AGOA, signed into law on May 18, 2000, was designed to promote free markets, stimulate economic growth in SSA, and facilitate SSA’s integration into the global economy. According to the Office of the U.S. Trade Representative (USTR), AGOA provides duty-free access to U.S. markets for more than 6,000 dutiable items in the U.S. import tariff schedules. All 48 countries in SSA are potentially eligible for AGOA, but some have not met the eligibility criteria, and the program currently has only 40 beneficiaries. See figure 1. Most U.S. imports of textiles and apparel from SSA countries come from no more than 10 countries (Ethiopia, Kenya, Lesotho, Madagascar, Mauritius, Nigeria, South Africa, Swaziland, Tanzania, and Zambia). Together, these countries account for 97 percent of U.S. textile and apparel imports from SSA. A key feature of AGOA is its provisions for duty-free preferences for specific textile and apparel goods subject to rules of origin limitations. Eligibility for textiles and apparel benefits is based on conditions more selective than the general AGOA conditions and is only available to select AGOA countries. AGOA provides duty-free and quota-free treatment for eligible apparel articles made in qualifying SSA countries through 2015. Qualifying articles include: Apparel made of U.S. yarns and fabrics; Apparel made of SSA (regional) yarns and fabrics until 2015, subject to a Apparel made in designated SSA lesser-developed countries (LDC) of third-country yarns and fabrics originating anywhere in the world, until 2012, subject to a cap—commonly referred to as the “third-country fabric provision;” Apparel made of yarns and fabrics not produced in commercial quantities in the United States; and Textile or textile articles originating entirely in one or more lesser- developed beneficiary SSA countries; certain cashmere and merino wool sweaters; and eligible hand-loomed, handmade, or folklore articles, and ethnic printed fabrics. Industrialization in many developed countries was initiated in the textiles and apparel sectors, and some developing countries have relied on these sectors to significantly increase and diversify exports, with positive effects on incomes, employment, and poverty levels. Proponents of AGOA anticipated that by providing generous preferences for imports of textiles and apparel from AGOA-eligible countries, AGOA beneficiaries would be able to leverage these advantages to replicate this industrialization process. After AGOA was implemented, there was an initial surge of U.S. textile and apparel imports from beneficiary countries. U.S. imports of SSA products from SSA increased from $776 million in 2000 to about $1.8 billion in 2004. However, after 2004, when quotas under the Multi-Fiber Arrangement (MFA) were removed, U.S. imports of these products from SSA declined by about one-third, to $1.2 billion in 2008. See figure 2. Although AGOA provides some of the most generous preferences under any U.S. trade program, as figure 3 shows, in 2008, SSA countries accounted for 1.3 percent of total U.S. textile and apparel imports. In contrast, China accounted for 35 percent of U.S. imports of textiles and apparel, while Bangladesh and Cambodia accounted for 3.8 and 2.6 percent, respectively. In 2008, U.S. textile and apparel imports from China were 28 times the value of those from SSA countries. In that same year, U.S. textile and apparel imports from Bangladesh were 3 times those from all SSA countries combined. Moreover, U.S. imports of textile and apparel products from SSA are predominantly apparel. As illustrated in table 1, apparel constitutes 98 percent of this type of U.S. import from AGOA beneficiaries, while yarn, fabrics, and made-ups represent less than 2 percent of all U.S. textile and apparel imports from SSA. By contrast, U.S. imports of these products from all countries make up a larger part—23 percent—of textile and apparel trade. The modest share of U.S. imports of textile and apparel inputs, including yarn and fabrics, from SSA countries reflects not only limited production of these inputs in the region, but also the fact that an integrated apparel and textile sector with potential to serve as an engine of economic development is not available. Several studies and experts have pointed out that current trends in U.S. textile and apparel markets are less conducive to African sourcing because low-cost Asian producers (China, India, and Bangladesh) with relatively modern production facilities have developed a competitive advantage, challenging SSA textile and apparel in the United States and elsewhere. Also, the U.S. market has experienced significant consolidation in the retail sector resulting in lean retailing methods—the combination of low inventories and frequent restocking. Lean retailing requires retailers to closely track their sales using electronic data to facilitate fast communication with suppliers. From the standpoint of suppliers, the