[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
U.S. TRADE RELATIONS WITH
SUB-SAHARAN AFRICA
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
FEBRUARY 3, 1999
__________
Serial 106-64
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
66-044 CC WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
------
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California SANDER M. LEVIN, Michigan
E. CLAY SHAW, Jr., Florida CHARLES B. RANGEL, New York
AMO HOUGHTON, New York RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan MICHAEL R. McNULTY, New York
JIM RAMSTAD, Minnesota WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington XAVIER BECERRA, California
WALLY HERGER, California
JIM NUSSLE, Iowa
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
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Page
Advisories announcing the hearing................................ 2
WITNESSES
U.S. Department of Commerce, Hon. William M. Daley, Secretary.... 21
U.S. International Trade Commission, Robert A. Rogowsky, Director 70
------
African Continental Telecommunications Limited, and Inner City
Broadcasting Corporation, Hon. Percy E. Sutton................. 63
American Textile Manufacturers Institute, Carlos Moore........... 77
Cargill, Incorporated, Peter A. Kooi............................. 54
Constituency for Africa, and Empower America, Hon. Jack Kemp..... 30
Enron International, Tim Rebhorn................................. 59
Good Works International, LLC, Hon. Andrew Young................. 34
Gramm, Hon. Phil, a United States Senator from the State of Texas 8
Jackson, Hon. Jesse L., Jr., a Representative in Congress from
the State of Illinois.......................................... 9
Kmart Corporation, Dale J. Apley, Jr............................. 96
MAST Industries, Inc., Karen Fedorko............................. 91
Mauritius, Republic of, His Excellency Chitmansing Jesseramsing,
Ambassador..................................................... 48
Senegal, Republic of, His Excellency Mamadou Mansour Seck,
Ambassador..................................................... 44
Uganda, Republic of, Hon. Amama Mbabazi, Minister of State for
Foreign Affairs................................................ 40
Union of Needletrades, Industrial and Textile Employees, AFL-CIO,
Mark Levinson.................................................. 100
SUBMISSIONS FOR THE RECORD
African Coalition for Trade, Inc., Paul Ryberg, Jr., letter...... 110
Boeing Company, Arlington, VA, statement......................... 116
Ferroalloys Association, statement............................... 117
Footwear Industries of America, statement........................ 119
International Mass Retail Association, Arlington, VA, statement
and attachments................................................ 120
Luggage and Leather Goods Manufacturers of America, Inc., New
York, NY, statement............................................ 124
National Cotton Council of America, Jack S. Hamilton, letter..... 126
National Retail Federation, statement............................ 127
Neckwear Association of America, Inc., New York, NY, statement... 131
Nilit America Corporation, Greensboro, NC, Mac Cheek, statement.. 132
United States Association of Importers of Textiles and Apparel,
New York, NY, Laura E. Jones, statement and attachments........ 133
U.S. TRADE RELATIONS WITH
SUB-SAHARAN AFRICA
----------
WEDNESDAY, FEBRUARY 3, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:52 a.m., in
room 1100, Longworth House Office Building, Hon. Philip M.
Crane (Chairman of the Subcommittee) presiding.
[The advisories announcing the hearing follow:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
January 22, 1999
No. TR-1
Crane Announces Hearing on
U.S. Trade Relations with Sub-Saharan Africa
Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade
of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on U.S. trade relations with Sub-
Saharan Africa. The hearing will take place on Wednesday, February 3,
1999, in the main Committee hearing room, 1100 Longworth House Office
Building, beginning at 10:00 a.m.
BACKGROUND:
Sub-Saharan Africa consists of 48 diverse countries, many of which
have undergone significant political and economic change in recent
years. Since 1990, more than 25 African nations have held democratic
elections. At the same time, more than 30 countries have instituted
programs to replace their centralized economies with free markets under
the guidance of bilateral and multilateral donors such as the World
Bank and the International Monetary Fund. Despite the fact that 33
countries in Sub-Saharan Africa are members of the World Trade
Organization, U.S. trade with Sub-Saharan African countries remains
low, relative to overall U.S. trade levels.
In 1994, Congress passed the Uruguay Round Agreements Act (P.L.
103-465), which required the President to submit five annual reports to
Congress on the Administration's comprehensive trade and development
policy for countries in Africa. On January 13, 1999, the President
submitted his fourth report pursuant to this provision of law. The
report describes the progress made in the implementation of the five
components of the Administration's Partnership for Economic Growth and
Opportunity in Africa: enhanced trade benefits to increase U.S.-African
trade and investment flows; technical assistance; enhanced dialog with
African countries; financing and debt relief; and continued U.S.
leadership in multilateral fora to support private sector development,
trade development, and institutional capacity building in African
countries.
During the 105th Congress, the U.S. House of Representatives passed
the African Growth and Opportunity Act, H.R. 1432, which would have
authorized a new U.S. trade and investment policy toward Sub-Saharan
Africa. The bill, which the Senate did not consider, called for the
designation of countries in Sub-Saharan Africa pursuing market-based
economic reform to participate in benefits of the bill. The legislation
extended trade benefits under the Generalized System of Preferences
(GSP) for countries eligible to participate in the Act, and would have
authorized the President to grant duty-free treatment to non-import
sensitive products from Africa currently excluded from the GSP program.
In addition, the bill called for the creation of a United States-Sub-
Saharan Africa Trade and Economic Cooperation Forum to provide a
regular opportunity for the discussion of trade liberalization among
the eligible countries. The bill also set as a policy objective the
creation of a United States-Sub-Saharan Africa Free Trade Area.
Furthermore, the bill would have restricted the imposition of quotas on
textile and apparel products from Sub-Saharan African countries
eligible to participate in the Act that adopt visa systems to guard
against unlawful transshipment.
In announcing the hearing, Chairman Crane stated: ``Last year, the
House passed historic legislation to develop closer trade relations
with countries in Sub-Saharan Africa committed to democracy and market-
based economic principles. Unfortunately, this legislation did not
become law in the 105th Congress. I look forward to this opportunity to
further explore how the African Growth and Opportunity Act, can promote
mutually beneficial trade and investment opportunities between Africans
and Americans.''
FOCUS OF THE HEARING:
Witnesses are expected to address ways that the United States could
develop closer trade relations with the countries of Sub-Saharan
Africa, including provisions proposed in the African Growth and
Opportunity Act.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to
Traci Altman or Pete Davila at (202) 225-1721 no later than the close
of business, Thursday, January 28, 1999. The telephone request should
be followed by a formal written request to A.L. Singleton, Chief of
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515. The staff of
the Subcommittee on Trade will notify by telephone those scheduled to
appear as soon as possible after the filing deadline. Any questions
concerning a scheduled appearance should be directed to the
Subcommittee on Trade staff at (202) 225-6649.
In view of the limited time available to hear witnesses, the
Subcommittee may not be able to accommodate all requests to be heard.
Those persons and organizations not scheduled for an oral appearance
are encouraged to submit written statements for the record of the
hearing. All persons requesting to be heard, whether or not they are
scheduled for oral testimony, will be notified as soon as possible
after the filing deadline.
Witnesses scheduled to present oral testimony are required to
summarize briefly their written statements in no more than five
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full
written statement of each witness will be included in the printed
record, in accordance with House Rules.
In order to assure the most productive use of the limited amount of
time available to question witnesses, all witnesses scheduled to appear
before the Subcommittee are required to submit 200 copies, along with
an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, of their
prepared statement for review by Members prior to the hearing.
Testimony should arrive at the Subcommittee on Trade office, room 1104
Longworth House Office Building, no later than Monday, February 1,
1999. Failure to do so may result in the witness being denied the
opportunity to testify in person.
WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect 5.1 format, with their name, address, and
hearing date noted on a label, by the close of business, Wednesday,
February 3, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways
and Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Trade office, room 1104 Longworth House
Office Building, by close of business the day before the hearing.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1
format, typed in single space and may not exceed a total of 10 pages
including attachments. Witnesses are advised that the Committee will
rely on electronic submissions for printing the official hearing
record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.
The above restrictions and limitations apply only to material
being submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press,
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at `http://WWW.HOUSE.GOV/WAYS__MEANS/'.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
NOTICE--CHANGE IN TIME
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225-6649
FOR IMMEDIATE RELEASE
February 1, 1999
No. TR-1-Revised
Change in Time for Subcommittee Hearing on
Wednesday, February 3, 1999,
on the U.S. Trade Relations with Sub-Saharan Africa
Congressman Philip M. Crane (R-IL), Chairman of the Subcommittee on
Trade of the Committee on Ways and Means, today announced that the
Subcommittee hearing on U.S. trade relations with Sub-Saharan Africa,
previously scheduled for Wednesday, February 3, 1999, at 10:00 a.m., in
the main Committee hearing room, 1100 Longworth House Office Building,
will now begin at 9:45 a.m.
All other details for the hearing remain the same. (See
Subcommittee press release No. TR-1, dated January 22, 1999.)
Chairman Crane [presiding]. The Subcommittee on Trade will
come to order. Today we'll hear testimony from a number of
distinguished witnesses on U.S. trade relations with Sub-
Saharan Africa. Yesterday I joined with over 60 of my
colleagues, including Mr. Levin, Mr. Thomas, Mr. Rangel, Mr.
Houghton, Mr. Neal, Mr. Ramstad, Mr. McNulty, Ms. Dunn, and Mr.
Jefferson of the Trade Subcommittee in reintroducing the
African Growth and Opportunity Act, H.R. 434. Last year this
bipartisan legislation was passed by the House of
Representatives, but was not taken up by the full Senate prior
to adjournment. The delay in the enactment of this historic
legislation has come at the expense not only of U.S. firms and
workers who would benefit from increased access to the
developing markets in the region, but also at the expense of
the growing number of countries on the continent committed to
free markets and democratic institutions. As a result, I
believe that it is important for us to take action on this bill
early in the 106th Congress in order to hasten its journey
through the legislative process.
I now recognize Mr. Levin, the new Ranking Member of the
Subcommittee, for an opening statement.
Mr. Levin. Thank you, Mr. Chairman. Thank you for convening
this hearing on the African Growth and Opportunity Act. I am
glad to join as cosponsor with you and with my friend and
colleague Mr. Rangel, as well as other Members of this
Subcommittee, the Full Committee, and outside of the Committee.
This bill recognizes that in this era of economic
globalization, the nature of trade relations has been changing.
Developing economies have become increasingly involved in
globalization. The nations of Sub-Saharan Africa must not be
left behind. To help bring these countries into the global
economy economic fold, however, we must do more than provide
traditional development aid. While such aid is important, it
must be complemented by strategies that foster growth and
economic self-reliance. The African Growth and Opportunity Act
recognizes that need and creates a partnership between the
countries of Sub-Saharan Africa and the United States that will
encourage both economic growth and democratic reform.
