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entitled 'U.S.-Africa Trade: Options for Congressional Consideration to 
Improve Textile and Apparel Sector Competitiveness under the African 
Growth and Opportunity Act' which was released on August 12, 2009. 

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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

August 2009: 

U.S.-Africa Trade: 

Options for Congressional Consideration to Improve Textile and Apparel 
Sector Competitiveness under the African Growth and Opportunity Act: 

GAO-09-916: 

GAO Highlights: 

Highlights of GAO-09-916, a report to congressional committees. 

Why GAO Did This Study: 

According to U.S. government officials, sub-Saharan Africa’s (SSA) 
textile and apparel industry has not achieved the growth anticipated 
under the African Growth and Opportunity Act (AGOA). Despite the tariff 
reductions under AGOA, after an initial surge, U.S. imports of these 
products from beneficiary countries have declined in recent years (see 
figure). In view of this outcome, the 2008 Andean Trade Preference 
Extension legislation required GAO to prepare a report identifying 
changes to U.S. trade preference programs “to provide incentives to 
increase investment and other measures necessary to improve the 
competitiveness of [SSA] beneficiary countries in the production of 
yarns, fabric, and other textile and apparel inputs.” 

This report is intended to provide Congress a range of options put 
forward by experts for (1) possible changes to AGOA or other U.S. trade 
preference programs and (2) other measures the U.S. government could 
take to help increase investment in and improve competitiveness of SSA 
textile and apparel inputs production. 

To address these objectives, GAO considered the findings of a study 
prepared by the U.S. International Trade Commission that identified 
products that could be produced competitively in AGOA beneficiary 
countries. GAO also convened a panel of experts and key informants to 
discuss their views and prioritize the options that GAO identified. 

What GAO Found: 

Many of the options discussed by the panel of experts GAO convened 
address the need to consider the trade-offs inherent in trade 
preference programs. Furthermore, experts emphasized that the link 
between trade policy and economic development complicates potential 
policy responses. While AGOA has generous benefits for textile and 
apparel, many SSA countries face infrastructure and development 
challenges that must be addressed before they can fully take advantage 
of these benefits. 

Recognizing this interplay, GAO’s panel of experts and key informants 
gave greatest priority to options they believed provide long-term 
investors with predictability of benefits and encourage regional 
commitments relative to other developing countries. Such options 
included: 

* Extending the duration of the third-country fabric provision for 
least developed AGOA countries beyond 2012, and; 

* Extending the duration of overall AGOA benefits beyond 2015. 

The panel similarly gave greatest priority to the options for other 
development measures that focused on supporting investment through 
trade capacity building. Many experts considered trade capacity 
building to be a key component of improving the competitiveness of 
African textile and apparel inputs production, and in developing the 
physical and market infrastructure needed for a vibrant export sector. 
Such options included: 

* Funding regional trade hubs and focusing on market promotion and 
business linkages, and; 

* Aligning U.S. trade capacity building and development assistance with 
AGOA objectives. 

Figure: U.S. Imports of Textile and Apparel from SSA, 1998 through 
2009: 

[Refer to PDF for image: line graph] 

Year: 1998; 
U.S. Imports of Textile and Apparel from SSA: $0.55 billion. 

Year: 1999; 
U.S. Imports of Textile and Apparel from SSA: $0.61 billion. 

Year: 2000; 
U.S. Imports of Textile and Apparel from SSA: $0.78 billion. 

Year: 2001; 
U.S. Imports of Textile and Apparel from SSA: $0.97 billion. 

Year: 2002; 
U.S. Imports of Textile and Apparel from SSA: $1.12 billion. 

Year: 2003; 
U.S. Imports of Textile and Apparel from SSA: $1.53 billion. 

Year: 2004; 
U.S. Imports of Textile and Apparel from SSA: $1.78 billion. 

Year: 2005; 
U.S. Imports of Textile and Apparel from SSA: $1.49 billion. 

Year: 2006; 
U.S. Imports of Textile and Apparel from SSA: $1.32 billion. 

Year: 2007; 
U.S. Imports of Textile and Apparel from SSA: $1.32 billion. 

Year: 2008; 
U.S. Imports of Textile and Apparel from SSA: $1.18 billion. 

Year: 2009; 
U.S. Imports of Textile and Apparel from SSA: $1.16 billion. 

Source: GAO analysis of official U.S. trade statistics. 

[End of figure] 

View [hyperlink, http://www.gao.gov/products/GAO-09-916] or key 
components. For more information, contact Loren Yager at (202) 512-4347 
or yagerl@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Expert Panel's Options for Congressional Consideration of Possible 
Changes to AGOA or Other Trade Preference Programs: 

Expert Panel's Options for Congressional Consideration of U.S. 
Government Measures to Improve Competitiveness of the Textile and 
Apparel Inputs Sector in AGOA Beneficiary Countries: 

Conclusion: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Panel's Options for Possible Changes to AGOA or Other U.S. 
Trade Preference Programs: 

Appendix III: Panel's Options for Other Possible Measures to Support 
SSA Textile and Apparel Sector: 

Appendix IV: Further Details about the Panel Ranking Exercises: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: U.S. Textile and Apparel Imports by Type, 2008: 

Table 2: Ranking Session for Possible Changes to AGOA: 

Table 3: Ranking Session for Possible Other Changes: 

Figures: 

Figure 1: AGOA Beneficiary Countries, 2008: 

Figure 2: U.S. Imports of Textiles and Apparel from SSA, 1998 through 
2009: 

Figure 3: Trends in Market Shares of Selected Textile and Apparel 
Exporters to the United States, 1988 to April 2009: 

Abbreviations: 

AGOA: African Growth and Opportunity Act: 

Ex-Im: Export-Import Bank: 

ITC: U.S. International Trade Commission: 

LDC: lesser-developed countries: 

MCC: Millennium Challenge Corporation: 

MFA: Multi-Fiber Arrangement: 

OPIC: Overseas Private Investment Corporation: 

USAID: U.S. Agency for International Development: 

USTR: Office of the U.S. Trade Representative: 

SSA: sub-Saharan Africa: 

TCB: trade capacity building: 

TDA: U.S. Trade and Development Agency: 

WTO: World Trade Organization: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

August 12, 2009: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Charles Grassley:
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Charles B. Rangel: 
Chairman: 
The Honorable Dave Camp: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

The African Growth and Opportunity Act (AGOA), signed into law in 2000, 
is a U.S. trade preference program that is intended to stimulate 
economic growth and help integrate Africa into the global economy. 
[Footnote 1] AGOA allows eligible[Footnote 2] sub-Saharan African (SSA) 
countries to export qualifying goods to the United States without 
import duties. Benefiting from these duty-free provisions, U.S. textile 
and apparel imports from SSA countries are currently 52-percent higher 
than before AGOA implementation in 2000 and account for a significant 
proportion of non-oil imports from AGOA countries. However, despite the 
tariff advantage, AGOA textile and apparel imports still represent only 
1.3 percent of total U.S. imports of these goods. Overall, the African 
textile and apparel industry has not achieved the growth in production 
or trade anticipated by U.S. supporters and AGOA beneficiaries. 
Production of AGOA textile inputs (such as yarn, fabric, zippers, and 
trim) was supposed to deepen the African industrial base and contribute 
to a more competitive African apparel industry. However, U.S. apparel 
imports from AGOA countries have declined since 2005. In addition, U.S. 
yarn and fabric imports from SSA have declined from about $24.2 million 
in 1998 to $15.6 million in 2008. Over the past few years, Congress has 
sought ways to enhance AGOA benefits to improve the competitiveness of 
SSA textile and apparel inputs production. 

This report responds to a mandate in the 2008 Andean Trade Preference 
Extension legislation requiring us to submit a report with 
recommendations for changes to U.S. trade preference programs "to 
provide incentives to increase investment and other measures necessary 
to improve the competitiveness of beneficiary sub-Saharan African 
countries in the production of yarns, fabrics, and other textile and 
apparel inputs...."[Footnote 3] We were required to base the report, in 
part, on the findings of a study prepared by the U.S. International 
Trade Commission (ITC), under the same mandate, to "identify yarns, 
fabrics, and other textile and apparel inputs that through new or 
increased investment or other measures can be produced competitively in 
beneficiary sub-Saharan African countries." At the request of staff 
from the House Committee on Ways and Means, we expanded our study 
objectives to include a review of measures that are beyond the scope of 
traditional U.S. trade preference legislation, such as incentives for 
investment and trade capacity building. The mandate also required us to 
prepare a report 90 days after the ITC study was issued. Thus, in this 
report, we provide information on options experts have put forward that 
Congress may wish to consider for (1) possible changes to AGOA or other 
U.S. trade preference programs and (2) other measures the U.S. 
government could take to help increase investment in and improve 
competitiveness of textile and apparel inputs production in SSA. Some 
of the options presented would require legislative action while others 
could be implemented administratively. 

To prepare this report, we reviewed ITC reports on SSA, including 
hearing materials and the ITC study[Footnote 4] conducted under the 
same mandate as our review, and reviewed literature on issues related 
to the textile and apparel industry and investment in SSA countries. We 
also interviewed knowledgeable U.S. agency officials, researchers, and 
consultants involved in work related to U.S.-Africa trade, private- 
sector representatives of the U.S. and African textile industries and 
the U.S. retail and apparel import industries, and officials from 12 
African embassies in Washington, D.C. Through these sources, we 
identified numerous suggestions for how the U.S. government could 
support competitiveness in the African textile and apparel industry. On 
June 2, 2009, we convened a panel of experts and key informants that 
considered the industry challenges and potentially competitive products 
described in the ITC report. We asked the panel to consider ways to 
improve the competitiveness of the African textile and apparel inputs 
industry and to rank these options as higher or lower priorities for 
Congress to consider. As discussed with congressional staff, to meet 
the 90-day deadline provided by the mandate, the options presented in 
this report are based on the opinions of experts and key informants and 
should not be interpreted as GAO recommendations. GAO did not evaluate 
the potential impacts or the economic costs and benefits of the options 
discussed. We conducted our work from January through July 2009 in 
accordance with all sections of GAO's Quality Assurance Framework that 
are relevant to our objectives. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence to 
meet our stated objectives and to discuss any limitations in our work. 
We believe that the information and data obtained, and the analysis 
conducted, provide a reasonable basis for any findings and conclusions 
in this product. (See appendix I for a complete description of our 
scope and methodology.) 

Background: 

AGOA, signed into law on May 18, 2000, was designed to promote free 
markets, stimulate economic growth in SSA, and facilitate SSA's 
integration into the global economy. According to the Office of the 
U.S. Trade Representative (USTR), AGOA provides duty-free access to 
U.S. markets for more than 6,000 dutiable items in the U.S. import 
tariff schedules.[Footnote 5] All 48 countries in SSA are potentially 
eligible for AGOA, but some have not met the eligibility criteria, and 
the program currently has only 40 beneficiaries. See figure 1. Most 
U.S. imports of textiles and apparel from SSA countries come from no 
more than 10 countries (Ethiopia, Kenya, Lesotho, Madagascar, 
Mauritius, Nigeria, South Africa, Swaziland, Tanzania, and Zambia). 
Together, these countries account for 97 percent of U.S. textile and 
apparel imports from SSA. 

