Forbes
Team Biden Should Avoid Harming AGOA
As day turns to night in Ethiopia, International crisis negotiators are feverishly working to avoid an all-out civil war…
America has utilized several pressure tactics in an attempt to bring this outbreak to a resolution, but none have worked so far. The latest is to give Ethiopia a 60-day notice of withdrawal from the African Growth and Opportunity Act (AGOA) and that action is of great concern for American retailers. The proposed “AGOA-EXIT” strategy is meeting resistance – because a significant amount of the Ethiopia’s GDP growth is centered on the success of AGOA, and dislocation from the program could make the situation even worse for Ethiopia and perhaps for all sub-Sahara countries. On top of that, there are many American retail companies involved with manufacturing in Ethiopia and a quick withdrawal means having only a few months to wind down production – and that is simply not enough time.
The abrupt “AGOA-EXIT” plan flies in the face of USA retailers and brands who have invested in Africa and this unique action also frames America as a cut-and-run partner in a geographic area that everybody knew (going in) was fraught with risk. When the conflict finally gets resolved (and it will), losing AGOA means that thousands of Ethiopians will be put out of work, and products destined to the USA retail markets will be transferred back to more stable locations at a great cost to the investors – forcing additional price inflation back home in America.
President Biden is now being cast as the one who is delivering former President Trump’s trade messages to China and to Africa. The Biden team failed to lift Trump’s inflationary retail tariffs on China and, at the same time, inadvertently blocked the China exit doors – as retailers look for other locations to source product with fewer and fewer choices. Now that Ethiopia is suddenly coming off line, it appears that sourcing options are being eliminated faster than they are being added.
For more than a year, terror has reigned in the northern Tigray region of Ethiopia…
While only 6% of the overall population, the Tigray group dominated Ethiopia politics for more than 25 years until Prime Minister Abiy came to power in 2018 using a coalition government. Since then, with the help of American and Chinese investment, Ethiopian GDP has been growing at a rapid rate and the second most populous country in Africa has been relatively stable. However, the Tigray group was marginalized from governing, and fighting broke out in the north. Forces from neighboring Eritrea also teamed up with the government against the Tigray, and the conflict accelerated from there. Humanitarian aid to Tigray has been blocked, there are serious reports of atrocities and famine in the region.
Options for U.S. Government to resolve the crisis have been limited, but the steps taken over the last year have also been ineffectual…
On November 1st the United States Trade Representative announced the 60-day “AGOA-EXIT” warning for Ethiopia, but some think it was a poor choice and not helpful for Ethiopia or for Africa. The U.S. State Department then advised that U.S. citizens should quickly leave the country.
While the USA should not extend privileges to any country that performs adversely to any trade agreement, the Ethiopian issue needs to be put in context. Over the years, it has been U.S Government practice to suggest that retailers and sourcing executives work in emerging foreign countries. The idea is that providing entry level jobs and training will create stability for the population, and it is a system that has worked well as the federal government provides a duty-free environment in return. The problem of late is that the U.S. government is not standing behind their “ask” and not helping to protect the investments that companies have make on their behalf. In this case, it would be more reasonable if they offered a time extension to manufacturers (so they can evaluate their options with regard to losing AGOA), or if they offered exemptions to industries like apparel and footwear that provide significant local employment.
This described loss of “protection” for the investments is fracturing a private-public partnership that has existed for years. Using a trade agreement (like AGOA) as a political negotiating tool, doesn’t jibe with the Ethiopian sewing machine operator who is one year into their first-ever job. The workers shouldn’t be blamed for human rights abuses in their country – when it is someone else who is abusing the power.
Multiple Industrial parks were built in Ethiopia, and thousands of Ethiopians have been employed. For the apparel sector, exports are generally consigned to the United States under the AGOA umbrella. As Team Biden starts to peel back these AGOA benefits, it punishes the investors, the employees, and adds significant turmoil to a country already in turmoil. It would be a one-off if this was only happening in Ethiopia, but lonely eyes also turn to Guinea, to Mali, to Myanmar, to Cambodia, and to Nicaragua – where similar threats against U.S. trade benefits exist.
All of this turmoil brings trade wonks to ask if the U.S. Government is working for or against investors by pulling trade benefits when the going gets tough. It appears that Uncle Sam may not have their back, and with four years left the current AGOA term, it also seems like the Trumpian ideology of individual “bi-lateral” country trade agreements will prevail, even as the AGOA folks are talking about bilateral versus unilateral – to keep the agreement from going away.
Read the full article at forbes.com »
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