It is important that as developing economies increasingly
participate in economic globalization, we are sensitive to the
impact on American businesses and workers. Economic integration
between developed and developing economies that usually have
different capital and labor markets can have a profound impact
on all countries. As developing economies move toward free
market systems, we must take steps to ensure that the result is
to raise the living standards of all the people in those
nations as well as strengthening rather than undermining the
living standards here in the United States.
Significantly, the bipartisan bill before us recognizes and
addresses the link between labor and trade. It encourages the
development of core labor standards in Sub-Saharan nations.
Specifically, because the preferential trade provisions of this
bill are based on the GSP statute in determining whether a
country qualifies for expanded trade benefits under AGOA, the
President must consider whether the country has or is ``taking
steps to afford internationally recognized worker rights to its
workers.''
Internationally recognized worker rights in turn are
defined under the GSP statute to include the right of
association, the right to organize and bargain collectively, a
prohibition against any form of forced or compulsory labor, a
minimum age for employment of children, and acceptable
conditions of work with respect to minimum wages, hours of
work, and occupational safety and health.
I am encouraged that this bill includes these provisions,
and would urge my colleagues that this approach be kept in mind
as we in Congress and the Administration work to build a new
consensus that will lead us to a revival of a bipartisan
approach on the broader issues of trade. As we look beyond this
bill, I look forward to working to developing this consensus.
We should also attempt in this spirit to work out
differences over specific provisions regarding apparel and
textiles. Last year the Senate adopted different provisions as
we know, than the House, in consideration of the potential
impact of increased trade with Sub-Saharan African nations on
workers and businesses in the United States. I hope that we can
meet early with the Senate to find common ground on this issue.
Mr. Chairman, if I might yield to our friend and colleague,
the Ranking Member of the Full Committee, Mr. Rangel, who has
been such a leader in this effort for any additional comments.
Mr. Rangel.
Mr. Rangel. Thank you so much, Mr. Levin. Let me first
thank Phil Crane for the leadership that he has provided in
demonstrating the ability of the House to act in a bipartisan
way if it's in the interests of the United States, and
certainly in the interests of open trade. His leadership has
been so helpful, as Congressman McDermott, and Jefferson, and
Payne, and Royce, have worked together to put together this
piece of legislation.
This is a unique piece of legislation because we have not
told the countries that are to be affected what we want them to
do, but we have asked them how can we be better friends, how
can we be better partners. It is a good feeling to see the
entire African diplomatic corps, with its Ambassadors who have
worked with us, have testified in front of this Committee, who
have been at press conferences, to see that this legislation is
the beginning of a great trade relationship that should exist.
Let me thank Senator Gramm. I wish we can find more issues
to be on the same side of, because in a fight, if we had to
pick our team, I would want you on my side. You have been of
tremendous assistance to us in helping us to understand the
unique problems of your colleagues on the other side. I do hope
that we will start early enough so that we can understand that
compromise is not a dirty word, but we have to end up with an
effective piece of legislation that set out to do what we want
it to do.
I want to thank Andrew Young, who is here, a unique
individual that has not only served in the civil rights field,
but he has been a Member of Congress, an ambassador to the
United Nations, a mayor of Atlanta. But in the private sector,
he and Ron Brown have done so much in educating America as to
the needs of this great continent and the countries that
involve.
Of course I want to give a special thanks to a dear friend
of mine, a neighbor of mine who was a successful politician,
but more importantly, is a successful businessman. He will
testify. His name is Percy Sutton. He comes from the village of
Harlem, as I do. We share and talk about how we envied Speaker
O'Neill when he went to Ireland, how we enjoyed vicariously
when former Chairman Rostankowski went to Poland, and now we
feel such a deep sense of pride when we go to Africa. So
vicariously, this means a lot to Americans as well as to
Africans.
This is an exciting piece of legislation. We have a lot of
heavy lifting to do on the other side. But, Mr. Chairman, your
leadership is historic. I am certain that all of us should
remember this one day, because I am certain that at some point
in time, all of us would be able to say that we played a part,
no matter how small, no matter how big, in making this
possible.
Jack Kemp, since leaving the Congress and leaving public
service, has been an ambassador throughout this world. Your
presence here enhances the ability of us to move forward in a
bipartisan way.
Thank you, Mr. Chairman. Thank you, Mr. Levin.
[The opening statement of Hon. Jim Ramstad follows:]
Opening Statement of Hon. Jim Ramstad, a Representative in Congress
from the State of Minnesota
Mr. Chairman thank you for calling this important hearing
today to discuss U.S. trade with Sub-Saharan Africa.
During this hearing today, we will review legislation that
you, I, and over 50 of our colleagues have cosponsored to
create a new trade and investment policy for sub-Saharan
Africa. I supported this legislation last Congress and I
support it now because it is simply the right thing to do.
Since 1990, more than 25 African nations have held
democratic elections. Over 30 have instituted programs to
replace their centralized economies with free markets. We all
know stronger economies contribute to social and political
stability, and we must take steps to help secure that
stability.
Increased investment and trade activity with the U.S. will
improve the economic conditions of all the Sub-Saharan nations.
And, as our Committee has heard in the past from African
officials, they want this opportunity to industrialize their
economies and facilitate technology transfers. They support the
bill's efforts to encourage foreign investment and direct
private sector involvement in further economic development in
the region.
Mr. Peter Kooi, President of the World Grain Trading Group
of Cargill, a privately-held agribusiness headquartered in my
district and an active member of the Corporate Council on
Africa, will be testifying before our committee today. In
reading his written statement last night, I was impressed to
learn of the extensive involvement of Cargill as a public
corporate citizen in Africa to help bring about economic and
political development in the region. Cargill exemplifies what
we are trying to achieve with this legislation.
In addition, I was inspired by a sentence in his statement
in which he says, ``what Africa needs, and what the African
Growth and Opportunity Act Passed by the House of
Representatives last year begins to offer, is a partnership.''
Mr. Kooi is correct. I am proud to be involved in the
development of this partnership and look forward to enacting
this critical legislation before us today.
Mr. Chairman, thanks again for calling this hearing. I look
forward to the testimony of today's witnesses and learning more
developing that partnership with the nations of Sub-Saharan
Africa.
Chairman Crane. Thank you, Charlie. We have a whole list of
witnesses to testify before us today. Unfortunately there are
time constraints associated with our hearing, which will be
followed by our Subcommittee markup of the bill later, this
afternoon after lunch.
Accordingly, I must inform all of our witnesses that we'll
have to strictly enforce the 5-minute rule on oral
presentations. Your written statements though will be made a
part of the permanent record.
Now I would like to introduce our first panel. The
Honorable Phil Gramm, who has been referred to by my good
friend Charlie Rangel, chairman of the Senate Banking
Committee, who as I understand Charlie's remarks, will
translate the bill to the Senate. Is that correct?
Senator Gramm. Yes, that's right.
Chairman Crane. Very good. And also Hon. Jesse Jackson,
from my home State of Illinois.
STATEMENT OF HON. PHIL GRAMM, A UNITED STATES SENATOR FROM THE
STATE OF TEXAS
Senator Gramm. Mr. Chairman, first of all, thank you, and
Charlie, thank you, for your kind comments. I want to thank
you, Mr. Chairman, for your steadfast support for free trade
over the years. I want to try to keep my remarks brief.
I have often found myself as a conservative when we have
been voting on foreign aid bills, realizing that most of the
money we're spending is going to go to promote crony capitalism
or socialism or programs that don't work. I have often wished
we could find a way to really help people. I think in the
African Growth and Opportunity Act--it sounds like Jack Kemp
named the bill--we have a way to help people through trade.
The points I would like to make are pretty simple. No. 1,
this is a very modest bill. All of Sub-Saharan Africa combined
sells America about .67 percent of the textiles that we buy
around the world. If you look at the estimates by the ITC, they
estimate that in all probability the opening up of trade as
proposed by the President will probably mean that in the end,
still maybe less than 1 percent of textile imports will come
from Sub-Saharan Africa.
The opposition to the bill has come principally from
textile interests. Americans today on average pay $700 a family
more for clothing than they would pay if we had free trade in
textiles. No other industry in America is more protected. This
is direct and clear theft in literally taking the clothes off
the backs of working people. The fear that is raised by those
who oppose the bill is that Africans might actually produce
clothing that is cheaper or better, and Americans might
actually buy it. My response to that is what is wrong with
that?
In the Senate, we had a provision added to the bill that
required that the textiles that would come under the provisions
of this bill would have to be made out of U.S. fabric, made
from U.S. yarn. The point I want to be sure that everybody
understands is that that kills this bill. There is no way that
Africa, as non-competitive as it is in the very early stages of
economic development, where you have got 750 million people,
you have got per capita income of below $500 per person, there
is no way if we have got to ship cloth and thread to Africa and
use it in order for them to produce something to sell on our
market that they can or will be competitive.
So the Senate provision kills this bill. You can not be for
this bill and be for that provision. So I hope the House will
pass this bill again. I think the strongest force we should
have in this debate is shame. People ought to be ashamed to be
against this bill. The President went to Africa, took a lot of
pictures, made a lot of promises. He came back, and quite
frankly, he ought to be ashamed that he and his administration
have not done more to promote this bill. Where is he standing
up, speaking out for this bill?
Second, for those who are trying to prevent this bill from
working so that imports of textiles from Africa don't grow from
.67 percent to 1 percent, it seems to me that that is totally
unjustified. This is one of those issues where 750 million
human beings are involved, where we ought to just say no to
special interests.
So I don't see any potential for a compromise on this
provision. I hope you can pass the bill. I believe in
conference if you do, that we can have conferees from the
Senate Finance Committee that will drop the Senate provision.
But if you don't drop the provision, you kill the bill. That is
really my message, Mr. Chairman.
Chairman Crane. Thank you.
Mr. Jackson.
STATEMENT OF HON. JESSE L. JACKSON, JR., A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Jackson. Mr. Chairman, Mr. Crane, Ranking Subcommittee
Member Mr. Levin, and Full Committee Ranking Member Mr. Rangel,
Members of the Subcommittee, thank you for this opportunity to
discuss a new U.S. trade and economic development policy.
Before I begin with my remarks, let me first begin by
offering, which is quite uncustomary for me, an apology to Mr.
Rangel and to other Members of the Subcommittee who have been
working diligently to establish a new policy with Sub-Saharan
Africa. It is not my intention to engage, as I have been
accused, in a misinformation campaign. I am not necessarily
against the African Growth and Opportunity Act, but I am
certainly for the HOPE for Africa Act, which I respectfully
submit for your review and for the record in my entire
statement, along with some related charts and graphs.
The acronym HOPE stands for human rights, opportunity,
partnership, and empowerment, the moral, legal and
developmental and humane principles underlying my bill. Last
year when the African Growth and Opportunity Act of 1998 came
before the Congress, the only option Members had was to vote
for or against it. The two options were either to support that
bill or support no bill at all. In reality, many of us were
left with no option. We decided to create a third way.
A broad-based group of African and U.S. citizens groups,
church, labor, development, anti-hunger, and NGO's, have worked
hard over the past several months to put together an
alternative bill so that Members who do not support the African
Growth and Opportunity Act have the option to choose and be for
another bill.
