After three years, the Africa Growth and Opportunity Act (AGOA) is now an important landmark in the trade relations between the United States and sub-Saharan Africa. After the second AGOA forum held in Mauritius in January 2003, AGOA is again in the limelight as the United States hosted the third AGOA Forum last December and the legislation for AGOA III stands now before the US Senate.

Under AGOA, a wide range of products from sub-Saharan Africa is eligible for duty-free and quota-free access to the United States market. AGOA stems from the US Generalised System of Preferences (GSP) which offers preferential access to approximately 4,600 pro-ducts in the US market. Building on the GSP Scheme, AGOA extends the GSP coverage to 1,800 new pro-ducts. The significant benefit of AGOA lies in the additional goods, which were previously excluded from the GSP Scheme, and which are now eligible for duty-free treatment in the United States such as apparel, footwear, automobiles, minerals and metals.

Since its enactment in 2000, AGOA has led to a sharp increase in our exports to the United States. Mauritius records a significant trade surplus with the United States, which in 2002, amounted to $ 253 million with 90% of our exports consisting of textile products.

Mauritius was among the first countries to qualify under AGOA textile provisions on 18 January 2001 ha-ving duty-free access for garments manufactured accor-ding to specific origin criteria. According to AGOA rules of origin, garments manufactured from regional or US yarn are eligible for duty-free access in the United States. There is, however, a Special Rule for the countries classified as ?Less Developed Countries? (LDC) which allows them to utilise third-country fabrics for duty-free access in the US market. With the exception of South Africa and Mauritius, all the other AGOA-eligible countries currently enjoy the LDC status and have therefore more flexible rules of origin.

Since Mauritius is not classified as LDC, our exports manufactured from third-country fabrics do not qualify for duty-free entry in the American market. The percentage of our exports manufactured from African yarn has significantly increased since 2001 moving from 16% in 2001 to 40% in 2002. Figures for the first nine months of 2003 seem to confirm the upward trend with 45% of our total garment exports qualifying for duty-free access. The remaining 55% consist of garments manufactured from third country-fabrics and on which duties are payable in the United States.

Exports from LDCs comprise over 90% of garments manufactured from third-country fabrics. Under the derogation available to the LDCs, countries such as Lesotho, Kenya, Swaziland and Mozambique have substantially increased their garment exports to the United States. Figures for the first nine months of 2003 indicate an increase of nearly 60% compared to the same period in 2002.

Under the existing AGOA legislation, this derogation available to the LDCs is subject to a time period of four years and will expire in September 2004. However, since the second AGOA Forum held in Mauritius this year, LDCs had started lobbying for an extension of this Special LDC Rule beyond 2004. This extension is now officially included in the AGOA III legislation which has been presented to the US House of Representatives and the Senate. According to the AGOA III, the derogation applicable to the LDCs would be extended for another four years and the AGOA preferences, which at present end in 2008, would be extended to the year 2015.

The probable extension of the Special Rule for the LDCs can be viewed from two different perspectives. First, from the LDCs? perspective, it is good news. With AGOA, garment-manufacturing industries have cropped up to supply the American market resulting in job creation and the expiration of the derogation would literally capsize their emerging textile industry. Second, for the non-LDC beneficiary countries, namely Mauritius and South Africa, it means bad news. The proposed extension will impact negatively on the apparel industries which are bound by far more restrictive rules of origin requiring a triple-stage transformation.

Up to now we have favoured a vertical integration of our industry, encouraging investment in the area of spinning which is largely based on AGOA preferences. With the restrictive AGOA rules of origin and the four-year derogation available to the LDCs, the Mauritian stra-tegy has been to position itself as a potential supplier of African yarn in the region. This has led to the setting up of the Tianli Spinning Mill and there are three other spinning mill projects in the pipeline. The spinning mills would allow Mauritian factories to operate in a more competitive environment responding to orders within reasonably short notice and ensure faster delivery. They would also allow Mauritius to position itself in a few years as a potential supplier of yarn in the region.

Now, the extension of the derogation available to LDCs changes the whole picture. At the third AGOA forum, Mauritius made a request to the United States to also benefit from the derogation applicable to the LDCs. There are already indications that the United States is favourable to our request. If granted, this will surely result in a boost in our garment exports manufactured from third-country fabrics in the short run. It will certainly result in a substantial competitive advantage for our garments especially, given the phasing-out of the Multi-Fibre Arrangement (MFA) by 1st January 2005 when our products will have to compete against non-preferential exports from China and other large deve-loping countries like India entering quota-free in the United States. But the boost in our exports arising from the derogation will definitely be to the detriment of spinning mills projects.

Contrary to the other preferential trade agreements to which Mauritius is a party, the rules of the game are constantly changing with AGOA. In three years, we have had AGOA I, II and now III. The amendments proposed in the AGOA III legislation result in a wave of uncertainties regarding our exports to the US market.

With AGOA III, a number of questions arise:

? If it goes through, we will have preferential market access for a longer period - up to 2015. But with the US presidential elections due next year, will AGOA legislation be a priority for the US Government? There is already growing concern among supporters of AGOA that there is only weak support for extending the AGOA.

? If AGOA III goes through and the LDC extension is granted, what will be the impact on our textile industry? Nothing will prevent the LDCs from requesting another extension at the end of the four-year period in 2008. Then, what about our spinning mills?

? With major developments happening at the level of the World Trade Organisation relating to the negotiations on market access, trade preferences are slowly but surely being eroded. Will the margin of preference available under the AGOA still be significant after 2008 or 2015?

At the moment, none of these questions have answers. The uncertainty caused by AGOA III for our future exports to the US market could not have come at a worst time.

Rooma Narrainen Manager ? Trade Division