A Trojan Horse for Africa

Jagdish Bhagwati and Arvind Panagariya

    The Africa Act offers more to US lobby groups than to participant countries, argue Jagdish Bhagwati and Arvind Panagariya

After the failures over fast-track renewal and the Seattle debacle the Clinton administration has been claiming trade statesmanship for its victories over the vote on China's WTO entry and over the African Growth and Opportunity Act.

But the China vote was a no-brainer with the US being rewarded with many market-access concessions and China with almost none.

The African Act is also a hollow victory, but for reasons that lie in the growing corruption of US trade policy in favour of preferential trade agreements since the mid-1980s. Consistent with all experience with such agreements and, in contrast to what most favoured nation (MFN) liberalisation on products of greatest interest to Africa would do, the outcome is cynical. First, the US has imposed "reverse preferences" and trade-unrelated conditionalities demanded by its own lobbies, especially the textile lobby and the labour unions. Second, Africa's enhanced access to the US markets is less at the expense of high-cost US producers and more at the expense of other poor countries.

The Act reads superficially as if it were an "aid package", a one-way grant of free trade to the poor countries in Africa. But this gift horse is actually a Trojan horse.

The tariff preferences in the Act are contingent on preferential purchases of inputs from the US. For example, for duty-free access, shirts assembled by the qualifying African country must be made from fabrics formed and cut in the US. In addition, the fabric must be made from US yarns. This forces on Africa imports from the US, displacing cheaper imports from elsewhere.

An equally disturbing feature is the Act's capture by US lobbies to advance intellectual property (IP) rights and labour standards agendas. Thus, we have seen a zealous pursuit of the interests of the pharmaceutical industry by the US in South Africa, using the withdrawal of aid as a threat. The US went so far as to pressure the South African government not to exercise its WTO-sanctioned right to import Aids drugs from Botswana where they are sold by US drug companies at half the price they charge in South Africa. Under the Africa Act, one can be sure that the eligibility for membership will similarly imply accommodation of IP concessions that cannot be extracted in a multilateral context.

The Africa Act also points a dagger at the virtually united opposition by the developing countries to the insertion of labour standards into the WTO. By making these standards - including even minimum wages - a precondition for trade preferences under the Act, the US is trying to divide and rule: once African nations accept the Act's proposed link between market access and labour standards, the US will be able to threaten other developing countries into submission to its unions-led - but socially harmful - campaign to put a Social Clause into the WTO.

Sadly, when most trade is liberalised multilaterally all the tariff preferences, including those under the Africa Act, will disappear. Yet, the cost in terms of intellectual property and labour standards will remain, not just for Africa but for other developing countries as well.

Indeed, the Act poses an added threat to non-qualifying countries: its trade preferences are likely to end up undermining the exports of other countries in and outside the region.

Thus, it is likely that the richer African countries will find it easier to fulfil the long list of conditions - which extend far beyond intellectual property rights and labour standards - required to qualify for the preferences. Imagine, then, that shirt exports from South Africa qualify for duty-free access to the US while those from Ghana do not. That would expand shirt exports from South Africa at the expense of possibly more efficient shirt producers in Ghana. If all of the eligible 48 African countries qualified, the expansion of exports from Africa would be at the expense of poor countries elsewhere in the world. MFN liberalisation for Africa would be free from these mangy-dog-eat-mangier-dog probabilities.

Indeed, preferences for developing countries have a poor record of assisting development through trade. By contrast, the true growth miracles such as those in East Asia have been generated by countries that simply went for world markets with appropriate export-oriented strategies. Telling Africa that it needs preferences is to suggest that it needs a handicap in a race Africa can win only through its own trade efforts. MFN trade liberalisation for products of special interest to African nations, combined with special aid and technical assistance programs to enable them to take advantage of the new trade opportunities, are the better answer.

The writers are professor of economics at Columbia University and professor of economics at the University of Maryland, respectively.

Financial Times, June 29 2000: Personal View