Order Code RS21772
Updated August 12, 2004
CRS Report for Congress
Received through the CRS Web
AGOA III: Amendment to the African Growth
and Opportunity Act
Danielle Langton
Analyst in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
On July 13, 2004, the “AGOA Acceleration Act of 2004” was signed by the
President and became P.L.108-274. This legislation amends the African Growth and
Opportunity Act (AGOA; P.L. 106-200, Title I), extending it to 2015. AGOA seeks to
spur economic development and help integrate Africa into the world trading system by
granting trade preferences and other benefits to Sub-Saharan African countries that meet
certain criteria relating to market reform and human rights. Congress first amended
AGOA in 2002 (P.L. 107-210) by increasing a cap on duty-free apparel imports and
clarifying other provisions. The new AGOA amendments, referred to as “AGOA III,”
extends the legislation beyond its current expiration date of 2008 and otherwise amends
existing AGOA provisions. For further information on AGOA, see CRS Report
RL31772, U.S. Trade and Investment Relationship with Sub- Saharan Africa: The
African Growth and Opportunity Act and Beyond. This report will be updated as
needed.
Legislation to amend the African Growth and Opportunity Act of 2000 (Title I, P.L.
106-200; 19 U.S.C. 3701 et seq), the AGOA Acceleration Act of 2004 (H.R. 4103), was
passed in the House on June 14, 2004. On June 24, 2004, the bill was passed in the
Senate without amendment by unanimous consent. The President signed the bill on July
13, 2004, and it became P.L.108-274. Previously, similar legislation known as the United
States-Africa Partnership Act of 2003 (S. 1900) was introduced in the Senate on
November 20, 2003. The Senate Foreign Relations Committee held a hearing on this bill
on March 25, 2004. Another bill amending AGOA (H.R. 3572) was introduced in the
House on November 21, 2003.
Background: The African Growth and Opportunity Act
After two decades of economic stagnation and decline, some African countries began
to show signs of renewed economic growth in the early 1990s. This growth was generally
due to better global economic conditions and improved economic management.
However, growth in Africa was also threatened by new factors, such as HIV/AIDS and
Congressional Research Service ˜ The Library of Congress

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high foreign debt levels. The African Growth and Opportunity Act (AGOA) (P.L. 106-
200- Title I) was enacted to encourage trade as a way to further economic growth in Sub-
Saharan Africa and to help integrate the region into the world economy. AGOA provided
trade preferences and other benefits to countries that were making progress in economic,
legal, and human rights reforms. Currently, 37 of the 48 Sub-Saharan African countries
are eligible for benefits under AGOA.
AGOA expands duty-free and quota-free access to the United States as provided
under the U.S. Generalized System of Preferences (GSP).1 GSP grants preferential access
into the United States for approximately 4,600 products. AGOA extends preferential
access to about 2,000 additional products by removing certain product eligibility
restrictions of GSP and extends the expiration date of the preferences for beneficiary
African countries from 2006 to 2008. Other than articles expressly stipulated, only
articles that are determined by the United States as not import-sensitive (in the context of
imports from AGOA beneficiaries) are eligible for duty-free access under AGOA.
Beyond trade preferences, AGOA directs the President to provide technical
assistance and trade capacity support to AGOA beneficiary countries. Various U.S.
government agencies carry out trade-related technical assistance in Sub-Saharan Africa.
The U.S. Agency for International Development funds three regional trade hubs, located
in Ghana, Kenya, and Botswana, that provide trade technical assistance. Such assistance
includes support for improving African governments’ trade policy and business
development strategies; ability to participate in trade agreement negotiations; compliance
with WTO policies and with U.S. phytosanitary regulations; and strategies for further
benefiting from AGOA.
AGOA also provides for duty- and quota-free entry into the United States of certain
apparel articles, a benefit not extended to other GSP countries. This has stimulated job
growth and investment in certain countries, such as Lesotho and Kenya, and has the
potential to similarly boost the economies of other countries, such as Namibia and Ghana.
