Officially enacted in 2000, the African Growth and Opportunity Act (AGOA) has shown promising results, with ITA (International Trade Administration) noting, “Since its implementation, AGOA has encouraged substantial new investments, trade, and job creation in Africa. It has helped to promote Sub-Saharan Africa’s integration into the multilateral trading system and a more active role in global trade negotiations. It has also contributed to economic and commercial reforms which make African countries more attractive commercial partners for U.S. companies.” 

For international business professionals looking into new markets, especially U.S. markets, this trade act is compelling in many ways. However, many details cannot be overlooked, and any international trade plans using AGOA require strict oversight, guidance, and strategy. That’s why FITT and our partner Africa Business Venture held a joint event on AGOA on July 7, 2021.

This event, Understanding the African Growth and Opportunity Act (AGOA) and How It Can Benefit Your Business with U.S. Trade featured CITPs, International Trade Lawyers and African Business Experts—each of whom gave insights into some of the most common questions about Africa, AGOA and international laws pertaining to business between Africa and the United States.  

With fantastic questions from attendees and detailed answers from the panelists, the event provided a wealth of information for anyone interested in AGOA, international trade in Africa, and overall global trade practices, highlighted below: 

Event Panelists:

• Host: Sonia Galat, Director, Africa Business Venture 
• Moderator: Rob Howard, CITP, Of Counsel, Canada, Givens & Johnston PLLC 
• James (Gar) Hurst: Partner, Givens & Johnston 
• Karl Miville de Chêne: CITP, MBA, Partner at TFO Canada 
• Nilesh Mistry: Customs & Trade Consultant Misca Advisors Ltd. 

Why was AGOA created? 

Karl Miville de ChêneKarl Miville de Chêne: CITP, MBA, Partner at TFO Canada:  

AGOA has been put in place in order to favour less developed countries in the southern part of the continent of Africa. These countries produce all kinds of things: edible food, minerals, arts and crafts and, also, technical objects. Now they’re producing cars and airplanes…you’d be surprised what they can offer. In regard to services, tourism, the IT and IP sectors in countries like Rwanda or Nigeria are humongous and can be used in many ways for American companies.

Now, one of the reasons AGOA was put in place was to be favorable to exporting African producers, but it also was put in place to build a commercial bridge between the United States and these parts of the African continent. There are all kinds of training and support trade missions in different African countries when they adapt to the AGOA requisite… [together] it helps create a better commercial environment.

What kind of services and products does Africa have to offer? 

Nilesh Mistry, Customs & Trade Consultant, Misca Advisors Ltd: 

In terms of products and services, Africa’s got a diverse range of products and services to offer. You’ve got tourism opportunities, you’ve got IT opportunities… Africa is really a growing continent, especially the youngsters who are getting into a lot of technology products that are really quite world-class. But, again, understanding a market means having to spend time in that market, having to do due diligence to find out who you can talk to and who can give you what you need.

You’ve got to be very careful. Yes, international trade is a good business, but it’s a very risky business and, as a business, you’ve got to ask, “How can I reduce and minimize my risks?” Don’t go in thinking, “I can make a lot of money.” Instead, go in asking “What are the risks involved and how can I avoid them?” Africa, like every other country, has its share of shocks, so  you can use distributors and agents, but make sure that you’ve vetted them thoroughly and know what they can offer you and what you can give them. 

What is required to be an AGOA-eligible country? 

 Rob Howard, CITP, Of Counsel, Canada, Givens & Johnston:

To be an AGOA-eligible country, a country has to prove that it’s establishing and following market-based economies and the rule of law. Things like the elimination of barriers to U.S. trade, investment protection of intellectual property, efforts to combat corruption, policies to reduce poverty, increasing the availability of health care and education, protecting human rights, worker rights, and the elimination of childhood labor practices.

When I first heard about AGOA, I thought, why would it be in the country’s best strategic interest to just lower all their tariff barriers and then not demand anything in return? The answer is, I think the U.S. is looking at this as a way to put forward their values and develop these relationships with countries. Kind of like Karl was saying, that’s in their best interest as well. 

