African Growth and Opportunity Act: Insights from Other Countries' Preference Programs and Participation in Trade Negotiations
Published: 2015-08-05T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: AGOA was signed into law in 2000 to offer SSA countries trade preferences that stimulate export-led economic growth and facilitate their integration into the global economy. This legislation was recently reauthorized, and the accompanying Senate report stated that the United States should seek all opportunities to deepen and expand its ties with SSA countries through accession by SSA countries to the WTO and negotiation of bilateral trade agreements. GAO was asked to identify lessons learned from other countries' trade preference programs and SSA countries' recent trade negotiation experiences.
This report (1) compares AGOA with selected countries' trade preference programs in terms of key characteristics and performance, and (2) examines AGOA countries' participation in trade negotiations. GAO reviewed and analyzed documents and data, including information from the WTO to determine what portion of the imports from AGOA countries to major trade partners could enter under preference programs. GAO also interviewed officials from U.S. government agencies, African and other foreign governments, and international organizations. GAO selected countries and regions for comparison that are major export markets for sub-Saharan Africa, including the EU, China, India, and Japan.
section_title: What GAO Found
paragraphs: The United States' African Growth and Opportunity Act (AGOA) has differences from and similarities to 26 trade preference programs offered by other developed and developing countries in three key areas that can affect program performance in increasing and diversifying trade.
Country eligibility. AGOA is unique in that it focuses eligibility on sub-Saharan African (SSA) countries. Most other countries' trade preference programs do not restrict eligibility to SSA countries.
Product coverage. AGOA and some other countries' trade preference programs provide fairly comprehensive coverage of products, but exclude some agricultural and other products that are important SSA exports.
Rules of origin. Like other countries' trade preference programs, AGOA has rules of origin that determine which products qualify for coverage. Some countries, including the United States have recently made their rules of origin less restrictive, to make it easier for beneficiary countries to take greater advantage of these programs.
In 2014, the United States International Trade Commission reviewed studies comparing the performance of trade preference programs and found that the European Union's (EU) preference programs have had overall greater success in increasing trade with Africa and that AGOA had more success in increasing diversification in the range of products exported from Africa. Research on China's and India's trade preference programs suggests that their fairly new programs could have significant impacts on SSA trade and that they are among the biggest and fastest growing markets for sub-Saharan exports.
As the United States continues to pursue expanded trade and a more two-way trade relationship with African partners at the World Trade Organization (WTO) and elsewhere; SSA countries' recent participation in bilateral and multilateral trade negotiations provides insights that can inform future U.S. negotiations. For example, years of bilateral negotiations between SSA countries and the EU have recently resulted in Economic Partnership Agreements with 32 SSA countries. Trade experts and SSA and EU officials GAO spoke with provided information about these negotiations that indicates that transitioning from non-reciprocal trade preference programs, such as AGOA, to two-way trade agreements like the Economic Partnership Agreements with SSA countries may require:
many years to finalize and implement,
the establishment of timeframes to end access to trade preference programs,
a willingness to consider limiting the initial scope of the agreements, and
an acknowledgment that aspects of the agreements may have tradeoffs and could constrain SSA countries' ability to integrate into the global economy.
The involvement of SSA countries in recent multilateral negotiations at the WTO also yields important insights for U.S. agencies when negotiating with these countries. SSA and WTO officials told GAO that several Impediments, such as inadequate funding and staffing, can hamper SSA countries' ability to participate fully in multilateral negotiations. However, recent bilateral and multinational funded training and other efforts have helped expand SSA country participation at the WTO.
section_title: What GAO Recommends
paragraphs: GAO is not making any recommendations in this report. Agencies' technical comments on GAO's draft were incorporated into this report.

section_title: Letter
paragraphs: The African Growth and Opportunity Act (AGOA) was signed into law in  2000 to help promote free markets in sub-Saharan African (SSA)  countries, stimulate economic development through export-led growth,  and facilitate SSA countries’ integration into the global economy. AGOA  is a trade preference program that seeks to promote these goals by  offering eligible SSA countries the ability to export qualifying goods to the  United States without import duties. As of January 1, 2015, 39 countries  were eligible for AGOA benefits (AGOA countries). Congress recently  extended the authorities enacted in AGOA until September 30, 2025.
Both AGOA and the reauthorization legislation emphasize that it is U.S.  policy to seek to deepen and expand trade and investment ties between  sub-Saharan Africa and the United States through the negotiation of free  trade agreements, among other things. Such agreements have the  potential to catalyze greater trade and investment, facilitate additional  investment in sub-Saharan Africa, further poverty reduction efforts, and  promote economic growth.
We were asked to examine a range of issues relating to AGOA’s  effectiveness in promoting trade expansion and economic development,  and factors that affect SSA trade with the United States and other  countries. We previously addressed several of these issues, such as  trade-offs associated with changing AGOA according to proposals by the   In this report, we examine (1) how selected  President, in recent reports.countries’ trade preference programs compare with AGOA in terms of key  characteristics and performance, and (2) AGOA countries’ participation in  trade negotiations.
To address these objectives, we identified and reviewed documents,  data, and literature on AGOA and other countries’ trade preference  programs, trade agreements with AGOA countries, and SSA countries’  participation in multilateral trade negotiations. In addition, we interviewed  officials from the Departments of Agriculture, Commerce, State, and the  Treasury; the Office of the U.S. Trade Representative (USTR); the U.S.  International Trade Commission (USITC); and the U.S. Agency for  International Development (USAID). We conducted fieldwork in Geneva,  Switzerland, and Brussels, Belgium. We selected those locations for  fieldwork based on our ability to interview multiple U.S. and African  government officials, government officials from countries with trade  preference programs, and representatives from think tanks and  multilateral organizations with pertinent expertise. We selected countries  and regions for comparison that are major export markets for sub- Saharan Africa including the European Union (EU), China, and India. We  identified three key characteristics for comparison on the basis of studies  of preference programs that generally show that these characteristics can  affect program performance in increasing and diversifying trade and  increasing program utilization. However, we did not independently assess  the other countries’ trade preference programs and agreements with SSA  countries. The information on those programs and agreements is based  on interviews and World Trade Organization (WTO) and other official  sources, including a 2014 USITC study of AGOA that includes a  comprehensive review of economic literature on trade preference  program performance. Insights discussed herein reflect our analysis of  the views of those we interviewed as well as those of selected academic  literature. See appendix I for a more detailed discussion of our scope and  methodology.
We conducted this performance audit from June 2014 to August 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Trade Preference Programs
paragraphs: Trade preference programs were instituted by several advanced  economies in the 1970s as temporary measures to help developing  countries pursue economic growth and development by increasing  exports and diversifying their economies. Trade preferences, which  reduce tariffs, or duties, for many products from eligible countries, are  “nonreciprocal”—i.e., granted unilaterally, without requiring reciprocal  liberalization for U.S. goods for countries receiving them. In 1968, the  United States supported a United Nations (UN) resolution to establish a  mutually acceptable system of preferences. To permit the implementation  of the generalized preferences, in June 1971, developed countries,  including the United States, were granted a 10-year waiver from their  obligations under the global trading system, now embodied in the WTO,  to trade on a most favored nation (MFN) basis. Following the granting of  this waiver, developed countries created Generalized System of  Preferences (GSP) programs, and Congress enacted the U.S. GSP  program in January 1975. At the 1979 conclusion of the Tokyo Round of  Multilateral Trade Negotiations, an agreement with no expiration date  (known as the Enabling Clause) replaced the waiver. As they developed  economically, beneficiary countries were to eventually move on from  unilateral preferences and participate more fully in the global trade  system, including by undertaking reciprocal trade commitments to  liberalize their own markets. Under U.S. law, the AGOA program is linked  to the GSP program in several important ways. For example, some of the  authorities and limitations on what products can be included in the  program are based on or relate to GSP, and country eligibility for AGOA  involves first being eligible for GSP. But at the WTO, because the  Enabling Clause applies to preference regimes that are “generalized,  non-reciprocal, and non-discriminatory,” a separate U.S. waiver was  sought for AGOA, as well as other regional preference programs.