In order to qualify for this provision of AGOA, however, beneficiary countries must
develop a U.S.-approved visa system to prevent illegal transshipments. Of the 37 AGOA-
eligible countries, 25 are qualified for duty-free apparel trade (wearing-apparel qualified).
These countries may also benefit from Lesser Developed Country (LDC) status.
Countries that have LDC status for the purpose of AGOA, and are wearing-apparel
qualified, may obtain fabric and yarn for apparel production from outside the AGOA
region. As long as the apparel is assembled within the LDC country, they may export it
duty-free to the United States. Some LDC AGOA beneficiaries have used this provision
to jump-start their apparel industries. This provision was due to expire on September 30,
2004. The AGOA Acceleration Act extends the LDC provision to September 30, 2007,
with a reduction in the cap on the allowable percentage of total U.S. apparel imports
beginning in October 2006. S. 1900 would have extended it to September 30, 2008,with
no reduction in the cap. Countries that are not designated as LDCs but are wearing
apparel qualified must use only fabric and yarn from AGOA-eligible countries or from
the United States. The only wearing apparel qualified non-LDC countries are South
1 The Generalized System of Preferences is a program offering trade preferences to less
developed countries, including those from Sub-Saharan Africa. See CRS Report 97-389,
Generalized System of Preferences, by William H. Cooper.

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Africa and Mauritius, which are also the only AGOA countries with long-established
textile sectors.
AGOA was first amended in the Trade Act of 2002 (P.L. 107-210), which doubled
a pre-existing cap set on allowable duty-free apparel imports. The cap was only doubled
for apparel imports that meet non-LDC rules of origin; apparel imports produced with
foreign fabric were still subject to the original cap. The amendment also clarified certain
apparel rules of origin, granted LDC status to Namibia and Botswana for the purposes of
AGOA, and provided that U.S. workers displaced by production shifts due to AGOA
could be eligible for trade adjustment assistance.
Three Years of AGOA: Successes and Challenges
U.S. duty-free imports under AGOA (excluding GSP) increased dramatically in 2003
— by about 58%, from $8.36 billion in 2002 to $13.19 billion in 2003 — after a more
modest increase of about 10% in 2002.2 However, 70% of these imports consisted of
energy-related products from Nigeria. Excluding Nigeria, U.S. imports under AGOA
increased 30% in 2003, to $3.84 billion, up from $2.95 billion in 2002. These imports
increased by 56% in 2002, from $1.89 billion in 2001. The increase in AGOA imports
in 2002 is impressive, in fact it helped offset a decline in total U.S. imports from Sub-
Saharan Africa in that year, from $21 billion to $18 billion. Almost half of the increase
in AGOA imports came from the textiles and apparel industry — $355.9 million in 2001,
$799.7 million on 2002, and $1.197 billion in 2003. Much of the growth in AGOA-
related apparel industry imports has come from the newly emerging apparel industries in
Lesotho, Kenya, and Swaziland. Ghana, Botswana, Malawi, and Namibia have also
begun to develop apparel industries, but growth in these countries has been less robust.
Apart from the apparent success of the emergent apparel industries in some African
countries, the potential benefits from AGOA have been slowly realized. There has been
little export diversification, with the exception of a few countries whose governments
have actively promoted diversification. Agricultural products are a promising area for
African export growth, but African producers have faced difficulties in meeting U.S.
sanitary guidelines. Many countries have been slow to utilize AGOA at all. Others, such
as Mali, Rwanda, and Senegal, have implemented AGOA-related projects, but have made
insignificant gains thus far. In addition to lack of market access, there are substantial
obstacles to increased export growth in Africa. Key impediments include insufficient
domestic markets, lack of investment capital, and poor transportation and power
infrastructures. Other significant challenges include low levels of health and education,
protectionist trade policies in Africa, and the high cost of doing business in Africa due to
corruption and inefficient government regulation. Furthermore, the apparel industry in
Africa faces a large impending challenge in the dismantling of the Multifibre
Arrangement quota regime in 2005, at which time it will have to compete more directly
with Asian producers for the U.S. market. AGOA beneficiaries will retain their duty-free
advantage, but they will lose their more significant quota-free advantage. This makes
export diversification in Africa all the more vital.
