China Avoiding Import Duties By Producing In Africa

In a typical case of unexpected results, the Africa Grown and Opportunity Act (AGOA) is turning out to be a boomerang for the United States. The agreement, signed in 2000, allows for preferential treatment for the export of 4,000 different products to the United States from the participating nations of sub-Saharan Africa, eliminating quotas and import duties. The concession concerns primarily textile and clothing products, which usually represent the budding of industrialization in backward countries. The AGOA has been renewed seven times by the White House and upheld by a wide bipartisan majority in Congress. The US’ ambition was to promote African growth in an attempt at cultivating political influence in an area rife with tension and repeatedly changing alliances. The commercial risk for the US was marginal: the small economic entities and their low cost goods never posed a threat to the national economy, whose labor intensive component has already long been compromised. Globalization has nevertheless put into discussion the validity of this approach, because now China has begun to delocalize its textile and clothing production to Africa as well. The movement is part of a more massive transfer of factories to locales where the cost of labor is by now meaningfully lower than in China. Africa offers a double advantage to the entrepreneurs of the Dragon: it allows them to save on production while opening the doors to a market as vast and rich as the United States is for consumer goods. “Made in Africa” is a purely geographic attribute; it relates only to the provenance of the shipment, not the capital and raw materials which are almost exclusively Chinese. The products are able to cross the US border without sanctions, quotas, import duties, or other non-tariff obstacles. In this way Chinese companies are able to circumvent US impositions, which are always possible in bilateral accords. The presence of Chinese companies in Africa is growing rapidly, especially in Kenya, Lesotho, and Madagascar. Clothing exports from these countries add value to the $30 billion that Beijing already exports to the USA every year. In any case, it is an agreement in full harmony with international relationships, and Africa has been given the full application of the principles of the WTO, according to which every obstacle to the free trade of goods represents an overall economic loss, both for producers and consumers. It is another rejection of the Multi Fiber Arrangement that protected the industries of advanced countries for ten years after the birth of the WTO. In the context of worldwide competition, China’s moves reveal a bold cleverness that still plays by all the rules. For Africa, it represents another source of income and employment, like the sales of raw materials to China. The establishment of autonomous development will have to wait a few years, but the desperate situation that has long gripped the continent does not allow for a drawn out debate. In an attempt at loosening the bonds of underdevelopment as quickly as possible, Beijing is offering articulate, short-term solutions that certainly do not show a lack of interest.