My legislation has a single aim, providing the policy and
programs that would promote and support sovereign, equitable,
and sustainable African development so that the needs of
African people and the American people can be met. This
proposal contains the policy initiatives that prove to be a
subject of absolute consensus among the African economists,
development and trade experts, and others with whom we work.
No. 1, debt cancellation. No. 2, African sovereignty to choose
economic policies. No. 3, sustainable economic opportunities.
No. 4, the restoration of equal treatment for Africa concerning
U.S. foreign aid.
Let me first begin with debt relief, quickly. First and
foremost, the HOPE for Africa Act seeks to eliminate the
greatest obstacle to the realization of Africa's enormous
economic potential and serves as the greatest barrier to
American opportunity in Sub-Saharan Africa, the region's $230
billion external debt. Sub-Saharan Africa, especially her
poorest people, are inordinately burdened with this $230
billion debt, whose service requirements now take up 20 percent
of the export earnings of the Sub-Saharan African region, minus
South Africa.
Bilateral and multilateral debt burdens of Sub-Saharan
Africa constitute a serious impediment to private sector
development, stable democratic political structures, broad-
based economic growth, poverty eradication, the expansion of
small and women-owned businesses, food security, agricultural
development, aid at feeding the continent's people,
environmental sustainability, and regional integration. Any
policy for Africa and development that is intended to benefit
Africa must be premised on unconditional debt cancellation.
The history of U.S. cancellation of debt includes reversal
of the U.S. demand that Germany pay 10 percent of its post-
World War II export earnings to recover debts owed prior to the
war. Germany successfully negotiated for a rate which resulted
in annual payments of less than 3.5 percent of export earnings.
Currently, Mozambique, one of the world's poorest countries,
pays over 20 percent of export earnings in debt service. To
require African nations to compete in a global economy burdened
with this debt is like throwing a person into the deep end of
the pool with a ton of weights chained to their ankles.
Second, self-determination. The HOPE for Africa Act is
premised on the goals developed by African finance ministers,
in cooperation with the Organization for African Unity. Thus,
the HOPE for Africa Act states a new U.S. policy toward Africa
based on the recognition that economic development must be
measured by the well-being of the majority of the people and
oriented toward following those goals.
Strengthening diversity of Africa's economic production
capacity, improving the level of people's income and pattern of
distribution, adjusting the pattern of public expenditure to
satisfy people's essential needs, providing, Mr. Crane,
essential and institutional support for transition through debt
relief.
Let me just conclude, Mr. Chairman, that my bill also adds
and restores the 1994 levels of this Congress of $802 million
in vital foreign aid to Sub-Saharan Africa. In conclusion,
President Clinton's State of the Union address, he said we must
create a freer and fairer trading system for the 21st century.
Trade has divided Americans too long. We must find a common
ground on which business, workers, environmentalists, farmers,
and government can stand together. We must tear down barriers,
the President said, open markets and expand trade.
At the same time, we must ensure that ordinary citizens in
all countries benefit from trade, trade that promotes the
dignity of work, the rights of workers, the protection of the
environment. I agree and think that the HOPE for Africa Act of
1999 comes closest to achieving these goals. The policy
regarding Africa that Congress sets now will deeply affect the
economic future of the continent and thus, the future of the
African people for the next hundred or so years. With such high
stakes, it is vital that we get the initial policy right. It is
with this in mind that I will submit my legislation, which has
broad-based support from African and U.S. development, trade
and economic experts, and also the organizations in Africa and
the United States, representing the interests of the majority
of people who we believe will be affected.
Thank you, Mr. Chairman.
[The prepared statement follows:]
[Attachments are being retained in the Committee files.]
Statement of Hon. Jesse L. Jackson, Jr., a Representative in Congress
from the State of Illinois
Chairman, Mr. Crane; Ranking Subcommittee Member, Mr.
Levin; Full Committee Ranking Member, Mr. Rangel; members of
the subcommittee; thank you for this opportunity to discuss a
new U.S./Africa trade and economic development policy.
I respectfully submit for your review and for the record my
entire statement, along with some related charts and graphs,
and a summary of a bill that I will introduce shortly called
``The HOPE for Africa Act of 1999.'' The HOPE acronym stands
for Human Rights, Opportunity, Partnership and Empowerment and
outlines the principles upon which the bill will be based.
I am here today to state my support for legislation that
would promote and support sovereign, equitable, sustainable
African development, a goal which is in the mutual interest of
the people of the United States and Africa. Such legislation
would provide policies aimed at meeting the needs of the broad
majority of African and American people.
Because I seek legislation on Africa that meets these goals
I strongly oppose the legislation being considered by the
committee today which has been mis-named the ``African Growth
and Opportunity Act.'' I agree with the sentiment expressed to
this Congress last year by an ad hoc coalition of prominent
African American leaders: it is better for Africa to have no
bill at all than to have this bill pass. But happily, these are
no longer our only two options.
Today I am pleased to announce that I am introducing
legislation on Africa that meets the central pro-Africa goals
of equitable, sustainable development and respect for African
self-determination.
My legislation, the Human Rights, Opportunity, Partnership
and Empowerment for Africa Act--the ``HOPE for Africa Act''--
has been developed over the past six months in consultation
with African and U.S. citizens groups--church, labor,
development, anti-hunger and more--as well as U.S. and African
economists and trade specialists. This legislation focusses on
policies that will be mutually beneficial for most people in
Africa and in the United States.
Many of the original participants in the Clinton
Administration's 1995 ``dialogue'' on Africa, such as Coalition
for Black Trade Unionists President Bill Lucy and Professor Ron
Walters support this legislation--because it furthers the goals
discussed in that dialogue--and oppose the African Growth and
Opportunity Act which undermines those goals. Last year,
opponents of the African Growth and Opportunity Act tried to
work with the Administration and the Act's authors to modify
that legislation to encompass the concerns and goals set forth
in this testimony. Such attempts were rebuffed. Even floor
amendments by my colleagues Rep. Waters and Rush were opposed
by the bill's authors.
Thus, I am now offering the HOPE for Africa Act because it
would be immoral and wrong for the U.S. Congress to promote
policies of either paternalism or colonialism toward Africa.
Over the past 30 years, many African nations have overcome
decades of imperialism by declaring independence from their
European colonial status. We must not now reverse that progress
by imposing an economic neo-colonialism of U.S. corporations
and speculators. Yet the African Growth and Opportunity Act
would mandate numerous policies that would foster just this
result.
We must respect the sovereignty of African nations, not
treat them with paternalism. Yet the African Growth and
Opportunity Act is the embodiment of paternalism: it imposes
conditionalities designed to shape African economies to the
benefit of U.S. business interests.
Contempt for African economic self-determination defines
this legislation--a posture most clearly exemplified by the
Act's declaration that not one shred of its so-called benefits
shall be conferred upon any African nation until that nation
submits to U.S. imposed terms for how it shall run its
economic, legal and social systems. We treat no other region of
the world in this fashion.
The HOPE for Africa Act, conversely, is focussed entirely
on those policies that will promote the sovereign economic
development of the African nations. On whom have we relied to
determine what policies would accomplish this end? We have
drawn directly from the policies developed by the Finance
Ministers of the Sub-Saharan African countries in cooperation
with the Organization for African Unity.
Thus, first and foremost, the HOPE for Africa Act seeks to
eliminate the greatest obstacle to the realization of Africa's
enormous economic potential: the region's $230 billion in
external debt. Sub-Saharan Africa, especially her poorest
people, are inordinately burdened by this $230 billion debt
whose service requirements now take over 20% of the export
earnings of the SSA region (minus South Africa). Bilateral and
multilateral debt burdens of Sub-Sahara Africa constitute a
serious impediment to private-sector development, stable
democratic political structures, broad-based economic growth,
poverty eradication, the expansion of small and women-owned
businesses, food security, agricultural development aimed at
feeding the continent's people, environmental sustainability,
and regional integration. Any policy for development in Africa
that is intended to benefit Africa must be premised on
unconditional debt cancellation. The history of U.S.
cancellation of debt includes reversal of the U.S. demand that
Germany pay 10% of its post-World War II export earnings to
recover debts owed prior to the war. Germany successfully
negotiated for a rate which resulted in annual payments of less
than 3.5% of export earnings. Currently Mozambique, one of the
world's poorest countries, pays over 20% of export earnings in
debt service. To require African nations to compete in the
global economy burdened with this debt is like throwing a
person into the deep end of a pool with a ton of lead weights
chained to their ankles.
I was pleased by last week's announcement that the Clinton
Administration's budget will include funds to forgive--by
paying off--some of this debt. However, as we all know, the
Administration's budget serves as a political document
announcing the Administration's interests and goals. It is the
lengthy congressional budget process that will actually create
the nation's budget.
We have sufficient experience with these matters to know
what will likely happen to the Administration's fine demands
for African debt relief in the hands of a Republican majority
Congress. In light of this reality, it is entirely unacceptable
to separate debt relief from the trade and economic provisions
of an African policy. The likely outcome of this two-track
approach is painfully clear: the economic and trade provisions
benefiting U.S. business interests will pass and the debt
relief that is the pre-condition for a successful African
economic future will not.
Indeed, the Clinton Administration has prioritized the
passage of the trade and economic provisions, as written, above
all else. When the point has been raised that debt relief
measures are an essential component of any pro-Africa policy,
the Administration has answered that adding debt or aid
language would undermine the political viability of the bill.
Yet, if the strength of Republican opposition to debt relief is
as strong as the Administration suggests, then it is obvious
that separate debt relief provisions have no hope of passage.
Indeed, the only viable approach is to include debt relief in
African legislation, making debt relief the ``price'' for the
trade and economic provisions sought by the Republican
majority.
1. The Need for a New Approach to U.S.-Africa Policy
The countries of Sub-Sahara Africa form a region of
tremendous human creativity, vast natural and cultural wealth,
enormous economic potential and enduring political
significance, yet over the past decades, the standard of living
for most Africans has been declining.
Indeed, Africa is the only continent where economic
production per person has declined throughout the last two
decades. The per capita income for Sub-Sahara Africa averages
less than $500 annually and per capita income fell from $752 in
1980 when the neoliberal development model was initially
imposed on numerous African countries to $613 in 1988 (in
constant 1980 U.S. dollars). In 1996, 20 Sub-Saharan African
countries were still below their per capita incomes of 20 years
ago. Indeed, the World Bank reports that in Sub-Sahara Africa
wages have not grown since 1970 and in the last decade alone
family incomes have fallen by a third and the number of African
families unable to meet their basic needs doubled.