2 See U.S. International Trade Commission dataweb at [http://dataweb.usitc.gov/].

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Key Provisions in AGOA III
AGOA III extends the preference program to 2015. AGOA III supporters claim that
many AGOA beneficiaries have only recently begun to realize gains as a result of AGOA,
and that extending AGOA benefits now would improve the stability of the investment
climate in Africa. AGOA III also provides for apparel rules of origin and product
eligibility benefits; it would extend the third-country fabric rule for LDCs, and encourage
foreign investment and the development of agriculture and physical infrastructures.
Extension of Lesser Developed Country Provision. One of the more
controversial aspects of AGOA III was the extension of the LDC provision. If the LDC
provision had not been extended, LDCs would no longer have duty-free access to the
United States for apparel made from third-country fabric after September 30, 2004.
Supporters of the extension claim that if the LDC provision was not extended, the apparel
industry may have contracted significantly, causing a loss of many of the gains from
AGOA, as apparel assembly plants were shut down. This might have occurred because
all AGOA beneficiaries would need to source their fabric and yarn from within the
AGOA region or from the United States in order to get duty-free access under AGOA, and
the regional supply of fabric and yarn would likely be insufficient to meet the demand.3
Sourcing materials from the United States would not be a viable option because it would
entail greater costs. Some analysts argued for the LDC provision to be extended to allow
more time to develop a textile milling industry to support the needs of the apparel industry
in Africa, and to prevent the collapse of the emerging apparel industry.
Opponents of extending the LDC provision claim that the expiration of the LDC
provision would provide an incentive for further textile milling investments in Africa.
They argue that the LDC provision has slowed fabric and yarn production investment in
Africa, because these materials could be imported cheaply from Asia for use in AGOA-
eligible apparel with no need for costly investments. They fear that an extension of the
LDC provision will provide a disincentive to textile milling investment in Africa, because
the deadline will lose its credibility as investors anticipate further extensions. However,
supporters of the extension argue that investment in the textile industry will continue
because of its inherent profitability, despite the availability of third-country fabric. Others
worry that the looser rules of origin under the LDC provision may allow companies to use
Africa as a transshipment point between Asia and the United States.
The outlook for the development of a textile industry in Sub-Saharan Africa is
clouded by the phase-out of the Multifibre Arrangement (MFA) quota regime in January
2005.4 When quotas are finally eliminated, Africa will be competing more directly with
Asia for the U.S. apparel and textile market, though they will remain eligible for tariff
preferences. Apparel plants are particularly sensitive to price conditions as they do not
require large capital investments and can easily and rapidly be shifted to areas outside
Africa. Textile plants are more capital-intensive and more costly to move, and are
therefore likely to remain in Africa in the long-term. Thus, it is argued that the promotion
3 Impact of AGOA Extending LDC Fabric Import Privileges Beyond 2004, Zambia Trade and
Investment Enhancement Project, supported by USAID, Mar. 2003.
4 For further coverage of the phaseout of the MFA quota regime, see CRS Report RS20889,
Textile and Apparel Quota Phaseout: Some Economic Implications, by Bernard A. Gelb.

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of vertical integration between apparel, textile, and cotton producers is necessary to keep
apparel plants in Africa, along with the jobs they provide. There is agreement that
increased investment in the textile industry needs to take place for vertical integration to
occur; at issue is whether the extension of the LDC provision will facilitate this process.5
Agricultural Products. The growth of agricultural trade holds potential for
improved economic growth in Africa. Most Africans rely on agricultural production for
their income. It is estimated that 62% of the labor force in Africa works in agriculture, and
in the poorer countries, that portion is as high as 92%.6 By exporting to the U.S. market,
African agricultural producers could receive higher prices for their goods. In order for
this to occur, the United States may need to further open its market to African agricultural
products, and African agricultural producers will need to meet the high standards of the
U.S. market.
