Brookings-UN Report Gets It Wrong on AGOA

The Brookings Institution’s Africa Growth Initiative, in conjunction with the United Nations Economic Commission for Africa, recently released an important report on possibilities for renewing the African Growth and Opportunity Act (AGOA). The report uses a standard trade model to explore the impact of various scenarios. It has the imprimatur of two prestigious institutions and was launched at a high-profile event with US Trade Representative Michael Froman as featured speaker, so it could be an important contribution to the debate over the future of AGOA.

Unfortunately, the report misrepresents its own results on a key policy question: what would be the impact on the African beneficiaries of AGOA if the United States extended duty-free market access to all least developed countries (LDCs), including those in Asia? On p. 15 the report says:  

As a whole, exports of textile and apparel from AGOA-eligible countries to the U.S. would decrease by 37.5 percent (see annex E) if [AGOA-like preferences and] the textile and apparel clause were to be granted to all LDCs, as compared to the current AGOA situation in 2025.

I believe that this statement is misleading at best, based on information available in the report and a brief email exchange with one of the authors.

The estimated drop in average AGOA exports of textiles and apparel is actually the combined result of simulating the extension of AGOA-like benefits to non-African LDCs and the withdrawal of AGOA benefits from middle income countries, including Kenya and Mauritius. It isn’t entirely clear why the authors place so much emphasis on scenarios that assume the exclusion of middle income countries (three of four scenarios in this chapter). Moreover, according to the latest World Bank country classifications, Kenya is still a low-income country, but perhaps the authors assume that it will be middle-income by 2025, the base year for the scenarios. This is important because, together with Lesotho, which remains an LDC, Kenya, South Africa, and Mauritius  account for nearly 90 percent of apparel exports under AGOA.

So the real policy question is: how much of the estimated 37.5 percent decline in exports from AGOA eligible countries would be the result of competition from Asian LDCs, and how much would be due to the exclusion of middle income African countries? The study doesn’t attempt to untangle these effects and from the data presented it’s pretty much impossible to tell.  I was able to get a rough idea of the impact on Lesotho, the major AGOA beneficiary that would remain eligible for the program while having to compete with the non-African LDCs, by comparing the outcome of two scenarios. Result: garment and apparel exports were about 1.5 percent lower than they would have been otherwise. (See here for the nitty-gritty details.)

The bottom line is that—contrary to how it has generally been understood—this seemingly authoritative study provides little support for the much ballyhooed argument that extending duty-free access to non-African LDCs would unduly harm African exporters of garments and apparel. So far as I can tell, the impact on Lesotho appears to be quite small and the report does not offer data that would make it possible to estimate the impact on Kenya and Mauritius, the other two big apparel exporters under AGOA.

We do know, however, that it is possible to protect existing AGOA exporters while opening important new export opportunities for other very poor countries, notably Bangladesh and Cambodia. I explain how this could work here.