that they needed to do.
So one of the things I say to them is, I ask them, do you
actually know what your top five products are that you're
competitive in, or would be able to be competitive in, in
selling into the U.S. market, and some of them go, ``well -''
but others of them will say, oh yes, it's--and then they run
down what their products are.
So for every country I'm encouraging them to do that, and
encouraging them, once they know that, to then come here with
people in those particular industries and try to set up
matchmaking meetings with potential U.S. investors, and just, I
would like to give one example. It is Lesotho, even though
Lesotho is doing well in apparel, but Lesotho has fabulous
clay, and this clay is supposed to be some of the best clay to
make ceramics.
They had a company that was actually European-based a
number of years ago which left, I think about 2 years now, and
so they actually have this wonderful clay just sitting there
with no one doing anything with it. What I would say to the
Lesothans, and have said to them, is that you should bring your
people here who were involved in the ceramic industry at the
time that it was actually functioning in Lesotho, bring samples
of your clay, come and set up meetings with the key ceramics
makers in the U.S., and then try to see if you can forge some
sort of partnership and foster some interest in investment in a
ceramics industry there, and every single sub-Saharan African
country, in my view, should have a plan and a strategy based on
what their comparative advantage is.
The Chairman. I'm just curious about whether the countries,
through their governments or those involved in the private
sector, have a good idea of the success of AGOA.
In preparation for this hearing, for example, we have been
furnished--and this was terrific--with a country-by-country
analysis of trade and investment. It is a great story. We have
a comprehensive view of the whole continent, and a country-by-
country analysis. I'm wondering whether this is available to
all of the embassies in Washington from African countries or to
our ambassadors who are out there.
I'm hopeful the answer is yes, and clearly I know you make
every attempt to get this information in preparation for the
ambassadors, as a follow-through, sort of a running score of
how it's going.
Ms. Liser. Well, we just finished, as a matter of fact, the
annual report to Congress on AGOA and its implementation, and
one of the things that we make sure to do in addition to
getting it up here to you on the Hill and out to our own
industry is to make sure that all of the trade ministers from
all of the sub-Saharan African countries have it so that they
can not only see what is written about them, but they can also
see what is written about the others, and we do hear from
people. They say, oh, everyone's going to such-and-such a
country and no one is coming here, and we would like to try to
see if we can get people to come here.
Recently, when I was in Namibia and saw a fabulous factory
that was set up there, and they've employed now over 4,000
people, they also gave me a presentation on Walvis Bay, which
they said is the best place to ship from, better than Durban,
or better than Capetown, so they're actually also looking at
other things that they can do to make Namibia a more attractive
place for investors in terms of AGOA.
The Chairman. I know it's a totally inappropriate analogy,
but seeing this chart reminds me of the weekly sports pages, in
which the winners of golf tournaments are listed, from, say, 1
to 100, and I presume if you're a professional golfer, why, you
probably take a look at that list and see how you're coming
out.
I would think that might be true of countries, wondering
why the neighbor is doing something that's not happening in
their country, or in these African democracies, how citizens,
even critics of the government might take a look at this and
wonder, why isn't this happening to us, who is asleep at the
switch----
Ms. Liser. Exactly.
The Chairman [continuing]. In our government? So this
information, it seems to me, is a powerful tool toward
encouragement on this general question of more people being
interested.
Now, having said that, it's a tough thing to do, because as
you've pointed out, aside from the energy sector, there's an
enormous concentration on textiles.
At the beginning of the economic recovery of Eastern
Europe, for example, at the time of the breakup of the Soviet
Union and new freedom for the Eastern European States and what-
have-you, almost inevitably, almost each Ambassador or Foreign
Minister who came to Members of Congress like myself as well,
I'm sure, as to the administration at the time, who wanted to
sell textiles, or sometimes cheese and dairy products, which in
terms of our protectionist system on those things has equal
problems.
This is the reason it was very hard to pass AGOA, quite
frankly. You keep running up against those sectors in our own
economy that are the most protectionist. Now, they would claim
that that really isn't so, but in fact politically I've found
that it is so. So the dilemma of how you move through all the
rocks and shoals of this is tough. You wish you could find
somebody who wanted to sell us something else.
Now, that's what you have been trying to point out today.
Clay, pottery, or more refined goods, or something indigenous
in the society that has a market here. How do we go about doing
that? Obviously, it's the responsibility of the country, of
people who are attempting to make a living, or attempting to do
better? Many are ingenious, but at the same time, the
breakthroughs appear to be far too few. I'm just wondering how
we stimulate interest in expanding the list.
Mr. Kansteiner. There are a couple of ways that we're
actively doing it, and we're learning as we go, quite frankly,
but we have set up three trade hubs throughout Africa, one in
Nairobi for east, and Accra, Ghana, for west, and Gaborone,
Botswana in the south, and these trade hubs we staff with trade
experts from various agencies in our government.
They go down, they're working with African entrepreneurs
trying to figure out what are the goods that can come into this
country, what are the goods that, in fact, you have? Is it
clay, is it beadwork, is it whatever, and sometimes it can get
into very sophisticated manufacturing issues, too; is the
platinum that you're producing, could it be made into catalytic
converters for the auto industry?
Much of that expertise is now housed in one of these three
trade centers. Now, we're trying to get out from there, too,
but ultimately it's interacting with African businessmen,
African businesswomen in making them aware and getting them to
focus on what is the product that they can ship into this huge
market called the United States.
One area, and you touched on it just now, is agriculture.
There are African agricultural products that do have a
comparative advantage in our markets, but they have to go
through the sanitary and phytosanitary requirements. It has
been a real impediment.
Finally, we now have some sanitary experts stationed in
these trade hubs and in our embassies around Africa to help
African agricultural products get the correct certification to
come into our markets.
The Chairman. Well, that is very important. In our work on
the Agriculture Committee I'm aware of how difficult this is.
Yet at the same time we have hearings routinely there about
food safety in the country. This is a very big issue, leaving
aside the trade aspect. This technical support is really of the
essence in opening up those avenues.
Ms. Liser. If I could just mention one other area that's
important, the agribusiness, because building on, many of the
African countries tell us that they don't want to just send
their raw materials to us. They really would like the chance to
have some value added, some manufacturing value added, and to
be able to earn more for the products they have, so
agribusiness is an area that we're also encouraging them to
look at and see if they can do some joint ventures with U.S.
producers like Heinz and Cargill and others.
The Chairman. Let me ask about textiles specifically.
Regardless of our hopes for extension, this will be a critical
item. Please explain in commonsense terms for the benefit of
this hearing and its record what is at stake with the 2005
situation, and how textiles in Africa can succeed beyond that
time. Literally the barriers are eliminated, and worldwide
competition floods in. How can you describe the constructive
steps that you think are required?
Ms. Liser. Well, I think the combination of the end of the
third country fabric provisions under AGOA in September 2004,
and the end of the global quota system under the multifiber
arrangement in January 2005, have serious implications for the
African countries and their ability to continue building both
their apparel industry and the textiles industry.
I think there are a couple of keys to this. Many, many
people have said that investment that has made, Asian
investment particularly that has been made in Africa after the
MFA ends will sort of just leave. We've been talking to people,
and we are now beginning to understand that yes, some of it
will leave, but there are people who are there permanently. The
folks who, for example, are in that Namibia factory, I asked
them specifically, and at least at this point they said no,
we're here for good, we're building more. I think that's
important.
I think the other thing that's important is vertical
integration, that the countries that will do the best in
keeping an apparel industry strong will be those that have also
figured a way to either vertically integrate within their own
economy, using their own cotton, making the yarn and the fabric
and then putting it into apparel, or working regionally, where
they bring the cotton in from other countries in the region, as
Walter was saying, who have the best cotton, and maybe make the
textiles. Nigeria, for example, is supposed to be a country
that could do well in the textiles industry but has not yet
done so, building that up and then sending those textiles to
maybe South Africa, where they're very good at making the
apparel.
So vertical integration is important, and I think just one
last point. People do forget that even when the MFA ends in
2005, there would actually still be quotas--I mean, tariffs in
place of about, maybe about 12 to 14 percent on a lot of those
products, so even though we will have a quota free world in
terms of textiles, we will not have a duty free world, and the
Africans who can still have duty free access to the U.S. market
will continue to have some comparative advantage relative to
others, who will not, even the Chinas of the world.
The Chairman. Let me check whether the $345 million in
trade capacity-building has been equitably distributed. I'm
sure that there's a feeling that that has been the case.
Obviously some applicants are maybe more aggressive, and maybe
have greater programs than others.
What do you say to countries that come to you and say, why
are we not getting our fair share of this, or any share? Please
describe the rules of the road for that money, or for whatever
else we should do.
Ms. Liser. I think that on the trade capacity-building
assistance we have been doing some of it regionally. I just
wanted to make sure that people understood that it is not
always on a country-by-country basis. We have gone in and had
seminars where we bring in all of the West African countries,
or all the southern African countries, et cetera, and so a lot
of it has been spent in that way.
I think for the countries which may have benefited the most
from it, and I don't know all of who they are exactly, but my
guess is that if you are out front with a plan for what it is
that you need, identifying what kind of trade capacity-building
and technical assistance you need, and can get that to the
people at USAID, and our competitiveness hubs, then generally
speaking you're going to be the one--you know, the squeaky
wheel gets oiled. You are the ones that then get it.
This is why we're encouraging countries to think about the
fact that you have those hubs there, you have the USAID
missions, you have the FCS people, and that it is very
important that you go to them, you identify what it is you
need, and we try to be responsive.
The Chairman. This occurs, you believe, because of the
initiative of people who are doing the planning. They're not
bilateral agreements between the United States and country x,
or what have you, but does it really come as part of the
process?
Mr. Kansteiner. Yes, sir. In fact, all of our embassies in
sub-Saharan Africa that are AGOA-approved countries have and
put out the word that we are willing and eager to work, but
there has to be some initiative coming from the entrepreneur.
The Chairman. President Bush has indicated that he favors a
free trade agreement with the countries of the South African
Customs Union. I'm curious as to what you perceive as the time
line for these negotiations, for completing them, and the
prospects for additional trade agreements in Africa.
First of all, please describe for the record what the South
African Customs Union is, what that encompasses, as well as the
time line to proceed, and some thoughts about the extension of
either bilateral or multilateral agreements with African
countries.
Ms. Liser. Well, if I could, the South African Customs
Union actually is the oldest customs union in the world. It is
composed of South Africa and then what we call the BLNS
countries, Botswana, Lesotho, Namibia, and Swaziland.
The Chairman. So there are five countries involved?
Ms. Liser. Five countries in SACU. The SACU-U.S. FTA
negotiations were actually launched, we had the first round in
Pretoria, I guess about 3 weeks ago. I led a delegation of
about 28 people from the U.S. side, from all the agencies,
Department of Agriculture, Department of Commerce, State,
everyone was there, and we covered about 16 issues,
nonagricultural market access, market access services, et
cetera.
Our next round will be in August back in the region, and
the third round will be here in the United States in September,
and we would like to get the message out and make sure that the
message about the SACU-U.S. FTA and the benefits of it are
broadly spread, particularly at that time.
In terms of the time line for finishing, our goal is to
finish by the end of 2004, and that time line actually is a
little longer than our other FTA time lines. They are generally
going to be completed by the end of 2003, for example the one
with the Central American countries. That's the one that's the
closest to this one.
There are some things that are a little different about the
U.S.-SACU FTA from our other negotiations, and we have said
that asymmetry and special and differential treatment are
elements that we would like to build into this, and we also
have a trade capacity-building working group that sits
alongside of the negotiators to allow us to identify what areas
the SACU negotiators need help in so that they can be
successful in negotiating this agreement.
And then on your last part of the question about whether or
not we can extend this to others, we clearly believe that
because this is the first U.S. FTA with any countries in sub-
Saharan Africa, it serves as a model for what we can do with
other countries in the region, and there's already the idea
that's being discussed of docking.
You know, you have an FTA, and then perhaps another country
that's close by in the region that's met all the criteria can
then dock into that particular agreement. We would be open to
that as well, but a lot of that will also depend on how well
that country can be integrated into the SACU end of it on their
part.
So we see it as a model. We do hope that this agreement
will show others in Africa such as the COMESA group or the
WAEMU group that there are prospects for having an FTA with the
United States if you have the right kinds of policies in place
on your end.
I would just end by saying that one of the reasons that we
started with SACU, not to mention that they are our largest
AGOA partners at this point, is that they really had done a lot
of the work in terms of economic reform, as well as putting in
place the kinds of regimes, trade regimes that were necessary
both individually and as a customs union. They have one common
external tariff, so we are hoping that their example will be an
example for other regional groupings on the continent, and that
once we finish this FTA, that there are other groups that will
say, well, we're ready with an FTA with the United States also.
The Chairman. Well, that's an encouraging schedule. I
appreciate the fact that you've had the first meeting, and that
you have led the delegation of 28 members, which is a sizable
number, and comprehensive in terms of our government's
interest.
Ms. Liser. That's right.
Chairman Lugar. And two more meetings and a third one to be
held here in Washington in September.
Ms. Liser. That's right, yes.
Chairman Lugar. That might attract, likewise, some interest
from administration officials, Members of Congress, others in
the private sector who are following this. I appreciate your
highlighting that as a part of our record today.
Well, I thank both of you for your testimony, for both your
prepared testimony as well as your excellent summary remarks,
and for being so forthcoming in response to those questions. It
is an enthusiasm which we share. This is the purpose of the
hearing, to make certain that there is an extension of that
enthusiasm to a broader circle.
Thank you for your participation.
Ms. Liser. We thank you for holding the hearing.
The Chairman. The chair would like to call now our second
panel. It will be composed of Mr. Stephen Hayes, president of
the Corporate Council on Africa in Washington, DC, the
Honorable James A. Harmon, chairman of the Commission on
Capital Flows to Africa, from New York, NY, and Dr. Leon
Spencer, executive director of the Washington Office on Africa
in Washington, DC.
Gentlemen, we appreciate your coming to the committee today
as distinguished witnesses. We look forward to your testimony.
As I mentioned to the first panel of witnesses, your testimony
will be published in the record in full. We would ask that you
proceed as you wish in terms of summary comments or a reading
of the testimony. I will ask you to testify in the order that I
introduced you: first of all Mr. Hayes, and then Mr. Harmon,
and then Dr. Spencer.
Mr. Hayes.
STATEMENT OF STEPHEN HAYES, PRESIDENT, CORPORATE COUNCIL ON
AFRICA, WASHINGTON, DC
Mr. Hayes. Thank you, Senator. It is an honor to be here,
and I also would like to take the time to salute your staff.
Your staff has been excellent in working with my own staff and
others, and we have the greatest regard for people around you,
so thank you very much for inviting us.
The Chairman. We share that regard, and you're very nice to
make that point. I appreciate it.
Mr. Hayes. Thank you. I'm not going to read my testimony. I
simply would like to talk in general and let the written
testimony speak for itself, but basically, on a positive note
AGOA has created a new enthusiasm and new support for the
United States in Africa.
At the same time, I think that in Africa the danger is that
AGOA is creating expectations, and unless we address those in a
variety of ways, that we are creating expectations that cannot
be met easily. That is a concern.
