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S. HRG. 108–187

THE AFRICAN GROWTH AND OPPORTUNITY ACT

HEARING

BEFORE THE

COMMITTEE ON FOREIGN RELATIONS

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JUNE 25, 2003

Printed for the use of the Committee on Foreign Relations

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/senate

COMMITTEE ON FOREIGN RELATIONS

RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska

LINCOLN CHAFEE, Rhode Island

GEORGE ALLEN, Virginia

SAM BROWNBACK, Kansas

MICHAEL B. ENZI, Wyoming

GEORGE V. VOINOVICH, Ohio

LAMAR ALEXANDER, Tennessee

NORM COLEMAN, Minnesota

JOHN E. SUNUNU, New Hampshire

JOSEPH R. BIDEN, JR., Delaware

PAUL S. SARBANES, Maryland

CHRISTOPHER J. DODD, Connecticut

JOHN F. KERRY, Massachusetts

RUSSELL D. FEINGOLD, Wisconsin

BARBARA BOXER, California

BILL NELSON, Florida

JOHN D. ROCKEFELLER IV, West Virginia

JON S. CORZINE, New Jersey

KENNETH A. MYERS, JR., Staff Director

ANTONY J. BLINKEN, Democratic Staff Director

(II)

CONTENTS

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)

(1)

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 marketbased 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 develVerDate 11-MAY-2000 16:59 Nov 24, 2003 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 90449 SFORELA1 PsN: SFORELA1
2

opment 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

3

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

4

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 opportuVerDate 11-MAY-2000 16:59 Nov 24, 2003 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 90449 SFORELA1 PsN: SFORELA1
5

nities, 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.

6

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

7

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 capacitybuilding 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:]

8

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 enterVerDate 11-MAY-2000 16:59 Nov 24, 2003 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6621 90449 SFORELA1 PsN: SFORELA1
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prises, 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 dutyand 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.

10

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 dutyfree 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 realVerDate 11-MAY-2000 16:59 Nov 24, 2003 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 90449 SFORELA1 PsN: SFORELA1
11

izing 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

12

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.

13

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 includ- ing 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 ex- ports. 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

14

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

15

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.

16

1See page 50.

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 21⁄2 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

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

17

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

18

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 comprehenVerDate 11-MAY-2000 16:59 Nov 24, 2003 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 90449 SFORELA1 PsN: SFORELA1
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sive 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-andsuch 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

20

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 exVerDate 11-MAY-2000 16:59 Nov 24, 2003 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 90449 SFORELA1 PsN: SFORELA1
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plain 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-bycountry basis. We have gone in and had seminars where we bring

22

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.

23

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

24

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

25

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 mediumsized 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 mediumsized 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

26

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.

27

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

28

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.

29

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.

30

2The report can be found on the Institute for International Economics’ Website at:

www.iie.com/research/africa-mideast.htm

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 highlevel 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

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

31

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 imVerDate 11-MAY-2000 16:59 Nov 24, 2003 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 90449 SFORELA1 PsN: SFORELA1
32

prove 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

33

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

34

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

35

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.

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 SubSaharan 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.

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

36

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

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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

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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 laborintensive manufacturing and assembly projects of the kind that would be most beneficial to Africa. Under existing statute, OPIC is also forbidden from supporting ‘‘run- away 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 secVerDate 11-MAY-2000 16:59 Nov 24, 2003 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6621 90449 SFORELA1 PsN: SFORELA1
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tor 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 imVerDate 11-MAY-2000 16:59 Nov 24, 2003 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6621 90449 SFORELA1 PsN: SFORELA1
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plementation 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

41

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

42

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 antitrade. 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 legislaVerDate 11-MAY-2000 16:59 Nov 24, 2003 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6621 90449 SFORELA1 PsN: SFORELA1
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tion 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 internationallyrecognized 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 mutuallybeneficial 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.

44

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 USAfrica 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

45

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.

46

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 USAfrica 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 goround 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

47

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.

48

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.

49

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.

50

1This testimony would not have been possible without the help of Krista Riddley and

Amartey-Nuno-Amarteiflo.

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

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 wellmeaning 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.

51

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

52

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.

53

• 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:

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• 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.

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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. Threequarters 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 wellmanaged 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 thirdcountry 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

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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 SEN- ATOR 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 internationallyrecognized 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

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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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