Africa has the largest number of the poorest countries in
the world. Thirty-Three of the 41 Highly Indebted Poor
Countries (HIPC) are located in Sub-Sahara Africa. Indeed,
fifty percent of Africans live below the poverty line, 40%
living on less than $1 per day. And 40% of Africans suffer from
malnutrition and hunger, while one in five children in Africa
die before the age of five. Many Sub-Sahara African countries
are suffering from epidemics of AIDS, tuberculosis, malaria and
other diseases, many of which are treatable or preventable with
existing pharmaceutical and medical treatments;
Africa's wealth in natural resources, oil, and minerals is
immense. However, current development and economic models based
on their export have denied the majority of African people any
benefits from this vast wealth. Current large scale development
projects have not been designed in a fashion that produces
benefits to most Africans. For instance, oil and mining
projects such as Sierra Rutile and Terebebe have not benefitted
most Africans economically and have caused severe environmental
damage and led to conflicts with local communities.
There is ample evidence that one significant cause of this
deterioration is the one-size-fits-all imposition of so-called
Structural Adjustment policies mandated by institutions such as
the International Monetary Fund (IMF.) In the past Congress,
even many Members who supported increasing the U.S.
contribution to the IMF agreed that IMF policies, such as
requirements to cut domestic education, health and other core
social services, have devastating effects on the populations of
affected countries. The same critique was applied to IMF
policies that foster speculation, promote wild currency
fluctuations and extend rights to foreign investors to acquire
control of nations' mineral, oil and other natural wealth at
fire-sale prices. Also criticized were IMF policies which
mandate cuts in corporate taxes and require privatization
through divestiture of public assets services--such as
telephone, banking, ports, mines, oil fields and more.
During the period of income decline in Africa, the IMF, the
World Bank and other international lending institutions and aid
agencies have forced African nations to adhere to ``structural
adjustment programs.'' These programs orient economies toward
export production, placing downward pressure on wages,
encouraging unsustainable resource exploitation and undermining
food security. They lead to major reductions in government
spending, including in the crucial areas of education,
healthcare and environmental protection; and they particularly
harm women, who are most severely hurt by the elimination of
the social safety net and the policy's neglect of small and
domestically oriented farmers. Many such farm policies, such as
substitution of export crops for staple food production, use of
chemical fertilizers, hybrid seeds and other products, have
resulted in damage to local farmers and agriculture and loss of
food security.
These so-called structural adjustment programs impose a
deregulatory and trade liberalization agenda that removes
crucial government protections for society and leaves local
business vulnerable to foreign multinationals; and they
encourage wage cuts, including in the minimum wage, weakening
of labor laws and labor rights, and government and private
sector employment cuts. Structural adjustment programs force
recessionary policies that most seriously victimize the poor;
and they tend to exacerbate income and wealth inequalities and
undermine basic well being as measured by access to food,
shelter, medical services, and a sustainable livelihood, even
when traditional economic indicators show economic growth.
Moreover, even pro-corporate entities like the Organization
for Economic Cooperation and Development have criticized recent
trade regimes, such as the World Trade Organization and its
Uruguay Round GATT rules, as contrary to the interests of
African countries. Both the IMF and WTO require changes in
agriculture policy that undermine food security. The policies
mandate the replacement of domestic food crops with non-staple
crops for export--so that nations can earn the hard currency
necessary to service external debt.
During the last Congress, as legislators and policy
analysts looked beyond the name ``African Growth and
Opportunity Act'' to study the legislation's binding
provisions, we realized that the bill will intensify precisely
the programs and policies of the IMF and WTO described above--
programs which have already had destructive effects in Sub-
Sahara Africa. It is these core provisions of the Africa Growth
and Opportunity Act that led me to call the bill the African
Recolonization Act and others to dub it ``Lethal Medicine for
Africa.'' Indeed, the trade press now calls the bill ``NAFTA
for Africa,'' because it so closely follows the NAFTA model
which has done great damage to Mexico.
Indeed, it was friends in Africa who first warned us of the
bill's dangers. They noted that the Africa Growth and
Opportunity Act, though wrapped in rhetoric about helping
Africa, is explicitly designed to secure U.S. corporate
interests at the expense of the interests and needs of the
majority of African people and at the expense of African
nations' sovereignty.
These concerns were substantiated when we discovered the
membership of the coalition promoting the bill. The so-called
``African Growth and Opportunity Act, Inc.'' is comprised of
U.S.-based oil and other multinational corporations, many of
whom already suffer infamous reputations in Africa for their
heinous human rights and environmental practices (and in some
cases in the U.S. for their civil rights violations and union
bashing). Africa Inc.'s advisory board includes the likes of
Chester Crocker. The Members of the Committee will remember Mr.
Crocker as the architect of the Reagan Administration's
shameful ``constructive engagement'' policy with South Africa--
a policy that helped prop up the vicious Apartheid regime while
South Africa's rightful leaders languished in jail.
On the issue of who supports and opposes this legislation,
much has been made of the official support of the Washington
African Ambassadorial corp. Indeed, after South African
President Nelson Mandela opposed the bill in a press conference
standing next to President Clinton, South African Ambassador
San sent a letter to Congress saying he supported the bill.
Yet, in private, these Washington Ambassadors have repeatedly
told my colleagues that their support for the bill was based on
the understanding that failure to support the bill would be
considered a slight to the U.S. government and that the only
option was this bill or no attention to African at all.
With the introduction of my legislation, the choice will no
longer be one between the devil and the deep blue sea. Indeed,
Geneva-based African ambassadors who deal daily with the WTO--
and with the other institutions whose good offices the bill
imposes on Africa--have been among the critics of the Africa
Growth and Opportunity Act. These officials had input into the
development of my legislation through NGOs in their countries.
For instance, the Africa Trade Network, representing 50 groups
from across Africa--from South Africa's massive COSATU labor
federation to small church, women's and anti-hunger groups
throughout the continent--strongly opposes the African Growth
and Opportunity Act and has participated in the design of my
legislation.
2. Grounds for Opposing the African Growth and Opportunity Act
I am attaching to my testimony a detailed analysis of the
Africa Growth and Opportunity Act prepared by TransAfrica. In
sum the bill's core provisions include:
A. Imposition of Harsh U.S. Conditions; Access for U.S.
Corporations: The U.S. president must annually certify that
African countries are meeting a U.S.-imposed set of conditions
``favorable'' to foreign investment and trade. The conditions,
which must be met for an African country to qualify for
programs or benefits under the bill, include the entire neo-
liberal IMF-style economic program which has already devastated
those African, Asian and Latin American countries on which it
has been imposed. Among other provisions, this includes:
Cutting domestic spending (health, education,
welfare)
Cutting corporate taxes
Ending agriculture subsidies (vital for food
security)
Compliance with harsh IMF terms which mandate debt
payment as the primary national goal
Opening all sectors for foreign investment (thus
giving up control of vital resources, including, for example,
mineral wealth)
Joining the World Trade Organization (WTO)
Privatization of public assets, such as phone,
electric services, timber lands, mines and more
B. No Real Benefits for Africa: The main so-called benefit
of the African Growth and Opportunity Act is additional access
into the U.S. market for textiles and apparel. This is a cruel
hoax, because under global trade rules, all textile and apparel
quotas end in 2004 with the phase out of the MultiFiber
Arrangement, at which point there will be, for all practical
purposes, only one country involved in that sector--China. Even
in the interim, the bill's textile provisions would allow
Chinese-made textiles and apparel to be trans-shipped through
Africa, and considered ``African,'' even if no work is done by,
and no benefit accrues to, anyone in Africa.
The other benefit provided in the bill is allowing all
African countries to get the ``least developed country'' (LDC)
benefits of an existing trade program for developing countries
called GSP (Generalized System of Preferences.) However, most
of the Sub-Saharan countries already have been designated as
qualifying for the LDC treatment.
Also listed in the bill as ``benefits'' for Africa are a
series of items the Clinton Administration can do (and is
doing) without legislation, including: a Africa-U.S. summit
(set for March 1999), appointment of a special trade
representative for Africa (done in 1998), designation of
existing Import-Export Bank and Overseas Private Investment
corporation resources for Africa (can be done by executive
order), broader targeting of US Agency for International
Development resources.
C. Policies Demanded by Africans Left Out of the Bill:
Missing from the bill is any mention of the four items that all
African nations and Africa policy advocates agree are the basis
for sovereign and sustainable development: debt relief,
sovereignty to choose economic and social policy, fair trade
and investment rules, and aid to overcome the damage done by
rich countries' through their past exploitation of the
continent.
3. The Hope for Africa Act: A Forward-Looking Approach
My legislation, developed through input from and dialogue
with African and U.S. civic society groups, has a single aim:
providing the policy and programs that would promote and
support sovereign, equitable, sustainable African development
so that the needs of the African people and the American people
can be met.
Our proposal contains the policy initiatives that proved to
be a subject of absolute consensus among the African
economists, development and trade experts and others with whom
we worked:
Debt Cancellation
African Sovereignty to Chose Economic Policies
Sustainable Economic Opportunities
Restoration of Equal Treatment for Africa
Concerning Foreign Aid
I have attached a thorough summary of the provisions of my
bill. But in brief, my bill includes:
A. Debt Relief : African business development is not
possible with 20% of all African export earnings now going into
debt payment and no local credit markets possible. This is debt
that has been repaid many times over, but with compound
interest and new loans to pay the interest of old loans, this
debt will never be ``officially'' satisfied. This debt must be
wiped clean, a demand of the worldwide religious Jubilee 2000
campaign.
Thus, the HOPE for Africa Act calls for full cancellation
of African foreign debt, starting with the relatively small
debt owed the U.S. government and covering IMF, World Bank and
private sector loans. Effectively, what needs to be done is to
pay off the principle of the loans at the often 5 cents on the
dollar value at which such debt is market valued. Getting rid
of the principle terminates the chains of everlasting interest
payments on the high book value (versus the significantly less
market value) of the loans. The HOPE for Africa Act also
includes enactment of a cap on future debt payments so that no
African country shall pay an amount exceeding 5 percent of its
annual export earnings toward the servicing of foreign loans,
which is the agreement built into the Marshall Plan for debt-
burdened Europe after World War II.
B. African Economic Self Determination: The HOPE for Africa
Act is premised on the goals developed by African Finance
Ministers in cooperation with the Organization for African
Unity. Thus, the HOPE for Africa Act states a new U.S. policy
toward Africa, based on the recognition that economic
development must be measured by the well-being of the majority
of people, and oriented toward the following goals:
Strengthening and diversifying Africa's economic
production capacity;
Improving the level of people's incomes and the
pattern of distribution;
Adjusting the pattern of public expenditures to
satisfy people's essential needs;
Providing institutional support for transition
through debt relief;
Supporting sustainable development; and
Promoting democracy, human rights and the strength
of civil society.
A key principle underlying these goals, and as specifically
set forth by African finance Ministers in, for instance, the
Lagos Plan, is freedom for each African country to self-
determine what economic policies suit the needs to their people
and development. Top goals of the Lagos Plan are: food self-
sufficiency and security, potable water, shelter, primary
health care, education and affordable transport.
C. Trade and Investment Rules to Benefit People: The HOPE
for Africa Act grants new access to the U.S. market for a broad
range of goods produced in Africa, by Africans, and includes
safeguards to ensure that the corporations manufacturing these
goods respect the rights of their employees and the local
environment.