My own organization has conducted 18 workshops, training
workshops throughout Africa. The response is enormous. We have
hundreds, sometimes more than 1,000 people, turn out for a
workshop on AGOA, which indicates to me the great hopes. Many
of them come from hundreds if not thousands of miles to be at
these workshops, so it indicates to me the enormous
expectations, the hopes that we are putting in people's lives
throughout Africa for trade, and the desire for closer
relationships with the United States, but the fact is that in
many cases those expectations cannot be met.
I would advocate a much stronger AGOA, and at least
certainly the extension of AGOA. In Mauritius at the AGOA forum
I spoke for an extension to 2015, but I think the reality is
that we're going to have to take a much more integrated
approach to African investment. AGOA is one step for our
relationship to Africa, but I think that we also need to look
at a broader approach to really link the economies of Africa to
the United States. I think this can be done and would help our
own economy as well.
As an investment tool for U.S. investment in Africa, AGOA
simply has not worked. Again, I say that as a supporter of
AGOA, but it has not worked as an investment tool. U.S. direct
investment in Africa has dropped 3 years consecutively. It's
now at its lowest level since 1975, and those statistics have
to be reversed if we're going to be able to help our own
economy as well as those economies of Africa.
I think that we need to look at how we can help increase
investment. James Harmon will be speaking to that, and I'm
going to simply defer to him, other than to say we need to look
at issues such as tax deferments for companies that want to
invest in Africa. I think we have to make those changes, and I
think that we have to look at other creative approaches.
One of the areas that I think would be most vital to our
own economy and which we as a Nation are in a stronger position
than any nation in the world to support in Africa is to begin
to look at how we increase small- and medium-sized businesses'
linkages between the United States and Africa.
Eighty-five percent of our work force are employed by
small- and medium-sized businesses. We have the experience of
small business development. If Africa is going to develop, the
African nations need to develop a politically and economically
stable environment. They're going to have to develop greater
entrepreneurship and a middle class. I think the U.S. large
corporations already in Africa--which certainly my organization
represents, but 40 percent of our membership is also small
corporations and 20 percent is medium-sized businesses--need to
link those small- and medium-sized businesses much more
actively to their own long-term interests. The large
corporations are not necessarily the answer to African
development, but in fact a broader investment from small- to
medium-sized businesses. I think in doing that we can help
raise our own economy, too.
I am convinced that there could be a very vital, a very
active linkage between African and the United States economies.
Increasingly, as I travel throughout the continent I am
convinced that this linkage would be welcomed, that there is
certainly a desire for a stronger relationship with the United
States.
We need to focus on infrastructure development and
certainly agriculture. Every country can benefit from selling
agricultural produce to the U.S. market. Every country cannot
benefit from textile manufacturing, and I think we have
entirely too much emphasis on textiles. We need to really be
looking at how we open our markets more effectively to African
agriculture.
We clearly do need more AGOA training for Americans, not
simply training of Africans on AGOA. I think we find
increasingly that Africans, from small entrepreneurs to
government officials, know more about AGOA than our own
population, and we need to be able to get the word out more
systematically throughout the United States on the
opportunities for investment in Africa. That is one role we
need to fill more in our own organization.
I also have a concern that we create, as Senator Feingold
suggested, more linkages. We do have to protect environmental
considerations in Africa as well with whatever we do, because I
think there's also an enormous economic opportunity by doing
so.
The greatest area of investment in the immediate future is
infrastructure development and tourism. It is going to take a
long time for change and economic development throughout
Africa. We have to show patience. We have to commit to a plan
which is why I praise this administration highly. They clearly
are systematically developing plans. Whether all parts are
agreeable to everyone is to me somewhat irrelevant. In the
sense that there is a plan that is being developed, this
administration needs praise and support for that. We need to be
looking at how we bring in the tourism industry, for instance.
There is an enormous market for tourism throughout Africa
that just simply hasn't been tapped into. It is right now a $12
billion economy for Africa, of which the United States is
approximately 1/12th of that. We could link our economies and
begin to sell Africa much more through tourism. Certainly this
is one of the most progressive ways we could do that, but
particularly I think we need to look at business-to-business
linkages--how we better link our small- and medium-sized
businesses to the African economy. It will help our economy
considerably. It will certainly help Africa. It is one area
where AGOA simply hasn't been utilized effectively yet.
So those are my concerns. Thank you, Senator.
[The prepared statement of Mr. Hayes follows:]
Prepared Statement of Stephen Hayes, President, Corporate Council on
Africa
THE AFRICA GROWTH AND OPPORTUNITY ACT (AGOA)
Mr. Chairman, Distinguished Members of this Committee:
It is an honor to be with you today to discuss the success of the
Africa Growth and Opportunity Act (AGOA) to date and to state my views
on its future. Thank you for inviting me to share with you some of the
perspectives of the American private sector on this landmark piece of
legislation.
Stated briefly, I believe that AGOA's record thus far is mixed at
best.
On one hand, it is indisputable that AGOA has shown positive
results. Prior to this year's G8 summit, the White House released
figures showing that the United States is the only major world-trading
nation whose share of imports from sub-Saharan Africa increased between
1996 and 2001. Exports of manufactured goods from sub-Saharan Africa to
the U.S. increased 8 percent over the same five-year time period, while
exports from the sub-Saharan region to the European Union dropped 1.5
percent. The White House statement identified that much of this growth
occurred in the textiles and apparel sector.
In May 2003, USTR published its third Comprehensive Report on U.S.
Trade and Investment Policy Toward Sub-Saharan Africa and
Implementation of AGOA (you can also call it USTR's Report on AGOA).
According to the Office of the U.S. Trade Representative, AGOA
continues to boost trade and investment between the U.S. and sub-
Saharan Africa. Total trade between the U.S. and the region reached a
value of nearly $24 billion in 2002. U.S. exports valued $6 billion and
U.S. imports valued $18 billion. U.S. imports under AGOA, specifically,
were valued at $9 billion in 2002, a 10% increase from 2001.
The U.S. direct investment position in sub-Saharan Africa increased
5.8 percent at year-end 2001, to $10.2 billion, a figure supported
largely by investments in the petroleum sector. If one removes the
petroleum and gas sector from the equation, AGOA is a very different
story. Without the petroleum industry, figures are approximately 75
percent lower, and many fewer countries are seen as beneficiaries of
the AGOA legislation. Leaders and economists in African nations
recognize this and are concerned by the lack of benefits for many of
their countries through AGOA, yet they remain hopeful despite an
increasingly restive population that sees little direct benefit from
AGOA to their own lives so far. Despite what I believe are the best
intentions of our nation, there is a strong danger that AGOA will
result in unfulfilled expectations and increased cynicism towards the
United States.
There are essentially two compatible visions that accompanied AGOA
legislation. First, AGOA is designed to raise the per capita income of
African nations by encouraging those eligible for the program to expand
and diversify their exports and, ultimately, build a manufacturing and
production base that will support long-term economic growth. Second,
the act is intended to serve as an investment tool for U.S. companies
seeking African partners. In my opinion, neither approach is working
very well.
The touted ``success stories'' of the AGOA program are too few.
Those with manufacturing capacity already in place are naturally the
most immediate beneficiaries. The best examples of this are also the
most acclaimed: South Africa, Mauritius, Lesotho, Madagascar, and
Swaziland.
USTR reports that South Africa increased its total AGOA exports
from $923 million in 2001 to $1.3 billion in 2002, a 45 percent
increase. AGOA exports now constitute 32 percent of total South African
exports to the U.S.
We expect numbers like this from South Africa. Madagascar, a
country with a much smaller economy, exported goods valued at a total
of $79.7 million in 2002, equivalent to 37 percent of its total exports
to the United States. These exports were primarily in textiles and
apparel. Influenced by AGOA, Madagascar has approved 20 new EPZ
companies in the last year, nine in textiles and apparel. These new
companies represent $10.6 million in international investments and the
creation of approximately 5,100 jobs.
Lesotho, too, is one of the most astounding examples of AGOA
success. This country's exports totaled $318 million in 2002,
representing 99 percent of its total exports to the U.S. Again, the
majority of these exports were apparel. Six new garment factories
opened in Lesotho in 2002 (13 opened in 2001), elevating total
employment in the textile sector to around 45,000.
I should remind you that I have drawn these examples from a sector
that is currently Africa's most dynamic, growing at an annual rate of
seven percent.
However, these few examples cannot carry the continent. In general,
sub-Saharan African nations lack the manufacturing capacity to benefit
under the terms of the current legislation. A report by the
International Monetary Fund that was published last Fall calls
attention to the fact that not only is the growth of the clothing
export industry a unique phenomenon, but the development of these items
remains intensely concentrated. As recently as 1999, a few countries--
those in the Southern African Customs Union (SACU) and Mauritius--
accounted for 80 percent and another three countries for a further 17
percent, of sub-Saharan Africa's exports.
We have to be careful. Mauritius, only months ago upheld by most as
the ``new African model,'' is suffering a severe downturn. Since the
second meeting of the U.S. sub-Saharan Africa Trade and Economic
Cooperation Forum in January of this year (also known as the Mauritius
AGOA Forum), dozens of factories have closed and thousands of jobs have
been lost. This is attributable to market forces. At the end of the
day, Mauritian products are not cost competitive, namely with China,
India, Pakistan and Vietnam. This is a problem not only for Mauritius.
Technical assistance will be required to help many African nations--
Kenya, Madagascar, Mali, and Tanzania among them--enhance their
competitiveness.
This problem will only get worse for Africa's poorest countries if
creative approaches are not found to the question looming before us
regarding the Third-Country Fabric Provisions, currently scheduled to
expire in October 2004. Many observers fear that the initial benefits
of AGOA, including jobs created, will evaporate if this provision is
not extended.
Most importantly, Africa's contributions to the international
market remain wildly disproportionate to its size and relative wealth.
Only two percent of total U.S. imports come from Africa. Unless the
nations of Africa are able to develop more diversified economies, they
will remain highly vulnerable to severe economic downturns and in a
depressed international economy they will continue to be the first
nations on the planet to suffer.
There are ways to change this, both in the short and long-term. As
I said, most African nations do not yet benefit significantly from AGOA
because they lack a manufacturing base and an infrastructure adequate
to insure that products easily and quickly reach their destinations.
African nations remain dependent on one or two products to carry their
entire economy. AGOA, with its heavy emphasis on textiles and apparel,
has done little to change this situation.
NECESSARY SHORT-TERM MEASURES
Africans and Americans alike still lack an understanding and
knowledge of what AGOA really means to their individual businesses.
Training on AGOA has been insufficient, and within the United States,
almost non-existent. My own organization, the Corporate Council on
Africa, has conducted 20 training seminars in 18 different nations of
Africa this past year. We have also trained Africans about the U.S.
economy in six two-week programs across the United States. These
programs were made possible by a grant from the U.S. Department of
State. However, I am not aware of any organization that has done more
and I am aware of few other training programs. This number simply is
insufficient. These seminars and trainings should be ongoing; moreover,
we should be doing our best to provide our African partners with both
U.S. public and private sector perspectives on how to take advantage of
the benefits offered by the program. American companies should also
receive more information on the potential benefits they could realize
through AGOA.
Mr. Chairman, distinguished Members of the Committee:
Although not every nation in Africa can benefit from AGOA through
textiles and apparel, there is one sector where nearly every African
can benefit, and that is through agriculture. If we are to support the
economic development of Africa through AGOA, then we need to liberalize
provisions of AGOA to make it easier for Africans to export
agricultural produce to the United States. I know of no single better
step to take to bring some degree of prosperity and self-sufficiency to
a greater number of Africans than ever before.
By opening our markets to agriculture produce, we improve the
livelihoods of millions of Africa's farmers and farm employees, and
this sector sustains the vast majority of Africans still. To quote the
Secretary-General of the Common Market of East and Southern Africa
(COMESA): ``Only the desert lands of the Middle East provide the U.S.
less in terms of agricultural products. In dollar terms, Africa
supplies one-fortieth of America's agricultural imports. While apparel
imports to the U.S. have increased substantially under AGOA, Africa's
share of agricultural imports to the U.S. has decreased, from 6 percent
to 4 percent during the past three years.''
To reverse this situation, Mr. Chairman, I believe we must place
far greater emphasis on streamlining and accelerating the inspection
processes for African produce through the U.S. Department of
Agriculture's Animal and Plant Health Inspection Service (APHIS). In my
opinion, the current inspection capacity is far too little to
adequately increase the flow of agricultural produce to the United
States. Many of our global problems are complex, but here is one
critical problem that could be remedied rather simply and efficiently,
and given the scale of our national budget, relatively inexpensively.
We need many more inspectors and trainers in inspection to ensure the
movement of healthy and safe produce from Africa to the United States.
Investment in the inspection process would be one of the best
safeguards we could make towards strengthening our economic ties to
Africa.
Another area for consideration in the short-term is that of
handicrafts. It is no secret that Africans produce some of the world's
most beautiful and original handicrafts. These products enjoy immense
appeal here in the United States. The passage of AGOA three years ago
prompted much enthusiasm among Africa's artisans who looked forward to
increasing their share of the American handicraft market. This has not
yet happened for a couple of reasons. First, provisions for the export
of African handicrafts to the U.S. under AGOA, often referred to as the
Category Nine provisions and overseen by the U.S. Department of
Commerce, have proven to be cumbersome to the point of outright
stopping new exports of handicrafts. For example, this process can
involve laborious and time-consuming submission of samples for each and
every handicraft and verification that even the smallest stitching is
authentic.
Secondly, many of Africa's small businesses are confronted with a
myriad of confusing and complicated standards imposed upon them by
their own governments as they seek to comply with AGOA visa provisions.
It would be useful for the U.S. government to work more closely with
national customs agencies in Africa to find ways to explain better and/
or simplify the AGOA certification requirements for African small and
medium businesses. Governments in Africa should be supported as they
seek ways to undertake export promotion and financing programs for
small businesses.
LONGER-TERM MEASURES
As a tool for Americans to invest in Africa, AGOA, thus far, has
been an abysmal failure. Investment in Africa has dropped for three
consecutive years and is at its lowest level in thirty years. Americans
are either not aware of the opportunities for investment that AGOA
represents or they are simply reluctant to do so at this time for a
variety of reasons. I believe it is a combination of both. I am not
aware of any AGOA training program in America strictly for American
businesses. Domestically, we have relied almost solely on word of mouth
through business networks and associations to spread the word about
AGOA and its potential for investment in Africa. I know of no program
within government or the private sector that educates a broad American
constituency about using the most important U.S.-Africa trade acts in
history. Yet, I am convinced AGOA could prove to be a boon to our own
economy as well as those of Africa.
To increase U.S. investment in Africa there needs to be major
changes in how we view Africa and how Africans view their own nations.
On our side of the Atlantic, we need to create new incentives for
investment in Africa. These incentives include tax relief and deferral,
low interest loan guarantees for those wishing to invest in Africa, and
a more active use of international credit agencies. Incentives for
American small and medium-sized companies are especially important, as
they are of a scale appropriate for partnerships and mentoring of
African companies. Political and economic stability will not come to
African nations until there is a stable middle class. That, in turn,
will not develop without the development of a vibrant small business
sector. No country in the world has better experience in small business
and entrepreneurship than the United States of America. We need to
develop incentives for our smaller industries to invest in Africa in
order to link the African and U.S. economies more closely. The linking
of businesses will insure a steady flow of trans-Atlantic trade.
