Lorenzo Rotunno, a PhD student at the Graduate Institute of Geneva, together with Vézina and Wang, wrote an interesting paper (pdf) questioning the effectiveness of the African Growth and Opportunity Act (AGOA). Their argument is that far from being a trade policy success, AGOA turned Africa into a trade corridor for Chinese firms circumventing US import quotas.
The core point here is about how stringent the Rules of Origin (ROO) should be – ROO basically determine how much value addition has to take place in the country in order to fall under the AGOA trade agreement. Rotunno et al argue that Chinese firms had a ‘symbolic’ presence in Africa – very little value addition was taking place in the region. US officials strongly denied these claims, saying that a minimum of 35% value addition has to take place in the region:
If China had invested in a factory in Mauritius or Lesotho and the company is producing apparel with Chinese investment and inputs but meeting all the rules of origin requirements and shipping to the US, that would not be transhipment. Transhipment would be where the apparel was being produced in China and sent to Lesotho where they illegally sew in a label that says ‘Made in Lesotho’ and then shipped it to the US.
The ROO are a major headache for trade agreements in SS Africa. The problem is that stringent ROO requirements squeeze out local exporters, who are usually unable to source their inputs domestically. On the other hand, if ROO are abolished, then there are problems like the ones discussed in Rotunno et al’s article. Africa-EU trade agreements are facing very similar issues.