The Act grants African countries quota-free, duty-free
market access for all goods listed under the Lome Treaty in
which the U.S. is not a competing producer--these goods include
a variety of minerals, tropical oils, and processed foods among
other products.
The Act transfers to African countries as much of China's
textile and apparel quota as these countries can fill, with
strong protections to ensure that imports from Africa are not
merely transshipped from other points of origin. The Act
extends existing benefits enjoyed by African nations under the
Generalized System of Preferences (GSP), through 2002,
eliminating the need to renew these benefits in each of the
intervening years and avoiding the consequent delays.
The Act is designed to ensure that African businesses and
workers benefit from the new grants of duty-free access to the
U.S. market. In order to achieve these ends, the Act requires
that: All corporations benefiting from new duty-free market
access have majority African ownership, employ at least 80%
African workers and generate at least 60% of their products'
value added in Africa; All such corporations respect
internationally recognized labor rights, including the right to
organize, and refrain from any use of child, forced, indentured
or slave labor; And all such corporations that involve a joint-
venture arrangement with a firm based in the U.S., the E.U. or
Japan comply with the environmental standards that would apply
to a similar operation in that firm's home country. As well,
all countries seeking new duty-free access comply with the core
labor standards enumerated in the International Labor
Organization treaties that many African nations have adopted.
Finally, the bill would extend GSP status for Sub-Saharan
African countries through 2002, as does the African Growth and
Opportunity Act.
D. Foreign Aid and Assistance Programs: The HOPE for Africa
Act would restore Africa's budget line item, for foreign aid,
with a set guaranteed amount of aid not to decline below 1994
levels. This would restore parity for Africa with U.S. foreign
aid treatment to other vital regions.
The HOPE for Africa Act bill would increase, over the
paltry sum offered in the African Growth and Opportunity Act,
funding for the US Agency for International Development.
However, the HOPE for Africa Act would re-allocate these funds
in support of the Lagos Plan guidelines for social investment
(rather than aimed at implementing the IMF's policies as is
their use in the African Growth and Opportunity Act.) This
includes set percentages for Microcredit projects; projects to
provide basic health, education, transportation services to
local populations; and agriculture projects promoting food
security, development of sustainable, low input farming methods
for staple crops.
E. Business Facilitation: The Act provides for the targeted
use of $650 million in existing Overseas Private Investment
Corporation (OPIC) funding for the following purposes: $500
million to create infrastructure funds that will support
projects on basic health services, potable water, sanitation,
schools, rural electrification and accessible transportation
and $150 million for sustainable development projects.
Decisional boards will be created to oversee these new OPIC
funds and also designated Ex-Im Bank financing targeted to Sub-
Sahara Africa. Such decisional boards shall have majority
private sector membership emphasizing individuals with
expertise in human rights, labor rights, the environment and
development. Board meetings will be public. Seventy percent of
trade financing provided by the Ex-Im bank, and 70% of
investment insurance provided by OPIC, will be allocated to
small, women and minority-owned businesses with at least 60%
African ownership. Fifty percent of funds for energy projects
will be used for renewable and/or alternative energy
development; environmental impact assessments will be conducted
and made public wherever relevant.
F. Review Process: The Act requires the President, three
years after enactment, to give notice for public comment on the
implementation results, successes and failure of the
legislation--such comments to be made publicly available and
submitted in whole to the U.S. Congress.
Conclusion
The policies regarding Africa that the Congress sets now
will deeply effect the economic future of the continent and,
thus, the future of the African people. With such high stakes,
it is vital that we get the initial policy right. It is with
this in mind that I will submit my legislation, which has the
broad-based support of African and U.S. development, trade and
economic experts and also organizations in Africa and the U.S.,
representing the interests of the majority of the people who
will be effected.
Chairman Crane. Thank you.
Mr. Levin.
Mr. Levin. Thank you. Well, welcome to both of you, Senator
Gramm, the distinguished colleague of a friend of mine. Mr.
Jackson, I am glad that you are here. Your testimony helps to
kick off what I hope will be a wide scale discussion within the
Congress and with the administration as to overall trade
policy.
Let me just say a couple of things quickly because we do
need to move on, but your testimony is important. First of all,
I support this bill. I do think it is very much a step in the
right direction. It isn't all the answer to relationships with
Africa or with its development.
Senator Gramm, I do think we have to work hard to work out
the provisions regarding textile and apparel. I must say to
simply label those who are concerned about the impact on the
textile and apparel industry as special interests, I'm not sure
that moves us very far because every interest in that sense is
a special interest. My own judgment is that the impact would be
minimal. There are provisions in the bill that in essence
address issues like labor market issues, and perhaps also
capital market issues.
I am optimistic that we can work out with your help the
differences between the Senate and the House, and pass this
legislation.
To my friend, Congressman Jackson, I think you are right
that debt relief is an important part of the picture, but we
need to consider whether in addressing all the problems, in
addressing problems, we have to tackle them all in one package.
We don't have jurisdiction, this Subcommittee or in the Full
Committee, over your proposal for full debt relief. It is a
complicated issue, as you know. Examples can be set if we
provide debt relief fully in one area as to what we might do in
other areas.
I think the thrust of this bill is that trade is a vital
piece of the picture as well as economic assistance. I was once
in AID as an assistant administrator. Senator Gramm, I don't
think all the money went to capitalistic cronies and the like.
There were some important features of our assistance program
with the development assistance with Africa that were steps in
the right direction. I agree with you, there were problems in
other areas, substantial problems. These economies need to
reform toward a full-market economy for them to use effectively
development assistance.
So I think you present kind of two ends of the spectrum
here. I hope that what we can do is find the common ground on
this bill and then move onto other broader trade bills and see
if we can meet a consensus to move ahead legislation.
Senator Gramm. Could I just respond very briefly? The
provision that was in the Senate bill in the Finance Committee
never got to the floor. We might have knocked it out on the
floor. But if you've got to ship American cloth to Africa, and
you have to sew it with American thread, the reality is we are
claiming that we are doing something, but we're not doing it.
There is nothing wrong with special interests. So far as I
know, I am the only spokesman for public interest in
Washington. I am always suspicious of anybody else who claims
it. But I do believe, that what happened here is that the
textile lobby saw this as a tiny little thing, but sort of a
principle they were going to establish. They weren't going to
give one inch.
My point is, when you look at the big good to be gotten by
expanding trade, and you look at the minuscule impact of this,
this is one of those deals where we just have got to swallow
hard and expand trade. Even the ITC, using single entry
bookkeeping, which says how many jobs do you lose in areas
where you are importing, not even looking at the jobs we might
create exporting to Africa, says we are talking about 676 jobs.
We have created 20 million jobs in the last 6 years. So I am
just saying that we are talking about very small negative
impacts using single entry bookkeeping, not even talking about
expanding trade. While everybody wants to find a way they can
satisfy every interest, I don't think you can satisfy every
interest and have trade with Sub-Saharan Africa.
Mr. Levin. Let me just say briefly, I agree that the impact
would be very, very small. We should move ahead. I think if we
work toward a broader common ground on the larger issue and how
we approach these problems, there would not be the kind of
strength of feeling about the provisions in this bill that
you're right, would have a very small impact on the textile and
apparel industry.
So I hope we can work on the larger picture as we move to
get this bill out of Subcommittee and then to Full Committee,
and work out differences with the Senate.
Mr. Jackson. Mr. Levin, if I might also have the
opportunity to respond?
Chairman Crane. Very briefly, because his time has long
since expired.
Mr. Jackson. Thank you, Mr. Crane, I certainly will. I
would only take exception with the assertion that debt relief
is something that we should not consider in this trade
approach. If 20 percent of the poorest nations in Sub-Saharan
Africa's export earning potential is going to service external
debt, that is a major trade issue because it means by and large
that many of those governments are going to have to choose
between the education of their own people, the healthcare and
basic services that governments provide, and paying off
external debt.
Very, very quickly, I was doing some searching on the
Internet just yesterday and I happened to draw up a very large
map, which I bring before your Committee and I certainly submit
as part of my testimony. You can see the Internet since the
passage of the Telecom Act, with the United States being
central to the world information superhighway. Actually in the
millions of bits of hosts, point to the United States, please,
which is in the middle, you can see communication between
Europe. You can see communications between South America,
between Australia, and between the Far Eastern coast. Why is
there absolutely very few, if any, Internet connections between
Africa and the rest of the world? In part because most of these
African American nations can't seven do what we do, one
computer per classroom, invest in libraries, invest in
infrastructure, because their debt burden is so high, they
can't make basic decisions that we take for granted in our own
Nation.
That is going to have a direct impact on trade and the
stabilization of their democracies in Sub-Saharan Africa, which
will have a direct impact on our investment and whether or not
those investments in Sub-Saharan Africa are going to be stable.
So I would only implore this Committee to certainly as we
continue to deliberate, to look very closely at the impact of
debt relief so that these nations will not have to be servicing
this debt, and make vital choices that can undermine the
quality of life for their people.
Thank you, Mr. Chairman.
Chairman Crane. Mr. Rangel.
Mr. Rangel. Thank you, Mr. Chairman. I know we have a time
problem and we are anxious to hear from the Secretary of
Commerce.
I have already lauded the efforts of the Senator. Let me
laud the efforts of my colleague in the House, Mr. Jackson. I
would want to make it abundantly clear that when we have
legislation, even though it might appear on the surface to be
competitive, that it would seem to me that areas that you are
concerned, some of those are directly related to our bill, and
certainly as it relates to the reduction of debt relief, that
is a major part of our bill.
I am so pleased to see that your testimony that you gave
this morning was not the same testimony that someone
distributed under your name, because while your opposition to
this legislation is pretty clear, in the written testimony it
indicates that your position would be that it would be better
for Africa to have no bill at all than to have this bill to
pass. In view of the fact that we have worked with the
representatives of these African countries, and they have
worked so hard for the last half a dozen years to do what they
think is in the best interests of their countries, I would
assume that that would be an audacious statement, that it would
be better for Africa to have no bill at all, when the African
diplomatic corps, which includes the government of South
Africa, would want the bill.
Mr. Jackson. Let me, if I can, Mr. Chairman, certainly
express my appreciation of your spirit with respect to the
approach of this bill. There is a reason 186 Members of
Congress voted against this bill in the last Congress. Not all
of them voted for it simply on the basis of textiles and how
textiles are being treated in the bill, or the issue of
transshipment. Many of us recognize that there is history with
respect to Africa, particularly as it relates to our country in
the last 400 or so years. We would like to see a policy toward
Africa that not only provides the kind of trade and development
that the African Growth and Opportunity Act purports to
accomplish, but also remedies some of the historical injustices
that have occurred south of the Sub-Saharan African countries,
including----
Mr. Rangel. Mr. Jackson, we have a severe time restraint.