A key feature of AGOA is its provisions for duty-free preferences for 
specific textile and apparel goods subject to rules of origin 
limitations.[Footnote 6] Eligibility for textiles and apparel benefits 
is based on conditions more selective than the general AGOA conditions 
and is only available to select AGOA countries.[Footnote 7] AGOA 
provides duty-free and quota-free treatment for eligible apparel 
articles made in qualifying SSA countries through 2015. Qualifying 
articles include: 

* Apparel made of U.S. yarns and fabrics; 

* Apparel made of SSA (regional) yarns and fabrics until 2015, subject 
to a cap; 

* Apparel made in designated SSA lesser-developed countries (LDC) 
[Footnote 8] of third-country yarns and fabrics originating anywhere in 
the world, until 2012, subject to a cap--commonly referred to as the 
"third-country fabric provision;"[Footnote 9] 

* Apparel made of yarns and fabrics not produced in commercial 
quantities in the United States; and: 

* Textile or textile articles originating entirely in one or more 
lesser-developed beneficiary SSA countries; certain cashmere and merino 
wool sweaters; and eligible hand-loomed, handmade, or folklore 
articles, and ethnic printed fabrics. 

Figure 1: AGOA Beneficiary Countries, 2008: 

[Refer to PDF for image: map of Africa] 

AGOA-eligible: 
Angola; 
Burundi; 
Congo; 
Democratic Republic of the Congo; 
Djibouti; 
Gabon; 
Guinea; 
Guinea-Bissau; 
Liberia; 
Mauritania; 
Togo; 

AGOA-eligible and eligible for AGOA apparel benefits: 
Benin; 
Botswana; 
Burkina Faso; 
Cameroon; 
Chad; 
Ethiopia; 
Ghana; 
Kenya; 
Lethoso; 
Madagascar; 
Mali; 
Mozambique; 
Namibia; 
Nigeria; 
Sengal; 
Seychelles (country not classified as LDCS); 
Sierra Leone; 
South Africa (country not classified as LDCS); 
Swaziland; 
Tanzania; 
Uganda; 
Zambia. 

Source: GAO analysis of U.S. Department of Commerce, International 
Trade Administration data; map (clipart). 

Notes: Mauritania was declared AGOA-eligible on June 28, 2007, but has 
lost its eligibility effective January 1, 2009. 

South Africa and Seychelles are not classified as LDCs and thus are not 
eligible for the "third-country fabric" provision. 

[End of figure] 

Industrialization in many developed countries was initiated in the 
textiles and apparel sectors, and some developing countries have relied 
on these sectors to significantly increase and diversify exports, with 
positive effects on incomes, employment, and poverty levels. Proponents 
of AGOA anticipated that by providing generous preferences for imports 
of textiles and apparel from AGOA-eligible countries, AGOA 
beneficiaries would be able to leverage these advantages to replicate 
this industrialization process. After AGOA was implemented, there was 
an initial surge of U.S. textile and apparel imports from beneficiary 
countries. U.S. imports of SSA products from SSA increased from $776 
million in 2000 to about $1.8 billion in 2004. However, after 2004, 
when quotas under the Multi-Fiber Arrangement (MFA)[Footnote 10] were 
removed, U.S. imports of these products from SSA declined by about one- 
third, to $1.2 billion in 2008. See figure 2. 

Figure 2: U.S. Imports of Textiles and Apparel from SSA, 1998 through 
2009: 

[Refer to PDF for image: multiple line graph] 

Year: 1998; 
Total imports: $0.55 billion; 
Apparel imports: $0.52 billion. 

Year: 1999; 
Total imports: $0.61 billion; 
Apparel imports: $0.58 billion. 

Year: 2000 (AGAO implemented); 
Total imports: $0.78 billion; 
Apparel imports: $0.75 billion. 

Year: 2001; 
Total imports: $0.97 billion; 
Apparel imports: $0.95 billion. 

Year: 2002; 
Total imports: $1.12 billion; 
Apparel imports: $1.10 billion. 

Year: 2003; 
Total imports: $1.53 billion; 
Apparel imports: $1.51 billion. 

Year: 2004 (MFA quotas removed); 
Total imports: $1.78 billion; 
Apparel imports: $1.76 billion. 

Year: 2005; 
Total imports: $1.47 billion; 
Apparel imports: $1.46 billion. 

Year: 2006; 
Total imports: $1.32 billion; 
Apparel imports: $1.29 billion. 

Year: 2007; 
Total imports: $1.32 billion; 
Apparel imports: $1.29 billion. 

Year: 2008; 
Total imports: $1.18 billion; 
Apparel imports: $1.15 billion. 

Year: 2009; 
Total imports: $1.16 billion; 
Apparel imports: $1.1 billion. 

Source: GAO analysis of official U.S. trade statistics. 

Note: 2009 values shown are year to date, April 2009, with data 
projected to the end of the year. 

[End of figure] 

Although AGOA provides some of the most generous preferences under any 
U.S. trade program, as figure 3 shows, in 2008, SSA countries accounted 
for 1.3 percent of total U.S. textile and apparel imports. In contrast, 
China accounted for 35 percent of U.S. imports of textiles and apparel, 
while Bangladesh and Cambodia accounted for 3.8 and 2.6 percent, 
respectively. In 2008, U.S. textile and apparel imports from China were 
28 times the value of those from SSA countries. In that same year, U.S. 
textile and apparel imports from Bangladesh were 3 times those from all 
SSA countries combined. 

Figure 3: Trends in Market Shares of Selected Textile and Apparel 
Exporters to the United States, 1988 to April 2009: 

[Refer to PDF for image: multiple line graph] 

Year: 1998; 
SSA: 1%; 
Bangladesh: 3%; 
China: 10%; 
Cambodia: 1%. 

Year: 1999; 
SSA: 1%; 
Bangladesh: 3%; 
China: 10%; 
Cambodia: 1%. 

Year: 2000 (AGAO implemented); 
SSA: 1%; 
Bangladesh: 3%; 
China: 9%; 
Cambodia: 1%. 

Year: 2001; 
SSA: 1%; 
Bangladesh: 3%; 
China: 9%; 
Cambodia: 1%. 

Year: 2002; 
SSA: 2%; 
Bangladesh: 3%; 
China: 12%; 
Cambodia: 1%. 

Year: 2003; 
SSA: 2%; 
Bangladesh: 3%; 
China: 15%; 
Cambodia: 2%;. 

Year: 2004 (MFA quotas removed); 
SSA: 2%; 
Bangladesh: 2%; 
China: 17%; 
Cambodia: 2%. 

Year: 2005; 
SSA: 2%; 
Bangladesh: 3%; 
China: 25%; 
Cambodia: 2%. 

Year: 2006; 
SSA: 1%; 
Bangladesh: 3%; 
China: 29%; 
Cambodia: 2%. 

Year: 2007; 
SSA: 1%; 
Bangladesh: 3%; 
China: 34%; 
Cambodia: 3%. 

Year: 2008; 
SSA: 1.3%; 
Bangladesh: 3.8%; 
China: 35.1%; 
Cambodia: 2.6%. 

Year: 2009; 
SSA: 1.3%; 
Bangladesh: 5.1%; 
China: 34%; 
Cambodia: 2.6%. 

Source: GAO analysis of official U.S. trade statistics. 

Note: 2009 values shown are year to date, April 2009, with data 
projected to the end of the year. 

[End of figure] 

Moreover, U.S. imports of textile and apparel products from SSA are 
predominantly apparel. As illustrated in table 1, apparel constitutes 
98 percent of this type of U.S. import from AGOA beneficiaries, while 
yarn, fabrics, and made-ups[Footnote 11] represent less than 2 percent 
of all U.S. textile and apparel imports from SSA. By contrast, U.S. 
imports of these products from all countries make up a larger part--23 
percent--of textile and apparel trade. The modest share of U.S. imports 
of textile and apparel inputs, including yarn and fabrics, from SSA 
countries reflects not only limited production of these inputs in the 
region, but also the fact that an integrated apparel and textile sector 
with potential to serve as an engine of economic development is not 
available. 

Table 1: U.S. Textile and Apparel Imports by Type, 2008 (Dollars in 
millions): 

Apparel: 
U.S. imports from SSA, 2008: Value: $1,151; 
U.S. imports from SSA, 2008: Percent of total: 98; 
Total U.S. imports, 2008: Value: $71,568; 
Total U.S. imports, 2008: Percent of total: 77. 

Fabrics: 
U.S. imports from SSA, 2008: Value: $13; 
U.S. imports from SSA, 2008: Percent of total: 1; 
Total U.S. imports, 2008: Value: $5,120; 
Total U.S. imports, 2008: Percent of total: 5. 

Yarn: 
U.S. imports from SSA, 2008: Value: $2; 
U.S. imports from SSA, 2008: Percent of total: 0; 
Total U.S. imports, 2008: Value: $1,322; 
Total U.S. imports, 2008: Percent of total: 1. 

Made-ups: 
U.S. imports from SSA, 2008: Value: $10; 
U.S. imports from SSA, 2008: Percent of total: 1; 
Total U.S. imports, 2008: Value: $15,177; 
Total U.S. imports, 2008: Percent of total: 16. 

Total: 
U.S. imports from SSA, 2008: Value: $1,177; 
U.S. imports from SSA, 2008: Percent of total: 100; 
Total U.S. imports, 2008: Value: $93,187; 
Total U.S. imports, 2008: Percent of total: 100. 

Source: GAO analysis of official U.S. trade statistics. 

[End of table] 

Several studies and experts have pointed out that current trends in 
U.S. textile and apparel markets are less conducive to African sourcing 
because low-cost Asian producers (China, India, and Bangladesh) with 
relatively modern production facilities have developed a competitive 
advantage, challenging SSA textile and apparel in the United States and 
elsewhere. Also, the U.S. market has experienced significant 
consolidation in the retail sector resulting in lean retailing methods-
-the combination of low inventories and frequent restocking. Lean 
retailing[Footnote 12] requires retailers to closely track their sales 
using electronic data to facilitate fast communication with suppliers. 
From the standpoint of suppliers, the method demands great flexibility, 
as they must be able to adjust output, and ship and deliver products 
quickly. Less flexible suppliers that can only compete on selling cost 
and not on timeliness are at a disadvantage. As a result, aspects of 
the lean retailing method do not favor African suppliers that have less 
advanced production technology that limits their flexibility to meet 
changing demands. 

Duty-free access for textile and apparel imports from SSA countries 
under AGOA reduces the competitive edge of low-cost Asian producers. 
However, duty-free access alone may not overcome the advantages Asian 
producers enjoy due to long-standing, established trade channels. 
Africa's lack of resources to significantly improve its trade 
infrastructure--power, water, production facilities, etc.--adds to the 
disadvantages of sourcing from SSA countries. Furthermore, 
underdeveloped production facilities, including aged existing plants 
and equipment, increase the cost of production while reducing quality 
and variety. SSA's challenging business climate, primary corruption and 
political instability, adds to the difficulty of attracting new and 
increased investment. Uncertainty about AGOA's duration and preference 
erosion (a weakening in the effectiveness of preferences due to falling 
prices in the world market caused by general trade liberalization) also 
limit the attractiveness of beneficiary countries for foreign and 
domestic investors. 