The Corporate Council on Africa, jointly with the Institute for
International Economics, yesterday released the report from its
Commission on Increasing Private Capital Flows to Africa. I refer you
to that report, and its chairman, James Harmon, for a lengthier
discussion on the incentives necessary to increase investment in
Africa.
The nations of Africa themselves clearly have a major
responsibility in creating the economic and political climate necessary
for business investment. Some countries such as Botswana, Mauritius,
Tunisia, South Africa and Mozambique have taken measures necessary for
stimulating investment, but many other countries are far from the
establishment of a stable political and economic climate. They need
their own form of incentives. Those incentives will need to come from
within and from other African nations. The United States can only do so
much in this regard, but there are some ways we can influence change
while at the same time respecting national sovereignty.
For that reason, I believe that the concept of the Millennium
Challenge Account is deserving of our support. Although I believe that
many of the problems of Africa are not national but regional, the
Millennium Challenge Account at the very least provides incentives for
some countries to develop a climate more conducive to economic and
political development.
At the same time that we support those nations genuinely seeking
reform, we need also strengthen Africa's regional economic communities.
These groupings are pursuing a goal that I believe we all can support:
Regional answers and approaches to Africa's development needs. The
Corporate Council on Africa is working to place staff in each of the
four major economic communities or Africa--the Common Market for
Eastern and Southern Africa (COMESA); the Southern African Development
Community (SADC); the Economic Community of West African States
(ECOWAS); and the Economic and Monetary Community of Central Africa
(CEMAC)--to assist these organizations in understanding better what
business needs for investment. We recommend also that the U.S.
government establish a more active dialogue with the leadership of
these economic communities.
Above all we need patience. The conditions that lead to poverty in
Africa will not change overnight, and we serve no one by expecting
immediate economic development. We must be prepared to make our
national investment in Africa a long-term one, filled with realistic
incentives for change. I am convinced that if we show patience and
wisdom, our relationship with Africa can mature and ultimately be of
immense benefit to both Americans and Africans.
Mr. Chairman, distinguished Members of the Committee:
The Corporate Council on Africa has been among the strongest
supporters of the African Growth and Opportunity Act. In 2001 and again
in 2003, we were asked by the U.S. government to organize the private
sector sessions of the annual AGOA ministerial forums that are mandated
by the AGOA legislation. While we recognize that the legislation was
and remains imperfect, we understand that it can, if implemented fully
and effectively, serve as a catalyst for much positive change in
Africa. It deserves your continued support. That said, AGOA is not a
panacea. I hope that my testimony here today, while highlighting some
of AGOA's successes thus far, might serve more importantly as a wake-up
call to re-focus the U.S. government's efforts on finding ways to
comply with the laudable intent of the AGOA legislation.
Thank you for granting me this opportunity. I would be happy to
answer any questions.
The Chairman. Thank you very much for that testimony, Mr.
Hayes.
Mr. Harmon.
STATEMENT OF HON. JAMES A. HARMON, CHAIRMAN, COMMISSION ON
CAPITAL FLOWS TO AFRICA, NEW YORK, NY
Mr. Harmon. Thank you, Mr. Chairman, for conducting this
important hearing on the African Growth and Opportunity Act. I
want to second Mr. Hayes' compliment to the staff, which I
thought did some very good work. I also can't help but thank
you for the assistance you rendered to me when I was serving as
chairman of the Export-Import Bank.
The Chairman. You did a tremendous job for our country. We
appreciate that.
Mr. Harmon. Your particular assistance, which is not in my
testimony, and probably my staff, were they to be here, from my
days at the Ex-Im Bank would probably warn me not to make
comments other than on Africa, but your particular assistance
to me relative to the difficult problems in Russia really bore
fruit, and as we see this extraordinary turnaround in Russia
today, some of those, lessons can apply to Africa, which we
will see when I make a few comments later. The problems of the
developing countries are very similar.
But today, I am testifying in my capacity as chairman of
the Commission on Capital Flows to Africa. This commission is a
high-level bipartisan and diverse group of experts who believe,
as I do, that we can and must do more to increase private
sector investment in Africa. On Monday, we released our final
report. I have it here. It just came off the press. It's
called, `A 10-year Strategy for Increasing Capital Flows to
Africa.'' \2\
---------------------------------------------------------------------------
\2\ The report can be found on the Institute for International
Economics' Website at: www.iie.com/research/africa-mideast.htm
---------------------------------------------------------------------------
It is a document of which I am particularly proud, because
it offers a comprehensive and a bold strategy to accelerate
Africa's growth and integration into the global economy. This
goal, if achieved, will benefit not only millions of African
men and women, but also in many respects the people in the
United States.
Mr. Chairman, allow me to begin by admitting that I came
only belatedly to appreciate the potential to the United
States, our citizens and investors, of increased trade and
investment between the U.S. and Africa. As a veteran of the
American financial community, I, like most of my colleagues,
focused on other, seemingly more lucrative parts of the world.
Like many in the investment community, my sense of Africa was
that it was sufficiently plagued by war, famine, misrule and
disease to render substantial foreign investment neither
warranted nor advisable.
My view changed in 1998, when I, as chairman of the Ex-Im
Bank traveled to Africa. What I learned was that Africa both
needs and can effectively utilize private capital. I saw that
smart money, carefully invested, can yield high returns in
Africa. As a consequence, I worked to expand the Ex-Im Bank's
operations on the continent, increasing the number of countries
that we were open in from 18 to 34 countries, and triggering an
increase in exports from $50 million in fiscal 1997 to $900
million in fiscal 2000.
I left government convinced that the public sector can and
should do more to stimulate domestic and foreign investment in
Africa, convinced also that the private sector has an even
greater role to play in this regard. I accepted the invitation
to serve as chairman of the Corporate Council on Africa to work
with Mr. Hayes and, as chairman, I helped to establish in June
2002, just a year ago, the Commission on Capital Flows to
Africa, which was cosponsored first with the Corporate Council
on Africa, then the Institute for International Economics, the
Council on Foreign Relations, and the Joint Center for
Political and Economic Studies.
We have deliberated and debated with passion and
conviction, not just because we all envisioned a brighter
future for Africa, but primarily because we believe that it is
in the U.S. interest to help secure sustainable development for
the African people. The U.S. has significant economic and
national security interests in Africa which underscore the
rationale for and urgency of this commission's recommendations.
The U.S. interests in Africa extend well beyond historic
and cultural ties, or the humanitarian and moral imperative to
help lead the world's most underdeveloped region out of poverty
and despair. Two broad areas of interest are worth
highlighting, economic and security. Mr. Chairman, our export-
led growth depends substantially on the developing world, which
is now the source of four out of every five of the world's new
consumers. Soon, 1 billion of them will live in Africa.
In 2002, U.S. exports to sub-Saharan Africa were 46
percent, and greater than those to the former Soviet republics,
including Russia, 47 percent greater than to India, and nearly
twice those to Eastern Europe. U.S. exports to South Africa
alone were larger than U.S. sales to Russia, yet the U.S. share
of the African market is small, only 7.9 percent, suggesting
significant growth potential for the U.S. in the years to come.
Our interests also arise from the fact that Africa supplies
over 16 percent of our imported crude oil. It is estimated that
within the next decade, 20 percent will come from Africa.
Even more immediate at the U.S. national security interests
in Africa. Africa's fragile and impoverished States are among
the weakest links in the U.S. war on terrorism. Without
stability, economic opportunity and democratic progress, these
States will grow increasingly vulnerable to exploitation by
terrorists and criminal organizations, and remain substantial
security liabilities for the United States. The American people
have a compelling national security interest in strengthening
African economies and democratic institutions to increase
African countries' will and capacity to be strong partners in
the war on terrorism.
This commission agreed upon a 10-year strategy for
increasing capital flows to Africa, incorporating over 30
recommendations. Central to our endorsement of a 10-year
strategy are three conclusions. First, the strategy must be
built on a practical, committed, and fair partnership between
African governments and the private sector.
African States eager to attract foreign investment must
embark upon many of the reforms that investors, foreign and
domestic, will prize. That is, privatization, tax reform, legal
and administrative transparency, and bureaucratic streamlining.
In the process of attracting foreign investment, they must also
take measures that improve the domestic environment more
generally, and make it easier for Africa's own entrepreneurs to
succeed.
If economic prosperity is to proceed, African governments
will have to accelerate the reform process. They will need to
liberalize their economies, reduce their debt, and generate
their health and education systems. If African governments fail
to tackle these challenges, then no amount of foreign capital
will suffice.
It is on the basis of this belief that the Commission on
Capital Flows to Africa strongly endorses NEPAD's vision of a
compact predicated on the proposition that as Africa undertakes
critical political and economic reforms, the West must respond
with substantial new public and private resources.
Second, it is our strong view that any comprehensive
strategy to increase capital flows must extend beyond AGOA,
however successful this initiative may be. It must also include
increased trade liberalization, the provision of incentives to
American investors, more effective use of the instruments
provided by our trade finance agencies, the strategic
deployment of foreign aid resources, and targeted efforts to
enhance Africa's capacity to uphold its end of the bargain.
And third, we are steadfast in the view that the strategy
we propose must be implemented over a period of at least 10
years to give Africa the temporary advantage that has at other
times been afforded to other regions and which will, we
believe, allow Africa the opportunity to begin to catch up.
For the purposes of this hearing, allow me to highlight
just a few of the recommendations. First, of course, the
African Growth and Opportunity Act. All of the commissioners,
all 28 commissioners are strong supporters of AGOA, but believe
it is only an initial step in liberalizing trade between the
United States and Africa. Now is the time to rectify AGOA's
shortcomings and to build on its early success to help
stimulate additional investment and economic growth in Africa.
Several limitations inhibit the ability of qualifying
countries to benefit fully from the AGOA legislation. First,
each country's eligibility must be reviewed annually, and
second, the regime expires, as we've already said, in 2008.
Third, apparel imports remain subject to tariff rate quotas, or
duty-free caps, as well as restrictions on the source of
fabric, and finally, textiles and many other goods are excluded
from AGOA benefits.
Africa needs time. Africa needs time to build a vertically
integrated textile to apparel sector. The value of the current
trade preferences amortize rapidly in view of the new free
trade agreement, the many new free trade agreements and global
elimination of quotas in 2005. We believe the solution may lie
not just in AGOA, but in a package of preferences outlined in
our report.
But let me just briefly comment on the AGOA recommendations
that we make. First, of course, as we've all said, AGOA should
be extended, AGOA benefits in total--we have 2018, which is a
10-year extension. As soon as possible, it would be important
to reach that conclusion so that investors recognize the
commitment the United States is making to this.
Second, all products coming from Africa should enter the
U.S. duty free and quota free. If this is not possible, then
all TRQ limits on apparel imports should be lifted immediately
to give Africa a head start on the global elimination of quotas
in 2005. Additionally, the rules of origin permitting apparel
exports from AGOA-eligible African countries made from textiles
manufactured outside of Africa or the U.S. should be extended.
Fourth, country qualifications for AGOA should be presumed
to last for 10 years, rather than being subject to the current
annual review process, which discourages investors. The
President should retain the authority to revoke a country's
AGOA benefits under extraordinary circumstances.
Now, I'm going to just quickly go through some of our other
recommendations, because I know we're limited on time. We have
an important recommendation on tax policy. Congress should
change to zero the tax on repatriated earnings or new
investments by U.S. companies in Africa for a period of 10
years.
On investment policy, the Overseas Private Investment
Corporation is critical. The Overseas Private Investment
Corporation should be permitted to support investments in all
sectors in Africa for 10 years, including sectors currently
categorized as sensitive, such as textile and apparel,
electronics, agribusiness, and industrial products. OPIC should
also be allowed to support investments that promise to provide
net benefits for the U.S. economy, instead of being prohibited
from supporting projects in which the U.S. may lose one job.
Of course, I have to make a comment on Ex-Im and the export
credit agencies. Just briefly, the U.S. should encourage the
OECD to enable the export credit agencies to allow 20-year
repayment terms instead of 10-year for African projects and,
very important, to raise the ceiling for providing credit for
local costs from 15 percent to 50 percent of the export value.
On development assistance, we recommend more U.S.
assistance should be invested in developing Africa's human
capital--this is where Russia was able to turn it around so
quickly--and a significant portion should be devoted to the
establishment of long-term, low-rate financing vehicles
dedicated to small business in Africa, as well as the provision
of technical assistance to these small enterprises.
We have a lengthy section on the SMEs and what should be
done in Africa, but of course these are the small businesses
that create the jobs and the economy. These are the small
businesses in Africa that do not have the credit available to
do what they need to do in terms of growing their businesses.
Finally, we make a recommendation which relates to the
human capital side. The U.S., in conjunction with the other
OECD governments and private sector entities should create an
African Financial Fellowship Exchange program that would second
professionals with finance capital markets, corporate finance
or economic policy experience to African countries to work in
public and private institutions for a certain period of time.
In exchange, each participating African country would
commit two individuals for training for up to 2 years at
qualified investment or commercial banks in the U.S. or other
OECD countries. This we elaborate on at length, but this could
be totally financed by the private sector. We have a lot of
talent in the United States. I would welcome the opportunity to
assist the Africans and their countries, and would provide a
very important basis for training Africans in the U.S.
financial community so the Africans would learn how to raise
capital and work in the capital markets. In a 10-year period of
time we would have generated 1,000 future leaders from Africa,
a knowledge of capital markets.
Other countries around the world, including some that
you're very familiar with, have over time developed this
expertise. Africa does not have it in many of the small
countries that needs it.
So in conclusion, clearly the greatest responsibility for
Africa's growth lies in Africa's hands. However, our commission
strongly believes that there's much that we can and should do.
The U.S. should support NEPAD more actively, and encourage the
formation of substantially greater regional markets. Moreover,
through the types of policy changes the commission recommends,
they can also help to spur greater inflows of private capital,
a very powerful catalyst for growth.
The commission is well aware that increased capital flows
are but one of the many challenges that face Africa. We are
confident, however, that increased capital flows can contribute
significantly to Africa's development, and that the U.S.
Government, together with the G-8 and OECD countries could do
much to stimulate and facilitate these flows.
The budgetary cost to the U.S. of what we recommend would
be modest, and more than offset, as Africa becomes a stronger
trading and investment partner. Moreover, these proposals would
pay major dividends in terms of advancing U.S. humanitarian,
foreign policy, and national security interests. The Commission
on Capital Flows commends these proposals to Congress, and
urges that they be considered and adopted as quickly as
possible.
Major elements of the 10-year strategy will require new
legislation on trade, on tax policy, OPIC, foreign assistance
and debt relief. Mr. Chairman, we look forward to pursuing
implementation of these initiatives with Congress under your
leadership and that of this distinguished committee.
I thank you again for allowing me to testify.
[The prepared statement of Mr. Harmon follows:]
Prepared Statement of Hon. James A. Harmon, Chairman, Commission on
Capital Flows to Africa
Thank you, Mr. Chairman, for conducting this important hearing on
the African Growth and Opportunity Act (AGOA). Its timing is especially
fortuitous--just two weeks before President Bush's planned trip to
Africa--and affords Senators and other interested parties an
opportunity to shape further the Administration's approach to
accelerating growth and development in Africa.
