African Apparel Exports, AGOA, and the Trade Preference Illusion

Abstract

The African Growth and Opportunity Act (AGOA) is a preferential trade agreement between the United States and approved African countries, allowing duty-free and quota-free access to the U.S. market. Following AGOA’s implementation in 2000, several African countries experienced a dramatic increase in exports to the United States. Nevertheless, AGOA exports, employment, and other benefits may prove to be short-term gains. As a form of temporary trade diversion from Asian countries, the increased exports may arise less from competitive advantages than from trade preferences that will erode over time. This paper focuses on garment exports from the African countries most affected by the preferential access with the United States under AGOA. An analysis based on ten-digit HS trade categories shows that African apparel enters the United States at sharply lower unit prices than similar products from China and India. Given Africa’s higher costs, it is believed that this disparity results from specialized production in low-quality garments. We argue that export value and growth, often used to gauge the success of preferential trade agreements like AGOA, can be misleading. To assess the local contribution to the African economy of AGOA benefits, our paper examines value added in Kenya. Given information for each investment in Kenyan EPZs, we calculate local inputs as a percentage of sales and other measures. The results suggest that the real benefits of AGOA in apparel may be smaller than commonly believed.