My only question doesn't deal with the attitude of the Congress
of the United States, but your statement in your written
statement that it would be better for Africa to have no bill at
all, I would want to know what would your response be to the 40
African-American ambassadors that have worked for this bill,
but you still believe that you would know better than they
would know as to what would be best for their countries and
continent?
Mr. Jackson. Mr. Rangel, let me just recommend that as we
go through the legislative process, that many of the concerns
that we have raised in the HOPE for Africa Act can possibly
still be incorporated into the African Growth and Opportunity
Act.
Mr. Rangel. I have no question about that.
Mr. Jackson. Which will make the bill, from our
perspective, a much better bill and a much stronger bill.
Mr. Rangel. I would like to work with you toward that
effort, but my question, which may remain answered, is that you
would not want this record to state that in your opinion it is
better for Africa to have no bill at all?
Mr. Jackson. In its present form, Mr. Rangel, with the $230
billion in Sub-Saharan African debt, the present terms of trade
and the terms of contract that the United States is trying to
establish with Sub-Saharan Africa, most of these African
nations are not going to be able to service that debt. At this
time, Mr. Rangel, that is my position.
Mr. Rangel. Well, you further state that the sovereignty of
the African nations would be in jeopardy. Actually, this is an
American bill if it's signed into law. Then the African nation
has the option as to whether or not they would want to
participate. The present feeling is that they would, but they
have an opportunity to take it to their legislative bodies to
review it.
Do you not feel that they have the opportunity to determine
what is best for their country as it relates to their
sovereignty?
Mr. Jackson. Certainly they do, Mr. Chairman. I shall also
never forget, because I would like to think that I have been
part of this process for sometime myself, along with others,
NGO's and other African ambassadors that we have met with in
Geneva who have been working with the World Trade Organization
for quite some time. In 1979, when I met with President Samore
Michel of Mozambique 2 weeks or just a few weeks in the early
eighties before he was killed in South Africa in a plane crash,
we had only one discussion during the course of that
conversation. I shall never forget it. Debt. He said it is the
debt. It is the debt. At that time, they were still in
contentious battles and struggles with South Africa on its
southern border of Mozambique, the eastern border of
Mozambique, and the northern border of South Africa.
Mr. Rangel. When did this conversation take place?
Mr. Jackson. In the early eighties.
Mr. Rangel. In the eighties?
Mr. Jackson. Yes, Sir.
Mr. Rangel. Thank you.
Mr. Jackson. I might add that Mozambique is still laboring
under $10 billion in debt. Twenty percent of their export
earning potential is still going to service that debt.
Mr. Rangel. Let me thank you for your contribution.
Chairman Crane. We thank you both for your testimony,
appreciate it. Sorry for the brevity of our hearing here with
regard to witnesses, but we are----
Senator Gramm. Mr. Chairman, I would just add in response
to Charlie's question that the passage of this bill by
expanding exports will cut that debt burden almost in half.
There are a lot of developing countries, like Korea, that bear
a much greater debt burden on export earnings than 20 percent.
The problem is not the debt, but the lack of income to pay it,
it seems to me.
Chairman Crane. All right. Our next witness is another
fellow Illinoisan, Hon. William Daley, Secretary of the
Department of Commerce. We know, Bill, that you are under tight
time constraints too. Second, however, that little memento that
I had staff show you, I want back. I showed that to your
brother on a flight back to Illinois last week. He and I were
on the same flight together. That's what reminded me of it.
With that, proceed.
STATEMENT OF HON. WILLIAM M. DALEY, SECRETARY,
U.S. DEPARTMENT OF COMMERCE
Secretary Daley. Thank you very much, Mr. Chairman. Thank
you for showing me that memento. I really do appreciate it.
Representative Levin, and Members of the Trade
Subcommittee, I am honored to appear before you to discuss H.R.
434, the African Growth and Opportunity Act, and more generally
the steps we are taking to expand our economic partnership with
Africa. I have submitted a detailed statement for the record,
so I will be brief.
I thank you, Mr. Chairman, and the Members of the
Subcommittee who have been so active in working on a bipartisan
basis to find ways to strengthen our relationship with the
people of Africa. Your leadership was crucial in gaining
passage of the Act by the full House last year. It will be
essential in gaining enactment into law this year. The African
Growth and Opportunity Act is a vital part of our effort to
transform a relationship with Africa from one rooted in the
cold war rivalries, to one based in prosperity through
increased trade and increased investment.
The legislation will implement the trade provisions of the
Clinton administration's overall initiative, the Partnership
for Economic Growth and Opportunity in Africa. The partnership
aims to integrate Africa more fully into the world economy, and
to build a stronger commercial partnership between Africa and
the United States.
In my 2 years as Secretary of Commerce, I have visited
Africa four times, including with President Clinton last March,
and Members of this Subcommittee. I look forward to a fifth
visit to Africa in 2 weeks for a meeting of the Binational
Commission with South Africa, co-chaired by Vice President Gore
and Deputy President Mbeki. My most recent trip to the region
was last December, when I lead a 15-company Presidential
business development mission to South Africa, Kenya, Cote
d'Ivoire, and Nigeria. Representative Jefferson and
Representative Eddie Bernice Johnson contributed tremendously
to the success of this mission.
As you are aware, the majority of African countries have in
recent years undertaken far-reaching reforms to build their
economies and make them better commercial partners. Although
Africa has not been immune to the effects of the Asian
financial crisis, it appears that the continent will weather
the storm better than many other regions. The IMF estimates
that Africa's GDP growth will rebound to 4.7 this year, from
3.3 in 1998. To be sure, falling Asian currencies have hurt our
efforts to grow U.S. trade with Africa. We estimate the U.S.
exports to Sub-Saharan Africa grew about 5 percent in 1998.
That does exceed our export growth to Latin American and the
Newly Independent States, and contrasts with the decline in our
shipments to Asia. At the same time, we do see that we are
being displaced in some areas by low-priced products from Asia.
Still, our overall prospects to expand trade with Africa do
remain bright. As African countries continue to implement
reforms, U.S. business is responding to the growing commercial
opportunities throughout the continent. So many firms applied
for our business development mission in December, that I have
asked the deputy secretary of Commerce, Robert Mallett, to lead
another mission to Africa later this year.
As the Subcommittee knows well, the bill would authorize
the President to grant broader access to the U.S. market for
those African countries that implement additional reforms to
open their markets, would permit duty-free treatment for
certain products currently excluded from GSP, while extending
the GSP program for Africa for 10 years. It would provide
quota-free treatment for imports of textiles and apparel.
This important legislation is part of a coordinated effort
to work with those African countries that are undertaking the
reforms needed to strengthen their economies, to track new
investment, improve intellectual property, and increase access
to their markets for our exporters. The process will lead to
more stable, peaceful, and prosperous Africa, and the United
States will share in the benefits.
With respect to specific concerns about illegal textile
transshipments, Mr. Chairman, the administration is determined
to ensure that the benefits of the textile measures accrue to
African producers and U.S. purchasers.
My full written statement also addresses other concerns
some have raised about the legislation. For purposes of our
dialog this morning, let me simply note that all this bill does
is reward those African countries that are taking the various
steps needed to grow their economies, moreover, and encouraging
expanded commercial ties. This legislation is not meant to
replace existing aid and economic development programs, which
are an important part of our overall partnership, and which
complement what we are trying to do on the trade and investment
front. At the Department of Commerce, we are developing a broad
program to focus our resources and adding to our commercial
infrastructure throughout Africa.
Finally, I want to highlight the Administration's plan to
hold next month the first government ministerial level meeting
with African leaders. Over the course of 3 days, we plan to
discuss a wide range of important issues covering areas from
economic reform, to governance, transparency, to conflict
resolution. Much of this credit goes to the Members of this
Subcommittee, who saw the need of this sort of high level
meeting of United States and African government officials.
Mr. Chairman, as we prepare for the 21st century, we need
to focus on new opportunities presented in regions of the world
which have too often been overlooked by U.S. companies. We urge
the Congress to pass this important legislation, and again,
thank you for the leadership in this effort.
[The prepared statement follows:]
Statement of Hon. William M. Daley, Secretary, U.S. Department of
Commerce
Mr. Chairman, I appreciate the opportunity to appear before
the Trade Subcommittee to testify on the Administration's plans
to develop and expand trade with Africa. This is a subject of
great importance to U.S. business and workers. The
Administration strongly supports the African Growth and
Opportunity Act (H.R. 434), and we are gratified that the Ways
and Means Committee is focusing on Africa early in the 106th
Congress.
The trade and investment provisions of the Clinton
Administration's Africa Initiative, The Partnership for
Economic Growth and Opportunity in Africa, have two related
objectives: to integrate Africa more fully into the global
economy, and to build a viable commercial partnership between
Africa and the United States for the mutual benefit of Africans
and Americans. The African Growth and Opportunity Act is a
vital tool to help transform our relationship with Africa from
one rooted in the rivalry of the Cold War to one based on
shared prosperity through increased trade and investment. We
will work closely with both the House and the Senate to build
bipartisan support for this legislation and achieve passage in
the 106th Congress as expeditiously as possible.
President Clinton's historic visit to Africa in March 1998
stimulated a process of continuing partnership between the
United States and Africa on several fronts, including regional
security, civil aviation, education, health care, nutrition,
and the environment, as well as trade and investment. The
Administration is working now to implement the Partnership in
all of those areas. We intend to use the upcoming first
anniversary of the President's March 1998 trip to better
highlight the many accomplishments in each of these areas, as
well as to advance our ongoing initiatives and objectives. The
Administration is planning the first ever ministerial-level
meeting with African countries next month to discuss our
cooperative partnership with Africa on issues including
economic reform, trade and investment, governance, and conflict
resolution.
I was fortunate to have the opportunity to accompany the
President on his visit last year to Ghana, Uganda, and South
Africa. I have returned to Africa twice since then, most
recently in December 1998 when I led a 15-company Presidential
Business Development Mission to South Africa, Kenya, Cote
d'Ivoire, and Nigeria. In fact, I have visited Africa four
times in my two years as Secretary of Commerce, and I look
forward to returning a fifth time later this month for meetings
of the Binational Commission with South Africa, chaired by Vice
President Gore and Deputy President Mbeki. I can assure you
that we view Africa as a vibrant and growing commercial market
in the 21st Century, and our commitment to Africa is a lasting
one.
Africa is important to the United States on several levels.
It is the ancestral land of some 33 million Americans and the
home of more than ten percent of the world's population. It is
a continent whose wealth of human and natural resources remains
largely underdeveloped.
The American experience holds a particular relevance for
Africa, because our peoples share many common goals and
aspirations: democratic, responsive governments; basic human
rights and personal security; freer movement of people, goods,
and ideas; and prosperity based on free markets. These natural
linkages place Americans in an enviable competitive position in
Africa, yet that is a position that both our government and our
businesses traditionally have not pursued aggressively.
Much of the past reluctance of U.S. business to commit to
Africa has been due to the region's unfavorable public image.