I am testifying today in my capacity as Chairman of the Commission
on Capital Flows to Africa. The Commission is a high-level, bipartisan
and diverse group of experts who believe, as I do, that we can and must
do more to increase private sector investment in Africa. On Monday, we
released our final report: ``A Ten Year Strategy for Increasing Capital
Flows to Africa.'' It is a document of which I am proud, because it
offers a comprehensive and bold strategy to accelerate Africa's growth
and integration into the global economy. This goal, if achieved, will
benefit not only millions of African men and women but also, in many
respects, the people of the United States.
Mr. Chairman, allow me to begin by admitting that I came only
belatedly to appreciate the potential to the United States, our
citizens and investors, of increased trade and investment between the
U.S. and Africa. As a veteran of the American financial community, I,
like most of my colleagues, focused on other, seemingly more lucrative
parts of the world. Like many in the investment community, my sense of
Africa was that it was sufficiently plagued by war, famine, misrule and
disease to render substantial foreign investment neither warranted nor
advisable. My view changed in 1998 when, as Chairman of the Export
Import Bank, I traveled to Africa following President Clinton's
historic trip. What I learned was that Africa both needs and can
effectively utilize private capital. I saw that smart capital,
carefully invested, can yield high returns in Africa. As a consequence,
I worked to expand the Ex-Im Bank's operations on the continent from 18
to 34 countries, triggering an increase in exports from $50 million in
FY 1997 to $900 million in FY 2000.
THE COMMISSION ON CAPITAL FLOWS TO AFRICA
I left government convinced that the public sector can and should
do more to stimulate domestic and foreign investment in Africa.
Convinced also that the private sector has an even greater role to play
in this regard, I accepted the invitation to serve as Chairman of the
Corporate Council on Africa (CCA). As Chairman, I helped to establish
in September 2002 the Commission on Capital Flows to Africa, co-
sponsored by CCA, the Institute for International Economics, the
Council on Foreign Relations and the Joint Center for Political and
Economic Studies. The Commission includes 28 leaders from North
America, Asia, Europe and Africa with exceptional experience in
business, banking, policy research, government, academia, non-
governmental organizations and international institutions.
We have deliberated and debated with passion and conviction, not
just because we all envision a brighter future for Africa, but
primarily because we believe that it is in the United States' interest
to help secure sustainable development for Africa's people.
U.S. INTERESTS
The U.S. has significant economic and national security interests
in Africa, which underscore the rationale for and urgency of this
Commission's recommendations. U.S. interests in Africa extend well
beyond historical and cultural ties or the humanitarian and moral
imperative to help lift the world's most under-developed region out of
poverty and despair. Two broad areas of interest are worth
highlighting: economic and security.
Mr. Chairman, our export-led growth depends substantially on the
developing world, which is now the source of four out of every five of
the world's new consumers. Soon one billion of them will live in
Africa. In 2002, U.S. exports to Sub-Saharan Africa were 46 percent
greater than those to the former Soviet republics (including Russia),
47 percent greater than to India, and nearly twice those to Eastern
Europe. U.S. exports to South Africa alone were larger than U.S. sales
to Russia, whose population is more than 3.5 times as large.\1\ Yet,
the U.S. share of the African market is small--only 7.9 percent,
suggesting significant growth potential for the U.S. in the years to
come.
---------------------------------------------------------------------------
\1\ ``U.S.-African Trade Profile,'' prepared by G. Feldman, Office
of Africa, International Trade Administration, United States Department
of Commerce, Washington, D.C., March 2003.
---------------------------------------------------------------------------
Our interests also derive from the fact that Africa supplies over
16 percent of our imported crude oil. It is estimated that within the
next decade 20 percent will come from Africa.
Even more immediate are U.S. national security interests in Africa,
which are also shared by our OECD and G-8 partners. Africa's fragile
and impoverished states are among the weakest links in the U.S. war on
terrorism. Without stability, economic opportunity and democratic
progress, these states will grow increasingly vulnerable to
exploitation by terrorist and criminal organizations and remain
substantial security liabilities for the U.S. The American people,
therefore, have a compelling national security interest in
strengthening African economies and democratic institutions to increase
African countries' will and capacity to be strong partners in the war
on terrorism.
THE CHALLENGE
The challenge we face is daunting. The average African is poorer
today than he or she was two decades ago, and the number of Africans
living in poverty has increased steadily during the past twenty years.
Yet, we must not allow Africa's poverty to obscure its potential.
Since 1990, for example, 42 of 48 countries in Sub-Saharan Africa have
held multi-party elections, and most Africans today have the right to
choose their leaders at the ballot box. Though nowhere near adequate,
there are recent preliminary indications that Africa may now be
starting to see a slight recovery in foreign direct investment, a trend
that some experts have attributed to significant and positive changes
in the investment climate.
The challenge is underscored by compelling but contradictory facts.
On the one hand, according to recent World Bank findings, investors
reaped higher returns on investment in Sub-Saharan Africa last year
than in any other part of the world. On the other, the World Economic
Forum recently reported that the international investment attracted by
all of Africa's 53 states is slightly less than the amount attracted by
Singapore.
Despite the magnitude of the challenge, Africa's economic success
and political stability are vitally important both for its own citizens
and for the rest of the world. Its success will depend primarily on
actions that Africans themselves take to establish strong economic,
legal, and political institutions and policies. But it will also depend
on supportive steps taken by the United States, the G-8, and other
partners around the world.
There are many important components to a strategy for success, but
undoubtedly a critical one is to encourage greater capital flows and
investment in the region. Official development assistance (ODA) and
World Bank lending will not be sufficient to facilitate Africa's
integration into the global economy. Africa needs more private capital,
more investments and more linkages to global markets to achieve its
development goals. The Commission believes that an increase in capital
flows to Africa is both critically important and eminently feasible.
The Commission also urges that the United States take the lead among
the G-8 and OECD countries in responding to this challenge.
A TEN YEAR STRATEGY
The Commission agreed upon ``A Ten Year Strategy for Increasing
Capital Flows to Africa,'' incorporating over 30 recommendations in the
areas of trade liberalization, tax and investment policies, export
credit, development assistance, privatization, debt relief, the New
Partnership for African Development (NEPAD) and its focus on peer
review and corporate governance, small and medium enterprises, and
building Africa's human capital, particularly in finance. The
Commission's report elaborates these recommendations in considerable
detail and provides a summary of the analysis upon which they are
premised.
Central to our endorsement of ``A Ten Year Strategy'' are three
conclusions. First, this strategy must be built on a practical,
committed and fair partnership between African governments and the
private sector. African states eager to attract foreign investment must
embark upon many of the reforms that investors, foreign and domestic,
will prize: privatization, tax reform, legal and administrative
transparency, and bureaucratic streamlining. In the process of
attracting foreign investment, they must also take measures that
improve the domestic environment more generally, and make it easier for
Africa's own entrepreneurs to succeed. If economic prosperity is to be
achieved, African governments will have to accelerate the reform
process. They will need to liberalize their economies, reduce their
debt, and regenerate their health and education systems. If African
governments fail to tackle these challenges, then no amount of foreign
capital will suffice. It is on the basis of this belief that the
Commission on Capital Flows to Africa strongly endorses NEPAD's vision
of a compact predicated on the proposition that, as Africa undertakes
critical political and economic reforms, the West must respond with
substantial new public and private resources.
Second, it is our strong view that any comprehensive strategy to
increase capital flows must extend beyond AGOA, however successful this
initiative may be. It must also include increased trade liberalization,
the provision of incentives to American investors, more effective use
of the instruments provided by our trade agencies, the strategic
deployment of foreign aid resources, further debt relief, and targeted
efforts to enhance Africa's capacity to uphold its end of the bargain.
Third, we are steadfast in the view that the strategy we propose
must be implemented over a period of at least ten years to give Africa
the temporary advantage that has at other times been afforded to other
regions and which will, we believe, allow Africa the opportunity to
begin to catch up.
THE COMMISSION'S KEY RECOMMENDATIONS
For the purposes of this hearing, allow me to highlight our key
recommendations, particularly those that pertain to the U.S.
government:
1. African Growth and Opportunity Act
All of the Commissioners are strong supporters of AGOA but believe
it is only an initial step in liberalizing trade between the United
States and Africa. Now is the time to rectify AGOA's shortcomings and
to build on its early success to help stimulate additional investment
and economic growth in Africa.
Several limitations inhibit the ability of qualifying countries to
benefit fully from the AGOA legislation. First, each country's
eligibility must be reviewed annually, and second, the regime expires
in 2008. Third, apparel imports remain subject to tariff rate quotas,
or duty-free caps, as well as restrictions on the source of fabric.
Finally, textiles and many other goods are excluded from AGOA benefits.
Recommendations:
First, the U.S. should extend AGOA benefits until 2018 as
soon as possible, so that the current 2008 termination date
does not act as a disincentive to investment.
Second, ALL products coming from Africa should enter the U.S
duty-free and quota-free. If this is not possible, then all TRQ
limits on apparel imports should be lifted immediately to give
Africa a head start on the global elimination of quotas in
2005. Additionally, the rules of origin permitting apparel
exports from AGOA-eligible African countries made from textiles
manufactured outside Africa or the U.S. should be extended for
ten years to 2018.
Third, and as is the case for Canada and Mexico under the
provisions of NAFTA, African countries should be exempted from
U.S. safeguard actions that restrain imports in sensitive
sectors.
Fourth, country qualifications for AGOA should be presumed
to last for ten years rather than being subjected to the
current annual review process, which discourages investors. The
President should retain authority to revoke a country's AGOA
benefits under extraordinary circumstances.
2. Agricultural Subsidies
Africa's ability to attract capital and increase trade is adversely
affected by the domestic agricultural subsidies provided by the United
States and the European Union. U.S. agricultural subsidies are a major
impediment to African agricultural exports, which would otherwise be a
significant source of economic growth on the continent. These subsidies
also run counter to U.S. claims that it favors a more open and fair
global trading system. The 2002 Farm Bill significantly increased U.S.
farm subsidies, creating even greater non-market advantages to U.S.
farmers and leading to significant declines in commodity prices,
especially cotton, much to the detriment of African farmers. European
farm subsidies do even more damage. If the U.S. is serious helping
Africans to help themselves and creating opportunities for Africans to
connect to global markets, then we must address this issue.
Recommendation: The U.S. should seek to accelerate the reduction or
elimination of industrialized countries' agricultural subsidies, such
as those contained in the U.S. Farm Bill and the EU's Common
Agricultural Program, even in advance of the conclusion of the WTO's
Doha Development Round. We also strongly encourage the U.S. to work to
speed the successful conclusion of the Doha Round.
3. Free Trade Agreement
The original AGOA legislation enacted in 2000 envisioned an
eventual free trade agreement (FTA) with Africa. The Commission
applauds the Bush Administration for beginning negotiations for FTA
with the five nations that comprise the Southern Africa Customs Union
(SACU) but thinks the U.S. vision should be bolder and extend beyond
the SACU countries. Other regional organizations such as COMESA, SADC
and ECOWAS have also begun to create free trade areas to expand
regional markets and facilitate the movement of goods, capital and
services.
Recommendation: The Administration should set the goal of creating
within ten years a U.S.-Africa Free Trade Area, building on ongoing
African efforts to create regional markets. The U.S. should also
increase technical assistance to regional organizations to strengthen
their capacity to negotiate and implement free trade agreements.
4. Tax Policy
To provide additional incentives to spur new U.S. investment in
Africa, the Commission strongly favors bold but affordable changes to
the U.S. tax code. Specifically, Congress should provide a time-limited
exemption from U.S. taxation for bona fide FDI income earned by a
registered subsidiary or branch of a U.S. company doing manufacturing
or service business in Africa. This is not a new idea. Congress
established a precedent with the Puerto Rico Tax Incentives Act of
1998. A similar incentive would increase the return on U.S. investments
in Africa and lower the risk that many potential investors now
perceive. Because many OECD countries do not tax their companies on
foreign earnings, a zero tax on repatriated earnings would also make
U.S. companies more competitive in Africa.
We can afford to do this at a modest cost. Total repatriated income
derived by all U.S. firms in Africa in 2000 was $3 billion. As an
outside estimate, U.S. tax revenue on the repatriated income would not
exceed 10 percent of the $3 billion, or about $300 million annually.
This amount would be considered a revenue loss.
For this measure to have its maximum impact, it would have to be
taken in conjunction with tax reform in the recipient countries. By
cutting corporate and withholding taxes and otherwise simplifying the
tax system, African countries can attract more FDI and boost economic
activity in a variety of manufacturing and service activities.
Recommendation: Congress should change to zero the tax on
repatriated earnings on new investments by U.S. companies in Africa for
a period of ten years.
5. Investment Policy
Commissioners agree there is much to be gained from making our
official trade agencies more effective. Although Africa suffers from a
lack of sufficient equity financing, for example, the Overseas Private
Investment Corporation (OPIC)--the principal U.S. government instrument
that supports non-extractive foreign direct investment in Africa--is
prevented by statute from effectively providing much of this financing.
Originally established to promote development by insuring foreign
direct investment against political risk, OPIC's authorizing
legislation has become so restrictive that it does not--and currently
can not--insure foreign direct investment in labor-intensive
manufacturing and assembly projects of the kind that would be most
beneficial to Africa. Under existing statute, OPIC is also forbidden
from supporting ``runaway investments'' that result in the loss of a
single job within the United States and is restrained from providing
insurance or financial guarantees to investments in ``sensitive
sectors'' such as textiles, apparel or agribusiness.
Research shows that outward investment from the United States can
significantly increase the flow of U.S. exports to the economy where
the investment is located--and thus leads to a greater number of
higher-paying, export-related jobs at home. Enabling OPIC to fulfill
its role more effectively could therefore benefit both Africans and
Americans.
Recommendation: OPIC should be permitted to support investment in
all sectors in Africa for ten years, including sectors currently
categorized as ``sensitive,'' such as textiles and apparel,
electronics, agribusiness and industrial products. OPIC should also be
allowed to support investments that promise to provide net benefits for
the U.S. economy instead of being prohibiting from supporting projects
in which U.S. jobs are lost.
6. Export Credit Agencies
The Commission believes that parallel steps should be taken to
enhance the role that our Export-Import Bank can play in tandem with
other export credit agencies (ECAs). The availability of long-term debt
capital is essential to the growth of the private sector. In recent
years, the export credit agencies (ECAs) of OECD countries have
collectively provided approximately $70 billion per year in long-term
credit for developing countries to purchase goods and services from
OECD members. However, less than 5 percent of this amount has gone to
Africa. Under the current OECD arrangement, ECAs can finance local
costs for African projects only up to 15% of the export value--a limit
that constrains financing for many important projects, especially in
infrastructure and other sectors where local costs are high. The
Commission believes that there are straightforward changes that can and
should be made in order to increase the involvement of export agencies
in Africa by expanding the availability of long-term debt capital.
Recommendation: The U.S. should encourage the OECD to enable Export
Credit Agencies to allow 20-year repayment terms (instead of the
current ten years) for African projects and to raise the ceiling for
local costs from 15 percent to 50 percent of the export value.