Despite relatively rapid economic growth in developing countries,  developed countries have reformed and extended their programs and the  number of preference programs has grown. The WTO’s 2014 World  Trade Report shows that, over the 2000-2012 period, developing  countries grew faster than developed countries, and now account for  nearly half of world exports. Since 2010, Japan, the EU, and Canada  have reformed and extended most of their preference programs.  Congress recently passed legislation to extend AGOA and other U.S.  preference programs by 10 years. Developed countries had already  added more generous preferences for least developed countries (LDC) to  their GSP programs by the mid-2000s, and some key developing  countries have since introduced new trade preferences targeted at LDCs,  including some in sub-Saharan Africa. For example, both China and India  have established LDC programs in the last decade. These programs are  part of broader strategies to strengthen commercial ties, according to  Chinese government and international organization documents.
According to the WTO, there are now a total of 27 preferential trade  programs. They can be categorized into three types:
GSP programs, which were put in place by developed countries to  help all developing countries. Developed countries’ GSP programs  also include subprograms, GSP-LDC, that offer least developed  countries more generous preferences than the other GSP  beneficiaries.
LDC-specific programs (LDC programs), which were put in place by  developing countries to help least-developed countries.
Other preferential trade arrangements, which are offered by  developed countries and focus on a particular country or subset of  developing countries within a particular region.
Seventeen countries or groups of countries, such as the EU and the  Russian Federation, have GSP or LDC programs not restricted to a  region.provider, and date of initial entry into force.
section_title: Factors That Can Affect Trade Preference Program Performance
paragraphs: Various factors can affect the performance of a trade preference program.  These factors can be either (1) internal to the program, being key  characteristics of the program itself, or (2) external to the program, being  specific to the country or region in which the program is operating.
subsections: section_title: Trade Preference Program- Specific Characteristics
paragraphs: Key program characteristics that can affect trade preference programs’  performance include the following:  country eligibility, or the ability of a country to qualify for participation  in the program; product coverage, which delineates products that may receive tariff  rules of origin, which ensure that benefits of a preference program  accrue to intended recipients by specifying a proportion of an  imported product’s value that must be produced in the preference  beneficiary country.
The nature of these characteristics directly conditions whether developing  country exporters can utilize trade preference program benefits.
section_title: Country-Specific Factors
paragraphs: Trade experts also note that there are a range of factors external to trade  preference programs and intrinsic to each recipient country that can also  affect trade preference program performance. These include  infrastructure—whether the country has adequate transportation,  communication, and energy networks available to producers and  exporters; governance, or the legal, regulatory and policy environment conducive  to promoting market activity and international trade;  regional integration—a country’s ability to engage in commerce and  production with neighboring countries to facilitate supply chains and  movement of goods to market; and access to finance to support investment and production.
Success in improving on these development-related factors within  preference beneficiary countries can make them more ready to meet the  challenges and access the benefits of global integration. U.S. agencies  provided over $5 billion in the 2001-2013 period to bolster AGOA  countries’ capacity to engage in and benefit from trade.
Other factors are also important drivers of trade between particular  partners. Notably, trade experts have stated that factors such as the  relative size of each country’s economy, respective rates of economic  growth, geographic proximity, and cultural and historic ties between  countries affect trade levels and are—in some cases—at least as  important as program characteristics.
section_title: Major Export Markets for AGOA Countries
paragraphs: The United States is one of the major markets for AGOA countries’  exports, but its rank among SSA’s export markets has declined as those  of China and India have risen. Figure 1 shows the total amount of exports  from AGOA countries to their major trading partners from 2010 to 2014.  While the total dollar value of exports to many of the AGOA countries’  major trading partners decreased in 2013, in part because of falling  commodity prices, the EU remained by far the largest market for AGOA  country exports. AGOA country exports to the United States fell  significantly after 2011 while AGOA country exports to China and India  grew. As a result, by 2014, both China and India outranked the United  States as AGOA country export markets. Other major export markets for  AGOA countries include Brazil, Japan, South Korea, Australia, and  Canada.
section_title: AGOA Has Differences from and Similarities to Other Countries’ Trade Preference Programs and Differences Have Affected Program Performance
paragraphs: AGOA has several notable differences from and similarities to other  countries’ nonreciprocal trade preference programs, including programs  in Canada, China, the EU, and India. (See app. II for a comparison of key  characteristics of selected trade preference programs by country.)  Available studies of AGOA and the EU’s preference programs suggest  that these differences have affected program performance in terms of  creating new trade flows (trade creation), increasing the range of products  that are traded (diversification), and program utilization.
subsections: section_title: Country Eligibility for AGOA Differs from That of Others’ Programs in Its Focus on Sub-Saharan Africa, Its Income Eligibility Thresholds, and Other Requirements for Participation
paragraphs: AGOA’s country eligibility requirements are unique among those of other  countries’ preference programs, in terms of geographic focus, income  eligibility thresholds, and other policy and procedural requirements.  Therefore, some countries that are eligible for AGOA are not eligible for  other developed countries’ programs, whereas some countries deemed  ineligible for AGOA receive preferences in China and India. (App. III  shows the eligibility of SSA countries for selected trade preference  programs by country.)
subsections: section_title: Geographic Focus
paragraphs: Unlike most trade preference programs offered by other countries, AGOA  restricts eligibility for participation to SSA countries. Of the 27 preferential  trade arrangements in existence, 10 are specific to a region or country.  The remaining 17 trade preference programs are not restricted to a  region. Of the 10 regionally focused programs, only 2, AGOA and  Morocco’s duty-free treatment for African LDCs, are specific to sub- Saharan Africa; the other 8 provide preferential benefits to other regions   Table 2 compares the total number of countries and total  or countries.number of SSA countries eligible for AGOA and selected GSP-LDC and  LDC trade preference programs. The United States’ AGOA, followed by  the GSP-LDC program in several developed countries, serve the most  SSA countries.
The income threshold for a country to be eligible for AGOA is less  restrictive than the threshold for other developed countries’ trade  preference programs based on income classifications determined by the  World Bank and the United Nations. Countries may be eligible for AGOA  (or the U.S. GSP) unless they are classified by the World Bank as high- income countries. In addition, to determine whether to designate an  eligible country as a beneficiary country, the President also considers the  economic development, per capita gross national product, living  standards, and other economic factors deemed appropriate. AGOA  coverage ranges from the poorest countries to those that are more  economically advanced and is not limited to only LDCs.
Some developed countries, such as those in the EU and Canada, base  eligibility for their GSP programs on more restrictive income thresholds  than AGOA. Previously, both the EU and Canada considered countries  classified as “upper-middle-income” by the World Bank as eligible for their  programs. However, after revising the programs, both the EU and  Canada began to graduate from their programs upper-middle-income  countries classified as such for at least 3 years for the EU and 2 years for  Canada. For example, Gabon, Mauritius, and South Africa are eligible  for benefits under AGOA but are no longer eligible for benefits or have  graduated under the EU and Canadian GSP programs.
All of the developing countries’ programs also have more restrictive  income eligibility thresholds than AGOA, as they focus exclusively on  LDCs. Notably, China and India, two of Africa’s most rapidly growing  export markets in Asia, have both put in place preference programs for  LDCs, with many African nations among the beneficiaries. the WTO, India was the first developing country to offer a preference  scheme for LDCs. China’s preference scheme entered into force in July  2010 and is open to 40 LDCs, of which 30 are SSA countries.
section_title: Procedural and Policy Requirements
paragraphs: The UN classifies a total of 48 countries as LDCs; 34 of these 48 countries are in Africa. prohibition on the use of any form of forced or compulsory labor, a  minimum age for the employment of children, and acceptable  conditions of work with respect to minimum wages, hours of work, and  occupational safety and health.