method demands great flexibility, as they must be able to adjust output, and ship and deliver products quickly. Less flexible suppliers that can only compete on selling cost and not on timeliness are at a disadvantage. As a result, aspects of the lean retailing method do not favor African suppliers that have less advanced production technology that limits their flexibility to meet changing demands. Duty-free access for textile and apparel imports from SSA countries under AGOA reduces the competitive edge of low-cost Asian producers. However, duty-free access alone may not overcome the advantages Asian producers enjoy due to long-standing, established trade channels. Africa’s lack of resources to significantly improve its trade infrastructure—power, water, production facilities, etc.—adds to the disadvantages of sourcing from SSA countries. Furthermore, underdeveloped production facilities, including aged existing plants and equipment, increase the cost of production while reducing quality and variety. SSA’s challenging business climate, primary corruption and political instability, adds to the difficulty of attracting new and increased investment. Uncertainty about AGOA’s duration and preference erosion (a weakening in the effectiveness of preferences due to falling prices in the world market caused by general trade liberalization) also limit the attractiveness of beneficiary countries for foreign and domestic investors. The ITC study on the competitiveness of apparel and textile inputs identified products that have the potential to be produced competitively in SSA countries, such as cotton yarn, cotton knit fabric, cotton denim fabric, and woven cotton shirting. Cotton is widely cultivated in the region, and is the primary fiber currently used in the production of yarn and fabric in SSA countries. These products can either be directly exported or used in downstream production of apparel for export. Other items cited for potential competitive production in the region were niche products that supply narrow markets such as organic cotton products, woven wool fabric, high-tech and industrial fabrics and local print fabrics. As the global demand for organic and environmentally friendly goods increases, organic cotton products, for example, might be competitive in the global marketplace. Woven wool fabrics and high-tech and industrial fabrics, which South Africa currently supplies to the United States and Europe, also have the potential to be more competitive in these markets. Africa has a long tradition in mostly hand-loomed local print fabrics. Although these fabrics are mainly produced for local markets, they may have potential export markets as home furnishings. Another promising dimension is production for Africa’s own local and regional markets. Many African countries produce fabrics that reportedly are not of sufficient quality for U.S. and European markets. However, local and regional marketing of such items may be profitable and may encourage backward and forward supply chain linkages in the long run. As a whole, the competitive production of textile and apparel inputs in SSA countries varies, as each beneficiary has its own factors that contribute to or inhibit production. The ITC report notes that one of the biggest challenges affecting production of textile and apparel inputs in SSA countries is the lack of regional demand for these products. Based on our review of the ITC study and other related research, and in consultation with trade and industry experts, we identified four issue areas where possible changes to AGOA or other U.S. trade preference programs could be made to improve the competitiveness of the textile and apparel inputs sector in SSA beneficiary countries. The four issue areas include (1) extending the duration of AGOA provisions and making AGOA permanent, (2) expanding AGOA LDC benefits to all beneficiaries and duty-free eligibility for other textile products, (3) creating non-punitive and voluntary incentives, and (4) preserving existing benefits under AGOA and modifying other preference programs and trade agreements. The panel of experts GAO convened discussed and ranked nine specific options for congressional consideration in each area. Panelists ranked each option on a 7-point priority scale that ran from “extremely low priority” to “extremely high priority.” Among the specific options, the panel ranked extending the duration of the third-country fabric provision for LDCs beyond 2012 and extending the duration of AGOA beyond 2015 as being an extremely high and very high priority, respectively, for congressional consideration. Experts explained that these steps are essential to attract investment in the textile and apparel inputs sector because companies need to have certainty that AGOA benefits will persist, as investments in the industry are usually long term. A more detailed discussion of the issue areas and accompanying options follows.