The ITC study on the competitiveness of apparel and textile inputs 
identified products that have the potential to be produced 
competitively in SSA countries, such as cotton yarn, cotton knit 
fabric, cotton denim fabric, and woven cotton shirting. Cotton is 
widely cultivated in the region, and is the primary fiber currently 
used in the production of yarn and fabric in SSA countries. These 
products can either be directly exported or used in downstream 
production of apparel for export. Other items cited for potential 
competitive production in the region were niche products that supply 
narrow markets such as organic cotton products, woven wool fabric, high-
tech and industrial fabrics and local print fabrics. As the global 
demand for organic and environmentally friendly goods increases, 
organic cotton products, for example, might be competitive in the 
global marketplace. Woven wool fabrics and high-tech and industrial 
fabrics, which South Africa currently supplies to the United States and 
Europe, also have the potential to be more competitive in these 
markets. Africa has a long tradition in mostly hand-loomed local print 
fabrics. Although these fabrics are mainly produced for local markets, 
they may have potential export markets as home furnishings. Another 
promising dimension is production for Africa's own local and regional 
markets. Many African countries produce fabrics that reportedly are not 
of sufficient quality for U.S. and European markets. However, local and 
regional marketing of such items may be profitable and may encourage 
backward and forward supply chain linkages in the long run. As a whole, 
the competitive production of textile and apparel inputs in SSA 
countries varies, as each beneficiary has its own factors that 
contribute to or inhibit production. The ITC report notes that one of 
the biggest challenges affecting production of textile and apparel 
inputs in SSA countries is the lack of regional demand for these 
products. 

Expert Panel's Options for Congressional Consideration of Possible 
Changes to AGOA or Other Trade Preference Programs: 

Based on our review of the ITC study and other related research, and in 
consultation with trade and industry experts, we identified four issue 
areas where possible changes to AGOA or other U.S. trade preference 
programs could be made to improve the competitiveness of the textile 
and apparel inputs sector in SSA beneficiary countries. The four issue 
areas include (1) extending the duration of AGOA provisions and making 
AGOA permanent, (2) expanding AGOA LDC benefits to all beneficiaries 
and duty-free eligibility for other textile products, (3) creating non- 
punitive and voluntary incentives, and (4) preserving existing benefits 
under AGOA and modifying other preference programs and trade 
agreements. The panel of experts GAO convened discussed and ranked nine 
specific options for congressional consideration in each area. 
Panelists ranked each option on a 7-point priority scale that ran from 
"extremely low priority" to "extremely high priority." Among the 
specific options, the panel ranked extending the duration of the third- 
country fabric provision for LDCs beyond 2012 and extending the 
duration of AGOA beyond 2015 as being an extremely high and very high 
priority, respectively, for congressional consideration. Experts 
explained that these steps are essential to attract investment in the 
textile and apparel inputs sector because companies need to have 
certainty that AGOA benefits will persist, as investments in the 
industry are usually long term. A more detailed discussion of the issue 
areas and accompanying options follows. 

Issues Related to Extending the Duration of AGOA Provisions and Making 
AGOA Permanent: 

The options considered under this issue area were to: 

* Extend the duration of the third-country fabric provision for LDCs 
beyond 2012 to provide potential investors with greater long-term 
certainty about the program's benefits. 

* Extend the duration of AGOA beyond 2015 to provide potential 
investors with greater long-term certainty about the program's 
benefits. 

* Make AGOA benefits permanent to provide potential investors with 
greater long-term certainty about the program's benefits. 

The options to extend the duration of AGOA and its third-country fabric 
provision for LDCs stem primarily from the desire to enhance 
predictability for investors, who are risk-averse and reluctant to make 
long-term commitments in SSA with AGOA and its third-country provision 
set to expire in 2015 and 2012, respectively. According to the ITC 
report, textile and apparel firms in SSA have difficulty securing much- 
needed capital to cover operating expenses and finance costly 
infrastructure improvements. Without adequate investment, SSA countries 
are unable to capitalize on AGOA benefits. Exacerbating the situation, 
much foreign direct investment fled SSA after the 2004 removal of 
global textile and apparel import quotas. 

Panelists expressed the opinion that extending AGOA would encourage 
investment in Africa. According to previous GAO analysis, a surge in 
trade is typical upon implementation and renewal of trade preference 
programs. One panelist highlighted the idea that extending AGOA would 
enhance predictability for investment in the "missing middle" of the 
supply chain, enabling raw materials produced in Africa, such as 
cotton, to be used in local fabric and other inputs production. 
However, some panelists noted that there are currently other trade 
policy measures being developed with non-SSA regions and countries that 
compete with SSA. They argued that priority must be given to extending 
AGOA relative to other trade programs because of SSA's competitive 
disadvantage and to prevent preference erosion. The options to extend 
AGOA and its special provisions thus garnered considerable support from 
the panel of experts and emerged as very high and extremely high 
priorities, respectively. 

The option to make AGOA permanent arose in response to concern from 
investors and trade experts that a limited extension is inadequate to 
ensure long-term sustainability. Although this option would make AGOA 
program benefits permanent, each country would have to maintain its 
eligibility. There are currently many free trade agreements that offer 
duty-free benefits on a continuing basis,[Footnote 13] a significant 
change from when AGOA was first implemented. As a result, one panelist 
emphasized that AGOA needs more predictability for beneficiaries to 
compete with countries and regions with which the United States has 
free trade agreements. However, other expert testimony and previous GAO 
analysis raised concerns about the trade-off between investment 
predictability and the ability to leverage trade liberalization in 
developing countries, a cornerstone of broader global trade policy. One 
panelist observed that permanence could potentially provide a 
disincentive to implementing other internal changes in countries' 
economies that might allow them to become more competitive. 
Furthermore, AGOA permanence would not be sufficient to overcome the 
fact that the overall structure of the global textile and apparel trade 
has shifted, consolidating benefits enjoyed by Southeast Asian 
producers. As a result of these critiques, the option to make AGOA 
permanent received slightly less support than the options extending its 
duration and was assigned a generally high priority by panelists. 

Issues Related to Expanding AGOA LDC Benefits to All Beneficiaries and 
to Improving Use of AGOA: 

The options considered under this issue area were to: 

* Expand third-country fabric provision to South Africa to improve 
regional integration in the textile and apparel sector. 

* Expand AGOA LDC benefits to all AGOA beneficiaries to improve 
regional integration in the textile and apparel sector. 

Options to expand the scope of AGOA benefits to other SSA countries, 
especially to South Africa, are intended to encourage regional 
integration by fostering trade between African countries, and to 
broaden the use of AGOA. One African country official noted that the 
regional benefits of AGOA cannot be measured solely by U.S. import 
numbers. Countries gain many benefits through increased regional 
sourcing and integration. Despite the fact that the textile sector is 
one of the most regionally integrated, South Africa is not included in 
the rules of origin provision that allows use of third-country fabric 
in qualifying duty-free exports. Industry sources identified in the ITC 
report suggest that broadening third-country fabric benefits to South 
Africa would "lead to greater economies of scale and expansion in the 
apparel industry" by supporting backward and forward integration and 
development in the textile sector. A South African embassy 
representative called for such an extension by explaining that despite 
South Africa's non-LDC classification, some economic sectors are 
characterized by low levels of development. According to the ITC 
report, "industry sources stress that duty-free eligibility in the U.S. 
and EU markets for South African textiles could make a substantial 
contribution to the industry's competitiveness and that the downward 
trend in the industry might be reversed if rules of origin were amended 
to allow greater access to third-country fabrics for South African 
apparel exporters." As another example of an attempt to boost industry 
competitiveness, the ITC report cites South Africa's creation of 
"industry clusters consisting of firms from the textile, clothing, 
retail, and other sectors that work cooperatively" to offer world class 
manufacturing. ITC officials, however, stated that this approach would 
be difficult to pursue elsewhere in SSA due to inadequate 
infrastructure. Some panelists recommended modifying this option to 
simply extend AGOA LDC benefits to all SSA countries, but the primary 
focus remained on South Africa. Both the option to expand third-country 
fabric provisions to South Africa and the one to expand LDC benefits to 
all AGOA beneficiaries received similar support, emerging as generally 
high priorities. 

During the discussion on ways to expand benefits, a panelist raised the 
concern that AGOA is being underutilized, in part because certain 
specialized products containing synthetic fabrics, such as luggage, are 
not offered duty-free eligibility. A panelist with extensive knowledge 
of the textile and apparel trade noted that synthetics, some of which 
are not currently covered under AGOA, offer greater savings on duties, 
but they also have higher costs of production. Synthetics, as a subset 
of manmade-fiber products, face higher U.S. import tariffs than cotton 
products. For instance, the normal duty for a cotton t-shirt is 16.5 
percent of the value, whereas the normal duty for a manmade fiber t- 
shirt is 32 percent of the value. Thus, increased production of 
synthetic fabric could offer significantly larger duty savings for AGOA 
beneficiaries and could provide for greater utilization of benefits. 
However, another panelist pointed out that, while benefits could be 
expanded to other textile products, such a policy would not produce 
significant gains in trade or production competitiveness. Production of 
synthetic fibers is capital intensive, requires extensive 
infrastructure capabilities, and relies heavily on petrochemicals. SSA 
countries generally lack such capacity and, as a result, synthetics 
represent a small portion of the region's overall textile exports. The 
discussion concluded with the view that pursuing increased production 
of synthetic fabrics is unrealistic given the realities of the SSA 
textile and apparel sector. 

Issues Related to Creating Non-punitive and Voluntary Incentives: 

The option considered under this issue area was to: 

* Create a voluntary "duty credit" program for U.S. importers of 
apparel from AGOA beneficiaries that is manufactured using fabric from 
the region. 

The option to create non-punitive incentives to encourage use of 
regional inputs offers a way to stimulate voluntary regional 
investment. The non-punitive focus is a direct response to the negative 
results of the previously implemented "abundant supply" provision, 
[Footnote 14] which penalized the insufficient use of domestic fabric 
by disallowing duty-free eligibility. The ITC report cited one industry 
source as suggesting an "earned import allowance program," similar to 
those in place for Haiti and the Dominican Republic, as a possible 
approach to creating non-punitive incentives to encourage use of 
regional inputs. Such an incentive program would allow apparel 
producers to earn the right to use third-country fabric, provided they 
use specified volumes of regional fabric. Some panelists, however, 
pointed out that this program is intended to facilitate the exchange of 
U.S. content in a specific bilateral relationship, which is not 
entirely relevant to AGOA. The earned import program was thus rejected 
in favor of the option of a simple "duty credit" approach. 