Economic policies to reduce poverty, increase the availability of health  care and educational opportunities, expand physical infrastructure,  promote the development of private enterprise, and encourage the  formation of capital markets through micro-credit or other programs.
Several countries, including the Central African Republic, Eritrea, and  South Sudan, have lost eligibility to participate in AGOA as a result of this  annual review. For more information, see our recently issued report  assessing the AGOA eligibility determination process.
Because the programs of other countries, such as China and India, have  procedural and policy requirements that differ from those of AGOA,some countries that are ineligible for AGOA are eligible under India’s and  China’s preference programs. For example:
Eritrea, the Gambia, Somalia, and Sudan are eligible for India’s  preferences, but currently ineligible for AGOA. Eritrea and the Gambia  lost AGOA eligibility because of human rights abuses in 2004 and  2015, respectively. Somalia and Sudan have not been eligible for  AGOA and, according to U.S. agency officials, have not expressed an  interest in the program. A recent analysis of pre-versus-post-program  trends in India’s trade indicates that these partners’ exports to India  grew faster than global exports in certain preference products (such  as leather hides and skins for Eritrea and Somalia).
Central African Republic, Democratic Republic of the Congo (DRC),  Eritrea, and Sudan are eligible for China’s preference program, but  are currently ineligible for AGOA. Central African Republic lost AGOA  eligibility in 2004 following a coup, and the DRC lost AGOA eligibility  in 2011 because of human rights concerns. UN data indicate that  China’s trade with these partners ranged from $29.3 million for  Central African Republic to $2.8 billion for the DRC and $5.9 billion for  Sudan (North and South) in 2014.
section_title: AGOA and Other Countries’ Programs Offer Fairly Comprehensive Duty-Free Coverage of Products, But Exclude Some Important SSA Exports
paragraphs: The United States, Canada, the EU, and Japan’s preference programs  provide comprehensive duty-free coverage for almost all products that  enter their country or region from eligible LDC beneficiaries, including  most SSA countries. However, for SSA countries that are not considered  LDCs, product coverage is less comprehensive. Key developing  countries, notably China and India, have taken steps to offer more  comprehensive product coverage under their preference schemes than  before. However, the United States, the EU, Japan, and others continue  to exclude products considered important to SSA countries, such as  certain agricultural goods as well as some textiles and apparel.
subsections: section_title: Comprehensive Coverage
paragraphs: WTO and our analysis indicates that AGOA countries have  comprehensive preferential access under existing preference schemes,  and that AGOA’s coverage compares favorably with that of developed  and developing country schemes. Developed country preference  programs, including AGOA, the EU’s EBA, Canada’s GSP-LDC, and  Japan’s GSP-LDC, provide duty-free coverage of more than 97 percent of  tariff lines (which signify specific products) for LDC beneficiaries. A recent  comparative analysis prepared by the WTO Secretariat indicates that, at  97.5 percent, AGOA’s product coverage for LDCs compares favorably  with the United States’ GSP-LDC program as well as with other  developed countries’ LDC programs. For example, the United States’  GSP-LDC program covers 82.6 percent of tariff lines, while Japan’s GSP- LDC program covers 97.9 percent, Canada’s 98.6 percent, and the EU’s  EBA program 99.0 percent.
Several AGOA countries, such as Ghana and Kenya, are not LDCs, and  thus qualify only for regular GSP in other developed countries’ programs,  which are less generous in terms of product coverage than GSP-LDC  programs. For example,
Canada’s regular GSP provides duty-free treatment for 492 tariff lines  versus the 2,426 lines included under its GSP-LDC program.
The EU’s regular GSP provides duty-free treatment for 2,994 lines  versus the 6,932 lines under its LDC-oriented EBA.
Generally, the product coverage of China and India’s programs is less  than that of developed country programs, but expanding. For example, in  2010, China informed the WTO that its market access scheme to  eliminate tariffs had expanded to cover 60 percent of tariff lines and in  2013 released an official statement indicating that all 30 LDCs in Africa  with diplomatic ties to China would have a zero-tariff treatment covering  this 60 percent, or 4,762 items. China also stated plans to further open its  market to LDCs by expanding coverage to 97 percent of all tariff lines, by  the end of 2015. India’s initial scheme, until its revision in April 2014,  phased in duty-free access to 85 percent of its tariff lines over a 5-year  period beginning in 2008 and ending in October 2012. It also offered  reduced duties on 9 percent of its tariff lines. Furthermore, according to a  WTO report, many developing countries such as China and India charge  higher tariffs on imports than more developed countries. This practice  makes the margin of preference available to beneficiaries under their  preference programs high (as discussed in app. IV), which can translate  into significant impact in terms of economic and trade growth.
We conducted an analysis of trade-weighted preference program  coverage in six of the leading AGOA markets based on the latest data  available, for 2012—which showed that, with the exception of those of  Australia, about 90 percent or more of AGOA countries’ exports in terms  of value qualified for duty-free treatment or reduced duties under the  selected preference programs (see fig. 2). The analysis assumes that all  products that are eligible for duty-free treatment are duty-free, and thus  represents trade-weighted product coverage. With respect to India, a  sizeable share (89 percent) of the value of AGOA country exports were  eligible for preferences, that at the time (2012) were in the form of  reduced duties. India has been phasing its scheme by reducing duties;  reportedly 92.5 percent of LDC exports were given preferential market  access as of October 2012.
Our finding corresponds with the key findings of an October 2014 WTO  Secretariat report, which provides indicators of the global extent of duty- free product coverage for particular African countries under major  available preference schemes.
Key findings of an October 2014 WTO Secretariat report
African countries dominate the list of individual LDCs that by 2012  enjoyed duty-free treatment for 90-100 percent of the value of their  non-oil, non-arms exports to developed economies.
African nations such as Lesotho, Mozambique, Angola, Guinea  Bissau, Malawi, Senegal, and Tanzania were among those LDCs  that recorded increases in the share of the value of exports  imported duty-free between1996 and 2012.
While many non-African countries also saw increases, the duty- free share for some such countries in 2012 was less than that for  African LDCs. For example, the duty-free share for Cambodia,  Bangladesh, and Myanmar ranged between 60 and 80 percent.
section_title: Product Exclusions
paragraphs: AGOA, as well as the trade preference programs of other countries,  including South Korea, Australia, and Japan, excludes some products  that have high export potential and are considered important to enhancing  growth in SSA beneficiaries’ economies, such as certain agricultural  goods. Coverage of such products is important for two reasons. First, the  WTO Secretariat has noted that textiles and apparel—key LDC exports—  face the highest average tariffs in developed countries. Second, many  African countries rely on just a few products for the bulk of their exports,  and if preference schemes exclude those products from coverage, the  programs effectively provide no benefit to them.
WTO and UNCTAD analyses suggest that AGOA’s coverage of  agriculture products for beneficiary countries is less extensive than that of  some other developed countries’ programs. According to the Foreign  Agricultural Service of the U.S. Department of Agriculture, 240 tariff lines  are presently excluded from the U.S. GSP and AGOA and most are  subject to tariff rate quotas, and, as a result, are not fully liberalized. The  agricultural products excluded from AGOA include certain products within  the general categories of beef, dairy, vegetables, peanuts, oilseed  products, sugar and sweeteners, cocoa products, tobacco, wool, cotton,  flax, and other processed agricultural products. However, the recently  passed AGOA reauthorization legislation permits the President to provide  duty-free access under the GSP and, by extension, for AGOA on certain  previously excluded products, such as cotton for least-developed  beneficiary developing countries.
Several other countries’ preference programs also exclude some  agricultural goods that are considered important to African country  economies. A WTO Secretariat report found that
Canada excludes dairy, eggs, and poultry; and  Japan excludes rice, sugar, fishery products, and articles of leather.