AGOA III seeks to improve African agricultural market access to the United States
by providing assistance to African countries to enable them to meet U.S. technical
agricultural standards. African agricultural producers have previously faced difficulties
in meeting these standards. The AGOA Acceleration Act calls for the placement of 20
full-time personnel to at least 10 countries in Africa to provide this assistance. S.1900
would provide further market access by removing the import sensitivity test, which
disallows preferential treatment under AGOA for goods that are considered to have
negative consequences for import-competing products in the United States. Proponents
of eliminating the import sensitivity test in AGOA argue that African imports account for
such a small proportion of U.S. trade that they are likely to have a small marginal negative
effect on U.S. producers, while they are likely to have a significant positive effect on
African producers. Eliminating the import sensitivity test is designed to open the U.S.
market to all products meeting the AGOA rules of origin, some of which are agricultural
products already produced, and others which could be competitively produced in Africa.
Opponents of eliminating the import sensitivity test contend that certain U.S. agricultural
producers may be hurt, and it may set a precedent for preference programs with other
regions. The AGOA Acceleration Act does not contain this provision.
Table 1. Selected AGOA III Provisions Compared
S. 1900
AGOA Acceleration Act (P.L. 108-274)
Extends AGOA to 2015.
Same.
Extends LDC Rule to 2008
Extends LDC Rule to 2007, with cap of
allowable imports set at 2.64% of total volume
of U.S. apparel imports from October 2004,
2.92% from October 2005, and phased out to
1.6% from October 2006.
5 Joop A de Voest, Background Information on Effects of Extending and Not Extending the
September 2004 Deadline for Less Developed AGOA Qualified Countries to be Able to Import
Fabric from Outside the AGOA Region and Still Be Qualified to the USA Under AGOA, Zambia
Trade and Investment Enhancement Project, supported by USAID, Mar. 2003.
6 World Resources Institute, as cited on Nationmaster.com. See [http://www.nationmaster.com/
graph-T/agr_lab_sha/AFR].

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S. 1900
AGOA Acceleration Act (P.L. 108-274)
Removes the cap entirely for all apparel
Final cap of allowable apparel imports meeting
imports under AGOA.
yarn forward rules of origin remains at 7% (as
set in AGOA II) after 2007. LDC Rule imports
cap set as described above.
No similar provision.
Clarifies that apparel articles that contain fabric
both from U.S. and AGOA beneficiary countries
are eligible for benefits.
No similar provision.
Makes eligible previously disqualified apparel
goods that contain cuffs and/or collar
components from third countries.
Removes import sensitivity test
No similar provision.
requirement.
Allows Congress to prohibit the
No similar provision.
President from terminating the
eligibility of a specific country.
Adds ethnic printed fabrics to list of
Similar.
eligible Category 9 folklore and
handmade items.
No similar provision.
Increases the de minimus level of non-AGOA
originating inputs for apparel from 7% to 10%.
Removes prohibition on Overseas
No similar provision.
Private Investment Corporation (OPIC)
involvement in investment in sensitive
U.S. industries.
Directs the Export-Import Bank to fully
No similar provision.
consider any activity that may
positively affect beneficiary countries.
Directs the President to assign at least
Similar, but does not specify that the personnel
20 personnel of the Animal and Plant
must come from APHIS.
Health Inspection Service (APHIS) to
AGOA eligible countries, to help
exporters meet APHIS requirements for
agricultural imports to the United
States.
No similar provision.
Directs the President to support infrastructure
projects to assist the development of the
ecotourism industry.
Directs the President to develop
Similar.
policies to support transportation
projects in AGOA countries, to foster
transportation links with the United
States, and to develop information and
communications technologies among
beneficiary countries.

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