What’s the difference between qualifying for AGOA and claiming the country of origin? 

James (Gar) Hurst, Partner, Givens & Johnston: 

There are actually two different things: there’s qualifying for AGOA, which means that 35% of the costs have to be realized in the AGOA country. And then there’s shifting the country of origin which is a slightly different concept. There’s a number of rules and tests that have to be looked at but, essentially, the idea is this: if all you’re doing is repackaging, cleaning, washing, or, in some cases, just merely assembling already manufactured parts, then that is not going to be sufficient work in the country to determine the origin.

What is transshipment and why is it such a concern for US customs? 

James (Gar) Hurst, Partner, Givens & Johnston: 

Transshipment means a couple of different things. Most of the world thinks of transshipment as “Hey, you know, we took the ship from Legos to Rotterdam, and we took the container off of that vessel and put another vessel and went from Rotterdam to the United States. A lot of people think of that.

Transshipment in customs means something different. It means that you’re taking goods from one country, China, for example, and are trying to pass them off as products of another country. That’s important because a lot of goods from China are subject to extremely high duties—in some cases, well over to 300%—in the United States. So, there’s a real temptation there for those producers who now have lost their market to sell to anyone who will take it, then stamp Made in India or Made in Bangladesh, and then try to turn around and sell it to the United States. That is a crime. It’s a crime if you’re doing it fraudulently.

If you’re doing it just sort of negligently the problem is that those goods are still subject to those duties which can be a really nasty surprise for your customer when they’re importing these goods. And now, suddenly, the government comes to them and says, “Oh you owe us you know hundreds of hundreds of thousands or millions of dollars in duties that you weren’t expecting to pay—that would be a problem for profit margin.”

To discover more questions and answers about AGOA, watch the event recording. To learn more about FITT and Africa Business Venture’s partnership, read Looking to diversify? Here’s how and why you should consider entering African markets  

The post Understanding the African Growth and Opportunity Act (AGOA): Event Recap  appeared first on Trade Ready.

It’s been a long and winding road for the U.S. and South Africa over the issue of poultry, one that may even cause the U.S. to exclude South Africa from the African Growth and Opportunity Act (AGOA), a trade deal between the U.S. and 40 African nations.

On November 5, U.S. President Barack Obama issued a letter to South Africa, saying the U.S. would suspend duty-free treatment of South African agricultural goods exported to the U.S. should South Africa fail to address what the U.S. government saw as barriers to American products.

Obama handed South Africa an ultimatum

“I am taking this step because South Africa continues to impose several longstanding barriers to U.S. trade, including barriers affecting certain U.S. agricultural exports, and thus I have determined that South Africa is not making continual progress toward the elimination of barriers to United States trade and investment as required by Section 104 of AGOA,” he said in the letter, published on the White House’s official web site.

Simply put, if South Africa does not remove the anti-dumping duties it put on U.S. poultry exporters for flooding the market, the country will be excluded from the trade deal.

One commentator asserted that this was a marked digression from previous practice.

Cyril Prinsloo, a researcher at the South African Institute of International Affair’s Economic Diplomacy Program, noted that “The suspension of AGOA preferences to sub-Saharan African countries in the past depended on their commitment to democratic principles and respect for basic human and workers’ rights.”

Obama gave South Africa 60 days to resolve all the issues surrounding the AGOA conditions.

Preserving duty-free access to a top trade market

South Africa has responded, successfully negotiating a veterinary trade agreement that would restrict exported American chicken to poultry which had only been raised in states which did not experience a bird flu outbreak in the past year.

In 2014, 21 U.S. states reported incidences of bird flu, which has concerned South Africans.

Losing duty-free access to the U.S. market would have repercussions beyond the poultry industry.

Though the U.S. is no longer the country’s top trade partner – that post has been held by China since 2014 – it is South Africa’s third largest trade partner, with South Africa exporting more than US$8 billion in 2014.

South African critics of the trade arrangement argue that South African chicken farmers stand to lose from the influx of American-bred poultry.

But there are important reasons why South Africa benefits from being a part of this trade agreement, for reasons that are not related to poultry.