For too long we have tended to focus only on the bad news--war,
famine, disease, civil unrest, refugees, and economic
stagnation. Certainly Africa faces enormous challenges, which
cannot and must not be ignored. But the region also presents a
wealth of opportunities. The majority of African governments
are striving to implement democracy and energize their private
sectors. As more and more Africans enjoy the benefits of
democracy, they are also rededicating themselves to building
prosperity on the basis of free markets. The Administration is
determined that the United States should work closely with them
in that effort, which is in our fundamental national interest.
Many African countries have undertaken major economic
reforms to boost their competitiveness, expand trade, and
attract foreign investment. For example, the 14-member Southern
African Development Community (SADC) is building greater
regional integration, and in April will engage in far-reaching
discussions with the United States on cooperation with both
economic and political issues. South Africa and the United
States have concluded a bilateral tax treaty and are working
toward a Trade and Investment Framework Agreement. Mozambique
has liberalized its trade and foreign exchange regimes,
privatized its banking sector, and signed a bilateral
investment treaty with the United States. Kenya, Uganda, and
Tanzania have revived their lapsed regional economic
association, and plan to formalize their union with a treaty in
the near future. Meanwhile, they have made their currencies
convertible, and ended import licensing requirements. The
Common Market of Eastern and Southern Africa (COMESA) has
harmonized documentation for invoices and vehicle registrations
in an effort to ease the transit of goods from port to customs.
In West Africa, Nigeria has made impressive strides toward
economic reform at the same time as it moves toward restoring
democracy. Nigeria has deregulated fuel prices, unified its
exchange rate, and ended pre-shipment inspections for imports
and exports. Cote d'Ivoire has eliminated most price controls
and trade restrictions, and liberalized marketing of coffee and
cocoa. These and other African countries have adopted more
realistic exchange rates, tightened fiscal management,
implemented privatization programs, and removed artificial
barriers to trade and investment.
Effects of the Asian Financial Crisis
As African countries implement far-reaching economic
reforms, their economies are growing. According to the
International Monetary Fund, Sub-Saharan Africa achieved 3.3%
GDP growth in 1998. While that falls short of some earlier
estimates, it is a vast improvement over the depressed growth
rates of the early 1990's, and it comes in spite of the harsh
effects of the Asian financial crisis on Africa's export
earnings. The Asian crisis has taken its toll on Africa as
world prices plummeted for the region's leading exports--
including oil, gold, copper, and diamonds. But the IMF
estimates that African growth will rebound to 4.7% in 1999, as
the worst of the financial crisis subsides.
Depreciating Asian currencies have caused a decline in the
U.S. market share in Africa, as well as those of most leading
industrialized country suppliers. The U.S. export share in
Africa fell to 6.1% in 1997 from 7.3% in 1996. France suffered
a larger drop, and exporters in the United Kingdom, Germany,
and Japan also experienced declines. Meanwhile, Asian suppliers
(excluding Japan) enjoyed a doubling of their African market
share. Despite this, it appears that U.S. exports to Africa in
1998 will have grown about 5% from 1997, which exceeds the
growth in our sales to Latin America and the Newly Independent
States. This contrasts with a decline in U.S. global exports,
as well as those to Asia and Eastern Europe.
The good news is that the U.S. business community is
responding aggressively to Africa's growing commercial
opportunities. My business development mission to Africa
attracted applications from more than 100 U.S. firms when it
was originally scheduled for September 1998. Some firms were
unable to join us when we had to reschedule the mission for
December due to the terrorist bombings of our embassies in East
Africa. However, we selected 15 companies from a broad range of
sectors of critical importance to Africa--information
technologies, petroleum, agribusiness, consumer products,
health care, and basic infrastructure. The companies expressed
unbridled enthusiasm over the prospects for increasing their
commercial presence in Africa, and several representatives have
returned since the mission to develop their contacts and
explore new commercial opportunities.
The mission demonstrated the readiness of U.S. business to
participate fully in building Africa's prosperity, provided
they encounter a level playing field, transparency and
commitment to the rule of law, and a genuine interest in
regional economic integration. In addition, we co-sponsored
with the African Development Bank the first Joint U.S.-West
African Legal Conference, a regional forum to highlight and
examine the path to more effective legal foundations for trade
and investment. We signed a number of agreements and memoranda
on commercial cooperation and technical exchange. We engaged in
frank discussions with senior government officials and private
sector representatives, and we advocated for U.S. companies
competing for several upcoming projects. Several companies
announced plans to launch or expand projects to help develop
Africa's great human potential by ``doing well by doing good,''
in the words of my predecessor, the late Ron Brown. These
projects include: donations of laboratory equipment by Pfizer
Corporation to schools in South Africa; an agreement by
Monsanto Corporation to cooperate in developing a disease-
resistant sweet potato in Kenya; a contract for Princeton
Medical Enterprises to provide medical equipment and training
to a private hospital in Cote d'Ivoire; and an agreement
between Georgia State University and the Government of Cote
d'Ivoire to establish an international business administration
and human resource development university in Abidjan.
The interest on the part of U.S. business in participating
far exceeded our mission capacity, and the limited time
available did not allow us to visit all the countries that they
requested be included. Therefore, I have asked Deputy Secretary
of Commerce Robert Mallett to lead another mission to Africa
later this year. Deputy Secretary Mallett is my full partner in
developing and implementing our Africa program. He has
conducted business outreach conferences on Africa throughout
the Nation. He plans to participate in the African/African-
American Summit in Accra, Ghana in May, and will again
participate in the World Economic Forum Summit on Southern
Africa in Durban, South Africa in June.
Critical Role of the Africa Bill
Most of what we need to do to strengthen our commercial
ties with Africa can best be accomplished by the
resourcefulness and ingenuity of our private sector. But we in
government, both in the Executive and Legislative Branches, are
in a position to assist and stimulate their efforts by
addressing some of the remaining barriers to trade and
investment in Africa. H.R. 434 is a critical element of what we
need to do to accomplish that objective.
As members of the Subcommittee know, having worked so hard
to develop this legislation on a bipartisan basis, the African
Growth and Opportunity Act would implement the trade provisions
of the President's Partnership. It would authorize the
President to grant broader access to the U.S. market for
African countries that implement reforms to open their own
markets and become more competitive. Specifically, it would
allow the President to grant duty-free treatment for certain
products presently excluded from the Generalized System of
Preferences (GSP) program, and eliminate quotas, or maintain
our no-quota policy, on imports of textiles and apparel from
Sub-Saharan Africa. It would also extend the GSP program for
ten years in Africa, ensuring greater certainty for prospective
traders and investors.
I am aware of the concerns that certain industries and
unions have raised about some of the bill's provisions. Most of
these concerns were highlighted when I testified in support of
the legislation before the Senate Finance Committee last June.
However, these provisions need to be considered in the context
of the legislation and the President's Partnership as a whole.
They constitute one important part of a coordinated approach to
work with those African countries that are undertaking the
reforms needed to strengthen their economies, attract new
investment, improve intellectual property protection, and
increase access to their markets for our exporters. As this
process moves forward, it will lead to a more stable, peaceful,
and prosperous Africa, and the United States will share in the
benefits of that growth.
Legitimate concerns have been expressed about the risks of
illegal transshipment of textile and apparel products by non-
African manufacturers. The Administration is determined to
ensure that the benefits of the textile measures in this
legislation accrue to African producers and U.S. purchasers. I
know the Subcommittee shares that view, and African governments
have assured us they do as well. We note that the bill contains
safeguard measures to deal with transshipments, and we welcome
the opportunity to work with Congress and African supplier
countries to ensure that illegal transshipment does not occur.
We would also welcome the opportunity to work with Congress,
industry, and labor to resolve other contentious issues.
Others have raised concerns over the bill's so-called
``conditionalities.'' These observers object to what they
regard as the United States dictating a new set of conditions
African countries must meet in order to benefit from the bill's
provisions. In truth, however, the bill and the President's
Partnership merely endorse the measures many African countries
have already undertaken in an effort to boost their economies,
become more competitive, and ensure that the fruits of
political and economic reform are shared by more of their
citizens. The measures are the generally accepted rules of
conduct in the modern world economy, and they are standards
most African countries are anxious to adopt.
A small minority has expressed misgivings about the bill
and the Partnership, alleging that they mask an effort by the
United States to diminish its aid commitment to Africa while we
use trade and investment as a wedge to dominate the region
economically. Much to the contrary, the President has pledged
to work toward increased aid levels to Africa. Aid and
increased trade and investment are complementary. Healthy,
literate, and well-fed people make for more stable societies,
and stimulate a greater readiness to benefit from increased
commercial exchange. Aid--on both a bilateral and multilateral
basis--will remain an essential component of our commitment to
Africa, and will reinforce the benefits gained with a sound
trade and investment strategy.
It is particularly important that African countries reduce
tariffs, eliminate non-tariff barriers, and assume meaningful
obligations in services trade. Those that do so should enjoy
further encouragement under the President's Partnership,
including such benefits as bilateral debt reduction, technical
assistance in meeting their WTO obligations, and greater U.S.
market access in the form of GSP duty-free treatment for
several sensitive products which are currently excluded from
such treatment, subject to review by the International Trade
Commission for potential injury to U.S. industry and jobs.
Implementation of the Africa Partnership
While passage of the African Growth and Opportunity Act is
essential, many provisions of the Partnership can be
implemented without new legislation, and the Administration is
moving ahead with those initiatives. For example, the Overseas
Private Investment Corporation has established two new
investment funds for Africa and is working to establish a third
fund. The U.S. Trade Representative's office now has its first
Assistant USTR for Africa and has moved ahead in negotiating
Trade and Investment Framework Agreements with several
countries. The Export-Import Bank has appointed a new Africa
coordinator, created an advisory committee on Africa, and
expanded public and private sector lending with several
countries.
At the Department of Commerce, we serve as the main
catalyst for engaging the U.S. business community on Africa,
and we work closely with other agencies to fulfill that
important role. We are formulating a broad-based program to
focus the Department's diverse expertise and resources on
helping Africa build its commercial infrastructure. The
initiative includes: programs of training and technical
assistance; efforts to help Africa protect its resources and
environment; and programs to promote increased trade and
investment linkages. We, along with USAID, are also considering
the establishment of commercial law development programs with
selected African countries, to provide training and
consultative services to lawmakers, regulators, judges,
lawyers, and educators in the evaluation, development, and
implementation of market-oriented commercial law systems.
In addition, our Trade Information Center has put together
extensive information on the Internet to help U.S. companies
take advantage of the opportunities to export and do business
with Africa. The Trade Information Center also advises U.S.
exporters on country specific information, including
information on all the African nations, through a nationwide
toll-free number: 1-800-USA-TRADE.
An important element of the Commerce initiative is a
significant increase in our Commercial Service staffing in
Africa, as reflected in the Administration's FY 2000 budget
request for the Department. The President has requested $4.2
million to fund the hiring of 12 new officers in Sub-Saharan
Africa, including 6 to be assigned in countries not currently
staffed by the Commercial Service.