A simplified duty credit program would create a non-punitive incentive 
for use of African regional fabric. For example, a U.S. firm that 
imports jeans made with African origin denim would earn the right to 
import jeans from Bangladesh, duty free. A ratio could then be set to 
account for competitive differences, such as a specified square meter 
equivalent of African origin jeans earning a credit for a specified 
square meter equivalent of Bangladeshi origin jeans. Panelists that 
supported this option focused especially on its voluntary and non- 
punitive nature. However, one panelist expressed concern that the duty 
credit program is an indirect approach to stimulating African textiles 
that would be ineffective. Ultimately, the duty credit program received 
extensive support, emerging as a very high priority. 

Issues Related to preserving Existing Benefits under AGOA and Modifying 
Other Preference Programs and Trade Agreements: 

The options considered under this issue area were to: 

* Refrain from extending trade preferences provided under AGOA to LDCs 
outside SSA to preserve benefits for textile and apparel production in 
AGOA beneficiary countries. 

* Modify rules of origin provisions under other U.S. trade preference 
programs or free trade agreements to provide duty-free access for 
products that use AGOA textile and apparel inputs. 

* Simplify AGOA rules of origin to allow duty-free access for certain 
partially assembled apparel products with components originating 
outside the region. 

The option to refrain from extending AGOA-type preferences to other 
LDCs aims to preserve advantages that allow the textile and apparel 
industry in SSA to compete in the global market. The issue of 
preference erosion was raised by experts we consulted and in literature 
we reviewed, as well as in the ITC report. In particular, there is some 
controversy regarding whether LDCs in Asia that are not included in 
U.S. regional preference programs should be entitled to the same 
benefits enjoyed by SSA LDCs that are AGOA beneficiaries. As we 
previously reported,[Footnote 15] two of these countries--Bangladesh 
and Cambodia--have become major producers and exporters of apparel to 
the United States and have sought duty-free access to U.S. markets. In 
comments filed with USTR, some African beneficiary countries, as well 
as certain U.S. industries, have opposed the proposals currently under 
consideration at the World Trade Organization (WTO) Doha Round 
negotiations to provide "duty-free, quota-free" access for all LDCs. 
African trade experts and African government representatives reiterated 
concerns that giving preferential access to Bangladesh and Cambodia for 
apparel might endanger continued development of the African apparel 
export industry that has grown up under AGOA. The ITC study also cited 
sources cautioning against extending duty-free treatment to highly 
competitive textile and apparel producing countries. 

Trade preference erosion received considerable attention from the GAO 
expert panel. One panelist noted that the proposal to grant duty-free, 
quota-free access to LDCs has been provisionally accepted by WTO Doha 
Round negotiators. In effect, this provision would undercut the 
exclusive benefits currently enjoyed by AGOA beneficiaries. A private- 
sector representative on the panel said many companies believe that 
duty-free, quota-free access will go into effect if the Doha Round is 
successfully concluded, and the belief is already affecting their 
decisions on where to invest. On the other hand, other experts on the 
panel pointed out that duty-free, quota-free access, as currently under 
consideration in Doha Round negotiations, would cover only 97 percent 
of tariff lines. The provision to exclude 3 percent of tariff lines 
could be used to protect trade preferences for countries that are less 
competitive in key sectors, such as textile and apparel production. A 
panelist representing international textile and apparel producers in 
Africa said that some of the major manufacturers doing business in AGOA 
countries have stated that they would move production to Bangladesh or 
Cambodia if these countries are granted duty-free access for textile 
and apparel. Given the potentially critical impact of extending AGOA 
benefits to LDCs outside Africa, panelists gave the option to refrain 
from extending preferences to non-SSA LDCs a very high level of 
priority for congressional consideration. 

Options to modify rules of origin provisions under AGOA and other U.S. 
trade preference programs or free trade agreements are intended to 
benefit SSA textile and apparel input production by providing 
opportunities to combine production with U.S. trade partners in other 
regions. Panelists suggested an option for simplifying rules of origin 
provisions in AGOA to grant duty-free access for partially assembled 
garments that are jointly produced in other countries that are U.S. 
free trade partners or benefit from U.S. trade preferences. For 
example, a consultant doing business with companies producing in AGOA 
countries explained that one of his clients had expressed interest in 
assembling high-value shirts in one AGOA beneficiary with collars and 
cuffs produced in a non-AGOA country, but was unable to because of 
rules of origin restrictions. According to ITC officials and the 
Harmonized Tariff Schedule, such partial assembly of garments is 
currently allowed under AGOA, but confusion persists among SSA 
manufacturers and outside experts. Furthermore, one expert expressed 
concern that placing an increased emphasis on partially assembled 
garments might relegate SSA manufacturers to lower value-added 
production. The ITC study also refers to African government and 
industry sources' recommendations for changing the rules of origin 
under non-AGOA trade preference programs and free trade agreements to 
allow apparel made with SSA fabric to qualify for duty-free treatment 
in the United States. Similarly, one panelist representing companies 
that produce in Africa noted that the U.S.-Morocco Free Trade Agreement 
could theoretically be modified to provide duty-free benefits for 
textile and apparel items produced with inputs from AGOA countries. 
However, other panelists indicated such changes to most existing free 
trade agreements would have minimal impact on the competitiveness of 
AGOA producers. They noted that, due to the small scale of textile and 
apparel production in the region and the distance between AGOA 
beneficiaries and countries that have a free trade agreement with the 
United States, such arrangements would probably not be viable. 
Panelists assigned these options to modify rules of origin provisions 
as generally high priorities for congressional consideration. 

Expert Panel's Options for Congressional Consideration of U.S. 
Government Measures to Improve Competitiveness of the Textile and 
Apparel Inputs Sector in AGOA Beneficiary Countries: 

As part of our review, we consulted with experts on measures the U.S. 
government could take to help increase investment in and improve the 
competitiveness of textile and apparel inputs production in SSA, beyond 
changes to AGOA. Based on our review of the ITC study and other related 
research, and in consultation with trade and industry experts, we 
identified five issue areas in which the U.S. government could take 
action to improve the competitiveness of the textile and apparel inputs 
sector in AGOA beneficiary countries. These issue areas include (1) 
infrastructure development, (2) trade capacity building (TCB) 
assistance, (3) U.S. government international finance entities, (4) SSA 
regional integration, and (5) unfair trade practices of AGOA 
competitors. Under these issue areas, the panel discussed and ranked 25 
specific options for congressional consideration. Panelists ranked each 
option on a 7-point priority scale that ran from "extremely low 
priority" to "extremely high priority." The panel ranked funding 
regional trade hubs to provide TCB to the industry and aligning TCB and 
development assistance with AGOA as extremely high priorities for 
Congress to consider. Many of the experts we consulted consider TCB a 
key component of improving the competitiveness of the textile and 
apparel inputs industry in the region. Furthermore, they consider it 
necessary to address problems that affect competitiveness of the 
industry to maximize the benefits of AGOA. A more detailed description 
of the issue area and accompanying options is presented below. 

Issues Related to Infrastructure Development: 

The options considered under this issue area were to: 

* Realign U.S. trade policy and programs to support infrastructure and 
energy development in Africa to ensure trade preferences and assistance 
result in projects that will improve competitiveness of industries in 
the region. 

* Increase collaboration with African governments and international 
donors to improve infrastructure and energy. 

* Reauthorize the Millennium Challenge Corporation (MCC) and adjust the 
legislation to allow more private-sector involvement, create regional 
compacts, and extend the duration of compacts. 

* Create incentives for private-sector investment and provision of 
services in infrastructure and energy by leveraging resources in a 
manner that creates better business opportunities. 

* Encourage programmatic coordination among U.S. government entities 
involved in development assistance and trade programs to develop 
infrastructure and energy projects that reduce the cost of doing 
business. 

* Incorporate metrics to measure reduction in the cost of doing 
business for infrastructure investment. 

* Support renewable energy technology transfer to SSA countries that 
might have a natural disposition for such production to address energy 
supply shortages. 

Options to support infrastructure development are intended to lead to a 
reduction in the cost of doing business in SSA countries. There is 
general agreement among experts we consulted, the ITC study, and other 
literature we reviewed that inadequate infrastructure is one of the 
main obstacles to doing business in Africa and one of the factors that 
most affects the competitiveness of production of textile and apparel 
inputs in SSA. Production of textile and apparel inputs is particularly 
affected by the lack of reliable power supplies, lack of abundant clean 
water, and poor transportation infrastructure. The ITC study reports 
that many SSA countries have among the highest cost rates and the most 
unreliable supply of electrical power in the world. According to the 
study, disruptions in electricity supply reduce productivity and add to 
cost. For example, a disruption in power supplies can ruin an entire 
production run in yarn and fabric mills, and increase cost do to the 
use of back-up generators. ITC also reported that the lack of an 
abundant supply of clean water in many SSA countries affects the 
production of textile and apparel inputs. Dyeing fabrics requires the 
use of clean water, which is contaminated in the process. Wastewater 
treatment capabilities are thus necessary to meet environmental 
compliance standards required in the international market. The ITC 
study and other reports indicate that poor transportation 
infrastructure is a major constraint to trade in SSA countries. Textile 
and apparel production is particularly affected in the region because 
poor transportation infrastructure inhibits the ability of producers to 
meet tight delivery schedules demanded by retailers. Delays in regional 
and international trade are caused by poor roads, railways, and ports. 

Recognizing the challenges that poor infrastructure places on trade and 
the textile and apparel sector in SSA countries, the panel discussed 
how U.S. assistance for infrastructure is supplied to the region and 
provided options that could improve its implementation. A panelist said 
that there is limited coordination among MCC,[Footnote 16] which 
provides a significant level of assistance for infrastructure, other 
U.S. assistance, and U.S. trade policy. Several panelists agreed that 
infrastructure development in Africa must be strategically planned to 
benefit exports and regional industries, and coordination between U.S. 
trade and development agencies is necessary to achieve that goal. For 
example, one panelist said that it is not only a matter of building a 
port, but making sure that the port functions well and is positioned to 
serve key industries. In the same context, a panelist representing 
textile and apparel producers in Africa indicated that for 
infrastructure development to have an impact in making the textile, 
apparel, and other industries more competitive, infrastructure projects 
must result in a reduction in the cost of doing business in SSA. 
Several panelists mentioned the need to establish metrics to measure 
benefits of U.S.-sponsored infrastructure projects. Panelists also 
discussed the need to take a regional approach for infrastructure 
development in Africa; they indicated that the bilateral approach that 
MCC takes in developing compacts limits the impact infrastructure 
projects can have. For example, one panelist said that the best way 
Kenya can reduce the cost of electricity is to invest in Ethiopia 
because Ethiopia has the greatest hydroelectric power potential in East 
Africa. Thus, Kenyan investment in a hydroelectric project in 
neighboring Ethiopia would benefit Kenyan consumers of electricity down 
the line because they would have greater access to cheaper electricity. 
A panelist from the private sector said that there need to be 
incentives created for the private sector to invest in infrastructure 
and that companies must see infrastructure projects in Africa as a 
business opportunity. Another panelist explained that there is private 
sector interest in developing energy facilities in Ethiopia; however, 
there is a lack of a transmission and distribution system, which 
discourages investment. Based on this discussion, panelists ranked the 
option on reauthorizing MCC and encouraging programmatic coordination 
for infrastructure development as extremely high priorities for 
congressional consideration. 

