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

Letter

Background

Trade Preference Programs

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.

Factors That Can Affect Trade Preference Program Performance

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.

Trade Preference Program- Specific Characteristics

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.

Country-Specific Factors

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.

Major Export Markets for AGOA Countries

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.

AGOA Has Differences from and Similarities to Other Countries’ Trade Preference Programs and Differences Have Affected Program Performance

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.

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

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.)

Geographic Focus

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.

Procedural and Policy Requirements

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.

AGOA and Other Countries’ Programs Offer Fairly Comprehensive Duty-Free Coverage of Products, But Exclude Some Important SSA Exports

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.

Comprehensive Coverage

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.

Product Exclusions

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.

Rules of Origin Vary by Preference Provider, Making It Difficult for Beneficiary Countries to Use the Programs

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.

The Few Studies that Compare AGOA and Other Preference Programs’ Performance Suggest That Program Differences Affect Performance

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.

Trade Creation

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.

Diversification

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.

Utilization

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.

Emerging Research on Developing Countries’ Programs

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.

Sub-Saharan African Countries’ Recent Trade Negotiations Provide Insights for Future Negotiations

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.

Insights from Recent Trade Negotiations between SSA Countries and the EU Could Inform the Direction of Future Trade Negotiations

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.

Reciprocal Agreement Negotiations and Implementation May Take Many Years to Finalize

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.

Time Frame for Ending Access to Unilateral Preference Programs Was Needed to Ensure Progress

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.

Willingness to Consider Limiting Initial Scope of Negotiations Helped the EU Reach Agreement with SSA Countries

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.

Reciprocal Agreements May Contain Features That Create Challenges for SSA Countries’ Integration into the Global Economy

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.

Recent Multilateral Trade Negotiations Involving SSA Countries Provide Insights That Could Inform Future Negotiations

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.

Impediments Have Limited African Participation in Trade Negotiations

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.

Efforts to Overcome Impediments Are Increasing and Have Contributed to Expanded SSA Country Participation at the WTO

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.

Upcoming Trade Events Involving SSA Countries May Provide Window of Opportunity for U.S. Engagement with SSA Countries

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.

Agency Comments

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.

Appendix I: Objectives, Scope, and Methodology

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.

Appendix II: Additional Information about Trade Preference Programs of Countries That Are Major Importers of Products from Sub-Saharan African Countries

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.

Appendix III: Selected Trade Preference Programs’ Sub-Saharan African Country Eligibility

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.

Appendix IV: Margins of Preference

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.

Appendix V: Rules of Origin for Select Sub- Saharan African Trading Partners

Table 6 shows the different factors considered by selected countries when determining whether a finished product qualifies to enter under its preference program.

Appendix VI: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

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.