7. Development Assistance
The Commission welcomes the two new major aid programs proposed
during the last year, the President's Emergency Plan for AIDS Relief
and the Millennium Challenge Account (MCA), provided these initiatives
are fully funded and are additive to existing programs and resources.
While the Commissioners recognize the importance of investing aid
dollars in the so-called ``good performers,'' as the MCA proposes to
do, we believe that there is also significant need to invest in the
capacity of Africa's moderate performers and weak states to achieve
political equilibrium and sustainable economic growth. The Commission
concluded that, if indeed private sector growth is a central component
of Africa's economic progress, the U.S. needs to invest more
development assistance in strengthening the conditions for that growth
and in providing the tools that will allow the private sector to
flourish.
Recommendation: More U.S. assistance should be invested in
developing Africa's human capital (i.e. health and education), and a
significant portion should be devoted to the establishment of long
term, low-rate financing vehicles dedicated to small business in Africa
as well as the provision of technical assistance to these small
enterprises.
8. African Financial Fellowship Exchange Program
The Commission believes that it is in the interests of the private
sector to help build Africa's capacity to attract and sustain
investment. One of our most notable findings, particularly for those
Commission members from the financial sector, is Africa's lack of
exposure to and limited experience in managing the instruments of
international finance, capital markets and corporate transactions. The
State Department's aggressive effort to encourage African countries to
obtain sovereign credit ratings, for example, is important to Africa's
longer term economic future. Yet, there must also be a targeted and
deliberate effort to build Africa's knowledge of and linkage to global
finance.
Recommendation: The U.S., in conjunction with other OECD
governments and private sector entities, should create an African
Financial Fellowship Exchange Program that would second professionals
with finance, capital markets, corporate finance or economic policy
experience to African countries to work in public and private
institutions for a certain period of time. In exchange, each
participating African country would commit two individuals for training
for up to two years at qualified investment or commercial banks in the
U.S. or other OECD countries.
9. Debt Relief
Finally, the Commission concluded that, while constraints such as
corruption and weak legal systems are more substantial in their impact
on private sector capital flows to Africa, a country's debt profile and
the effect that has on the creditworthiness of entities inside that
country can influence the willingness of foreign sources of capital to
extend loans. On the matter of how to address Africa's debt burden,
however, the Commission was divided.
Members agree that the U.S. government should support an
appropriate process to review the Heavily Indebted Poor Countries
(HIPC) debt initiative and consider whether it is desirable to pursue
proposals that go beyond HIPC. However, pointing to the fact that HIPC
and the Enhanced HIPC program have not enabled African countries to
achieve debt sustainability, some Commissioners argued for more
specific measures, including capping debt service from all Sub-Saharan
nations at 1 percent of GDP, provision of accelerated debt relief for
countries emerging from conflict or autocracy, and the creation, by the
U.S. and other G-8 members, of a contingency facility that would make
supplementary relief available in the event that a HIPC country
encounters a severe debt deterioration due to events outside its
control.
CONCLUSION
Clearly, the greatest responsibility for Africa's growth lies in
Africa's hands. However, our Commission strongly believes that there is
much that we can and should do. The U.S., G-8 and OECD governments can
provide increased debt relief and more aggressive and directed program
of foreign assistance. They can support NEPAD more actively and
encourage the formation of substantially greater regional markets.
Moreover, through the types of policy changes the Commission
recommends, they can also help to spur greater inflows of private
capital, a powerful catalyst for growth.
The Commission is well aware that increased private capital flows
are but one of the many challenges that Africa faces. We are confident,
however, that increased capital flows can contribute significantly to
Africa's development, and that the U.S. government, together with the
G-8 and OECD nations, could do much to stimulate and facilitate these
flows. The budgetary costs to the U.S. of what we recommend would be
modest, and more than offset as Africa becomes a stronger trading and
investment partner. Moreover, these proposals would pay major dividends
in terms of advancing U.S. humanitarian, foreign policy and national
security interests.
The Commission on Capital Flows commends these proposals to
Congress and urges that they be considered and adopted as quickly as
possible. Major elements of the Ten Year Strategy will require new
legislation: on trade, tax policy, OPIC, foreign assistance and debt
relief. Mr. Chairman, we look forward to pursuing implementation of
these initiatives with Congress under your leadership and that of this
distinguished Committee.
Thank you.
The Chairman. Thank you very much, Mr. Harmon, for your
testimony, and congratulations on the 10-year strategy report
of the commission. It is an important breakthrough all by
itself.
I call now on Dr. Spencer.
STATEMENT OF REV. DR. LEON P. SPENCER, EXECUTIVE DIRECTOR,
WASHINGTON OFFICE ON AFRICA, WASHINGTON, DC
Dr. Spencer. Thank you, Senator Lugar, for the opportunity
to testify, and for calling this hearing to address ongoing
concerns for U.S.-African economic trade relations. I'm also
pleased to share this panel with two distinguished colleagues
who represent such an extensive knowledge and experience in
business and trade, and can help to influence both African
economic growth and U.S. trade concerns.
I come to you from the ecumenical Washington Office on
Africa, which was created 30 years ago in support of the
liberation struggles in southern Africa. Since 1994, we have
given special attention to economic issues, trade, aid, and
debt as an expression of our concern for human dignity and
poverty reduction in sub-Saharan Africa, and we've approached
the African Growth and Opportunity Act from the standpoint of a
faith-based understanding of economic justice.
While critical of some aspects of the African Growth and
Opportunity Act and of U.S.-Africa trade policy, we and our
colleagues in the Africa Trade Policy Working Group of the
Advocacy Network for Africa are neither anti-trade nor anti-
AGOA. Our analysis of AGOA instead focuses upon the need for
mutually beneficial trade relations, and that has been our
ongoing concern, and what we find in AGOA at this stage is that
only six African countries significantly increased their
exports through the key AGOA benefit of apparel, and the
resultant job creation, as in the notable case of Lesotho, has
regrettably been accompanied by violations of internationally
recognized workers' rights, which is one of AGOA's eligibility
conditions.
Simply put, at this stage, benefits of AGOA to Africa have
been quite modest, and if the United States is seriously
interested about mutually beneficial trade relations with
Africa, the question for us is how we can take a symbolically
significant yet tangibly modest act and move forward.
I want to restrict my comments in my few minutes to issues
specific to our understanding of what we would call fair trade,
and I welcome an opportunity during discussion, if it's
desired, to note some ongoing concerns with regard to AGOA
eligibility criteria, and also opportunities through AGOA for
African civil society voices to be heard, which I think is a
critical potential benefit from AGOA because of what it says
about good governance.
Despite AGOA, I would argue that current U.S. trade
policies undermine both fair trade and Africa's societal needs.
Moving forward with an alternative vision of U.S.-Africa trade
policy, where the U.S. practices what it preaches on free
trade, and where ideas of managed trade are not anathema, is
crucial for mutually beneficial relations, and here are some
possibilities.
No. 1. The Congress should eliminate the stunning domestic
agricultural subsidies that limit African options for
agricultural export to the U.S. These harmful trade-distorting
subsidies are readily seen with regard to cotton in West
Africa, although that is not the only example.
In Mississippi, it costs 82 cents to produce a pound of
cotton. In Mali, it costs only 23 cents. Subsidized American
cotton farmers are depressing world prices and impoverishing
families in West Africa. Without addressing the subsidy issue,
it is unlikely that any AGOA-plus or AGOA III legislation
seeking to expand agricultural exports from Africa to the
United States will have the desired effect, and if no steps are
taken on subsidies, I respectfully suggest that the United
States needs to stop lecturing Africans about free trade.
No. 2. The Congress should affirm the role of the State in
addressing the common good by rejecting demands for water
privatization, for cost recovery for health care, and user fees
for primary education in Africa. Trade policy needs to serve
people, not the other way round. Water privatization in
particular, where water becomes a commodity for profit, places
those in poverty and in rural areas at serious risk.
No. 3. The Congress should endorse the African initiative
to protect smallholder farmers and local communities by
recognizing community intellectual property rights to seeds and
traditional agricultural practices. An acceptance by the U.S.
of a substantive, not merely procedural review of TRIPS 27.3.b,
with serious attention given to the Africa Group's views, are
appropriate ways forward.
No. 4. The Congress should mandate that the U.S. should
respect the sovereignty of African countries to define their
own policies regarding genetically modified organisms. The
implication of the recent U.S. Leadership Against HIV/AIDS Act
to the effect that any nation receiving U.S. assistance to
confront the AIDS pandemic cannot refuse food assistance that
has been genetically modified is arrogant, and it is wrong, and
legal corrections should be made.
No. 5. The Congress should mandate that the U.S. should
fully embrace the spirit of the Doha declaration regarding
access to affordable medicines. The Bush administration's
unilateral response to the agreement at Doha to resolve the
question of access by countries lacking the capacity to produce
such drugs themselves is unsatisfactory.
Moreover, despite the fact that Trade Promotion Authority
Act specifically includes respect for the Doha declaration as
one of the principal negotiating objectives of the U.S., there
remains grave risk that in the current negotiations for a
Southern Africa Free Trade Agreement, the U.S. will seek to
impose TRIPS plus standards that it has been unable to secure
otherwise. The Congress should act to prevent this distortion
of that which was agreed at Doha.
No. 6. And finally, the Congress should find avenues to
commit the U.S. to give precedence to peace and conflict
resolution over trade considerations. U.S. hesitancy over
action on conflict diamonds on the grounds that the Kimberley
process might violate WTO rules fails to ask whether trade
rules are to exist in their own untouchable domain, or whether
trade rules should serve a broader social agenda.
The Bush administration's opposition to capital market
sanctions against foreign oil companies doing business in
Sudan, despite a clear correlation between increased oil
revenues and increased military expenditures by the Government
in Khartoum on the grounds that there should be no interference
with Security and Exchange Commission rules, is another case in
point, and the exportation of natural resources in the Eastern
Congo during this ongoing regional war in the DRC has barely
been addressed. The Congress needs, I believe, to remain
attuned and prepared to act when trade undermines rather than
advances a just peace.
These potential actions, Senator, by the Congress represent
a way forward in U.S. trade relations with Africa that would
affirm the value of trade in advancing African economies, while
offering a vision of economic activity as serving the common
good.
We may debate at length the role of a longer eligibility
period, the extension of textile benefits beyond 2008, and the
proper place for capacity-building in the direct context of the
African Growth and Opportunity Act, and I welcome the testimony
today on these points, but unless the U.S. makes it clear that
we consider Africans as genuine partners, able to define their
own economic agenda, who may find, without hindrance, public as
well as private means to address the needs of people, and who
find support in the trade realm to secure peace with justice,
then we will be undermining our own U.S. interests. We will be
projecting an image that our economic dominance permits us to
ignore the needs and hopes of Africa, and AGOA, unfortunately,
with all the potential it represents, will remain only a
gesture.
Thank you for the opportunity to share these views.
[The prepared statement of Dr. Spencer follows:]
Prepared Statement of Rev. Dr. Leon P. Spencer, Executive Director,
Washington Office on Africa, Washington, DC
From the moment that the African Growth and Opportunity Act was
first introduced in Congress, the Washington Office on Africa has been
engaged in advocacy regarding US-Africa trade policy from the
standpoint of a faith-based understanding of economic justice. A broad-
based ecumenical organization, we were created thirty years ago in
support of the liberation struggles in southern Africa. Since 1994, we
have given special attention to economic issues--trade, aid and debt--
as an expression of our concern for human development and poverty
reduction in sub-Saharan Africa.
While critical of aspects of US-Africa trade policy, we and our
colleagues in the Africa Trade Policy Working Group of the Advocacy
Network for Africa are not anti-trade. We are convinced that--to the
extent that African business initiatives are enabled to be competitive,
benefits accrue to workers (especially those living in extreme
poverty), and environmental concerns are addressed--mutually-beneficial
trade relations will result, and will serve Africa's interests. At the
same time, we are convinced that trade between such unequal partners
cannot be the sole answer to Africa's development, and without
continuing development assistance and substantial debt cancellation,
the economic marginalization of Africa in the global economic context
will remain--to our detriment in the United States, as well as to
Africa's.
The African Growth and Opportunity Act--by its very existence--
indicated to many in Africa and in the United States that the US was at
long last prepared to take Africa and its economies seriously. From the
outset, however, we questioned the extent of the benefits of this
legislation to Africa, and the price paid--the conditions established
by AGOA--for access to those benefits. Early drafts of the legislation
contained conditions that looked very much like the Structural
Adjustment Programs of the international financial institutions--an
economic agenda that even the International Monetary Fund has recently
acknowledged has worked against Africa's interests. We looked warily at
the ``national treatment'' and intellectual property rights conditions
as indicative of a self-serving US agenda. We also questioned whether
textile benefits would prove to be the stimulus panacea some claimed.
We nevertheless welcomed the somewhat improved conditions in the final
text, and we were prepared to applaud concrete pervasive benefits to
Africa should post-AGOA data so demonstrate.
With AGOA now in its third year since passage, here is what we see:
Of the 38 eligible African countries, only 22 exported
anything under AGOA by mid-2002.
Of the 38 countries, less than half secured duty-free access
to the US apparel market by establishing rigid apparel export
visa systems.
Of these, only six (Kenya, Lesotho, Madagascar, Mauritius,
Swaziland and South Africa) significantly increased exports to
the United States, primarily in the apparel sector (and of
those six, Madagascar's exports dropped dramatically in the
last year due to uncertainty after its controversial
presidential elections).
Only 38% of apparel exports entered the US with duty-free
AGOA benefits in 2001.
Only two countries (Kenya and South Africa) showed any
substantial rise in other sectors, principally agricultural.
Oil remains the overwhelming sub-Saharan African export to
the US. Apparel--again, the chief AGOA benefit to Africa--
represents only 4.5% of total exports to the US.
In 2001 African exports to the US declined, while imports
from the US increased. African exports to the US remain less
than 2% of all exports to the US, while African imports from
the US are less than 1% of US exports overall.
Certainly one can argue that for that small number of countries
which have taken significant advantage of the apparel benefits under
AGOA, the change is dramatic. In Lesotho, AGOA proponents claim an
increase of 15,000 new jobs in a country where the unemployment rate
hovered around 45% in 2002. Apparel exports totaled $129.6 million in
2001, up from nothing. And yet the apparel industry in Lesotho is
dominated by foreign ownership--Taiwan controls 65%--and a two-year NGO
study of the garment industries in southern Africa revealed cases in
Lesotho of sexual harassment, beatings, false recording of time worked,
and extensive forced overtime, and conditions that included lack of
ventilation, locked bathrooms and factory gates, and lack of protective
gear. (Worthy of note is that respect for internationally-recognized
workers' rights is one of AGOA's eligibility conditions.) An analysis
of the key benefits from AGOA, then, illustrates contradictions, and
the end of world-wide quotas on textiles through the Multi-Fibre
Arrangement in 2005 complicates the situation even more.
Claims that AGOA is a ``great success,'' therefore, are
exaggerated. In fact, benefits to Africa have been quite modest thus
far. If the US is serious about mutually-beneficial trade relations
with Africa, how can we take a symbolically-significant yet tangibly-
modest Act and move forward?
