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Int’l Trade Commission Report: How is the Apparel Industry Impacted by AGOA?

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On April 25, the International Trade Commission (ITC) issued a report that assessed the overall imprint of the African Growth Opportunity Act (AGOA) on global trade and investment, with particular attention devoted to the apparel industry.

The report analyzes AGOA’s effects from 2000 to 2013, focusing on new “potential products for export to the United States or for integration into regional and global supply chains and examines changes in the business and investment climate in sub-Saharan Africa (SSA), as well as reciprocal trade agreements between SSA and non-SSA partners and the relationship of these agreements to the objectives of AGOA.”

According to the report’s findings, AGOA generated a profound impact on the commercial relations between the U.S. and the agreement’s signatories. “The Commission found that U.S. imports from AGOA countries are dominated by imports entering under AGOA, and that these imports accounted for about 70 percent of all imports from AGOA countries during 2008—13.”

Also, the ITC discovered that the competitiveness of sub-Saharan countries is largely a function of “its abundant natural resources, including land, metals, and minerals.” However, the region is still freighted with challenges: its “involvement in manufacturing and other value-added production activities is generally limited, consisting of semiprocessed items or items with preferential access to third-country markets” and it suffers from “weaknesses in production capacity, infrastructure and services, business environment, trade and investment policies, and industry institutionalization (private and public sector linkages and inter-industry coordination).”

Some of the AGOA’s participants, though, are making impressive progress. “The Commission found, however, that several SSA countries are using regional integration, export diversification, and product value addition to implement economic development strategies. In particular, Burundi, Ethiopia, and Zambia are developing national strategies to increase export opportunities under AGOA. Supply-side constraints are the main obstacles to increasing and diversifying AGOA exports.”

The apparel industry has been one of the biggest beneficiaries of AGOA, especially regarding the largesse of foreign investment. “The report’s findings suggest that AGOA’s impact on foreign direct investment (FDI) has been strongest in the apparel industry. Overall, the program’s trade benefits and eligibility criteria appear to have motivated AGOA beneficiary countries to improve their business and investment climates. AGOA has had a positive impact on FDI inflows, particularly in the textile and apparel sector in Kenya, Lesotho, Mauritius, Swaziland, and Botswana, and also in South Africa’s automotive industry.”

The report warns that, despite the promise clearly contained within AGOA, the apparel industry is still confronted with “numerous competitive challenges.” For example, the “SSA generally suffers from an insufficient base of apparel manufacturing through which to develop and sustain upstream production of yarn, fabric, and other inputs. Another study characterizes the textile sector as the “weak link” in the SSA cotton-textile-clothing value chain. Other competitive challenges facing upstream production of inputs include lack of knowledge of regional or international market opportunities, too little reliable electricity at competitive rates, insufficient clean water and wastewater treatment facilities, and inadequate transportation infrastructure, among others.”

Despite these obstacles to success, the ITC report is generally optimistic about the apparel industry’s future prospects in sub-Saharan Africa. “Despite these challenges, efforts continue to develop textile and apparel regional supply chains in other parts of SSA. For instance, in 2009 COMESA launched the development of a cotton-to-clothing supply chain strategy to improve coordination within the sector. One initiative under the strategy aims to strengthen collaboration in the areas of research and policy between Malawi, Mozambique, Zambia, and Zimbabwe. Another initiative under the strategy aims to develop linkages in cotton and yarn between Zimbabwe and Mauritius.”

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