Although India excludes certain exports of interest to LDCs, it covers key  products that at least one trade source determined to be of immediate  interest to Africa. These products include cotton, cocoa, cane sugar,  ready-made garments, and fish.
AGOA’s product coverage of textiles and apparel for those LDCs that  qualify appears to include more items than that of some other U.S.  programs. This coverage is considered a key feature that contrasts  AGOA with other programs.
section_title: Rules of Origin Vary by Preference Provider, Making It Difficult for Beneficiary Countries to Use the Programs
paragraphs: Our analysis, along with trade reports on rules of origin, shows that each  preference program has specific rules of origin requirements with varying  value-added requirements and calculation methods, making it difficult for  beneficiaries to comply with a given program or use multiple programs  (see app. V). The WTO reports that restrictive rules of origin can nullify  the value of preferences, and as a result, several countries have taken  steps to make their program’s requirements more flexible.
All countries offering preference programs permit products that are wholly  grown or produced within a beneficiary country to receive preferences.  But for products that include foreign inputs, each program country uses its  own methodology to determine whether sufficient local processing was  performed on non-originating material for a product to be considered  “local” or originating from a beneficiary. For example, the United States  requires that a product must be imported directly from an AGOA  beneficiary country and that the sum of the cost or value of the materials  produced in one or more AGOA beneficiary countries plus the direct costs  of processing operations performed in those countries may not be less  than 35 percent of the appraised value at the time it enters the United  States (is imported). In contrast, according to one trade policy expert,  China’s rules of origin are stricter than those of AGOA because, at least  40 percent of value must be added in the exporting country, compared  with the 35 percent regional value-added requirement for AGOA. In  addition, China requires external inputs to undergo substantial  transformation so that the resulting product would no longer enter under  the same four digit code of the Harmonized System.
Cumulation—permitting beneficiary countries to combine inputs from  multiple sources to meet the local sourcing requirements—can ease the  restrictiveness of rules of origin. Some developed countries’ preference  programs provide wide scope for cumulation of inputs to reach the  required minimum. Others, such as Japan’s, have restrictive cumulation  rules. Specifically, five Southeast Asian countries are considered as a  single territory for rules of origin purposes and may cumulate production  under Japan’s GSP, but no cumulation among the other 146 GSP  participants is allowed.
Some developed countries have made efforts to make cumulation rules  less restrictive. For example, the EU and Canada (1) widened the scope  for cumulation of inputs to attain their required value-added threshold (in  Canada’s case, across GSP and GSP-LDC preference beneficiaries and,  in the case of the EU, with Free Trade Agreement/EPA partners), and (2)  relaxed certain product-specific rules for LDC beneficiaries. An LDC  group paper submitted to the WTO Rules of Origin Committee in October  2014 indicated that reforms by Canada and the EU have resulted in  increased utilization of preferences, manufacturing capacity, and numbers  of highly skilled jobs in LDCs. The recently passed AGOA reauthorizing  legislation also modifies cumulation rules to help increase utilization.
In the EU’s case, the European Commission noted that the changes were  the product of a long and extensive review process that ultimately led it to  postpone implementation of one proposed reform: changing from a  paper-based system that enables beneficiary customs authorities to issue  required certificates that qualify goods for entry under the EU preference  programs, to an electronic one that would require exporters to register  and place more responsibility on beneficiary country exporters that are  registered in the EU’s new electronic system for compliance. This paper- based system was one of the aspects of the EU preference program that  African governmental representatives we met in Brussels told us makes  the EU program easier to use than AGOA.  Making rules of origin requirements more consistent across preference  programs could make it easier for beneficiary countries to use multiple  programs, but efforts to standardize them have faced challenges.   According to African officials we met with, multiple rules makes it more  difficult for exporters to make use of available preference programs. They  also increase the administrative burden associated with using  preferences and may conflict with supply chain realities by requiring  countries to adapt their manufacturing practices to meet different program  requirements. As a result, the WTO LDC group has been pressing  developed countries to ensure that preferential rules of origin applicable  to imports from LDCs will be transparent, simple, and contribute to  facilitating market access for non-agricultural products. WTO members  agreed to work on this topic at the December 2013 ministerial conference  in Bali and in 2015 LDCs have urged progress. However, there is no  requirement to harmonize preferential rules of origin at the WTO and  there has been reluctance on the part of the preference-granting  countries to standardize the process, according to trade experts.
section_title: The Few Studies that Compare AGOA and Other Preference Programs’ Performance Suggest That Program Differences Affect Performance
paragraphs: Although we identified many studies on trade preference programs,  relatively few studies compared their performance, and the results of  these studies varied. Performance of preference programs is judged in  economic literature in terms of their success in increasing exports (trade  creation), increasing the range of products exported (diversification), and  the extent to which available preferences are being used by recipients  (utilization). With regard to these indicators, a 2014 USITC study of  AGOA summarizing available comparative performance literature  between the United States and the EU noted that in general (1) EU  preferences had a greater effect on trade creation than U.S. programs;  (2) U.S. preferences were more likely to help African suppliers diversify  their exports by increasing the range of products traded than EU  preferences; and (3) average utilization rates for preference programs of  Australia, Canada, the EU, and the United States were often very high— even for small preference margins and small trade flows, according to the  underlying research study cited in the USITC study. We also found a  limited number of studies providing insights on the performance of some  other countries’ preference programs, including those of India and China.
In general, many trade experts agree that AGOA has been beneficial in  helping expand trade between SSA countries and the United States.  However, our prior work and available evidence suggest that AGOA has  been only modestly effective in achieving its stated goals. Studies of the  EU’s preference programs suggest that they also have had modest  success in expanding trade with the beneficiaries of the programs.
subsections: section_title: Trade Creation
paragraphs: The USITC identified several studies that found that when compared with  the United States, the EU has had greater overall success in increasing  trade with Africa. One study attributed this result to EU imports being  more responsive to price changes than U.S. imports.  Another study  concluded that the EU trade policy was more successful in creating SSA  country exports in part because of the shorter distance and SSA  countries’ longstanding colonial ties with the EU.
The USITC noted that although these studies show the EU as more  effective in increasing trade overall, other studies suggest that results are  different when examined by sector. For example, one study found that  after the United States put in place the “third-country fabric” provision  enabling certain AGOA beneficiaries to use imported fabric for apparel  production, AGOA created about seven times more apparel exports than   But in the case of agriculture, the EU was found to  the EU’s programs.be more effective at raising agricultural exports than the U.S. preference  program.
section_title: Diversification
paragraphs: USITC identified several studies that generally concluded that U.S.  preferences under AGOA were more successful than the EU’s in helping  African suppliers diversify exports. One study from 2011 concluded that  the EU’s GSP program provided an overall small effect on increasing  exports, but no effect on diversification. explanations the authors offer are the EU’s then relatively-strict rules of  origin for GSP.
section_title: Utilization
paragraphs: A number of studies identified in the USITC report found that overall, the  United States’ AGOA and GSP programs and the EU’s GSP program  both had high utilization rates for SSA LDCs. As mentioned earlier,  utilization is the extent to which available preferences are being used by  recipients and is considered a key indicator in comparing program  performance. Low utilization rates suggest possible disincentives for  countries using available preferences.
section_title: Emerging Research on Developing Countries’ Programs
paragraphs: Xavier Cirera, Francesca Foliano, and Michael Gasiorek, The Impact of GSP  Preferences on Developing Countries’ Exports in the European Union: Bilateral Gravity  Modelling at the Product Level, 2011,” accessed June 2, 2015,  http://www.researchgate.net/publication/241767503_The_impact_of_GSP_Preferences_o n_Developing_Countries’_Exports_in_the_European_Union_Bilateral_Gravity_Modelling_ at_the_Product_Level . more than half of the SSA beneficiary countries were not well placed to  utilize India’s programs. The study determined that it was difficult to  conclude whether India’s preference scheme had had the desired impact  on beneficiary country exports, largely because African LDC exports to  India remained low.
