Africa Growth & Opportunity Act 3 rd . US-SUB SAHARAN AFRICA TRADE AND ECONOMIC FORUM

1. Africa Growth & Opportunity Act 3rd. US-SUB SAHARAN AFRICA TRADE AND ECONOMIC FORUM “HOW TO MONITOR AND TRACK THE IMPACT OF TRADE AT THE COUNTRY LEVEL” Dr. Salomon SAMEN Ssamen@worldbank.org The World Bank

2. PRESENTATION OUTLINE • INTRODUCTION: AGOA in the Context of US Trade Policy • AGOA EARLIER ACHIEVEMENTS, AND PROSPECTS • ASSESSING QUANTITATIVE IMPACT (a) Theoretical perspective (b) Empirical evidence • ASSESSING QUALITATIVE RAMIFICATIONS • CONCLUSION: Need to extend AGOA generosity beyond 2008, improve rule of origin, and allow all products from Africa to enter the US duty and quota free.

3. INTRODUCTION AGOA in the Context of US Trade Policy • US Trade Policy Objectives Post-World War II trade policy under various administrations basically has 4 objectives: => Secure open markets for US exports => Protect domestic producers from unfair trade practices => Control trade for foreign policy and national security reasons => Foster global trade to promote world economic growth • Instruments used: 3 tracks => Multilateral track (since 1948 with GATT creation and 8 GATT trade rounds, and WTO Doha round) => Bilateral and regional agreements track (FTAs with Israel, Canada, NAFTA, FTAA-2005, US-APEC-2010, Jordan, S. Africa, Chile, Singapore, Central America) => Unilateral track (to restrict access-case of Japan in the 1970-80s or to open its vast market-case of AGOA, Andean Trade Pref. Act, CBTPA)

4. INTRODUCTION AGOA in the Context of US Trade Policy(cont.) • What is AGOA: The Plank and Cornerstone of US Trade, Investment, and Development Policy for Africa in the last 50 years. • Unilateral (One Way) extension of preferential access (duty and quota free market access) to the US market for eligible products-agricultural commodities, petroleum, minerals and manufacturing, apparel and footwear- from designated SSA countries (38 at this time). • It did not come easily. AGOA generosity was extended after many years of debate and negotiations in the US (since 1995) on what could be done to assist SSA given multiple challenges

5. INTRODUCTION AGOA in the Context of US Trade Policy(cont.) • The Multiple Challenges: Africa isolated => Although accounting for 1/8 of world population, SSA account for less than 1% of world trade, and attract less than 1% of global capital flows. => In the past 2 decades global trade volume tripled but SSA trade & share of world trade continued to decline. => SSA highly isolated – trading neither with the rest of the worldnor with between themselves (Intra-African trade well below average intra-trade for other regions of the world). => Many SSA countries continue to depend on export of a few commodities for the vast majority of export earnings – making them more vulnerable than other developing countries with more diversified economies. => Capital flight and brain drain of skilled workers are dramatic Africa isolation has deep implications for world stability, commerce and humanity.

6. AGOA EARLIER ACHIEVEMENTS & PROSPECTS • AGOA Objective: Reverse the dark picture above to stimulate SSA economic growth, facilitate its integration in the global economy and develop healthier and more stable economies in the region • What has been achieved: AGOA not a miracle-but impact has been significant =>On an aggregate basis, in its first two years, and from US Commerce Department data, US imports from SSA increased by nearly 60%. =>In 2002, while US import declined by 15%, AGOA import increased by 10%. Textiles more than doubled, agric products increased by 38%; Transport equip. from SA by 81%.

7. EARLIER ACHIEVEMENTS & PROSPECTS =>On a country by country basis – abundance of anecdotes on AGOA impact on: *employment (Since 2001, 90,000 new jobs in S-Africa; 50,000 in Kenya; 20,000 in Lesotho) *Growth of export of duty free imports from SSA to the US (In a single year –2001 versus 2000, +7,510% in Uganda, 3,150 % in Congo, 1,840% in Madagascar, 1,375% in Kenya, 1,333 % in Cameroon). • Prospects: Bright in terms of new jobs and investments opportunities, if benefits extended beyond 2008, rules of origin improved, and all products granted duty and quota free access.

8. ASSESSING QUANTITATIVE IMPACT SSA exports • US market <== SSA export <== SSA product. • SSA factors of production (Labor, Capital, Land etc..) • Theoretical perspective • * Use of partial equilibrium framework to assess impact (Pelzman & Schoepfle-1988) US market SSA production SSA factors of prod (Labor, Capital, Land, etc..)

9. ASSESSING QUANTITATIVE IMPACT (cont.) • % change in M in US, X by SSA, Revof X by SSA =f (Elasticity of Import Demand, Elasticity of Export Supply, Degree of preference) • Impact >0 if Revof X by SSA > 0 Conclusions: • Impact >0 if US Import Demand Elasticity > 0 • Revof X by SSA increases as Elasticities of Import Demand, and Export Supply are higher [Estimated elasticities doubled from 2001 to 02]

10. ASSESSING QUANTITATIVE IMPACT (Cont.) • Empirical evidence: Using various sources including web base • * Direct & IndirectJobs creation in traditional and non-traditional sectors • * Foreign investments at various stages of production process (in the short and long term, and based on each country specific political and economic conditions) • * Increased Business opportunities (wages distributed create additional demand and payment of bills) • * Construction sector for plants and lodging for workers • * Exports (will depend on existing infrastructure capacities and level of economic diversification) - e.g. export of agriculture commoditiesdoubled from 2001-2003; export of forestry products tripled on same period; Highest growth in apparels in a single year (*2.4 from 2001 to 2002) • * Imports from intra-regional trade (increased imports from Africa to respect rules of origin)

11. ASSESSING QUANTITATIVE IMPACT (Cont.) *Increase in productivity • Increase in Income per capita (wages higher in sectors more exposed to trade than other sectors) • Distributional impact by social groups • Static gains for consumers and exporters • World Bank led DTIS in the context of the multi-donor supported Integrated Framework provides for partial equilibrium assessment of trade and poverty linkages with impact analysis of likely trade policy reforms.

12. ASSESSING QUALITATIVE RAMIFICATIONS • Improvement in product standards and quality • Reduced capital flight, reversal of brain drain, and reduced labor skills exodus • Incentives for countries to reform their economies, creating an environment conducive to increased trade and investment • Measures to improve Corruption, Governance, Infrastructure, deregulation of key industries, intellectual property and labor laws • Capacity building to help prepare, implement commitments and take advantage of opportunities • Regional integration (rules of origin) • Backward/Vertical integration (case of spinning units)

13. CONCLUSION • Quantitative and Qualitative Assessment can help clarify AGOA Impact. • AGOA will be positive in the medium and long term; but Need to: 1. Extend benefits beyond 2008; 2. Improve rules of origin; and 3. Allow all products from Africa to enter the US duty and quota free