Protecting non-poultry farmers

AGOA inclusion has provided a boon for firms producing other agricultural producers, such as wine, nuts, and avocados.

The opportunity to actively participate in a globally competitive market, unhindered by trade barriers, is an important one for South Africa.

Participating in mature markets presents a bevy of benefits for South African firms, increasing their efficiency, strengthening their marketing, and honing their market research skills.

South African agricultural producers also get a major stamp of approval when their products are allowed into U.S. markets. It sets off a trigger effect, encouraging other developed economies to import similar goods from South Africa.

As it stands, it appears U.S.-bred poultry will be allowed into the South African market early next year.

It remains unlikely that the U.S. will exclude South Africa, sub-Saharan Africa’s second-largest economy after Nigeria, from the AGOA.

But South Africa will have to make substantial progress in meeting U.S. demands and dismantling what the U.S. sees as trade barriers to ensure it’s not left out in the cold.

Do you think the U.S.’s demands on South Africa are fair and warranted?

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The Obama administration in the U.S. is intent on developing closer trade relationships with African countries, as evidenced by a recent trip partly funded by the U.S.-sponsored International Trade Association to the continent in mid-September.

As part of the delegation, 108 American companies, including both small businesses and larger corporations, accompanied the association to the following countries: Angola, Ethiopia, Ghana, Kenya, Mozambique, Nigeria, South Africa, and Tanzania.

During the trip, the delegation secured deals thought to be worth more than $14 billion in total, the U.S. Under-Secretary of Commerce for International Trade Stefan Selig said.

This is up from $7 billion in commitments to African commerce made at the U.S.-African Business Forum and the U.S.-Africa Leaders Summit in 2014.

U.S.-Africa trade is already growing rapidly

Goods exported by the U.S. to the African continent have increased by almost 60% since 2009, Selig said in a statement.

Total amount of U.S. trade with every African country is roughly equal to our [U.S.] trade relationship with Brazil.

The U.S. can make the greatest impact on African markets by investing in areas most in need of capital, which includes infrastructure and energy, one South African trade official said.

The American government is interested in increasing its trade relationship with African states for several reasons, among which is the end of the Agreement on Textiles and Clothing, part of an agreement under the auspices of the World Trade Organization.

The agreement limited the amount of textiles developing governments could export to developed countries. As a result of the lifting of the regulation, African states found themselves in more intense competition with countries in Asia and Latin America.

Another is to increase the American presence in African markets, which are now largely dominated by China.

AGOA is providing a stumbling block for future growth

While the trade mission recorded a successful trip, the U.S. trade agreement known as AGOA (African Growth and Opportunity Act), signed in 2000, is hitting an impasse as the U.S. is reconsidering South Africa’s inclusion in the pact.

AGOA is a trade deal with 39 African countries, renewed on a 10-year basis, most recently in June.

But debacles over poultry have caused a months-long rift between the U.S. and South Africa.

As it stands, the South African minister responsible for trade insists that South Africa has done everything necessary to meet the conditions of the trade deal, while the American side said there are still major unresolved issues.

The two sides had reached an agreement on poultry in June, but this accord suffered a setback shortly afterwards when avian flu was reported in the U.S.

Foreign ownership a major source of contention

South Africa exported $7.5 billion in shipments under the trade deal in 2014; of this, 75% was comprised of equipment for transportation. According to the USTR, the five largest exports from South Africa in 2013 were platinum and diamonds; automobiles; iron and steel; ores, slag, and ash; and machinery.

Poultry accounted for $24 million of U.S. exports to South Africa in 2013.

Poultry is not the only issue of dispute in the U.S.-South Africa rift.

Other stipulations require African countries to allow the U.S. to remove all barriers to investment and trade, which runs counter to proposed plans by the South African government to limit foreign ownership of companies operating in the private security sphere to 49%.

Such a regulation would violate the terms of AGOA, and would force Florida company ADT Corp. to give up control of its subsidiary in South Africa.

While other African nations have been kicked out of the trade program, South Africa is perhaps the most visible, if only second largest, economy of the nations participating in the agreement, and therefore has a reduced likelihood of being booted from the accord.