section_title: Sub-Saharan African Countries’ Recent Trade Negotiations Provide Insights for Future Negotiations
paragraphs: Sub-Saharan African (SSA) countries’ recent participation in bilateral and  multilateral trade negotiations provides insights that can inform future  negotiations. The bilateral Economic Partnership Agreement (EPA)  negotiations highlight trade-offs that the EU and SSA countries  considered to successfully conclude agreement negotiations. The  negotiating choices the EU faced were complicated by the fact that  countries with access to preferences that do not require them to liberalize  access to their own markets have limited incentive to negotiate reciprocal  agreements, according to trade experts with whom we spoke.Examining recent WTO negotiations provides insights about impediments  to SSA country participation in multilateral negotiations, efforts to  overcome those impediments, and the impact of those efforts. In light of  upcoming trade events that will focus on issues of interest to African  countries, the United States has a window of opportunity to draw insights  from these negotiations that may help preserve U.S. interests.
subsections: section_title: Insights from Recent Trade Negotiations between SSA Countries and the EU Could Inform the Direction of Future Trade Negotiations
paragraphs: The negotiations between SSA countries and the EU that have resulted in  EPAs indicate that achieving the goal of transitioning from unilateral trade  preference programs to reciprocal trade agreements with SSA countries  may require many years to finalize and implement,  the establishment of time frames to end access to trade preference  programs, a willingness to consider limiting the initial scope of the agreements, an acknowledgment that aspects of the agreements may have trade- offs and could constrain SSA countries’ ability to integrate into the  global economy.
Several African government officials and trade experts we spoke to stated  that the EPAs could serve as a stepping-stone for other countries to  negotiate with SSA countries reciprocal agreements that include wider  liberalization of African markets.
subsections: section_title: Reciprocal Agreement Negotiations and Implementation May Take Many Years to Finalize
paragraphs: One insight from the EPA negotiations that could apply to other countries’  negotiations with SSA countries is that negotiations and implementation  of reciprocal trade agreements may take many years to finalize.  According to EU officials, EPA negotiations with SSA countries lasted far  longer than expected. In September 2002, the EU and SSA countries (as  well as other countries) began negotiating EPAs and after more than a  decade of negotiations, according to the European Commission, the EU  has concluded the first EPAs with some African regional groups. As of  May 2015, the EU had concluded negotiations for EPAs with three African  regions: West Africa, the Southern African Development Community  (SADC), and the Eastern African Community (EAC). In addition, the EU  has an interim EPA with 4 countries in the Eastern and Southern Africa  region. In July 2014, Cameroon became the only country in the Central  Africa region to ratify an interim EPA with the EU. Figure 3 shows which  SSA countries have negotiated EPAs with the EU. As of May 2015, 32  SSA countries had negotiated regional or interim EPAs with the EU.
In addition to entailing lengthy negotiations, the EPAs also contain multi- year phase-in periods before the reciprocal terms enter into effect,  according to trade experts from one organization. This phase-in period  acknowledges that the transition from unilateral trade preferences to  reciprocal agreements will require a significant adjustment, especially for  the poorest SSA countries. According to trade experts, the African  signatories have committed to open between 75 (for West Africa region  countries) and 98 percent (for Seychelles) of their markets to the EU, but  this access phases in over a period of between 11 and 25 years,  depending on the country or region.improved EU market access begins immediately upon concluding an  agreement.
section_title: Time Frame for Ending Access to Unilateral Preference Programs Was Needed to Ensure Progress
paragraphs: Based on the experience of EPA negotiations, getting SSA countries to  sign reciprocal agreements with the intent to help them integrate more  fully into the global economy may require countries to institute concrete  time frames for ending access to their other preference programs (see fig.  4).
According to trade experts, original EU plans established 2007 as the  target date for signing interim EPAs between the EU and SSA countries,  but various obstacles delayed negotiations, including disincentives  associated with unilateral preferences the SSA countries were already  receiving from the EU. The experts said the EU set 2007 as its target  date, in part because it was the year the EU’s trade preferences with SSA  countries under the Cotonou Agreement and the associated WTO waiver  were scheduled to expire, but it did not formalize a consequence if  agreements were not concluded by that year. Between 2008 and 2014,  trade experts reported that EPA negotiations continued, but only 5 of the  19 SSA countries that initialed interim EPAs signed and ratified them. For  example, Zambia initialed an interim EPA, but did not subsequently sign  or implement it. Cameroon signed an interim EPA in 2009, but did not  ratify it until July 2014. According to trade experts we spoke to and  literature we reviewed, when a unilateral trade preference is available,  developing countries have less incentive to make domestic policy and  regulatory reforms to meet the requirements of trade agreements. Trade  experts also stated that there were a number of sticking points for which  satisfactory compromises were difficult to find. For example, in the  negotiations between the EU and SADC, market access issues and  safeguards in the agricultural sector were sticking points. In addition, EU  officials and other trade experts we met with indicated that SSA countries  that already benefited from unilateral preferences had a disincentive to  negotiate a reciprocal agreement with the EU that would require them to  give up their ability to protect their industries or to lose tariff revenue,  which constitutes a higher proportion of total government revenue than in  developed countries.
Trade experts stated that to expedite EPAs with SSA countries, the EU  mandated a time frame for ending access for some SSA countries to its  unilateral preference programs. According to trade experts and EU  officials, the agreements were not ratified by the time the Cotonou  preferences expired in 2007, so to prevent trade disruption, the EU  passed legislation in 2008 that allowed provisional access to EPA  preferences. In May 2013, additional legislation gave SSA countries until  October 1, 2014, to ratify EPAs with the EU or automatically fall under the  less favorable GSP program that the EU gives unilaterally to all  developing countries. In addition, trade experts reported that as a result of  the new EU GSP that entered into force on January 1, 2014, any upper- middle-income countries would no longer have access to unilateral trade  preferences on the EU market. Some African government officials with  whom we met said they felt that they and other African country officials  had no choice but to sign EPAs and their successes in negotiating were  limited by the time frame imposed upon the negotiations. U.S. officials  also stated that African officials told them they felt obliged to sign the  EPAs because they could not afford to lose preferential access to the EU  market.
section_title: Willingness to Consider Limiting Initial Scope of Negotiations Helped the EU Reach Agreement with SSA Countries
paragraphs: To successfully negotiate reciprocal agreements with SSA countries, EPA  negotiations demonstrated that EU willingness to consider limiting the  initial scope of the negotiations helped avoid an impasse that could have  resulted in failed negotiations. The United States abandoned its previous  attempt at negotiating a more comprehensive, or “high standard” free  trade agreement (FTA) with SACU, and did not pursue an FTA with the  EAC after it became clear that the EAC was not ready or willing.