Issues Related to TCB Assistance: 

The options considered under this issue area were to: 

* Reauthorize the Africa Global Competitiveness Initiative to provide 
funding for U.S. Agency for International Development (USAID) trade 
hubs to provide TCB assistance to SSA. 

* Provide resources to USAID trade hubs designated for TCB assistance 
to address the competitive disadvantages the textile and apparel inputs 
sector faces by implementing business solutions and increased 
marketing. 

* Align U.S. TCB and development assistance with AGOA to ensure that it 
addresses the competitive challenges and disadvantages of exports 
industries, such as the textile and apparel inputs industry. 

* Increase and promote organic production and fair labor and trade 
practices to improve SSA countries' potential to attract international 
retailers that emphasize these practices. 

* Intensify U.S. assistance to the SSA cotton industry to improve 
production and further integrate cotton production with the textile and 
apparel industry. 

Options on TCB[Footnote 17] emphasize the need to have a stronger 
connection between trade preferences and development assistance to 
address competitive disadvantages in the textile and apparel inputs 
industry and improve business opportunities in SSA countries. TCB is 
considered by many experts we consulted to be a key component of 
improving the competitiveness of the textile and apparel inputs 
industry in SSA. However, there is a lack of funding directed at the 
textile and apparel input industry. While AGOA authorizing legislation 
refers to TCB, as we previously reported, funding for this type of 
assistance is not provided under the act.[Footnote 18] 

USAID delivers TCB assistance in Africa through four regional trade 
hubs, which are funded by the Africa Global Competitiveness Initiative, 
scheduled to expire in 2010. While several panelists expressed support 
for reauthorizing this initiative to provide funding for the regional 
trade hubs, one government official noted that congressional 
reauthorization does not mean that funding will be provided. Funding 
would need to be provided separately through the appropriations 
process. A contractor who manages the West and Southern African trade 
hubs explained that there is no funding earmarked for assistance to the 
textile and apparel inputs industry, which makes it very difficult to 
implement targeted technical assistance projects. Rather, TCB 
assistance for the textile and apparel inputs sector comes out of 
limited discretionary assistance funding. The contractor estimated that 
less than $1 million was spent by the two trade hubs on providing 
assistance to the textile and apparel industry in 2008. Nevertheless, 
according to the ITC study, textile and apparel industry 
representatives said that TCB provided by USAID trade hubs has advanced 
regional and international market opportunities. TCB assistance 
provided to the textile and apparel industry includes projects such as 
business-to-business events to foster trade linkages between the 
textile and apparel producers throughout Africa and a cross-section of 
the apparel industry doing business in the region. According to a USAID 
fact sheet, in 2007, such an event resulted in an estimated $8 million 
in new trade deals. Industry sources indicated that greater TCB 
assistance for the textile and apparel inputs sector is needed. 

Almost all members of the panel agreed that sufficient funding should 
be provided for TCB projects that increase the competitiveness of the 
textile and apparel industry by improving the ability to do business in 
the region. One panelist representing the private sector said that the 
reason AGOA has had limited results in the textile and apparel inputs 
sector is that there has not been a "supply response"--the textile 
supply industry did not respond to the trade opportunity AGOA created 
because of the industry's limited capacity. Several panelists agreed 
that to maximize the benefits of AGOA, problems that affect 
competitiveness of the industry must be addressed, such as low labor 
productivity, inability to meet industry quality standards and volume 
requirements, and transport efficiency problems. A panelist 
representing textile and apparel producers in Africa indicated that 
better coordination is needed between U.S. government trade policy and 
trade capacity assistance, allowing TCB to complement trade preferences 
and improving competitiveness. One panelist said that to achieve an 
integrated chain of production in the textile and apparel industry, TCB 
must be provided to other sectors in the supply chain. For example, to 
create an integrated chain of production in the textile and apparel 
industry, more assistance should be given to the African cotton 
industry. Also, for SSA countries to compete in the global market, 
assistance should be given to promote organic production and fair labor 
and trade practices, which may attract global retailers that emphasize 
these practices. The panel assigned options regarding funding for 
regional trade hubs to support the textile and apparel industry, and 
aligning TCB with AGOA as extremely high priority for congressional 
consideration. 

Issues Related to U.S. Government International Finance Entities: 

The options considered under this issue area were to: 

* Review and adjust the Overseas Private Investment Corporation's 
(OPIC) mandate to allow greater flexibility to support U.S. investment 
in textile and apparel inputs production in SSA countries. 

* Increase Export-Import (Ex-Im) Bank lending and guarantees to 
facilitate investment in the SSA textile and apparel sector. 

* Institute tax-related incentives for U.S. firms making a positive 
impact in AGOA countries to encourage companies to do business in these 
countries. 

* Increase support for institutions to provide access to finance for 
investment, supplier credit, and day-to-day operations. 

* Increase flexibility of OPIC, the Ex-Im Bank, and the U.S. Trade and 
Development Agency (TDA) to address local content and economic effects 
restrictions for AGOA countries. 

Options to improve support of U.S. government international finance 
entities for textile and apparel production in SSA are aimed at 
attracting investment that could help make the industry more globally 
competitive. This would be particularly important for textile 
production, which is a capital-intensive industry. The ITC report notes 
several interrelated factors that affect industries' ability to 
competitively supply textile and apparel inputs: the cost and 
availability of capital (finance); the age of plants and equipment; and 
the cost and quality of the labor pool. Firms need access to working 
capital to finance day-to-day operations and as longer-term capital 
investment to upgrade plants and equipment. However, firms in many SSA 
countries face high domestic bank lending rates, which can harm 
competitiveness. Therefore, they often use internal funds to finance 
operations. Foreign direct investment also has been an important source 
of capital for some SSA textile and apparel producers, particularly 
larger exporters. Much of the foreign investment in textiles and 
apparel comes from Asian countries, with a few other European and 
African countries also holding ownership shares. However, a substantial 
amount of textile and apparel-related foreign direct investment has 
left some SSA countries since quotas under the MFA were lifted in 2004, 
and overall foreign direct investment to SSA countries has declined. 

The expert panel, our own research, and industry and government 
submissions to the ITC have identified some options for consideration 
by Congress. One submission to the ITC noted that access to U.S. 
government-sponsored or multilateral support will need to be enhanced 
if textile production is to become more globally competitive. It noted 
that U.S.-government sponsored financing entities, such as OPIC and the 
Ex-Im Bank, have typically been reluctant to participate in African 
textile production because doing so could be politically controversial. 
For example, OPIC officials stated that OPIC's ability to provide 
guarantees for U.S. investors is limited by its screening criteria, 
which rules out projects that could have a negative effect on U.S. 
employment. The Ex-Im Bank's statutory focus is on promoting U.S. 
exports by supporting U.S. exporters or those who are importing/ 
purchasing U.S.-made products, such as textile machinery. One of our 
panelists noted that the Ex-Im Bank and TDA have restrictions on the 
amount of foreign content that can be included in a project and still 
qualify for guarantees or other support. In addition, the complications 
involved in complying with such requirements can be a disincentive for 
U.S. firms that want to do business in SSA countries. Some panelists 
urged that the United States provide more flexibility for the financing 
agencies, but one panelist raised a concern about whether such 
flexibilities would be available for all countries or whether they 
would be restricted to African countries. A written submission to the 
ITC by a representative of an African textile-and apparel-producing 
country noted that it would be beneficial if the United Sates could 
make available a line of credit (through OPIC, the Ex-Im Bank, or other 
entities) to assist private firms with viable expansion or 
modernization projects in the textile and apparel sector. This 
representative also suggested that U.S. policymakers consider making 
available an equity fund that could co-invest with local and foreign 
investors in projects in the textile and apparel sectors. Although one 
panelist raised some questions about how these latter options would be 
implemented, overall, the panel expressed a high degree of agreement in 
favor of increased flexibilities for U.S. financing agencies and 
exploring other means to provide financing or investment funds for the 
SSA textile and apparel inputs industry. 

Other options involved tax-related incentives for U.S. firms to invest 
or do business with SSA countries. A panelist noted that a more direct 
approach would be to offer tax incentives for investment and that such 
an approach has been a part of the consideration of AGOA legislation in 
the past. Another panelist concurred, noting some companies would be 
more willing to do business in AGOA countries, rather than in Southeast 
Asia, if a tax incentive were offered. One proposal was for an SSA 
economic activity tax credit that would grant favorable depreciation 
allowances on tangible capital investments. Other provisions included 
credits for qualified wages paid to workers; credits for fringe 
benefits paid; and allowances for the repatriation of profits from SSA 
investments. While the options associated with this issue area received 
a very high level of priority for congressional consideration from the 
overall panel, one panelist said that focusing on investment incentives 
rather than trade incentives could be too complicated and would run 
into difficulties from a "tax system management" perspective. 

Issues Related to SSA Regional Integration: 

The options considered under this issue area were to: 

* Support regional economic communities to help enhance the vertical 
integration and competitiveness of textile and apparel industries. 

* Place a higher priority on support of regional economic programs in 
U.S. development programs. 

* Place a higher priority on regional efforts under U.S. development 
programs, such as the African Global Competitiveness Initiative and MCC 
to encourage economic integration. 

* Create incentives for countries to participate in regional economic 
communities. 

* Support a general capital increase for the African Development Bank. 

Options to support regional integration stem from a recognition that 
each SSA country is unlikely by itself to achieve full vertically 
integrated production, with linkages throughout the supply chain. 
According to panelists, SSA countries must be able to work together to 
develop an efficient, competitive textile and apparel industry. While 
there are a number of structures and organizations (such as the 
Southern African Customs Union, Common Market of Eastern and Southern 
Africa, and the African Union) that foster regional integration in 
Africa, SSA countries still face numerous obstacles that hamper 
competitiveness, such as tariffs on cross-border trade, regulations, 
and access to transportation and energy networks. 

