[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


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                     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\
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    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.

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