To successfully conclude negotiations of EPAs with SSA countries, EU  officials said the EU agreed to limit the initial scope of EPA negotiations,  but the agreements also included language that allowed the parties to  continue negotiations in other areas covered by more comprehensive  FTAs. Initially, according to trade experts with whom we met, the  negotiating topics the EU was seeking were similar to those found in  more comprehensive FTAs, such as intellectual property rights. Recent  U.S. FTAs have more than 20 chapters, while EPAs between the EU and  SSA countries contain 8. Ultimately, EU and SSA countries agreed to  focus EPA negotiations on reciprocal trade in goods (and developmental  cooperation) according to EU officials and other trade experts. The  experts also reported that EPAs with SSA countries did not include  language detailing agreed-upon terms for issues such as investment,  services, public procurement, and intellectual property rights. According  to EU officials with whom we met, many African countries were not  prepared to agree to terms in these areas. The officials said they  excluded these areas to avoid further delaying the conclusion of EPAs  with SSA countries. The EPAs include a “rendezvous clause,” according  to trade experts, which states that signatories may continue negotiations  after the conclusion of EPAs to amend them. However, the experts stated  that the agreements do not include a timeline for concluding terms for the  other issue areas and it is therefore unclear how long it may take to  negotiate more comprehensive trade agreements.
section_title: Reciprocal Agreements May Contain Features That Create Challenges for SSA Countries’ Integration into the Global Economy
paragraphs: EPAs between the EU and SSA countries contain some features that  create challenges for SSA countries’ integration into the global economy,  according to trade experts and officials we met with from SSA countries  and the EU. For example, although full or expanded access to EU  markets may help SSA countries integrate more fully into the global  economy, EPAs may diminish SSA countries’ leverage in future  negotiations with other trading partners, according to trade experts. The  EPA negotiations demonstrate that negotiating reciprocal agreements  with SSA countries may involve some trade-offs that could impose  burdens as SSA countries open their markets further to EU imports and  affect SSA countries’ relations with other trading partners, including the  United States.
Trade experts and EU and African officials with whom we met reported  that EPAs may have some positive effects on African economies and are  therefore consistent with the EU goal to help SSA countries to further  integrate into the global economy. For example, under EPAs, most SSA  countries have full duty-free and quota-free market access in the EU,  while others have greater access than they did before they signed an  EPA, according to trade experts. The trade experts reported that even  South Africa, which has less duty-free access than most SSA countries,  has improved access for agricultural products such as wine, sugar, and  fruit, as well as industrial products, notably motor vehicles. According to  EU and African officials with whom we met, that greater access helps  SSA countries export goods that they already produce and that are  excluded by other trade preference programs.
However, African officials and other trade experts have expressed that  EPAs may have adverse effects on the economic development of some  SSA countries. In many of our meetings, African officials expressed  concern over the loss of tariff (and other) revenue that is a significant  amount of their governments’ budgets as a result of the requirement that  they provide the EU greater market access. Studies assessing the impact  of EPAs on the African signatories have found that they will impose a  fiscal burden on the countries, though the risk level differs from country to  country. Recent meta-analysis of such studies found that the fiscal impact  could be very high for eight countries (Benin, Cape Verde, Comoros,  Djibouti, the Gambia, Ghana, Guinea-Bissau, and Togo), and that fiscal  impact could be low for seven other SSA countries (Botswana, Lesotho,  Malawi, Namibia, Nigeria, Swaziland, and Zambia.) The meta-analysis  also found that the impact would depend on what steps the countries took  to adjust during the phase-in period. Because the EPAs also contain a  “standstill clause” that prohibits countries from enacting new customs  duties or raising tariffs beyond those provided in the EPA agreement, the  EU may be more insulated than other countries, including the United  States, should the loss of tariff revenue become a fiscal problem.
The terms of EPAs may also create challenges for SSA countries  because, according to trade experts, their relative benefit to the SSA  countries may diminish as the EU negotiates agreements with other non- SSA countries. The EU is negotiating trade agreements with other  developed countries that may erode margins of preference for SSA  countries. The experts reported that the agreements also focus on  development of better rules and regulations not captured in EPAs that  could increase competition with SSA countries in the EU market.
In addition, trade experts reported the following about how EPA terms  may constrain African countries’ leverage in trade negotiations with other  countries, including the United States:
EPAs contain a Most Favored Nations (MFN) clause stating that if  African EPA signatories negotiate trade agreements in the future with  other developed or large developing countries, they would have to  extend any more favorable treatment offered to those countries to the  EU as well.
Key trading partners that would potentially want to deepen their trade  relationship with SSA countries may be less interested in doing so if  they know that they will not have any margin of preference over the  EU.
One think tank said that the MFN clause is against the spirit of the  EPA itself, which states that the EPA is a way of fostering the  integration of signatories into the global economy.
However, at the insistence of African negotiators, most of the EPAs  contain language stating that implementation of the MFN clause in  EPAs is not automatic, but must be negotiated on a case-by-case  basis.
Trade experts report that EPAs may also negatively affect other trading  partners and multilateral trade negotiations. World Bank simulations of  the impact of the West Africa EPA on Nigeria project that most of the 7-20  percent increase in imports from the EU will divert trade from the rest of  the world, including the United States. The EPAs that are currently in  place also set precedents in terms of rules and exclusions that may act as  disincentives to multilateral liberalization, according to trade experts. For  example, the experts state that the SADC EPA permits SSA countries to  levy export taxes in certain circumstances. In addition, the EPA contains  a protocol that secured EU and South African protection of geographical  indications for numerous products, including mainly food and alcohol. In  general, the United States has opposed export taxes and expanding  mandatory protection of geographical indications.
section_title: Recent Multilateral Trade Negotiations Involving SSA Countries Provide Insights That Could Inform Future Negotiations
paragraphs: An examination of the involvement of SSA countries in recent multilateral  negotiations at the WTO yields insights about impediments to SSA  country participation in multilateral negotiations, efforts to overcome those  impediments, and what impact SSA country participation could have in  future WTO negotiations. Although capacity constraints have impeded  SSA country participation in multilateral trade negotiations, efforts to  address those impediments have been increasing. In part as a result,  SSA country participation at the WTO has been expanding.
subsections: section_title: Impediments Have Limited African Participation in Trade Negotiations
paragraphs: SSA countries face a number of impediments to full participation in trade  negotiations, especially at the multilateral level. Officials from multilateral  organizations, NGOs, and AGOA-eligible countries we met with noted  that, although SSA countries vary in their level of participation, many of  the countries lack capacity in the following areas, making full participation  difficult.
Funding: African officials and other trade experts we met with said  that many of the SSA countries, especially those considered LDCs,  find it difficult to afford the costs associated with participating in  multilateral trade negotiations, such as transportation to and from  Geneva and maintaining staff there.
Staffing levels: Some SSA countries do not have a permanent mission  with staff to represent them in Geneva. Many others, including LDCs  and small countries, have only a few staff to represent them in  meetings and negotiations at the WTO, numerous UN agencies, and  other multilateral organizations. Officials from several AGOA-eligible  countries told us they often miss important meetings—sometimes  including trade negotiations—because many of those meetings are  scheduled concurrently.
Expertise: WTO negotiations include numerous complex topics, and  according to WTO and African government officials with whom we  met, some SSA countries’ negotiators lack specialized training and  experience to negotiate effectively.
Communication: Some SSA countries lack effective communication  and coordination between negotiators and government officials in their  domestic capitals, according to African officials and trade experts with  whom we met. As a result, in some cases negotiators in Geneva have  worked toward positions that contradicted the priorities of government  officials at home.
section_title: Efforts to Overcome Impediments Are Increasing and Have Contributed to Expanded SSA Country Participation at the WTO
paragraphs: Efforts to overcome impediments to African participation in trade  negotiations have been increasing. According to one WTO trade expert,  the number of WTO-sponsored capacity-building activities for African  countries increased from 324 in 2000 to 1,513 in 2010, a nearly five-fold  increase. Trade experts and African officials shared numerous examples  of training courses, services, and programs designed to build African  capacity to negotiate more effectively and implemented by the WTO,  UNCTAD, the World Bank, nongovernmental organizations (NGOs), and  bilateral trade partners. For example, the WTO hosts and funds a  program called Geneva Week twice a year, paying for African officials  from countries without permanent representation in Geneva to fly in and  participate in trade negotiations and training courses focused on topics  such as the WTO structure and negotiation process. NGOs and  multilateral organizations also provide analysis at the request of African  delegations that helps them better understand key issues and relevant  context surrounding particular trade negotiations. Several African officials  with whom we met said many SSA countries also relied on research and  analytic support by NGOs such as the South Center.
