Does the African Growth and Opportunity Act (AGOA) impact EU-15 imports from Africa?

Abstract

PurposeAt the heart of the African Growth and Opportunity Act (AGOA) are substantial trade preferences, which coupled with the Generalised System of Preferences (GSP) grant a wide range of goods produced in qualified African countries duty-free access to the USA. To be AGOA-eligible, countries are assessed annually on their progress in undertaking appropriate economic, institutional and human rights reforms. This paper seeks to cover new grounds by exploring whether exports of apparel to US crowds out EU-15's imports from Africa.Design/methodology/approachThis paper employs the gravity model to gauge trade displacement effects from the EU to the US due to AGOA, and whether the more relaxed special waiver embodied in AGOA's apparel provision causes non-knitted exports to EU-15 to be crowded out. The basic gravity model, which posits that trade between two countries is positively influenced by the economic size and negatively affected by the distance between them, is augmented with other trade inhibiting and trade facilitating variables.FindingsThe gravity model provides no evidence of trade displacement but, instead, provides support for the hypothesis of complementarity of African exports to the two key markets. A strong positive impact of the bilateral trade between the US and Africa on the EU–African trade is evident mainly before the phasing out of the Agreement on Textiles and Clothing (ATC). This paper finds that Special Rule beneficiaries' exports to the two markets still complement each other, but for every percentage increase in exports to the USA, there is a less than proportionate increase in exports to EU-15 indicating a higher utilisation of the special waiver. This paper also provides evidence for complementary apparel exports to both LDCs (least developing countries) and non-LDCs, with stronger effects on non-LDCs and the non-knitted sector.Research limitations/implicationsFuture work could consider the longer lifespan of AGOA following its latest renewal in 2015. This would allow one to also capture the ongoing changes in EU trade arrangements in particular implementation of Economic Partnership Agreements (EPAs). This new agreement comes with more flexible rules of origin requiring single transformation step instead of the double step. As most African nations are still in the process of adopting EPAs, new research can shed more light on complementary or displacement effects once these agreements are adopted.Originality/valueSince the main intent of AGOA is to enhance Africa's integration into the global economy by encouraging trade and investment, generate employment and increase productivity and per capita income growth, its impact on Special Rule beneficiaries' exports to the US has been extensively examined. However, the indirect effects of this trade agreement on African exports to other key markets providing similar preferences such as the EU has not been fully explored. This study also covers new grounds by examining whether there has been any apparel trade displacement from the EU to the US, as a result of the Act, over 2001–2016 period right from AGOA's inception.

African Growth and Opportunity Act and trade performance in Nigeria

“…The finding is similar to that of Naumann (2016) , who argued that SSA-AGOA countries, Nigeria exceeds other countries in terms of average export. In a related way, Mahabir et al. (2020) , engaged the Gravity Model and found that a strong positive impact of the bilateral trade between the US and Africa.…”

“…The finding is similar to that of Naumann (2016), who argued that SSA-AGOA countries, Nigeria exceeds other countries in terms of average export. In a related way, Mahabir et al (2020), engaged the Gravity Model and found that a strong positive impact of the bilateral trade between the US and Africa. The study found that, for every proportion rise in exports to the USA, there is a less than proportionate increase in exports to the EU, indicating a higher utilisation of the special waiver.…”

“…The comparatively satisfactory economic performance, discovery of various natural resources, and conducive political environment have provoked the interest of many advanced countries including the USA, the European Union (EU), China, Russia, India, Japan, Brazil, among others to initiate trade relations with several African countries ( Davies and Nilsson, 2020 ; Hurreeram and Little, 2004 ; Mahabir et al, 2020 ; Sorgho and Tharakan, 2019 ; Thompson, 2004 ). The establishment of multilateral frameworks in Africa countries has become a significant feature in international relations among major economic powers and various regional economic communities as they strive to deepen their economic cooperation and address the challenges faced in a globalised world ( Davis and Nilsson, 2020 ; Mahabir et al, 2020 ; Musah et al, 2020 ; Osabuohien et al, 2019 ; Salau, 2018 ).…”

“…Signed into law on 18 th May 2000 as Title 1 of the USA Trade and Development Act 2000, AGOA is a non-reciprocal and unilateral preference programme that provides duty-free, quota-free access to the USA market for qualifying goods from eligible Africa countries not included for duty-free treatment under the GSP ( Mahabir et al., 2020 ). On 29 th June 2015, President Barrack Obama signed into law the Trade Preferences Extension Act (TPEA) of 2015, extending AGOA for ten years through 2025 ( Froman, 2016 ).…”

US Trade Preference and Export Performance of Sub-Saharan Africa (SSA): Evidence from the African Growth and Opportunity Act (AGOA)

“…The study underscores the adverse impact of stringent rules of origin and successive trade liberalization in advanced countries that is leading to the erosion of preferential benefits. Mahabir et al (2020) examining whether exports of apparel under AGOA crowds out EU-15's imports from SSA show the complementarity of African exports to the two markets and that every percentage growth in exports to the USA is associated with a less than proportionate increase in exports to the EU-15, indicating a higher utilization of the special waiver. A survey-based study by Karingi et al (2012) also found that a majority of private sector respondents believed that AGOA was critical for their exports and economic relations while a quarter of the respondents stated that AGOA was not important.…”