In addressing regional integration, the panel expressed "very high" 
overall support for options that would encourage more regional 
cooperation in areas that could help SSA become more competitive in 
textile and apparel inputs production. The panel emphasized, however, 
an important distinction between supporting integration at the broader 
level of multilateral trade negotiations and supporting it through U.S. 
development assistance programs. It was noted that, in trade 
negotiations, distinguishing between LDCs and non-LDCs is problematic 
if the goal is to improve regional integration. This echoed comments 
the ITC received from a representative of an African regional 
organization and from industry sources. The panel also discussed having 
U.S. development programs (such as USAID) provide more resources for 
supporting regional economic communities. A representative of the 
development community noted that one challenge is that regional 
communities are not sovereign governments, and that it is more 
important for national governments to integrate with regional economic 
organizations. If national governments do not effectively coordinate 
their legislative actions with regional organizations, then 
implementation of development strategies can be undermined. Experts 
also stressed that African governments need to take action on regional 
economic integration and other reforms to capitalize on the economic 
opportunities presented by trade preference programs. Since national 
governments typically have ministers for integration with regional 
bodies, the panel concurred that any support for regional integration 
should occur through the national agencies responsible for integration. 
In this context, panelists pointed out that the MCC faces challenges in 
that its focus is on working with individual countries rather than 
regional entities. Accountability for projects is also more easily 
focused at the individual country level. One panelist suggested that 
there should be incentives for countries to integrate and implement 
their regional commitments. For example, placing conditions on aid 
could be an incentive to achieve more regional cooperation for 
countries reluctant to join agreements because they might lose tariff 
revenue. Another panelist noted that much of the focus of regional 
integration is on public-sector structures but that working with the 
private sector also was important. A number of issues affect private- 
sector activities at a regional level, including regulations affecting 
trade and infrastructure. Panelists noted that entities such as the 
African Global Competitiveness Initiative work through the private 
sector and help industries solve their own problems, and that USAID- 
funded trade hubs appear to be having some success in working with the 
private sector. 

At a broader level, some panelists mentioned the need for supporting 
other organizations that try to enhance cooperation among Africa's 
regional organizations. One panelist emphasized the importance of the 
African Development Bank and advocated a general increase in its 
capital to support the role it plays in coordinating regional 
infrastructure projects. In a similar vein, another panelist advocated 
support for the African Union because of the role it plays in 
coordinating positions in trade negotiations and its efforts to 
integrate all the regional economic communities into an African 
economic community. In general, the panel gave very high priority 
ratings for congressional consideration to the options in this issue 
area. 

Issues Related to Unfair Trade Practices of AGOA Competitors: 

The options considered under this issue area were to: 

* Increase U.S. resources to expand monitoring and enforcement actions 
regarding export subsidies and other unfair trade practices related to 
textile and apparel imports. 

* Monitor U.S. imports of Chinese textile and apparel to expedite self- 
initiation of dumping and countervailing duty cases. 

* Apply pressure to deter Chinese intellectual property violations 
related to African ethnic textile designs. 

Options were suggested for the United States to employ trade remedies 
to address unfair practices of competitors that may indirectly affect 
the competitiveness of SSA textile and apparel production and prompt 
relevant discussions at the WTO. Recent trade data, our discussions 
with experts, and the ITC report indicate that SSA countries face 
challenges in retaining their small share of global trade compared with 
other major textile and apparel product exporters, such as China, 
India, Bangladesh, Cambodia, and Vietnam. As a major importer of 
African apparel products, the U.S. market is crucial to the continued 
development and competitiveness of African textile and apparel 
industries. However, if other competitors access the U.S. market while 
employing trade practices that violate existing agreements or are 
otherwise unfair, they not only may have an adverse impact on U.S 
domestic industry but indirectly harm the competitiveness of African 
producers as well. 

A panelist pointed out that across an array of clothing products, 
recent data show that U.S. imports from China have shown double-digit 
increases. The panelist noted further that China had been found to be 
illegally subsidizing textile exports and that the U.S. government has 
filed a trade dispute with the WTO. It was suggested that this 
indicates that the United States needs to devote more resources to 
monitoring and enforcing trade laws, particularly regarding China. A 
U.S. government panelist said that Congress has directed the Commerce 
Department to undertake monitoring of Chinese and Vietnamese apparel 
imports and to look for any unfair trade practices. It was further 
noted that three reviews of trade with Vietnam had been undertaken by 
the Commerce Department Import Administration and that no evidence of 
dumping had been found. Congress has also asked the ITC to monitor 
imports from China, and the administration has made a commitment to the 
textile industry to review trade practices. 

A related issue raised by the expert panel and referred to in the ITC 
report concerned alleged violations of intellectual property rights by 
the Chinese involving ethnic African print fabrics. It was noted that 
the Chinese have become very competitive in producing and exporting 
traditional African print fabrics. As the ITC said, "In some cases, 
Chinese producers are alleged to have violated the intellectual 
property rights of these products by borrowing their copyrights or 
designs without attribution, or by falsely labeling the print fabric as 
being of African origin." The panel noted that the legal basis for 
action by the United States is less clear in this case than in cases of 
dumping and unfair trade practices affecting U.S. markets. However, the 
United States may be in a better position than the African countries 
affected to raise the issue, and this might prompt useful discussions 
at the level of the WTO. The option to increase U.S. resources to 
monitor export subsidies and other unfair trade practices related to 
textile and apparel imports received a very high level of priority for 
congressional consideration, while the other recommendations in this 
issue area received generally high priority. 

Conclusion: 

This report is intended to provide Congress a range of options put 
forward by experts on ways to improve the competitiveness of SSA 
textile and apparel production so that AGOA beneficiary countries can 
better take advantage of the opportunities provided under the program. 
These options will likely be considered within broader congressional 
deliberations on improving U.S. trade preference programs. Many of 
these options may be helpful, but as GAO has previously reported, 
[Footnote 19] trade-offs are inherent in trade preference programs. For 
example, although many experts agreed on the priority of extending the 
duration of AGOA beyond 2015 to provide potential investors greater 
long-term certainty about the program's benefits, others raised 
concerns that this could undermine the ability of African countries to 
grow beyond the need for a trade preference program and fully integrate 
into the global trading system. Similarly, although limiting certain 
trade preference benefits to LDCs makes sense, experts argued that 
enhancing the competitiveness of SSA textile and apparel inputs 
production necessitates regional integration; thus, extending these 
benefits to more advanced economies such as South Africa may be 
appropriate. Furthermore, the link between trade policy and economic 
development complicates potential policy responses. AGOA has generous 
benefits for textile and apparel, but many SSA countries face 
infrastructure and development challenges that must be addressed before 
they can fully take advantage of these benefits. Export-oriented 
manufacturing cannot survive without adequate physical infrastructure, 
while capacity-building assistance may be ineffective without global 
demand for production. Finally, government and other experts have 
stressed that African governments need to take action on governmental 
reforms to capitalize on the economic opportunities presented by trade 
preference programs. 

Agency Comments and Our Evaluation: 

We provided courtesy copies of the draft report to USTR and ITC, but 
did not request official comments. USTR and ITC staff provided informal 
technical comments, which we incorporated in the report as appropriate. 

We are sending copies of this report to interested congressional 
committees, the Secretary of Commerce, the Secretary of State, the U.S. 
Trade Representative, the Administrator of USAID, the Chairman of the 
ITC, the Chief Executive Officer of the MCC, and the Acting President 
of the Overseas Private Investment Corporation. This report will also 
be available at no charge on GAO's Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-4347 or yagerl@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions to 
this report are listed in appendix V. 

Signed by: 

Loren Yager: 
Director, International Affairs and Trade: 

[End of section] 

Appendix I: Scope and Methodology: 

In this report, we present information on options put forward by 
experts for Congress to consider for (1) possible changes to the 
African Growth and Opportunity Act (AGOA) or other U.S. trade 
preference programs and (2) other measures the U.S. government could 
take to help increase investment in and improve competitiveness of 
textile and apparel inputs production in sub-Saharan Africa (SSA). 

To address these objectives, we reviewed the U.S. International Trade 
Commission (ITC) study on the competitiveness of textile and apparel 
inputs in AGOA beneficiaries conducted under the same mandate as GAO's 
review, as well as other ITC reports on SSA and related hearing 
materials. We examined U.S. trade statistics on textile and apparel 
imports to the United States in recent years, which we determined to be 
sufficiently reliable for the purposes of this report. We also 
conducted a literature review on issues related to the textile and 
apparel industry and investment in SSA. We met with U.S. agency 
officials familiar with U.S. trade preferences and development 
programs, including the Office of the U.S. Trade Representative, the 
Department of Commerce's Office of Textiles and Apparel, the U.S. 
Agency for International Development, the Millennium Challenge 
Corporation, and the Overseas Private Investment Corporation. We met 
with trade officials from 12 African embassies in Washington, D.C. We 
also interviewed knowledgeable individuals from academia and policy 
institutes, consultants involved in work related to U.S.-Africa trade, 
and private-sector representatives of U.S. and African textile 
industries and U.S. retail and apparel import industries. Through these 
sources, we identified numerous suggestions for how the U.S. government 
could support competitiveness in the African textile and apparel 
industry. 

Additionally, we convened a panel of experts and key informants on June 
2, 2009. To select the experts and key informants for our panel, we 
identified broad categories of the types of individuals and 
representatives that would be needed to ensure we covered as full a 
range as possible of opinions and interests. We drew up a list of 
potential panelists for each of our categories based on our review of 
the literature and recommendations made by knowledgeable parties. Many 
of the panelists we invited had a special interest or expertise in 
Africa. Sixteen panelists were able to attend our panel on June 2, 
2009, including representatives of relevant U.S. government agencies; 
private-sector firms and associations in the textile and apparel 
industry; and academia and think tanks. In addition, a representative 
from the Washington-based African embassies' working group on AGOA also 
attended. However, some of the panelists were not able to participate 
in all of the day's sessions. We invited representatives from the 
African private sector, the Common Market for Eastern and Southern 
Africa, and the World Bank, but those individuals were not able to 
attend. To the extent possible, we conducted interviews with or 
obtained written input from experts who were not able to attend our 
panel. 

There are differing opinions about whether promoting textile and 
apparel production in SSA countries should be a priority under AGOA. 
Some Africa experts suggest that there should be a greater focus on 
agricultural production, an area were SSA countries appear to have a 
greater competitive advantage. Similarly, other development experts 
question whether the benefits provided under AGOA should be exclusive 
to SSA countries, and support the idea of extending trade preferences 
equally among all lesser-developed countries (LDC). Our report does not 
take a position on these issues, but focuses on textile and apparel 
inputs production in AGOA beneficiary countries according to the 
requirements in the mandate. 

The panel discussed three topics: (1) the ITC's analysis of potentially 
competitive products and challenges for the textile and apparel 
industry in SSA, (2) possible changes to AGOA or other U.S. trade 
preference programs, and (3) other measures to support African textile 
and apparel inputs production. To facilitate the discussions concerning 
the last two topics, we prepared lists of possible changes and other 
measures based on information and recommendations we obtained from 
knowledgeable parties and relevant literature. We presented these lists 
to the panel to introduce each topic and stimulate discussion. 

To obtain an overall sense of the panelists' priorities for 
improvement, we conducted ranking exercises at the end of the 
discussions on possible changes to AGOA and other measures to support 
the African textile and apparel inputs industry. For these exercises, 
we relied on the lists of options we developed prior to the panel. 
During the discussions, we invited the experts to comment on the lists, 
and we made modifications or additions based on their input. After the 
panelists had discussed the options and agreed on the wording, we asked 
them to rank each on a 7-point priority scale that ran from "extremely 
low priority" to "extremely high priority." (See appendix IV for more 
details.) 

