AFRICA GROWTH AND OPPORTUNITY ACT
“SUCCESSES AND CHALLENGES”
AFRICA BUSINESS SUMMIT, WASHINGTON, D.C. JUNE 25, 2003
TEXT OF REMARKS
WILSON F. HUNT, JR.
PRESIDENT, WILSON HUNT INTERNATIONAL, LTD.
CHAIRMAN, ETHIO-AMERICAN TRADE AND INVESTMENT COUNCIL
The theme of this conference, “AGOA, Successes and Challenges” is appropriate to our company, Champro Sports Equipment, as well as to Ethiopia, where, three years ago we established a factory to manufacture athletic apparel. We have experienced success in the three years we have been manufacturing in Ethiopia but we now face significant challenges. These challenges, which result from the expiration of HTS9819.11.12, jeopardize not only our investment but also our ability to continue manufacturing in Ethiopia. Since the fabric we use to manufacture athletic apparel is not available locally, we import fabric and trim from Taiwan. Since Ethiopia is classified a “lesser developed country” by AGOA we can use third country fabric and trim and still qualify for duty and quota free
treatment of imports into the U.S. This provision of AGOA is scheduled to expire in September 2004. Our company and numerous others who have invested in sub-Saharan Africa now face a major challenge and must decide if we can continue to manufacture in Africa.
It is important to recognize that AGOA has been a success. Our company and others like us have succeeded in accomplishing the objectives set out by Congress when they passed the Africa Growth and Opportunity Act. We have:
1. Created 400 jobs in Ethiopia. These jobs were transferred from Asia, and did not
cause a reduction in U.S. employment.
2. Generated foreign exchange for Ethiopia.
3. Set an example for other companies and other industries demonstrating that
investment in sub Saharan Africa can be successful and profitable.
4. We have used some of the profits from the factory to establish a primary school
that currently educates over 300 children.
In addition, in direct response to AGOA, the Ethiopian government has liberalized their trade and investment policies and regulations. They have done everything they can to create a favorable business climate for private investors and they are to be commended.
In short, the objectives of the Africa Growth and Opportunity Act have been met at least on a small scale, by our company and by Ethiopia. The act does not however provide sufficient time to achieve the desired long-term results in the beneficiary countries.
When Congress passed AGOA their intent was to create an incentive for trade and investment that would lead to economic development in sub-Saharan Africa. They also had a secondary concern. They wanted to structure AGOA so as not to inflict further damage to the U.S. textile and apparel industry, an industry that cannot compete, unprotected, in the global economy. Duty free treatment under HTS9819.11.12 allowing lesser-developed African countries to use imported fabric and/or yarns was therefore set to expire September 30, 2004. Ethiopia and other lesser-developed countries will then
only qualify for duty free treatment if they use yarns, fabric and trim that are made either in the U.S. or sub-Saharan Africa. There are three problems with this requirement.
1. Many types of yarn are not yet manufactured at all in Africa. A yarn factory requires an
investment of $30 million + and, incidentally, provides only a minimal number of jobs.
Not an investment that one jumps into quickly, especially given the uncertainties of U.S.
trade legislation. Newly established textile and apparel producers have not had time or
resources to establish vertically integrated manufacturing facilities.
2. U.S. made yarn is 35-60% more expensive than comparable quality Asian yarn.
3. In 2005, quotas on U.S. apparel imports from China will be removed per the WTO
agreement. It will then be virtually impossible for lesser-developed African countries to
compete with the large and highly developed Chinese textile and apparel industry.
If companies like ours were to use U.S. yarn or fabric in order to maintain our duty free qualification under AGOA, our landed U.S. apparel cost would be significantly higher than comparable apparel imported from China and other parts of Asia, even after adding in the import duty on Asian made apparel. The attached example illustrates the dilemma our company and many others face as we consider whether to expand or abandon our efforts to grow our textile and apparel business in sub-Saharan Africa. This comparison of four manufacturing options is typical of the analysis sourcing managers for U.S. textile companies would make before deciding where to do their manufacturing. (See attached-Explanation of four options and fifth option – extension of duty free treatment for
apparel made with third country fabric. Note the effects on U.S. and African employment from the five options)
Champro Sports Equipment has been manufacturing athletic apparel in Ethiopia for the past three years. Our company and many others like it will no longer be able to do so competitively if the provision of AGOA allowing the use of third country materials is allowed to expire in 2004. The progress that has been made in sub-Saharan Africa over the past three years will thus be reversed if HTS9819.11.12 is not extended at least, in an amended form, allowing Asian or other non-U.S. and non-African yarn to be used if fabric is knitted, dyed and set in qualifying sub-Saharan African countries.
Champro Sports Equipment is prepared to expand our Ethiopian manufacturing operation vertically by knitting fabric in Ethiopia. We would invest $8.0 million in a new state of the art knit, dye/ set factory. Unless HTS9819.11.12 is extended, however, it will be economically impossible to justify this investment since we would need to use U.S. yarn to qualify for duty-free treatment.
Illiteracy, poverty, famine, disease, and political upheaval have long been impediments to attracting the trade and investment necessary for economic development in sub Saharan Africa. The objective of the Africa Growth and Opportunity Act is noble. The strategy is viable. It makes sense. We have proven that. The short-term results are visible and measurable. The time frame is however far too short to achieve the desired results. Sub-Saharan Africa does not need permanent trade advantages. That is not a possibility anyway. It does however need the current benefits of AGOA extended for eight more years so that the African textile and apparel industry has time to become vertically integrated. If the true objective of AGOA is to provide employment and development, the requirement that U.S. yarns be used in order to maintain duty free qualification is counter productive. I hope that Congress will consider extension of HTS9819.11.12 at least in an amended form.
BASEBALL PANT COST:
Option #1Option #2Option #3Option #4
U.S U.STAIWAN TAIWAN YARN$1.18/LB.$1.18/LB.$.68/LB.$.68/LB.FABRIC/U.S ETHIOPIA ETHIOPIA ASIA GARMENT$1.58$.87/PC.$.58/PC.$.56/PC.
U.SU.S ETHIOPIA ASIATRIM$.30$.30$.22$.22
ETHIOPIAETHIOPIAETHIOPIAASIACMT$.50$.50$.50$.55FRT (MATERIAL + $.34$.32$.30$.11GARMENT)
IMPORT DUTY--------$.24$.22TOTAL$2.72$1.99$1.84$1.66U.S. EMPLOY/2100100,000 DZ.
AFRICA EMPLOY/2002012010100,000 DZ.
BASEBALL PANT COST:Option #4Option #5
FRT (MATERIAL + $.11$.30GARMENT)
U.S. EMPLOY/00100,000 DZ.
AFRICA EMPLOY/2010100,000 DZ.