According to UN publication AfricaRenewal, exports from South Africa accounted for 13% of all exports under AGOA in 2011.

Could doing business in this growing market be part of your global growth strategy?

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Tariffs are taxes that countries impose on imported products for one of two major purposes: protectionism or social change.

Most countries participate in the World Trade Organization. This worldwide independent body acts as mediator between countries to resolve trade disputes, often over trade rules for imports, and is dedicated to the reduction and removal of all tariffs between member nations. In spite of these efforts, there is still a long way to go.

Tariffs in global trade 101

The basic truth in international business is that countries have competitive advantages over other countries. These advantages can be in access to raw materials, cheap labor, and technological expertise.

As a result of these advantages, the cost of products produced in those countries can often be significantly lower.

Governments then use tariffs to ‘level the playing field,’ so that products produced internally can compete with lower cost imports.

Governments also use tariffs as leverage to encourage social change. Most countries are not at all receptive to other governments telling them what to do.

On the other hand, they are usually very interested in improving their economies. They can therefore be persuaded to implement changes in human rights practices, corruption, pollution, etc., in exchange for reduced tariffs and greater access to markets for their exports.

Because countries use tariffs as a tool, they can change as frequently as government priorities do. For the importer, this requires constant vigilance. Policy changes can profoundly impact profitability and change the competitive balance in the marketplace.

Get your calculators ready

Navigating the complex tariff schedules can be a daunting task. If you fail to identify the product correctly, you can face penalties and fines, perhaps even loss of import privileges.

Inaccurately identifying the country of origin can have serious consequences.

Even the tiniest discrepancies in the description of the product can cause huge differences in the duties charged.

Let’s say you are an Italian shoe manufacturer and would like to import running shoes to the United States. In this case, the tariff rate is based upon the value of the shoes.

If our shoes are worth more than $6.50 but not over $12.00, then we can use the harmonized tariff schedule and look up code 6402.91.8005 – “Tennis shoes, basketball shoes, gym shoes, training shoes and the like”. There is no special tariff rate for Italy or the European Union, so we know we will be charged the default rate of $0.90 / pair + 20% of the value of the shoes.

If those same shoes came from Colombia, the rate would be $0.54 / pair + 12% of the value of the shoes. And if they were made in Morocco they can be imported duty-free.

To further complicate matters, if the value of the shoes exceed $12.00 they must be imported on code 6402.91.9005 and the tariffs are slightly lower.

This creates the following bizarre scenario:

If the shoes are valued at $12.00, the tariff per pair is $3.30 bringing the cost per pair to $15.30. If the manufacturer should implement a 2% price increase to $12.24, the tariff per pair is only $2.45, so the cost per pair becomes $14.69!

Get to know the rules even better than U.S. Customs

We advise our clients to get a binding opinion from the U.S. Customs and Border Protection agency before importing a product into the U.S. This opinion will provide some clarity in terms of tariffs, and eliminate surprises at the border that could adversely affect the bottom line.

To our amazement, we found that the changing rules sometimes confuse the very agency tasked with enforcing them.

One of our clients is an importer of tahini, a sesame seed based product. They identified a particular strain of the seed, grown in Ethiopia, which has the taste they sought.

They contracted with a factory in Israel to manufacture the product and began importing tahini duty-free under the free trade agreement between Israel and the United States. This arrangement allowed them to contain their costs, while introducing their product to the U.S. market.

In July of 2014, we began negotiations with a factory in Ethiopia to manufacture the product closer to the source, thus eliminating the cost of transporting the seeds to Israel.

When we sought guidance from Customs and Border Protection, our first response was that the import, classified under 2008.19.9090, would not qualify for any trade preference, and as such would be charged the default tariff of 17.9% (much too high to make it economically feasible).

However, the rules on this were confusing at best.

In the past, importing tahini from Ethiopia could be done duty-free, since it was covered under the General System of Preferences (GSP). Unfortunately, the GSP was allowed to expire on July 31, 2013.