Another effort to overcome impediments to participation in trade  negotiations has been the development of groups that negotiate on behalf  of multiple countries. SSA countries belong to groups such as the African  group, the LDC group, and the ACP group that establish consensus- based priorities and negotiate on behalf of the groups’ members.  According to several African government officials, smaller countries that  previously felt unable to effectively participate in multilateral trade  negotiations have had their priorities better represented in negotiations  through these groups.
According to government officials from the United States and AGOA- eligible countries, as well as officials from trade-related multilateral  organizations and think tanks, overall African participation at the WTO is  expanding and many African negotiators are negotiating more effectively,   Officials provided  in part as a result of efforts to overcome impediments.the following examples of greater SSA official presence at the WTO and  of priorities that African officials have successfully negotiated in  multilateral negotiations.
According to trade experts, African countries or groups have been  visible in current rounds of global trade negotiations on topics such as  cotton, intellectual property rights, public health, and special and   These topics are ones where Africans sought  differential treatment.and ultimately secured concessions from the United States and other  WTO members.
A WTO trade expert found that although the share of African  chairmanships at the WTO between 1995 and 2010 was low overall,  Africans made up at least 25 percent of the chairmanships of several  bodies during that time period and characterized several of those  chairs as competent, active, and experienced.
section_title: Upcoming Trade Events Involving SSA Countries May Provide Window of Opportunity for U.S. Engagement with SSA Countries
paragraphs: With a number of events relating to WTO and bilateral negotiations  coming up that will focus on issues of interest to African countries, there  is a window of opportunity for the United States to engage with SSA  countries to ensure that U.S. interests are preserved. For example,  according to the WTO, Kenya’s foreign minister has played a role in  setting the multilateral negotiation agenda by prioritizing the ratification of  the Trade Facilitation Agreement. According to WTO officials, while there  is no official deadline for achieving the necessary acceptance, the foreign  minister has set a goal of having this process completed by the time of  the WTO’s 10th ministerial conference, in Nairobi, Kenya, in December  2015. Two-thirds of the WTO’s 160 members will need to ratify the Trade  Facilitation Agreement before the protocol of amendment to the WTO can  go into effect, according to the WTO. Although Botswana and Mauritius  are among the eight WTO members that had, as of June 18, 2015,  secured domestic acceptance, several African delegations, including  AGOA recipients Nigeria and South Africa, have highlighted challenges  they face in ratifying the Trade Facilitation Agreement. The Senate report  accompanying the AGOA reauthorization legislation stated that the United  States should seek opportunities to expand its ties with SSA countries  through the negotiation of trade agreements that involve SSA countries.
Recent LDC priorities are evidence that progress in multilateral  negotiations is possible, but they raise some concerns for the United  States and, in some cases, AGOA countries. The LDC group has drafted  a series of negotiation priorities in conjunction with the Doha round of  global trade talks, which was to achieve improvements in agricultural  disciplines and market access for both agricultural and non-agricultural  goods. The December 2015 WTO ministerial conference is slated to  revisit several topics of importance to Africa, including a potential LDC  package and a decision on whether and how to proceed with the overall  Doha round. Among the LDC priorities are for countries to further facilitate  market access for LDC products. Both the United States and AGOA  countries may face competing interests in committing to the requests of  LDC negotiators. For example, available research suggests that AGOA  countries would lose out to other suppliers if the textiles and apparel  access presently provided to them were given to other LDCs such as  Bangladesh and Cambodia. According to several African officials we met  with from AGOA countries, competing with other LDCs without additional  preferences is a major concern. This additional competition could also  minimize the effectiveness of AGOA in increasing and diversifying exports  from AGOA countries, which would run counter to U.S. interests. The  legislation reauthorizing AGOA states that, among other things, it is in the  interest of the United States to boost trade between the United States and  SSA countries and that it is a U.S. goal to stimulate economic  development in Africa and diversify sources of growth in sub-Saharan  Africa. It is unclear whether LDC countries will insist upon some or all of  these changes before they support continued Doha round negotiations.
Some AGOA countries are showing interest in WTO membership. Liberia  and Ethiopia, two AGOA countries that are not yet members of the WTO,  are in the process of acceding to the WTO. This process typically involves  acceptance of existing WTO rules as well as negotiated market access  commitments, demonstrating that they are declaring themselves ready to  work toward fuller integration into the global economy. The Senate report  accompanying the legislation reauthorizing AGOA stated that the United  States should seek all opportunities to deepen and expand its ties with  SSA countries through accession by SSA countries to the WTO.
The United States government has also proposed and begun to pursue  plans to enhance bilateral trade with SSA countries. The recently-passed  AGOA extension legislation includes plans to evaluate which AGOA  countries are ready for and interested in pursuing reciprocal free trade  agreements. In the immediate term, the United States is working with the  Eastern African Community, reaching a cooperative agreement in  February 2015 on non-tariff barriers in the Sanitary and Phytosanitary  Measures and Technical Barriers to Trade areas with a goal of easing  non-tariff barriers to trade. The United States government has also  indicated it would like to build on the recently signed Trade and  Investment Framework Agreement with the Economic Community of  Western African States and that it hopes to advance negotiations with  countries such as Nigeria, South Africa, and Angola.
section_title: Agency Comments
paragraphs: We are not making any recommendations in this report. We sent a draft  of this report to the Secretaries of Agriculture and State, the Chairman of  USITC, and the U.S. Trade Representative for comment. State provided  no comments and the others provided technical comments, which we  incorporated in this report, as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretaries of Agriculture, Commerce, State, and the  Treasury; the Administrator of USAID; the Chairman of USITC; the U.S.  Trade Representative; and other interested parties. In addition, the report  is available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-8612 or GianopoulosK@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix VI.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: In conducting our work, we identified and reviewed documents, data, and  literature on the African Growth and Opportunity Act (AGOA) and other  countries’ trade preference programs, trade agreements with AGOA  countries, and sub-Saharan African (SSA) countries’ participation in  multilateral trade negotiations. In addition, we interviewed officials from  the Departments of Agriculture, Commerce, State, and the Treasury; the  Office of the U.S. Trade Representative (USTR); the U.S. International  Trade Commission (USITC); and the U.S. Agency for International  Development (USAID). We conducted fieldwork in Geneva, Switzerland,  and Brussels, Belgium. We selected those locations for fieldwork based  on the availability of officials for interviews, including multiple U.S. agency  officials, African government officials, government officials from countries  with trade preference programs,and multilateral organizations with pertinent expertise. We selected  countries and regions for comparison that are major export markets for  sub-Saharan Africa, including the European Union (EU), China, and India.  We identified three key characteristics for comparison because studies of  preference programs generally show that these characteristics can affect  program performance in increasing and diversifying trade. However, we  did not independently assess the other countries’ trade preference  programs and agreements with SSA countries. The information on those  programs and agreements is based on interviews and both World Trade  Organization (WTO) and other official sources. Insights discussed herein  reflect our conclusions based on the views of those we interviewed as  well as selected academic literature.   and representatives from think tanks  To examine how selected countries’ trade preference programs compare  with AGOA in terms of key characteristics and performance, we focused  on those countries that had the highest levels of trade in dollar- denominated nominal terms—not adjusted for inflation—with AGOA  countries and for which trade preference program information was  available from official sources including the WTO, the United Nations  Conference on Trade and Development (UNCTAD), and country provider  government documents. Specifically, to identify the major country and  regional markets for AGOA-country exports, we used the WTO,  UNCTAD, and World Bank integrated trade data, which we accessed  through the International Trade Centre’s Trade Map portal. We organized  the nominal import data in descending order by major AGOA-country  exporters and then graphed the top eleven export markets from 2010  through 2014. These exports of AGOA countries are for total exports,  whether or not under a preference program. These countries include the  United States, those in the EU, Canada, South Korea, Japan, Taiwan,  Indonesia, India, Australia, and China. We also reviewed official WTO,  UNCTAD, and government documents on these countries’ programs.
