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Transition from AGOA to FTAs Likely to Take Time, GAO Says

Monday, August 17, 2015
Sandler, Travis & Rosenberg Trade Report

A Government Accountability Office report to Congress identifies several factors for consideration as the U.S. seeks to transition from the African Growth and Opportunity Act to a more two-way trade relationship with African partners. A recent law extending AGOA for ten years states that it is U.S. policy to seek to deepen and strengthen trade and investment ties with sub-Saharan African countries through, among other things, the negotiation of free trade agreements. This report therefore examines a range of issues relating to AGOA’s effectiveness in promoting trade expansion and economic development in SSA countries, particularly in comparison with the preference programs of selected other countries, as well as the participation of AGOA beneficiaries in trade negotiations.

Among other things, the report indicates that the transition from non-reciprocal trade preference programs such as AGOA to trade agreements like the economic partnership agreements that SSA countries have negotiated with the European Union may involve the following.

Time. An FTA may take many years to finalize and implement. The EPA talks took more than a decade and the agreements contain multi-year phase-in periods before the reciprocal terms take effect. SSA countries face a number of impediments to full participation in trade negotiations, including travel costs, inadequate staff, and lack of specialized training and experience.

Deadline to End Preferences. When a unilateral trade preference is available, developing countries have less incentive to make domestic policy and regulatory reforms to meet the requirements of FTAs. To expedite the EPAs, the EU mandated a time frame for ending access to its unilateral preference programs for some SSA countries.

Limited Scope. Parties need to be willing to consider limiting the initial scope of an FTA. The topics that the EU initially sought in the EPA negotiations were similar to those found in more comprehensive FTAs, but the EU and SSA countries ultimately agreed to focus negotiations on trade in goods and excluded language on issues such as investment, services, public procurement and intellectual property rights because many African countries were not prepared to agree to terms in these areas. At the same time, the agreements include a clause allowing negotiations to continue after the conclusion of the EPAs to amend them, although there is no timeline for completion.

Integration. Some aspects of an FTA may have tradeoffs and could constrain SSA countries’ ability to integrate into the global economy. For example, the EPAs grant most SSA countries full duty-free and quota-free access to the EU market and others greater access than they had before, which helps them export goods they already produce that are excluded by other trade preference programs. On the other hand, this access may diminish SSA countries’ leverage in future negotiations with other trading partners, and the loss of tariff revenue could have a significant impact on national budgets.

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