Products from Ethiopia also qualify for special duty-free treatment under the African Growth and Opportunity Act (AGOA). However, tahini was not among the products that were included in AGOA. Careful research uncovered an obscure paragraph in the rules which stated:

“Imports of GSP-eligible imports for beneficiary countries of the African Growth and Opportunity Act (AGOA) will continue to be eligible for duty-free entry, notwithstanding the lapse in GSP authorization, pursuant to the provisions in the statute governing the AGOA program”

We presented this citation to the agency and received a binding opinion that no tariff would be charged.

The moral of the story is that careful research and diligence is the only way to guarantee that your imports will be treated fairly and the proper tariffs applied.

What products could your business potentially reduce tariffs on with some more research? Do you have any stories to share on the topic of tariff rules?

The post What you need to know about tariff rules to avoid getting overcharged for your imports appeared first on Trade Ready.

South Africa’s inclusion in the U.S. African Growth and Opportunity Act (AGOA) trade agreement is less than certain after a protracted battle between South African and American poultry associations over South Africa’s imposition of duties on U.S. chicken.

The squabble over chicken has led some U.S. lawmakers to suggest that South Africa be placed on a three-year probationary period, with reviews every six months, once the AGOA is renewed for a 10-year term.

Why the AGOA is important for the South African economy

The U.S. is due to re-authorize the AGOA, which opens export opportunities to the US for a host of Sub-Saharan African nations, before Sept. 30, 2015. The program was first authorized in 2000 for a fifteen-year term.

Though the amount of imports from AGOA countries totals around 1% of U.S. exports, manufactured goods from South Africa have accounted for the bulk of these goods. The U.S. is South Africa’s third-largest trading partner, after China and the European Union, accounting for 6.8% of its total trade.

South African exports to the States have been particularly focused on vehicles, but also include minerals – such as diamonds, chemical products, and machinery. In 2014, South Africa exported US$8.3 million in goods to the U.S.

Though U.S. economic benefits from the program are minimal, it has served to improve relations with Sub-Saharan countries across the board.

What has chicken got to do with it?

The poultry standoff began when the U.S. expressed outrage over the South African government imposing anti-dumping penalties on U.S. frozen chicken part imports in 2000. ‘Dumping’ refers to foreign companies or countries exporting goods at a price lower than locally-produced goods.

The poultry industry is critically important to the South African economy, one South African trade official said, as it has the “propensity to create jobs” and creates “empowerment” in the workforce, as part of an effort to reverse decades of apartheid-enforced segregation and inequality.

The South African Poultry Association (SAPA) has been adamant about the need to protect South African poultry producers in any trade deal with the U.S.

The U.S. refutes the charge that is undercutting local industries by exporting chicken to South Africa, pointing to a vast increase in demand for poultry.

An April 1 statement from the U.S. Department of Agriculture claims that South African consumption of chicken products has increased substantially; according to this document, South Africa imported 70,000 tons of chicken in 2000, yet imported more than 400,000 tons in 2014. The report states,

The reality is that the South African domestic industry hasn’t been able to keep up with increases in consumer demand, and foreign imports are already an integral part of the market

Could there be a resolution on the horizon?

After several weeks of both sides trading barbs, the SAPA stated on April 21 that it is willing to make concessions to ensure South Africa is included in the renewed AGOA treaty.

SAPA is drafting a letter with “realistic, rational and reasonable proposals,” SAPA CEO Keith Lovell told South African newspaper Independent Online.

“I am confident that what we propose is fair and rational,” he said.

For the Americans, the sweet spot is to get sufficient access to not find it worthwhile to pursue the matter.

The country’s Department of Trade and Industry said the proposed compromise will see U.S. chicken exports restored to 2000 levels, while accounting for an increase in the market since that year.

However, trade negotiators will still have to work out what the tonnages of chicken parts and whole chickens will be. Lovell is understood to be unhappy with proposed volume amounts suggested by the U.S..

It remains unclear when a final decision will be reached, but South African negotiators will have to keep in mind that the current AGOA framework expires at the end of September.

Do you think the parties will reach an agreement in time for the September deadline? Do you think South African sensitivities on the poultry issue are justified?

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