The options and associated priority rankings presented in this report 
are based on the opinions of the experts and key informants involved in 
the panel and should not be interpreted as GAO recommendations. 
According to generally accepted government auditing standards, GAO 
makes recommendations to correct identified problems and improve 
programs and operations when the potential for improvements is 
substantiated by the reported findings and conclusions. These standards 
generally require GAO to develop criteria, condition, cause, and effect 
to describe a problem. Due to GAO's mandated reporting deadline for 
this project, which required us to submit a report within 90 days of 
the issuance of the ITC report on the same topic, we were not able to 
employ a methodology that allowed us to develop findings and 
conclusions according to these standards. 

[End of section] 

Appendix II: Panel's Options for Possible Changes to AGOA or Other U.S. 
Trade Preference Programs: 

Issues related to extending the duration of AGOA provisions and making 
AGOA permanent: 

The options considered under this issue area were to: 

* Extend duration of third-country fabric provision for LDCs beyond 
2012 to provide potential investors greater long-term certainty about 
the program's benefits. 

* Extend duration of AGOA beyond 2015 to provide potential investors 
greater long-term certainty about the program's benefits. 

* Make AGOA benefits permanent to provide potential investors greater 
long-term certainty about the program's benefits. 

Issues related to expanding AGOA LDC benefits to all beneficiaries and 
to improving use of AGOA: 

The options considered under this issue area were to: 

* Expand third-country fabric provision to South Africa to improve 
regional integration in the textile and apparel sector. 

* Expand AGOA LDC benefits to all AGOA beneficiaries to improve 
regional integration in the textile and apparel sector. 

Issues related to creating non-punitive and voluntary incentives: 

The option considered under this issue area was to: 

* Create a voluntary "duty credit" program for U.S. importers of 
apparel from AGOA beneficiaries that is manufactured using fabric from 
the region. 

Issues related to preserving existing benefits under AGOA and modifying 
other preference programs and trade agreements: 

The options considered under this issue area were to: 

* Refrain from extending trade preferences provided under AGOA to LDCs 
outside SSA to preserve benefits for textile and apparel production in 
AGOA beneficiary countries. 

* Modify rules of origin provisions under other U.S. trade preference 
programs or free trade agreements to provide duty-free access for 
products that use AGOA textile and apparel inputs. 

* Simplify AGOA rules of origin to allow duty-free access for certain 
partially assembled apparel products with components originating 
outside the region. 

[End of section] 

Appendix III: Panel's Options for Other Possible Measures to Support 
SSA Textile and Apparel Sector: 

Issues related to infrastructure development: 

The options considered under this issue area were to: 

* Realign U.S. trade policy and programs to support infrastructure and 
energy development in Africa to ensure that trade preferences and 
assistance result in projects that will improve competitiveness of 
industries in the region. 

* Increase collaboration with African governments and international 
donors to improve infrastructure and energy. 

* Reauthorize the Millennium Challenge Corporation and adjust the 
legislation to allow more private-sector involvement, creating regional 
compacts and extending duration of compacts. 

* Create incentives for private-sector investment and provision of 
services in infrastructure and energy by leveraging resources in a 
manner that creates better business opportunities. 

* Encourage programmatic coordination among U.S. government entities 
involved in development assistance and trade programs to develop 
infrastructure and energy projects that reduce the cost of doing 
business. 

* Incorporate metrics to measure reduction in the cost of doing 
business for infrastructure investment. 

* Support renewable energy technology transfer to SSA countries that 
might have a natural disposition for such production to address energy 
supply shortages. 

Issues related to trade capacity building (TCB) assistance: 

The options considered under this issue area were to: 

* Reauthorize the Africa Global Competitiveness Initiative to provide 
funding for U.S. Agency for International Development trade hubs to 
provide TCB assistance to SSA. 

* Provide resources to USAID trade hubs designated for TCB assistance 
to address the competitive disadvantages the textile and apparel inputs 
sector faces by implementing business solutions and increased 
marketing. 

* Align U.S. TCB and development assistance with AGOA to ensure that it 
addresses competitive challenges and disadvantages of export 
industries, such as the textile and apparel inputs industry. 

* Increase and promote organic production and fair labor and trade 
practices to improve SSA countries' potential to attract international 
retailers that emphasize these practices. 

* Intensify U.S. assistance to the SSA cotton industry to improve 
production and further integrate cotton production with the textile and 
apparel industry. 

Issues related to U.S. government international finance entities: 

The options considered under this issue area were to: 

* Review and adjust the Overseas Private Investment Corporation's 
mandate to allow greater flexibility to support U.S. investment in 
textile and apparel inputs production in SSA countries. 

* Increase Export-Import Bank lending and guarantees to facilitate 
investment in the SSA textile and apparel sector. 

* Institute tax-related incentives for U.S. firms making a positive 
impact in AGOA countries to encourage companies to do business in these 
countries. 

* Increase support for institutions to provide access to finance for 
investment, supplier credit, and day-to-day operations. 

* Increase flexibility of the Overseas Private Investment Corporation, 
Export-Import Bank, and U.S. Trade and Development Agency to address 
local content and economic effects restrictions for AGOA countries. 

Issues related to SSA regional integration: 

The options considered under this issue area were to: 

* Support regional economic communities to help enhance the vertical 
integration and competitiveness of textile and apparel industries: 

* Place a higher priority on support of regional economic programs in 
U.S. development programs. 

* Place a higher priority on regional efforts under U.S. development 
programs, such as the African Global Competitiveness Initiative and 
Millennium Challenge Corporation to encourage economic integration. 

* Create incentives for countries to participate in regional economic 
communities. 

* Support a general capital increase for the African Development Bank. 

Issues related to unfair trade practices of AGOA competitors: 

The options considered under this issue area were to: 

* Increase U.S. resources to expand monitoring and enforcement actions 
regarding export subsidies and other unfair trade practices related to 
textile and apparel imports. 

* Monitor U.S. imports of Chinese textile and apparel to expedite self- 
initiation of dumping and countervailing duty cases. 

* Apply pressure to deter Chinese intellectual property violations 
related to African ethnic textile designs. 

[End of section] 

Appendix IV: Further Details about the Panel Ranking Exercises: 

To obtain an overall sense of the panelists' priorities, we conducted 
two ranking exercises at the end of the discussions on (1) possible 
changes to AGOA and (2) other measures to support the African textile 
and apparel inputs industry. For these exercises, we relied on the 
lists of options we developed prior to the panel. During the 
discussions, we invited the experts to comment on the lists, and we 
made modifications or additions based on their input. After the 
panelists had discussed the options and agreed on the wording, we asked 
them to rank each on a 7-point priority scale that designated "7" as an 
"Extremely High Priority, "6" as a "Very High Priority," "5" as a 
"Generally High Priority," "4" as a "Moderate Priority," "3" as a 
"Generally Low Priority," "2" as a "Very Low Priority," and "1" as an 
"Extremely Low Priority." 

We used electronic hand-held technology to facilitate this exercise, 
provide instant feedback, and also ensure anonymity for each panelist. 
This technology provided us with the average and distribution of votes 
for each option. We conducted two separate ranking exercises, the first 
for the AGOA-related measures, and the second for the other measures to 
improve the competitiveness of the African textile and apparel inputs 
industry. 

Of the 16 experts and key informants that participated in the panel, 14 
were present for the morning session and took part in that ranking 
exercise on changes to AGOA. At lunch, two of the original panelists 
left and two others joined the panel. These changes were due to 
scheduling conflicts and had been discussed beforehand. Therefore, the 
composition of the 14 panelists that took part in the afternoon ranking 
exercise was slightly different from the 14 that took part in the 
morning exercise. In addition, after the first three categories of 
"other measures" had been discussed and ranked, five panelists had to 
leave the panel; the remaining nine panelists took part in the 
discussion and ranking exercise for the final two of the "other 
measure" categories. Moreover, in the afternoon sessions, not all of 
the panelists chose to rank every recommendation. For these reasons, 
the ranking exercises are not directly comparable; therefore, we 
present the results of the afternoon sessions in the five categories. 

An expert panel is a data gathering method that respects the views of 
all the experts, and experts with particular backgrounds or experiences 
can differ greatly; thus, we note in the text when there were 
differences of opinions on the options. In tables 2 and 3, we present 
the options ranked by highest mean score and provide the range of 
votes, along with the average scores, and the number of panelists that 
voted on each option to provide insights and transparency into the 
ranking exercises. However, the results of the ranking exercise should 
be understood in the context of the panelists' discussions and not just 
in terms of the ranking exercise itself. 

Table 2: Ranking Session for Possible Changes to AGOA: 

Recommendation: Extend duration of third-country fabric provision for 
LDCs beyond 2012; 
Mean: 6.8; 
Range: 5-7; 
Votes: 14; 
Standard deviation: 0.6. 

Recommendation: Extend duration of AGOA beyond 2015; 
Mean: 6.4; 
Range: 4-7; 
Votes: 14; 
Standard deviation: 0.9. 

Recommendation: Allow "duty credit" to U.S. importers of AGOA apparel 
using AGOA fabric; 
Mean: 5.5; 
Range: 1-7; 
Votes: 14; 
Standard deviation: 2.1. 

Recommendation: Preserve AGOA benefits by not extending textile and 
apparel preference benefits to non-SSA LDCs; 
Mean: 5.5; 
Range: 1-7; 
Votes: 14; 
Standard deviation: 2.4. 

Recommendation: Make AGOA benefits permanent; 
Mean: 5.4; 
Range: 1-7; 
Votes: 14; 
Standard deviation: 2.4. 

Recommendation: Simply the rules of origin for partially assembled 
garments; 
Mean: 5.4; 
Range: 1-7; 
Votes: 14; 
Standard deviation: 2.0. 

Recommendation: Expand third-country fabric provision to South Africa; 
Mean: 5.2; 
Range: 2-7; 
Votes: 14; 
Standard deviation: 1.8. 

Recommendation: Expand AGOA LDC benefits to all AGOA beneficiaries; 
Mean: 4.9; 
Range: 1-7; 
Votes: 14; 
Standard deviation: 2.2. 

Recommendation: Modify rules of origin under other preference programs 
and free trade agreements to allow AGOA inputs; 
Mean: 4.9; 
Range: 1-7; 
Votes: 14; 
Standard deviation: 1.9. 

Recommendation: Expand duty-free eligibility for other textile 
products, such as synthetic fabrics; 
Mean: 4.4; 
Range: 1-7; 
Votes: 14; 
Standard deviation: 1.7. 

Source: GAO. 

Note: The last option was eliminated because ITC officials noted that 
AGOA LDCs are already eligible for duty-free export of "synthetic 
fabrics," especially everything that is in the "core textile chapter." 

[End of table] 

Table 3: Ranking Session for Possible Other Changes: 

Recommendation: Support infrastructure development: Reauthorize MCC to 
allow for greater private sector involvement; 
Mean: 6.0; 
Range: 1-7; 
Votes: 14; 
Standard deviation: 2.0. 

Recommendation: Support infrastructure development: Encourage 
programmatic coordination for infrastructure improvement; 
Mean: 6.0; 
Range: 4-7; 
Votes: 14; 
Standard deviation: 1.0. 