CONDITIONS
Concern about the rule of law, poverty reduction, health care,
education, labor rights, and human rights are well-placed in AGOA
eligibility criteria, and they represent an effort to place trade in
the context of a just society. By those standards it has been
legitimate for this administration to raise concerns about Eritrea and
Swaziland in particular.
It remains, however, a serious matter of concern to the Washington
Office on Africa as to the application of the various narrowly-self-
serving economic prescriptions among eligibility conditions. Insistence
upon economic ``reforms'' that remove any barrier to US trade and
investment and demand ``national treatment'' of foreign corporations
ignores the fact that most industrialized nations, including the United
States, achieved their economic status through ``infant industry
protection.'' Prior to 1913 the US was both the most heavily protected
and fastest growing economy in the world. By suggesting that Africans
efforts to protect fledgling industries from the might of multinational
corporations, or that any barriers African countries impose upon US
investment, prevent a ``level playing field,'' the US Trade
Representative is engaging in myth.
It is fair enough for the US to indicate its preference for
particular economic policies by African governments. It is crucial,
however, for Congress to demonstrate, in any future Africa-oriented
legislation, its support of the right of African governments and civil
society to define their own economic agenda without penalty or threat
of penalty by the US.
THE FREE MARKET AND FAIR TRADE
The free market mantra of this administration is self-serving. No
country in the world, including the US, practices free trade, and US
``free trade policies'' are widely seen by other countries as a demand
for free access by the US to their markets, rather than the reverse.
The recommendations of the Commission on Capital Flows to Africa that
the US permit all products from Africa to enter the US duty-free and
quota-free is in striking contrast to this reality, despite the
gestures made in AGOA.
US long-term interests are secured by engaging in fair trade.
Africa's certainly are. US interests are also served by stable African
societies where governments effectively address the needs of their
people. Africa's certainly are. Tragically, current US trade policies
and actions undermine both fair trade and Africa's societal needs.
Whatever the legislative vehicle, moving forward with an alternative
vision of US-Africa trade policy, where the US practices what it
preaches on free trade, and where ideas of managed trade are not
anathema, is crucial for mutually-beneficial relations. Here are some
possibilities:
The Congress should eliminate the stunning domestic
agricultural subsidies that so distort trade in agricultural
products and limit African options for agricultural export to
the US. It is not helpful for the US to point to Europe as the
greater villain. The US has control over what it does, and when
US policies prevent African access to its market, it has
violated its own stated commitment to advance African economic
growth. With up to 80% of Africans working in agriculture-
related pursuits (and a majority of them women), these trade-
distorting subsidies are harmful and wrong. Their impact is
readily seen with regard to cotton in West Africa. The concept
of ``comparative advantage,'' so crucial to free market
analyses, falls by the wayside when subsidies are introduced
into the equation. In Mississippi, it costs 82 cents to produce
a pound of cotton; in Mali, only 23 cents. Yet with recent
legislation increasing cotton subsidies beyond last year's $3.4
billion, the 25,000 American cotton farmers naturally are
increasing their acreage, producing more cotton, further
depressing world prices, and further impoverishing families in
West Africa. Without addressing the subsidy issue, it is
unlikely that any ``AGOA-plus'' legislation seeking to expand
African agricultural exports to the US will have the desired
effect. And, if no steps are taken on subsidies, the US needs
to stop lecturing Africans about free trade.
The Congress should affirm the role of the state in
addressing the common good by prohibiting any bilateral and,
through vote and voice in international fora, multilateral
demands for water privatization, full-cost recovery for health
care, and user fees in primary education in Africa. The latter
two--health and education--have been frequently addressed,
though vigilance is still required. Water privatization remains
a serious threat to Africa, where water as a commodity for
profit places those in poverty and in rural areas at risk.
Trade policy needs to serve people, not the other way round.
The Congress should endorse the African initiative to
protect smallholder farmers and local communities by
recognizing community intellectual property rights to seeds and
traditional agricultural practices. This dominant privatization
agenda in US trade policy--that everything, including life
itself, can be owned and can, therefore, be controlled and
marketed--is an affront to community. The patenting of life
forms that are part of African agricultural and biological
resources violates African rights. An acceptance by the US of a
substantive (not merely procedural) review of TRIPS 27.3.b (the
provision in the Agreement on Trade-related Aspects of
Intellectual Property Rights regarding patents on micro-
organisms), and of intellectual property rights held by
community, are appropriate ways forward through TRIPS.
The Congress should mandate that the US respect the
sovereignty of African countries to define their own policies
regarding genetically-modified organisms. This is not an anti-
GMO statement. Rather it is a recognition that many in the
world find wisdom in a ``precautionary principle'' that US
trade policy rejects, and they have a right to set national
policy accordingly. The US efforts to undermine African support
for the Cartegena Biosafety Protocol, and its claim to be
acting to counter hunger in Africa with its WTO challenge of
European GMO policies, are misguided at best. The implication
in the recent US Leadership against HIV/AIDS Act, to the effect
that any nation receiving US assistance to confront the HIV/
AIDS pandemic cannot refuse food assistance that has been
genetically modified, is arrogant and wrong, and legal
correction should be made.
The Congress should mandate that the US fully embrace the
spirit of the Doha Declaration regarding access to affordable
medicines. The Bush administration pledge not to take any
actions against countries that export drugs under compulsory
license to low-income countries during times of public health
crises is an unsatisfactory response to the agreement at Doha
to resolve the question of countries lacking the capacity to
produce such drugs themselves. This unilateral action by the US
(having been the sole opponent to a multilateral solution, 143-
1) leaves such African countries in these situations with no
legal foundation for affordable access. Further, US insistence
this month that the G-8 not mention the Doha Declaration and
pay tribute instead to the pharmaceutical industry speaks
volumes about US lack of commitment to affordable access.
Moreover, despite the fact that the Trade Promotion Authority
Act specifically includes respect for the Doha Declaration as
one of the principal negotiating objectives of the US, there
remains grave risk that in the current negotiations for a
Southern Africa Free Trade Agreement, the US will seek to
impose a TRIPS-plus standard that it has been unable to secure
otherwise. The Congress should act to prevent this distortion
of Doha.
Finally, the Congress should find avenues to commit the US
to give precedence to peace and conflict resolution over trade
considerations. Examples of US failure to do so abound. US
hesitancy over action on conflict diamonds on the grounds that
the Kimberley Process might violate WTO rules failed to ask
whether trade rules are to exist in their own untouchable
domain, or whether trade rules should serve a broader social
agenda, where a just community restricts products that fund
rebel movements that cut off the hands and feet of children.
The Bush administration opposition to capital market sanctions
against foreign oil companies doing business in Sudan, despite
a clear correlation between increased oil revenues and military
expenditures by the Khartoum government, on the grounds that
there should be no interference with Securities and Exchange
Commission rules, is another case in point. And the
exploitation of natural resources in the eastern Congo during
the regional war in the DRC, denying Congolese society the
benefits of its resources and its environment, has barely been
addressed. Differing circumstances require different solutions,
certainly, but the Congress needs to remain attuned and
prepared to act when trade undermines rather than advances a
just peace.
These potential actions by the Congress represent a way forward in
US trade relations with Africa that would affirm the value of trade in
advancing African economies while offering a vision of economic
activity as serving the common good. We may debate at length the role
of export processing zones, the extension of textile benefits beyond
2008, and the proper place for capacity building within the direct
context of the African Growth and Opportunity Act. Thoughtful proposals
to assure AGOA eligibility for a period of, say, five years instead of
annually; to broaden textile market access; and to extend AGOA itself,
deserve consideration. But unless the US makes it clear that we
consider Africans as genuine partners who define their economic agenda,
find without hindrance public as well as private means to address the
needs of their people, and act in the trade realm to secure peace with
justice, then we will undermine our own interests by projecting an
image that our economic dominance permits us to ignore the needs and
hopes of Africa.
The agenda we set above helps to make the word ``compassion''
genuine. And economic justice toward Africa, expressed concretely in US
trade policy, actually serves US national interests.
CIVIL SOCIETY
A final word needs to be said about the role of African civil
society. AGOA wisely envisioned an occasion at which civil society in
the US and in Africa would meet parallel to the US-Africa Trade and
Economic Cooperation Forum that was mandated by the legislation.
Unfortunately, no meeting materialized in 2002, and the NGO meeting in
Mauritius in 2003 lacked integrity, a fact revealed not only by limited
and unrepresentative participation from Africa but also by a closing
document welcoming other NGOs to future meetings only if they embrace
the AGOA agenda and if they agree not to be ``adversarial'' in
relations with government and business sectors.
We readily acknowledge that African civil society propounds diverse
views about the contribution AGOA makes to African economies. Many of
our own partners within the African faith communities speak highly of
AGOA's vision. Others have condemned AGOA as offering little to Africa
and as principally serving a US corporate agenda. We find the same
diversity of views in civil society in the United States.
The point is that the AGOA call for an NGO parallel meeting
provides a singular opportunity to model democratic traditions by
demonstrating that African critiques of an African government's trade
policy enhance debate, strengthen civil society, and ultimately make
for good governance. The Congress should ensure that this positive
potential is realized by appropriating funds for attendance by diverse
African NGOs and by providing for an independent coordinating structure
committed to diversity at these annual meetings.
It is appropriate to reflect upon the particular contribution AGOA
makes to US-Africa trade relations, but I have sought here to use AGOA,
as well, as a vehicle to reflect upon a broader US-Africa agenda, both
economic and social. AGOA should, we believe, stimulate thought about
next steps in trade that might leave the US legitimately talking about
economic justice rather than about narrow self-interest.
Fundamental to this testimony is the view that business and trade,
placed in the context of human rights and conflict resolution and a
broad vision of societal good, will contribute to poverty alleviation
in Africa. Business and trade, properly regulated to protect workers
and the environment, and with sufficient flexibility to permit African
governments to support small business initiatives against multinational
giants, will help African economies. Business and trade, recognized as
one aspect of human relationships but firmly subordinate to the hopes
and needs of the community, will significantly contribute to the common
good. Business and trade, left alone, protected from interference by
government and people, will not. To the extent that the US agenda gives
unchallenged primacy to a trade that exploits both resources and
people, Africa will suffer. And so will the rest of us. The African
Growth and Opportunity Act--in its strengths and its weaknesses--ought
to take us in an alternative direction.
The Chairman. Well, thank you very much, Dr. Spencer.
Let me just say, I think your testimony is very compelling.
Clearly the value of discussing procedure and justice and all
the aspects simultaneously is important. As you recognize
through your work over three decades, the legislative process
is cumbersome. The compromises are extensive.
I just pull things totally out of context, because this is
not the most important part of your testimony, but clearly I'm
on your side with regard to agricultural subsidies. I would
just say that in the farm bill prior to the current one we had
much greater success in moving toward that direction. We had
some reverses in the last go-round which I regret, but I think
the point that you have made is likewise being made by
countries all over the world that we really will have to, in
the area of food and agriculture, rethink some of our own
policies.
I've been intrigued by the European Union discussion in the
last few days, as they try to grapple, I hope successfully.
They have had some difficulty there, too, in coming to grips
with what we must do. We ought to have a worldwide movement in
this direction.
This is very applicable to the African sector. I think that
Mr. Hayes mentioned that textiles are extremely important.
Agriculture in many ways offers an area of equal if not greater
importance, and is stymied in some ways by what we have talked
about today.
Let me just ask of all three of you, how should we go about
the business of either training or education? The possibilities
have always been there, I suppose, for something comparable to
what the United States did in a private sector way, in bringing
hundreds of young Russians to financial institutions in this
country for a period of time, on the assumption that it would
be very difficult for the Russian economic and banking system
to be compatible with our own without some expertise. The
argument was always over the critical mass. How many people,
given the size of that country, do you need?
I remember suggesting in one commencement address 10,000 as
a round number, as a critical mass that might begin to get the
flow going in a significant way. Much has been done, but as has
been pointed out today, this type of thought with regard to
Africa has been minimalist. How is this investment flow going
to occur? How do people go about raising capital, even? The
basics of this would be critically important.
Who ought to take the initiative? Are there private
institutions, business people? Are there universities? To what
extent should Congress encourage exchange programs or
educational programs and initiate this? Do any of you have
ideas as to how we ought to proceed?
Mr. Harmon. To support what you just said, I was always
interested while at Ex-Im Bank that certain countries initiated
discussion with me about sending over teams of people to learn
as much as they could about export credit, the leading being
the Chinese, who wanted 20 people to sit in offices for 6
months, but the Russians were smart enough to pick up, also.
Why shouldn't they learn about the technical aspects?
Sadly, in all those years we never had such a suggestion
being made from Africa. We have to be more proactive here in
the United States, lead the effort on the human capital side,
but the Africans have recognized the importance of this, and as
I explored within this new program, which I did discuss with
the White House already, of something that could be private-
sector-driven. That way it would be from a budget point of view
much easier to do.
We took this one sliver of human capital relating to the
capital markets and finance, which certain Western European
countries did, and which I worked on in the early 1980s with
Italy, which created their own merchant bank at the government
level, that owned 50 percent, but they trained many, many
people there, but ideally, this program which we recommend,
which, as I say, would be financed by private sector banks in
the United States but I think also in Europe and Asia, because
we had commission representation from those parts of the world,
would give an initial start to Africans to send two people from
each country to be trained in this one area, and in turn, the
banks would send people there.
If this program works, and I suspect it would, it has to be
monitored and trained, it really needs the support of the White
House, not financially, but in some ways it has to have the
stamp of credibility, much as we know other programs have done
this on an international basis. Then I think you would have
such prestige attached to it, there would be a lot of focus on
it.
Now, on the African side, the Africans of course have been
so enthusiastic about this in the conversations I've had with
certain countries, that they have said, we don't want to wait
for the Congress, the White House to act. It takes too long.
As one country said to me yesterday, we will contribute
ourselves, if you could help us organize where two or three of
our people could be trained at these institutions, and in turn,
the private sector American institutions, to their credit, have
wanted to participate to give back something from the business
they have been doing in the developing countries, so I see this
as therefore being a bit of a partnership between the public
and the private sector, funding coming from private sector,
support from the public sector.
On the other side, the Africans recognize that you need
long-term education, and therefore in a number of countries
there is an effort now to really seriously start to build
university-level education and expansion, and a number of
somewhat encouraging signs, but this will take time, and in
this interim time period I think the richer countries of the
world have got to take the initiative of supporting as best
they can all the things that we've talked about now, in terms
of specific training programs.
Finally, we're hopeful that the Millennium Challenge
Account, should it, or when it becomes effective, will actually
focus a bit, more than a bit on technical training, on this
very important area, not only in finance, but a number of other
sectors, too, so we have to leverage, quote, our funding with
very specific technical training to bring Africa up to a
competitive position.
Thank you, Mr. Chairman.
The Chairman. Let me just mention, regrettably, the Senate
winds on in its own way. We have just entered the first, I
understand, of at least three consecutive votes with no pauses.
In a fairly short point I'm going to have to adjourn the
hearing.
Before I do that, though, I want to offer an invitation for
other members of the committee who are not present to extend
questions to you, and I hope in the next few days you might be
forthcoming in the event that some questions come, so that we
may have a complete record.
I just want to note that each one of you in your own way
has said that AGOA is a modest beginning, and that is true. It
was a threshold situation, very difficult to get across the
finish line, but important to do.