To examine the differences in preference programs of countries that are  major importers from AGOA countries, we (1) analyzed recent AGOA- country exports to major importing countries/regions and (2) analyzed  cross-country differences in preference and non-preference import  programs from AGOA countries. To analyze trade-weighted coverage  across preference programs in major AGOA-country export markets, we  used import data from the WTO’s Integrated Data Base (IDB) accessed  through the World Integrated Trade Solution of the World Bank  (http://wits.worldbank.org/). We summed imports by preference and non- preference programs (such as Generalized System of Preferences, Least  Developed Country programs, Everything but Arms, Most Favored Nation  arrangements, etc.), and by dutiable and non-dutiable categories. For this  analysis, we were not able to estimate utilization rates, as there were no  publically available data on the amount of imports actually entering under  the preference programs for certain major country importers. However, as  a first approximation of program performance, we assumed that if imports  were eligible to be imported under a preference program, they actually  came in under the program. Another limitation to our analysis was that we  were not able to obtain import and preference program data on a tariff- line basis from some other major AGOA-country importers, notably China.  Therefore, we were not able to compare U.S. programs’ trade-weighted  coverage with that of China.
For each of the data sets that we used, we examined the data and found  them sufficiently reliable for the purposes of our report. Specifically, we  obtained and assessed official documentation such as users’ guides,  frequently asked questions, and disclaimers; met with officials to discuss  our planned use of the data and any limitations; and conducted spot  checks against other authoritative sources.
Country eligibility. To determine country eligibility, we used the WTO  Preferential Trade Arrangements database which identifies and compiles  information to identify all preferential trade agreements implemented by  WTO members. Information includes required submissions by WTO  members. We used the most up-to-date information available in the  database, which varied by country. We also used UNCTAD data to  determine selected trade preference programs’ country eligibility. We  cross-checked the information found in the WTO database with the  UNCTAD data for eligibility as of January 1, 2015. We also used other  countries’ government websites, as available, to determine SSA country  participation within its preference program. Furthermore, World Bank and  United Nations information was used to identify income classification and  some procedural and policy requirements.
Product coverage and exclusions. To compare product coverage we  utilized WTO information including a 2014 WTO Secretariat report to  identify tariff and trade data used to assess the extent of duty-free access  available to AGOA countries’ exports under various other countries’  preference programs. We used tariff-line trade data presented in the  database, which are based on member notifications. We also used  government and non-government sources to gather information on  product coverage offered by other countries’ preference programs.
Rules of origin. To report generally on rules of origin and specifically on  rules of origin percentage levels, calculation methods, and cumulation, we  used information from the WTO along with government and non- government sources. We also conducted a semi-structured interview with  a sample of United States and foreign government officials, including  African officials, along with trade experts. We discussed their knowledge  of other countries’ trade preference programs, including varying rules of  origin and the impact of rules of origin on preference program utilization.
Performance. To determine performance among AGOA and other  preference programs we used a 2014 USITC report on AGOA that  includes a comprehensive economic literature review on selected  countries’ trade preference programs. The study identified 48 economic  studies of preference programs, published from 2001 to 2013; of that  number, 11 compared the performance of programs, and 7 of the 11  compared the performance of the United States’ and the EU’s  programs—in part because the United States and the EU are two of the  few preference providers that provide data on actual imports under their  preference programs.
To examine AGOA countries’ participation in trade negotiations, we used  WTO data to determine the bilateral and multilateral trade agreements to  which AGOA countries are party. To identify insights from AGOA country  trade negotiations, we chose to focus on AGOA countries’ Economic  Partnership Agreements with the EU because (1) congressional  requesters specifically asked about the impact of these agreements, (2)  negotiations for the regional agreements were all concluded recently—in  2014, (3) the EU is the largest recipient of SSA exports, and (4) the  agreements replace a unilateral trade preference arrangement with a  reciprocal trade arrangement. We reported insights based on our  literature review on the negotiations leading up to (and the terms of) the  agreements as well as interviews with trade experts from AGOA  countries, U.S. government agencies, other key trade partners with  AGOA countries, multilateral trade organizations (including the WTO),  and think tanks.
To determine impediments to SSA countries’ participation in trade  negotiations, we reviewed the USITC report on AGOA and other relevant  literature. We also developed a semi-structured interview tool. We  selected a sample of officials and experts who would participate in semi- structured interviews on the basis of (1) GAO selective sampling based  on literature review, (2) recommendations from U.S. government officials  knowledgeable about other countries’ trade negotiations with Africa, and,  where applicable, (3) availability during our fieldwork in Geneva and  Brussels. We implemented the semi-structured instrument in interviews  with trade experts from AGOA countries, U.S. government agencies,  other key trade partners with AGOA countries, multilateral trade  organizations (including the WTO), and think tanks. From the literature  and semi-structured interviews, we also examined efforts to address  impediments to SSA countries’ participation in trade negotiations and the  impact of those efforts. Our observations about upcoming trade  negotiations involving AGOA countries are based on WTO documents  and official government documents.
section_title: Appendix II: Additional Information about Trade Preference Programs of Countries That Are Major Importers of Products from Sub-Saharan African Countries
paragraphs: Table 3 provides a comparison of key characteristics of selected  countries’ trade preference programs with sub-Saharan African (SSA)  countries. The countries or groups of countries included in the table are  the major destinations for SSA exports.
section_title: Appendix III: Selected Trade Preference Programs’ Sub-Saharan African Country Eligibility
paragraphs: Sub-Saharan African countries are eligible for preferences under multiple  countries’ preference programs (see table 4). Most of the programs are  generalized (available to all developing countries, and known as  Generalized System of Preferences (GSP) schemes,) but some programs  focus exclusively on least-developed countries (LDCs). Some countries  that had been eligible for preferences offered by the European Union  (EU) have transitioned from the EU’s preference programs to Economic  Partnership Agreements.
section_title: Appendix IV: Margins of Preference
paragraphs: Although the extent of product coverage and duty-free versus reduced  duties are important when evaluating the potential impact of programs, it  is also important to consider the margin of preference for program  beneficiaries. The margin of preference is defined as the difference  between the tariffs all countries face—known as the most favored nation  (MFN) rate—versus the tariff charged preference program beneficiaries.  Essentially it is the price advantage that the program accords  beneficiaries over other competitors in their market.
In the case of programs that provide duty-free treatment to covered  products, the tariff charged is zero, and thus the margin of preference  is the entire value of that difference. Thus, if a country had an average  MFN tariff of 10 percent and accorded preference program  beneficiaries duty-free treatment, the beneficiary would enjoy a 10  percent margin of preference in that market.
In the case of programs that provide reduced duties, the margin of  preference would be a fraction of that. For example, if the preference  program provider’s average MFN tariff was 10 percent and its  preference program involved a 50 percent reduction in duties,  beneficiaries of its programs would face a 5 percent tariff and have a  5 percentage point advantage over competitors.
As shown in table 5, according to WTO Secretariat calculations, many  developing countries have substantially higher tariffs than developed  countries on key products from LDCs.
For example, developing country tariffs on agriculture are more than 20  times as high as those in developed countries, and tariffs on clothing and  textiles are about twice as high. Several of these developing countries,  such as China and India, have put preferences in place for LDCs. All  other things being equal, a producer from a country that has access to  both developed and developing countries’ programs may focus first on  using the one with the highest margin of preference.
section_title: Appendix V: Rules of Origin for Select Sub- Saharan African Trading Partners
paragraphs: Table 6 shows the different factors considered by selected countries  when determining whether a finished product qualifies to enter under its  preference program.
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact listed above, Kim Frankena (Assistant Director),  Jeffrey Baldwin-Bott (analyst in charge), Ashley Alley, Kenneth Bombara,  Debbie Chung, Barbara El Osta, Jill Lacey, and Shakira O’Neil made key  contributions to this report.