Recommendation: Support infrastructure development: Realign U.S. policy 
and programs to support infrastructure and energy developments in 
Africa; 
Mean: 5.9; 
Range: 2-7; 
Votes: 11; 
Standard deviation: 1.6. 

Recommendation: Support infrastructure development: Collaborate with 
African governments and international donors to improve infrastructure 
and energy; 
Mean: 5.8; 
Range: 3-7; 
Votes: 13; 
Standard deviation: 1.1. 

Recommendation: Support infrastructure development: Create incentives 
for private-sector provision of services; 
Mean: 5.8; 
Range: 4-7; 
Votes: 14; 
Standard deviation: 1.1. 

Recommendation: Support infrastructure development: Incorporate metrics 
for reductions in the cost of doing business for infrastructure 
investments; 
Mean: 5.1; 
Range: 2-7; 
Votes: 14; 
Standard deviation: 1.7. 

Recommendation: Support infrastructure development: Support renewable 
energy technology transfer to SSA countries to improve energy supply; 
Mean: 3.6; 
Range: 1-7; 
Votes: 13; 
Standard deviation: 2.2. 

Recommendation: Fund targeted trade capacity building: Fund regional 
trade hubs including market promotion and business linkages; 
Mean: 6.9; 
Range: 6-7; 
Votes: 14; 
Standard deviation: 0.4. 

Recommendation: Fund targeted trade capacity building: Align U.S. trade 
capacity building (TCB) and development assistance with AGOA; 
Mean: 6.5; 
Range: 4-7; 
Votes: 13; 
Standard deviation: 0.9. 

Recommendation: Fund targeted trade capacity building: Reauthorize the 
African Global Competitiveness Initiative; 
Mean: 6.4; 
Range: 4-7; 
Votes: 14; 
Standard deviation: 0.9. 

Recommendation: Fund targeted trade capacity building: Intensify U.S. 
assistance to SSA cotton industry; 
Mean: 4.2; 
Range: 1-7; 
Votes: 13; 
Standard deviation: 2.0. 

Recommendation: Fund targeted trade capacity building: Promote organic 
production and fair labor and trade practices; 
Mean: 3.4; 
Range: 2-6; 
Votes: 14; 
Standard deviation: 1.2. 

Recommendation: Improve support for government finance entities: 
Institute tax-related incentives to U.S. firms making a positive impact 
in AGOA countries; 
Mean: 6.3; 
Range: 3-7; 
Votes: 14; 
Standard deviation: 1.1. 

Recommendation: Improve support for government finance entities: 
Increase support for institutions to provide access to finance for 
investment, supplier credit, and day to day operations; 
Mean: 6.2; 
Range: 5-7; 
Votes: 14; 
Standard deviation: 0.8. 

Recommendation: Improve support for government finance entities: 
Increase flexibility of OPIC, EXIM, and TDA to address local content 
and economic effects restrictions for AGOA countries; 
Mean: 6.1; 
Range: 4-7; 
Votes: 14; 
Standard deviation: 1.1. 

Recommendation: Improve support for government finance entities: 
Increase EXIM lending and guarantees to textiles and apparel sector, 
directed toward Africa; 
Mean: 5.9; 
Range: 3-7; 
Votes: 14; 
Standard deviation: 1.2. 

Recommendation: Improve support for government finance entities: Review 
and adjust OPIC's mandate to support textiles and apparel; 
Mean: 5.6; 
Range: 2-7; 
Votes: 14; 
Standard deviation: 1.7. 

Recommendation: Support regional integration efforts in SSA: Place 
higher priority on regional efforts under U.S. development programs, 
such as the African Global Competitiveness Initiative and MCC; 
Mean: 6.3; 
Range: 5-7; 
Votes: 9; 
Standard deviation: 0.9. 

Recommendation: Support regional integration efforts in SSA: Create 
incentives for countries to participate in regional economic 
communities; 
Mean: 6.3; 
Range: 5-7; 
Votes: 8; 
Standard deviation: 0.9. 

Recommendation: Support regional integration efforts in SSA: Support 
regional economic communities; 
Mean: 6.2; 
Range: 5-7; 
Votes: 9; 
Standard deviation: 0.8. 

Recommendation: Support regional integration efforts in SSA: Place a 
higher priority on support of regional economic programs in U.S. 
development; 
Mean: 6.2; 
Range: 5-7; 
Votes: 9; 
Standard deviation: 1.0. 

Recommendation: Support regional integration efforts in SSA: Support a 
general capital increase for the African Development Bank; 
Mean: 5.6; 
Range: 3-7; 
Votes: 9; 
Standard deviation: 1.4. 

Recommendation: Address unfair trade practices of competitors of AGOA 
beneficiary countries: Increase U.S. resources for monitoring and 
enforcement of export subsidies and other unfair trade practices, 
having to do with apparel; 
Mean: 5.7; 
Range: 4-7; 
Votes: 9; 
Standard deviation: 1.4. 

Recommendation: Address unfair trade practices of competitors of AGOA 
beneficiary countries: Continue pressure against Chinese intellectual 
property violations of African textile and apparel products; 
Mean: 5.1; 
Range: 2-7; 
Votes: 9; 
Standard deviation: 1.8. 

Recommendation: Address unfair trade practices of competitors of AGOA 
beneficiary countries: Monitor U.S. imports of Chinese textiles and 
apparel to expedite self-initiation of dumping and countervailing duty 
cases; 
Mean: 5.1; 
Range: 1-7; 
Votes: 9; 
Standard deviation: 2.0. 

Source: GAO. 

[End of table] 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Loren Yager (202) 512-4347 or yagerl@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, the following persons made 
major contributions to this report: Juan Gobel, Assistant Director; Ann 
Baker; Gezahegne Bekele; Ken Bombara; Karen Deans; Martin de Alteriis; 
Francisco Enriquez; Ernie Jackson; and Michael Kniss. 

[End of section] 

Footnotes: 

[1] Trade preference programs offer unilateral tariff reductions to 
eligible developing countries for the import of specified products into 
the United States. 

[2] AGOA authorizes the President to designate countries as eligible to 
receive AGOA program benefits if they are determined to have 
established, or are making continual progress toward establishing, the 
following: market-based economies; the rule of law and political 
pluralism; elimination of barriers to U.S. trade and investment; 
protection of intellectual property; efforts to combat corruption; 
policies to reduce poverty and increase availability of health care and 
educational opportunities; protection of human rights and worker 
rights; and elimination of certain child labor practices. 

[3] Pub.L. 110-436, sec. 3(c)(2). 

[4] ITC, Sub-Saharan African Textile and Apparel Inputs: Potential for 
Competitive Production, ITC Pub. 4078 (May 2009). See also, ITC, Sub- 
Saharan Africa: Effects of Infrastructure Conditions on Export 
Competitiveness, Third Annual Report, Pub. 4071 (April 2009); and ITC, 
Sub-Saharan Africa: Factors Affecting Trade Patterns of Selected 
Industries, Second Annual Report, Pub. 3989 (April 2008). 

[5] In prior reports on U.S. trade preference programs, see GAO, 
International Trade: U.S. Trade Preference Programs Provide Important 
Benefits, but a More Integrated Approach Would Better Ensure Programs 
Meet Shared Goals, [hyperlink, http://www.gao.gov/products/GAO-08-443] 
(Washington, D.C.: Mar. 7, 2008); and International Trade: An Overview 
of Use of U.S. Trade Preference Programs by Beneficiaries and U.S. 
Administrative Reviews, [hyperlink, 
http://www.gao.gov/products/GAO-07-1209] (Washington, D.C.: Sept. 27, 
2007), we stated that AGOA provided benefits on about 5,200 dutiable 
products. The discrepancy with the figure cited by USTR may be due to 
differences in the methodology used to determine dutiable items 
provided duty-free access. GAO's calculations are based on a 
methodology described in [hyperlink, http://www.gao.gov/products/GAO-08-
443], appendix II. There have also been some changes in the number of 
dutiable lines since those reports were released. 

[6] Rules of origin are used to determine the country of origin of a 
product for purposes of international trade. Rules of origin provide 
the basis for Customs officials to make determinations about which 
goods are entitled to preferential tariff treatment under a trade 
preference program such as AGOA. 

[7] Countries must first establish effective visa systems to prevent 
illegal transshipment and use of counterfeit documentation, and 
implement required enforcement and verification procedures. 

[8] Under AGOA, LDCs are defined as SSA countries with a per capita 
gross national product under $1,500 in 1998. South Africa and 
Seychelles are not classified as LDCs and thus are not eligible for the 
third-country fabric provision. 

[9] For a detailed description of the third-country fabric provision 
and an evaluation of trade preference programs in general, see 
[hyperlink, http://www.gao.gov/products/GAO-08-443]. 

[10] The MFA, in place since 1974, provided a framework under which 
developed countries including the United States, the European Union, 
and Canada imposed quotas on imports of yarn, textiles, and apparel 
from developing countries. On January 1, 2005, restrictions on the 
fourth and final set of textile and clothing products regulated by the 
Agreement on Textiles and Clothing, which succeeded the MFA, were 
removed. Thereafter, a significant portion of the textile and apparel 
trade shifted from preferential sources (such as AGOA countries) toward 
suppliers that had previously been constrained by the MFA, notably 
China. 

[11] "Made-ups" consist of finished textile products such as pillow 
cases, sheets, bedspreads and quilts, blankets, towels, floor 
coverings, etc. 

[12] Consumer tastes for apparel and textiles are volatile, and 
retailers face the prospect of having to liquidate vast inventories of 
unpopular clothing at the end of a selling season or the prospect of 
running short of suddenly popular styles. "Lean retailing" offers a 
partial solution to these concerns because with low inventories, stores 
will not be stuck with large amounts of unsold goods if demand 
collapses, and with frequent restocking, stores will not run short of 
popular items. 

[13] For example, under the Dominican Republic-Central America-United 
States Free Trade Agreement signed in August of 2004, the United States 
extended permanent duty free access to six countries in the Western 
Hemisphere, which, as a group, are responsible for significant textile 
and apparel production. 

[14] The abundant supply provision, enacted in a 2006 AGOA amendment 
and repealed in 2008, stipulated elaborate conditions for when third- 
country fabric could or could not be used. (For a detailed explanation 
of the abundant supply provision, see ITC, Commercial Availability of 
Fabric and Yarns in AGOA Countries: Certain Denim, Pub. 3950, September 
2007.) 

[15] [hyperlink, http://www.gao.gov/products/GAO-08-443]. 

[16] Currently, 10 SSA countries have compacts with MCC. 

[17] USAID has defined TCB in part to include activities meant to help 
countries build the physical, human, and institutional capacity to 
benefit more broadly from a rules-based trading system. TCB is provided 
in several areas, including trade facilitation, human resources and 
labor standards, physical and economic infrastructure, environmental 
sector trade and standards, financial sector development, competition 
policy, and foreign investment incentives. 

[18] [hyperlink, http://www.gao.gov/products/GAO-08-443]. 

[19] [hyperlink, http://www.gao.gov/products/GAO-08-443]. 

[End of section] 

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