Each of you in your own way has talked about legislation
regarding AGOA today, and what should be extended and when and
so forth. There may be other pieces of legislation and/or
resolutions or activities by the Congress that are appropriate
quite apart from AGOA. In addition, I have noted your
suggestions with regard to some of that but you may want to
amplify them.
Now, this is an invitation to do that, if there are either
legislative language or resolutions that could be offered that
show an emphasis and enthusiasm. Each of you in your own way
has also pointed out that AGOA, and for that matter an
increased interest in Africa, is extremely important for our
country, important, as you pointed out, Mr. Harmon, in the grim
sense of the war on terrorism, but even more important in the
idealism of the American people and moving ahead in various
ways, whether it be in the educational way or, as Dr. Spencer
has pointed out, with regard to medicines, with regard to
water, and our attitudes in each of these situations.
Obviously, AGOA is a trade agreement, so we're talking
about trade, but the compatibility of that with our humanity
and our idealism is important. We need to be thinking through
that likewise, both in our legislative language and in our
rhetoric surrounding the situation.
The small business aspect that you mentioned, Mr. Hayes, I
think is very important. It may be in the short run more
appropriate, but which small businesses, and how do you find
them, and as you mentioned, tremendous interest on the African
side, as many as 1,000 people coming to one of your 18
situations on the American side, maybe not as clear how many
people turn out. How do we stimulate that situation, so that
there are people that are going to intersect in those ways?
I mention those situations in part to indicate that I have
been listening, and I appreciate the extent of your testimony,
the expertise you bring. I regret that we will not be able to
extend the hearing longer, but I thank you for making a good
record for us. This is a benchmark as we try to push the ball
forward. You have both contributed, or all three have
contributed mightily to that effort, and we're grateful to you.
The hearing is adjourned.
[Whereupon, at 11:10 a.m., the committee adjourned, to
reconvene subject to the call of the Chair.]
----------
Additional Statements Submitted for the Record
Prepared Statement of Senator Lamar Alexander
Mr. Chairman, I want to apologize for not being able to attend this
morning. Because of difficulties in my schedule, including an important
mark-up in the Health, Education, Labor, and Pensions Committee, I am
not able to be with you today. Thank you for your leadership on this
issue.
I want to thank Chairman Lugar for holding this important hearing
on the Africa Growth and Opportunity Act (AGOA). The Chairman was a
driving force behind AGOA in the Senate, and worked tirelessly and
persistently to bring it to fruition when it finally became law in
2000. As Chairman of the Subcommittee on African Affairs, I am
fortunate and grateful to have a full-committee Chairman who shares the
desire to find ways to help Africans help themselves. That's exactly
what AGOA does, and it doesn't hurt the United States any, either.
AGOA provides opportunities for African nations to build trade with
the United States, reducing tariffs and other barriers for eligible
countries. African countries become eligible by meeting a number of
criteria, including working toward:
market-based economies;
the rule of law and political pluralism;
elimination of barriers to U.S. trade and investment;
protection of intellectual property;
efforts to combat corruption;
and more criteria relating to human rights, health, and
education.
These criteria promote U.S. trade and security interests, and also
steer African countries toward a course of stability and prosperity. As
incentive, AGOA offers reduced tariffs and trading barriers to work
toward these important goals. AGOA-eligible countries receive trading
status second only to those countries with which the U.S. currently has
a free trade agreement.
AGOA is still relatively new, and the full impact of the act has
yet to be felt, but we can see some important preliminary results today
that point to the success of this approach. From 2001-2002, AGOA
imports grew by 10%, while total U.S. imports grew by only 2%. During
that same time, overall imports from sub-Saharan Africa actually fell,
though AGOA imports grew. This discrepancy creates a powerful incentive
for African countries to qualify for and participate in AGOA.
I should also note that AGOA has the potential to be good for my
own State of Tennessee. Sub-Saharan Africa's number one import from the
U.S. is transportation equipment, which is also Tennessee's number one
export. For example, sub-Saharan Africa imported more than $230 million
worth of motor vehicles and parts in 2002--the leading Tennessee
export.
I'm sure during the course of this hearing we'll learn ways to
improve upon AGOA, and I look forward to working with Chairman Lugar
and my colleagues on this issue. One thing, however, is clear: AGOA's
foundation is sound. Opening up the doors to trade in exchange for
meeting relevant criteria creates a powerful incentive for African
countries to open their markets to American products and create an
environment conducive to foreign investment.
______
Prepared Statement of Amnesty International USA,\1\ by Adotei Akwei,
Africa Advocacy Director
---------------------------------------------------------------------------
\1\ This testimony would not have been possible without the help of
Krista Riddley and Amartey-Nuno-Amarteiflo.
---------------------------------------------------------------------------
HUMAN RIGHTS AND THE AFRICA GROWTH AND OPPORTUNITY ACT: MAKING SURE A
GOOD IDEA DOES GOOD THINGS
INTRODUCTION
Mr. Chairman, and distinguished members of the Subcommittee, on
behalf of Amnesty International USA, I would like to express our
appreciation for allowing us to submit this document to your committee.
The Senate African Affairs Subcommittee has been one of the most
consistent allies in the struggle to protect human rights in Africa and
for positive US engagement in helping Africans meet the challenges and
crises that they face.
Amnesty International USA feels that when human rights standards
are used as criteria, they should be used in a way that does not
diminish their integrity. At the same time if the human rights reforms
countries must achieve are spelled out then those countries must be
held to those standards or else the integrity of the standards for AGOA
and for other initiatives will be undermined. In other words they
should be enforced. As currently used in AGOA, the integrity of
fundamental human rights, even those specifically spelled out in the
bill, have not been articulated in the strongest possible manner. As a
result the human rights criteria of AGOA could have a negative impact
on the efforts of AGOA as well as other US government initiatives to
promote human rights in Africa. We hope that some of these problems can
be addressed in such a way that the goals of the bill are realized.
In our view, the concept behind AGOA represents the spirit of
engagement and partnership with Africa that should be encouraged.
However, even the most well-meaning plans sometimes need fixing or else
they can potentially do unintended damage. This is how we are
approaching this hearing and how we regard AGOA.
We do not take a position on the economic aspects of AGOA. However,
when human rights are involved, either as criteria for eligibility for
participation or as a goal of the initiative, we are extremely
interested in the findings and the methodology behind the report. We
are also concerned over what the implications and results of the
initiative are on the protection of fundamental human rights in these
countries.
Our document today will look at the following areas:
I. Recommendations
II. Review of the Concerns AIUSA Has With Human Rights
Eligibility Criteria
III. Conclusions
I. RECOMMENDATIONS
Amnesty International's mandate precludes us from taking a position
on whether a country should be considered eligible or not for AGOA
benefits so our comments are directed towards two goals:
1. Having an accurate discussion of the state of human rights
within the countries currently considered eligible and,
2. Making sure that the human rights criteria used in AGOA
are in keeping with other standards currently adhered to by the
international community and the United States Government.
Amnesty International USA recommends the following steps to the US
Congress and the Bush Administration:
The human rights eligibility requirements need to be more
comprehensive. It is our experience that the protection of
fundamental human rights must be approached in as holistic a
manner as possible. The establishment of the rule of law, for
example, also involves ending impunity and enforcing
accountability for security forces and militaries as well as
the repeal of repressive legislation that facilitates the
violation of civil and political rights. It also demands the
ability for independent monitoring by civil society and other
non-governmental organizations. If these areas are not
addressed and monitored then efforts to ensure independence of
the judiciary, due process and access to fair trials will be
ineffective. At a minimum the spectrum of human rights to be
evaluated should be consistent with the categories spelled out
in the annual Department of State Country Reports on Human
Rights Practices (hereafter referred to as DOS HR Report).
The standard of what constitutes the evaluation of
``established or making progress'' needs to be more clearly
defined. Throughout the country report entries, reference is
made to commitments made by governments to implement reform.
While this can sometimes represent a major step forward on
human rights issues, a number of governments have perfected the
art of making promises, taking initial steps such as passing
laws, but retaining other legislation that over rides the
reformist legislation. Other governments have gone as far as
creating human rights organs ostensibly to conduct
investigations but then retaining the right to appoint the
members of these bodies while severely restricting and
harassing independent non-governmental human rights
organizations. Still others have a rich history of doing
nothing and here attention to a government historical record is
extremely important. I look forward to the next AGOA report to
see what commitments have been acted upon and which have joined
the realm of empty promises--and what the consequences will be.
The United States Trade Representative's (USTR) country
reports need to be revised to include more accurate, consistent
and detailed data on the human rights criteria in a manner
similar to the precision and detail of the way the economic
reform requirements are described. This will be important not
only to show the areas in need of improvement but also to
reflect accurately where resources and a genuine effort have
been made on human rights reform. The report should make more
use of human rights information from non-governmental
organizations such as democracy, labor and human rights groups
as well as the information from the Department of State's
Bureau for Democracy Human Rights and Labor. Critical input
could and should also come from local human rights groups in
the African countries themselves.
II. REVIEW OF THE CONCERNS AIUSA HAS WITH HUMAN RIGHTS ELIGIBILITY
CRITERIA
In reviewing the human rights criteria for country eligibility
AIUSA focused on section 104 of AGOA and section 502 of the Trade Act,
which state that:
A country will be considered eligible to participate if that
country has established, or is making continual progress toward
establishing--
The rule of law, political pluralism, and the right to due process,
fair trial and equal protection under the law;
Or if it
does not engage in gross violations of internationally
recognized human rights or provide support for acts of
international terrorism and cooperates in international efforts
to eliminate human rights violations and terrorist activities.
A. The Rule of Law
When one refers to the rule of law one is usually assumed to be
referring to issues such as independence of the judiciary, due process,
including the right to be free of arbitrary arrest and detention,
torture or ill-treatment, the right to fair trial, transparency and
accountability of ordinary citizens and government officials including
the security forces. We would assume that an impartial, independent
professional legal system would be a special area of interest for AGOA
as this has direct impact on the conduct of trade and business. AGOA
does spells out in some detail numerous free market economic reforms as
eligibility criteria. This attention to detail is unfortunately not
repeated in the human rights sections raising serious concerns as to
whether the goal is to have the rule of law established for the country
as a whole or whether the focus is to have effective justice limited to
the realm of commerce.
The USTR country reports do not address the rule of law in all of
the thirty-five countries currently eligible and when it does it does,
it does not evaluate them in a consistent manner. In the countries in
which the rule of law is referred to, eight of them are said to have
independent judiciaries: Benin, Cape Verde, Ethiopia, Malawi,
Mauritius, Sao Tome, Senegal and Tanzania. The judiciaries in nine
others are deemed not to be independent: Cameroon, Chad, Djibouti,
Gabon, Guinea Bissau, Kenya, Mozambique, Rwanda and Seychelles. Six
more countries are referred to but the state of their judicial systems
is not described as either independent or subject to external
influence. These countries are Botswana, Ghana, Guinea, Mali, Swaziland
and Zambia. In following five countries, the state of the judiciary is
not even addressed: Central African Republic, Republic of the Congo,
Eritrea, Lesotho and Namibia.
The USTR reports poorly cover the issue of fair trials. No
information is provided on the ability of the judicial system to
provide fair trials in Cameroon, Cape Verde, the Central African
Republic, the Republic of the Congo, Ethiopia, Lesotho, Mauritius,
Sierra Leone, South Africa, Swaziland and Tanzania. The data on the
others countries is revealing if not grim. Only two countries are
currently seen to provide fair trials; Benin and Sao Tome. Other
countries such as Chad, Eritrea, Gabon, Guinea, Guinea Bissau,
Mauritania, Nigeria, Rwanda and Seychelles suffer from irregularities
such as arbitrary arrest or ill treatment while in police custody.
Several of the countries that are not covered on this topic have
serious problems with the lack of independence of the judicial systems,
access to fair trials and we would add impunity. Others seem to have
received only very rudimentary coverage.
The USTR report entry for Ethiopia mentions that their human rights
record is poor but does not give details. It also indicates that
progress is being made in some areas, but doesn't specify which areas.
In AI's 2003 report on Ethiopia several serious human rights concerns
were documented. For example:
Police shot dead over 230 people and detained several
hundred more in Oromia and the southern region in connection
with demonstrations, mostly peaceful.
Journalists and government critics were arrested and some
sent for trial.
Several death sentences were imposed but no executions were
reported.
There continued to be a pattern of arbitrary and
incommunicado detention without charge or trial of people
suspected of links with opposition groups such as the OLF and
ONLF. Numerous people were detained and tortured in the Somali
region for alleged links with the ONLF, particularly after ONLF
operations in the region.
Torture of political prisoners, particularly those accused
of links with armed opposition groups, continued to be
frequently reported.
There were continuing reports of killings of civilians by
the police and army in circumstances suggesting extrajudicial
executions or unlawful killings.
The USTR report in 2002, stated that Cameroon was determined
eligible for AGOA based on assurances from the government that it would
undertake an investigation of human rights abuses and punish those
responsible. In 2003 Cameroon is still eligible although the same human
rights concerns remain a factor. This is not mentioned in USTR 2003
report. In AI's 2003 report on Cameroon, we found that,
Security forces continued to ill-treat criminal suspects,
political activists and members of ethnic minorities in police
stations. At least one person died in custody, allegedly as a
result of torture by the gendarmerie.
Members of the Southern Cameroons National Council (SCNC)
were arrested and detained without trial for weeks. Human
rights defenders and independent journalists were harassed and
intimidated by the security forces and, on occasion, detained
without charge for weeks.
Eighteen detainees sentenced in 1999 to long prison terms
after an unfair trial remained in prison; some of them were
suffering serious health problems.
The 2002 US State Department Human Rights Report for Cameroon also
noted that:
The Government's human rights record remained poor, and it
continued to commit numerous serious abuses.
Security forces committed numerous unlawful killings and
were responsible for disappearances. They also tortured, beat,
and otherwise abused detainees and prisoners, generally with
impunity.
Prison conditions remained harsh and life threatening.
Security forces continued to arrest and detain arbitrarily
various opposition politicians, local human rights monitors,
and other citizens, often holding them for prolonged periods,
often without charges or a chance for trial arid, at times,
incommunicado.
The judiciary remained corrupt, inefficient, and subject to
political influence. The Government infringed on citizens'
privacy, and monitored and harassed some opposition activists.
B. The Commission of gross human rights violations
Amnesty International finds USTR's decision to limit to the scope
of it human rights assessments disappointing and disturbing. It in
effect limits attention and possible action by the United States to
situations that have already deteriorated to near crisis conditions
where the options for intervention are limited and usually costly.
Amnesty International believes that the situations where gross human
rights abuses are committed are preceded by periods of worsening
violations and growing impunity. Violations that impact the lives of
the civilians of the country involved and which can be challenged and
stopped at that point more easily then at a later date. The most
powerful example of this remains the 1994 genocide in Rwanda where
reports of abuses by the security forces and smaller scale massacres
were ignored by the international community right up to and through the
genocide, resulting in the loss nearly a million lives. We would
strongly urge that AGOA's commitment to protect human rights be more
comprehensive in its focus and in it coverage. A review of some of the
countries currently eligible and covered in the country entries will
underscore the need to report on and evaluate all civil and political
rights.
For example, in AI's 2003 report on Eritrea, states that dozens of
prisoners of conscience arrested in September and October 2001 remained
in secret detention at the end of 2002 without charge or trial. They
included former members of the government who were calling for
democratic reforms, and journalists. During 2002 there were many
further arrests of government critics and people refusing compulsory
military service. Torture and sexual abuse of army protesters were
reported. Hundreds of political detainees detained in previous years
remained held in secret without charge or trial. In addition, hundreds
of prisoners were serving long prison terms imposed after unfair trials
by the Special Court or were detained pending trial by this exceptional
court. Some cases were believed to have political elements. The Special
Court, set up in 1996 to try corruption offences, denies the right to
legal representation or appeal and has military judges with little or
no legal training.
The situation in Rwanda is also disturbing. AI stated the following
in its 2003 report on Rwanda:
``Disappearances'', arbitrary arrests, unlawful detentions
and torture and ill treatment of detainees were reported.
There were approximately 112,000 individuals in detention at
the end of 2002; around 100,000 were suspected of participation
in the 1994 genocide. Many had been held for prolonged periods
without charge or trial, in conditions amounting to cruel,
inhuman or degrading treatment.
In eastern Democratic Republic of the Congo (DRC), Rwandese
military and allied forces were responsible for the deaths of
civilians; torture, including rape; ``disappearances''; and the
systematic harassment of human rights defenders. Many
perpetrators of human rights violations, particularly state
security agents, both within Rwanda and in the eastern DRC,
continued to benefit from impunity.
Grave human rights violations committed by state security
agents were largely ignored.
Several people were detained for their alleged connections
with political opposition figures.
There are ongoing concerns about Ethiopia, which has continuing
domestic human rights violations that could have been addressed. AI
noted the following in its 2003 report:
Many human rights violations including torture, rape and
extrajudicial execution were reported, particularly in conflict
zones in the Oromia and Somali regions.
Prison conditions were harsh and many prisoners were held
incommunicado or were feared to have ``disappeared''.
To further illustrate the point the various violations taking place
in Ethiopia, the 2002 DOS Human Rights report entry for Ethiopia states
the following:
Security forces committed a number of unlawful killings and
at times beat and mistreated detainees. Prison conditions
remained poor.
The Government continued to arrest and detain persons
arbitrarily, particularly those suspected of sympathizing with
or being members of the OLF.
Thousands of suspects remained in detention without charge,
and lengthy pretrial detention continued to be a problem.
During the year, neither the Human Rights Commission (HRC)
nor the Office of the Ombudsman was operational.
Unfortunately, it seems that various countries continue to commit
numerous abuses, including extra-judicial killings, disappearances,
torture and other crimes against humanity. Though AI's 2001 AGOA
testimony highlighted the grave human rights abuses occurring in these
countries, commitments made seem not to have been acted upon and little
evidence suggests that there has been implementation or adherence to
human rights reforms.
III. CONCLUSIONS
Mr. Chairman, as I stated at the beginning of my text, AIUSA is not
here to say which countries should be eligible and which should not. We
are here to offer constructive criticism on how human rights should be
used as criteria and to share our perspective on the human rights
situation in a few of the countries in question.
We hope that we have been able to successfully paint an accurate
picture of the countries and issues involved, so that the reform that
AGOA will hopefully stimulate will be meaningful and have a genuinely
positive impact on the lives of the people in those countries.
Our review presented here was not meant to be comprehensive as
there are other documents, some cited here, that already do that. This
review is meant to show that the next USTR report can and should be
strengthened or else AGOA's provisions might undermine AGOA goals of
promoting human rights along with economic development. Input and
consultation with non-governmental organizations both here in the
United states and in Africa will strengthen this area of the bill and
will also actualize the called for human rights reforms. We sincerely
look forward to working with you on the subcommittee, with other human
rights, labor and democracy colleagues and USTR towards this goal.
Thank you.
----------
Responses to Additional Questions for the Record
Responses of Florizelle B. Liser, Assistant United States Trade
Representative for Africa, to Additional Questions for the Record
Submitted by Senator Russell D. Feingold
Question 1. Please describe for me the process for reviewing the
AGOA eligibility list. I understand from the 2003 Annual Report to
Congress on AGOA implementation that USTR chairs a Trade Policy Staff
Committee to examine eligibility issues annually. I presume that when
human rights criteria come up for discussion, the USTR defers to the
State Department's assessment of whether or not a given country has met
the standard laid out in the legislation. Is that accurate, or is USTR
being asked to opine on such matters? Is a representative from the
Bureau of Democracy, Human Rights, and Labor at the table during these
discussions?
Answer. The State Department is an active member of the Trade
Policy Staff Committee (TPSC). As the TPSC undertakes the annual AGOA
eligibility review, every effort is made to ensure that all AGOA
eligibility criteria are assessed for each country, including those
related to internationally-recognized worker rights, human rights, and
elimination of the worst forms of child labor. First, agencies such as
Labor, USAID, Commerce, Agriculture and State--including the Bureau of
Democracy, Human Rights, and Labor--provide reports to the TPSC on the
economic, social, and political climates of different African
countries. Moreover, these reports describe how each country views and
handles human rights. Each TPSC agency assesses which countries are
making continued progress in meeting AGOA's human rights and labor
criteria. The TPSC also publishes a Federal Register notice in order to
solicit comments from the public at large on countries' potential
eligibility. Human rights represents one of the principle factors the
Trade Policy Staff Committee members consider in the AGOA eligibility
process.
Question 2. Eighty-seven percent of AGOA imports originate in three
countries--Nigeria, South Africa, and Gabon. What will it take to make
AGOA more meaningful for a larger group of sub-Saharan states?
Answer. AGOA's support of free markets and trade has proven to
simulate economic growth, help sub-Saharan Africa integrate into the
global economy, and encourage a solid U.S.-Africa trade relationship.
In evaluating AGOA's impact on countries benefitting from its
provisions, a clear distinction needs to be made between countries who
export petroleum under AGOA and those who do not. Three-quarters of
AGOA imports were petroleum products from countries such as Nigeria and
Gabon. AGOA exports excluding petroleum show that the benefits are more
widely distributed.
We would like to expand AGOA benefits across more countries and
sectors. Although many African countries have access to the U.S.
market, some of them possess a limited number of export commodities or
cannot effectively supply their products to the U.S. Making AGOA more
meaningful for a larger group of sub-Saharan states will require us to
address their supply-side constraints. The following are some
challenges and possible steps that could be taken by the United States
government.
The U.S. should work with African governments to provide
trade capacity building and technical assistance that
alleviates these serious supply-side constraints and overcomes
the impediments to freer trade. This will require
implementation of an industry/manufacturing strategy that
focuses on the diversification of each country's export base
beyond oil, raw commodities, and apparel.
We recognize that many of these countries have also
identified a comparative advantage in agriculture, but these
countries have found U.S. agricultural domestic support and
sanitary and phytosanitary (SPS) regulations as restrictions
limiting AGOA trade in agriculture. The U.S. should continue to
actively assist African countries in their efforts to meet U.S.
SPS requirements.
Some AGOA countries also encounter difficulties in creating
competitive industries and investor-friendly commercial
environments. As the leading source of foreign direct
investment in Africa, the United States should further mitigate
this problem through enhancing support for U.S.-African
business partnerships and investment in key sectors in all AGOA
countries.
Promoting small business is another major challenge given
the important role of small business in economic growth and
development. The United States should endeavor to aid in
additional technical assistance programs that effectively bring
together small U.S. and African businesses.
Trade financing and access to credit also present a serious
challenge to AGOA implementation and trade development. In
addition to the U.S. financing provided by OPIC, EX-IM Bank and
TDA, African countries are setting-up well-managed trade
development and financing funds. The U.S. government should
ensure that these countries continue to foster fruitful
financing relationships between itself and African businesses,
as well as with African finance and credit institutions.
The development of a viable textiles and apparel industry has
traditionally been a ``gateway'' for industrialization and economic
development. Although this sector has begun to prosper as a result of
AGOA, further development of a sub-Saharan African textiles/apparel
industry faces two major challenges in the near future.
First, the expiration of AGOA's third country fabric
provisions in September 2004 is causing some serious concern.
AGOA currently provides Lesser Developed beneficiary countries
with duty-free access for apparel made from third-country
fabric. USTR is trying to evaluate this issue and review the
possible effects of a short-term extension of AGOA's third
country fabric benefits. USTR looks forward to working with
Congress to examine ways that an extension could support
current operations, while maintaining the incentive to develop
fabric and yarn industries in Africa.
Second, AGOA is preparing for the post-2005 phase-out of the
country quotas under the WTO Agreement on Textiles and
clothing. The elimination of quotas is widely expected to lead
to greater competition and significant changes in the scope and
nature of global textile and apparel trade. USTR will make
every effort to address the challenges presented by textile and
apparel trade in the post 2005 environment through a series of
consultations with Congress, the private sector and African
governments.
The U.S. government can help African countries to maximize AGOA,
accelerate the diversification process, and provide solutions to all of
the preceding concerns through trade capacity building initiatives.
AGOA III can provide an opportunity to ensure greater success for more
sub-Saharan countries by providing easier access to the U.S. market and
effectively addressing the challenges hindering African nations from
fully participating in the global trading system.
______
Responses of Hon. Walter Kansteiner, Assistant Secretary of State for
African Affairs, to Additional Questions for the Record Submitted by
Senator Russell D. Feingold
Question 1. Please describe for me the process for reviewing the
AGOA eligibility list. I understand from the 2003 Annual Report to
Congress on AGOA implementation that USTR chairs a Trade Policy Staff
Committee to examine eligibility issues annually. I presume that when
human rights criteria come up for discussion, the USTR defers to the
State Department's assessment of whether or not a given country has met
the standard laid out in the legislation. Is that accurate, or is USTR
being asked to opine on such matters? Is a representative from the
Bureau of Democracy, Human Rights, and Labor at the table during these
discussions?
Answer. USTR chairs the TPSC meeting to discuss AGOA eligibility
for the following calendar year in the fall, at which participating
agencies (including State, USTR, Commerce, Treasury, Labor,
Agriculture, USAID, and NSC) consider the AGOA eligibility criteria for
each country, including those related to internationally-recognized
worker rights, human rights, and elimination of the worst forms of
child labor. Participating agencies provide reports to the TPSC on the
economic, social, and political climates of different African
countries, including human and labor rights, drawing on their own
sources and reporting from our Embassies in Africa. Each agency makes
its own assessment of which countries are making continued progress in
meeting AGOA's human rights and labor criteria.
The Bureau of Democracy, Human Rights, and Labor (DRL) works with
the Bureau of African Affairs (AF) and the Bureau of Economic and
Business Affairs (EB) in drafting the State Department's report on AGOA
eligibility and in determining State's position. Normally EB represents
State at TPSC meetings, but AF and DRL join EB in participating in TPSC
meetings on AGOA eligibility.
Question 2. AGOA allows for extending trade benefits to countries
that may not have achieved all of the eligibility criteria laid out in
the legislation, but are making continual progress toward that end. Do
the annual country eligibility reviews identify in any way what sort of
specific actions or benchmarks would constitute ``making continual
progress toward establishing'' the rule of law and political pluralism,
so that participating countries have a sense of what the review
committee will be looking for the next time, and so that our diplomats
in the field can be more effective advocates for reform? Can you
identify some specific policy objectives identified in the 2002 review
that were revisited during the 2003 evaluation?
What about the case of Eritrea? Please explain what issues relating
to the rule of law, political pluralism and the right to due process
were identified in the 2002 review. Was any progress on these issues
identified when the 2003 review occurred? If not, why didn't the
administration revoke Eritrea's AGOA eligibility?
Answer. Following the annual review process, we inform all
countries found ineligible of our main concerns. In addition, we inform
some countries that, although we are recommending that they remain
eligible, we have areas of concern, and we describe those concerns. We
maintain an ongoing dialogue with several African countries concerning
specific areas of concern. In many instances, we have seen improvement
as a result of our engagement.
The fall 2001 review for Eritrea raised serious questions about
then-recent negative developments in rule of law, political pluralism,
and due process. In January 2002, Secretary Powell sent a letter to
Eritrea noting our concerns regarding the incarceration without charge
of political dissidents and journalists, the closure of the independent
press, failure to implement the Constitution ratified in 1997, the
postponement of parliamentary elections scheduled for December 2001,
and the arrest without charge of two Foreign Service National employees
of the U.S. Embassy in Asmara. Since these developments had only
recently taken place, we encouraged Eritrea to take steps to resolve
our concerns and preserve its eligibility under AGOA before the next
annual review.
In the fall of 2002 the situation remained largely unchanged. The
TPSC review noted additional negative developments concerning freedom
of religion. There were significant concerns however within the TPSC
about the possible negative impact on trade and investment in AGOA
countries of removing a country from AGOA without some sort of public
advance warning. These concerns related to the broader AGOA program
rather than to trade and investment with Eritrea, which are negligible.
For that reason, we outlined our specific concerns about economic
openness, sound economic management, good governance, and human rights
in a letter from Secretary Powell that was presented to Eritrea in
January 2003. The letter informed the Eritrean government that we would
hold an extraordinary midterm review of its eligibility in 2003. The
letter further stated that if significant progress were not
demonstrated in the areas outlined, we would make a determination of
Eritrea's continued eligibility to receive trade benefits under AGOA at
the mid-term review. Ineligibility would become effective January 1,
2004. (The Act does not allow benefits to be lifted in the middle of
the year.) We are now conducting that review process and a decision
will be made and announced soon.
Question 3. What would it take for a country to fail to meet the
requirement in AGOA relating to combating corruption? Is it sufficient
to have passed anti-corruption legislation into law even if that
legislation is never enforced? Please explain the judgments made
relating to the eligibility of Nigeria and Gabon in this context.
Answer. We look at each country individually when determining AGOA
eligibility. Corruption is one of the areas we consider in the overall
context of the AGOA eligibility criteria. The passage and enforcement
of anti-corruption legislation certainly are considered, as are other
factors such as governmental leadership, investigations, and
prosecutions. Lack of progress in combating corruption is a key factor
in the decision not to grant AGOA eligibility to some of the currently
ineligible countries.
Nigeria and Gabon do have serious corruption problems, as we
acknowledged in the 2003 report to Congress on AGOA implementation. We
considered ongoing problems and progress made combating corruption in
those two countries--admittedly limited progress--as part of the
overall AGOA review. We believe that retaining Nigeria and Gabon in
AGOA will allow us to better influence them on issues related to
corruption.
Question 4. In your judgment, are any sub-Saharan countries failing
to meet the labor standards laid out in ILO Convention 182 on the Worst
Forms of Child Labor? Would such a failure be grounds for losing
eligibility? Obviously child trafficking and forced child labor on West
African cocoa plantations comes up periodically in the news. Has the
potential effect of this issue on AGOA eligibility been discussed with
West African governments?
Answer. Child labor is an issue we consider very seriously in the
context of AGOA eligibility, including the standards set by ILO 182. We
have discussed child trafficking and child labor with West African
governments in the context of AGOA review, and have ongoing programs
concerning child trafficking and child labor in several sub-Saharan
African countries. In the context of regional organizations such as
ECOWAS as well as bilaterally, the USG works to facilitate the return
of freed victims as well as solve the underlying causes of this
problem, which are complex.