As noted, the African Growth and Opportunity Act is a
critical element of the effort to forge a new kind of economic
relationship between the United States and Africa. It would
help increase peace and stability in Africa by spreading
prosperity and strengthening the tide of economic reform. It
would promote increased transparency, predictability, and the
rule of law, making for an increasingly strong marketplace for
U.S. exports. Throughout my travels to Africa I have met with
unqualified support for the bill by African government and
business leaders, who continue to urge its enactment.
We therefore urge the Congress to pass this legislation,
and in so doing to help integrate Sub-Saharan Africa into the
global economy and build a more lasting and durable partnership
for the benefit of Africans and Americans alike. I thank
Chairman Crane and members of the Trade Subcommittee for your
leadership in this historic effort.
Chairman Crane. Thank you, Mr. Secretary. The ITC study
indicated that the House bill would have little effect on the
domestic textile and apparel industry. The bill's opponents,
however, have attacked the ITC for using ``a fatally flawed
econometric model whose basic assumptions deny common sense and
make the entire study worthless.'' Does the Administration have
a position on the ITC's analysis of this bill?
Secretary Daley. We feel that the analysis is much more
accurate than the opponents believe it is, Mr. Chairman. There
is no question there will be jobs affected, as there are in any
sort of trade agreement. For those who are affected negatively,
we have great concern and want to look for actions that we can
take to help them and cushion the blow if there is one. But the
impact on the U.S. textile industry would be minuscule, in our
opinion.
Chairman Crane. Thank you.
Mr. Levin.
Mr. Levin. Just a couple quick comments, and then maybe I
will yield because time is limited, to Mr. Rangel or some of my
colleagues who did not have an opportunity to participate
earlier.
Mr. Secretary, welcome. I think that your testimony answers
any concerns about the interests of the Administration in
Africa or its commitment to the passage of good legislation. I
think everybody should read your testimony regarding specific
provisions, including the textile apparel provisions. Clearly,
we are going to have to work together to straighten out
differences here.
I think it touches the nerve of a much larger issue. That
is, the overall impact of our increasing trade with developing
economies on the American economic scene. I don't think that
that larger issue, the concern about it, which I feel deeply
should misshape the likely impact of increased trade here in
textile and apparels. It is relatively small, but it involves a
much larger issue. But it can't bear all the weight of
resolution of this larger issue, as you and I and others have
discussed. So we will welcome your active participation as we
try to work out the textile apparel provisions.
Also, I hope that everybody will read your full text and
its relationship or its discussion on page 5 about
conditionalities. We are imposing conditions on Africa. Our
whole aim is to try to nurture a market economy in these
countries. I don't think it is fair to say this is simply a
conditionality and it's paternalism.
Indeed, as I understand Mr. Jackson's bill, and I need to
read it in detail, he sets down certain standards before there
could be further trade relationships. These include some of the
very provisions that we're concerned about, labor market,
capital market provisions, perhaps. So I hope everybody will
read your testimony on this.
I think we should acknowledge that we are working in trade
agreements toward other countries adopting a market economy
relating to both capital and labor, and also that we are
anxious that they move in that direction for their benefit as
well as ours.
Actually my time is up. I'll give back the remaining time,
and see if others have questions, Mr. Chairman.
Chairman Crane. Mr. Houghton.
Mr. Houghton. Thank you very much, Mr. Chairman. I think
the Act makes sense. We should have done it last year. We ought
to do it now. Let me just ask you a question. The Act really
concentrates on imports to this country. What about the exports
from this country? What does it do to international trade?
Also, what about the other countries around the world? Are they
going to loosen up their demand for special preferences or
quotas and things like that? What happens to the other people
that could be recipients of African products?
Secretary Daley. I believe, Congressman, to be frank with
you, that we have concentrated too much on the potential
imports that will come into this country. I think the
opportunity for U.S. exports into a market of $700 million
potential consumers is enormous. Our exports, as I mentioned,
are now--our export growth was more this past year than it was
in Latin America and in the Newly Independent States. The sort
of interest that we had from U.S. companies on the trade
mission indicates an enormous amount of interest in the
countries in Africa, which this bill encourages to stay on the
course of reform economically, if their economies improve, the
standard of living improves, their consumers have ability in
their companies to buy more U.S. products, that will obviously
positively impact our exports. That is what we are focused on
in our endeavors in the Department of Commerce, an increase in
the number of commercial service people, doubling them
throughout Africa, location and number of personnel. So we
focus more on the export growth.
A third of our economic success the last 6 years is a
result of our exports, and with troubles in other parts of the
world, we have got to concentrate more on that, in my opinion,
during these difficult times, and not to worry as much, even
though it's of concern, I agree with Congressman Levin, the
trade deficit. Our economy is very strong. We are increasing
our imports by virtue of the fact that our consumers are
ravenous purchasers.
Mr. Houghton. But as far as the other countries, I know
that many times we take into our economy far more as a
percentage of our imports and our gross domestic product than
Japan, for example, takes into its economy. I just don't know
what the other countries are doing. Because it's a vast market
out there and we're only one slice of it.
Are you, in your conversations, encouraging others? Or do
you get any signals of what they are doing?
Secretary Daley. Well, we have great concern that certain
markets around the world which have historically been closed,
closed to most U.S. products, are going to during these
difficult times, especially in Asia, take steps that will even
close them more.
One of the very positive conditions or items that are in
this bill is the fact that we want to see countries in Africa
promote freer trade and open their markets more to products. It
will help their consumers. It will help their industries. That
is an example of what some may call a condition. It's a
positive step towards economic reform that's going on in
Africa.
Mr. Houghton. Thank you.
Chairman Crane. Mr. Rangel.
Mr. Rangel. Thank you, Mr. Chairman. Mr. Secretary, when we
lost Ron Brown, a lot of us thought that he was responsible for
educating America as to the need to having a better working and
trade relationship with the countries in Africa. I have to tell
you that you have more than protected his legacy, not only for
Ron and the Department of Commerce, but most importantly for
our country and the millions of people on the continent of
Africa.
The question of conditionalities is a very sensitive
question. A lot of African nations thought that that language
might exclude Nigeria. It is just so interesting and exciting
today to see that using conditionalities, no one could be a
better beneficiary than the great people in Nigeria, as they
have dramatically moved forward in terms of expressing full
democracy for all of its people. Let me thank you for what you
do for our country, and what you have done for the memory of my
dear friend, Ron Brown.
Secretary Daley. Thank you very much, Congressman. That is
a very kind statement on your part. I did have the pleasure of
visiting Nigeria briefly during this trade mission. It was the
day after the first elections in 10 years. The enthusiasm and
interest by Nigerian businesspeople in getting the different
relationship with the United States was most remarkable. Thank
you for your kind comments though.
Chairman Crane. Well, Mr. Secretary, I know you are a tight
time constraint. We have already run you over your limit. We
greatly appreciate though your appearance here today and your
testimony and support of the bill. Hopefully we'll be sending
you a bill this year.
Secretary Daley. We hope so.
Chairman Crane. We have got to educate our Senators. It's a
slow learning process, but it's doable.
Secretary Daley. Thank you very much, Mr. Chairman.
Chairman Crane. Thank you.
Now we have the distinct honor of welcoming back two of our
former colleagues who have gone on to a better world. One, a
former Secretary of the Department of Housing and Urban
Development, Jack Kemp. The other, former U.S. Ambassador to
the United Nations, Andrew Young. But both of them former
colleagues of course of ours here in the House.
So gentlemen, if you will take seats. Again, let me remind
you if you can confine your oral comments to 5 minutes or less,
all of your printed statement will be a part of the permanent
record.
Jack, you can fire away.
STATEMENT OF HON. JACK KEMP, CO-DIRECTOR, EMPOWER AMERICA,
BOARD MEMBER, CONSTITUENCY FOR AFRICA, FORMER SECRETARY, U.S.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, AND FORMER MEMBER
OF CONGRESS
Mr. Kemp. Mr. Chairman, I am really pleased to be here.
Thank you for this opportunity to testify. I am here on behalf
of the Constituency for Africa, for which I am a member of the
board. Constituency for Africa was started by Ambassador Andy
Young and is now chaired by mayor Dinkins and our executive
director, Mel Foote. It is an organization that is both black
and white, as well as business and labor. It is comprised of
people who are profoundly concerned about not only Africa, but
the people of Africa. I think Mr. Rangel and yourself, Mr.
Chairman, have both emphasized that for a free society, which
sits on the edge of a new century, this is not a right-left
issue. There are 750 million Africans in Sub-Saharan Africa who
should have the same right as we do in the United States of
America to purchase and to sell, to do business and engage in
commerce and trade with Mexico, Latin America, Asia, Canada,
Europe, and now Eastern Europe.
The cold war is over. After every great war in this
century, certain visionaries have looked upon the world in a
way that engages the idea of opening up freedom, democracy,
trade, peace and prosperity. I like what Phil Gramm said;
people against this bill should be ashamed of themselves. I say
this with all due respect. I am not trying to pick on anybody.
I understand why there are different groups that hold opposing
opinions. But clearly, this bill is on the side of a world into
which we are moving with such dispatch and rapidity that it
defies imagination.
Congressman Jackson, who happens to be a friend of all of
us in this room, showed a map of the Internet; the World Wide
Web. Whether we like it or not, there is going to be a
borderless world in cyberspace. This world is reaching Africa.
Seated here in this room, Mr. Chairman, are members of the
African diplomatic corps. Jesse Jackson is correct in pointing
to debt relief and restructuring as one element of this effort.
But you can't pay off debt unless you have a growing economy.
You must measure debt against the size of the economy. This
will help African nations; small, large, east, and west, to
begin producing the type of income for its people upon which
debt restructuring, debt relief, and ultimately debt payment
can be made.
So I believe this is a 21st century idea. I think it is
absolutely essential that this bill be passed as quickly as
possible. Now that the cold war is over, we can begin to think
of what we did after World War II when we passed the Marshall
Plan in the Congress with bipartisan support. Its focus was aid
and trade. Aid and trade. Although we needed both, ultimately,
trade became an essential ingredient in the Marshall Plan.
I am briefly going to raise one issue that I am concerned
about. As we enter the 21st century, we are watching the
breakdown of the 35-year experiment with floating exchange
rates. It's not working. I think we have reached a point, Mr.
Chairman, where we are in essence witnessing a hault for the
future of free trade. The competing currencies of the world
don't float, they sink. With the help of the men and women on
this Committee and other people who support this, including the
CFA, Constituency for Africa. Passing this bill, I believe, is
inevitable.
Labor is concerned that we are competing with countries
that have allowed their currency to collapse. Thus this
collapse makes their exports into our economy cheaper and more
competitive. I think it is absolutely essential that we begin
to think about not only a new trade relationship with Africa,
Sub-Saharan Africa, Latin America, Eastern Europe, Asia, et
cetera. But, in addition, it is essential that we begin to
formulate some policy toward rebuilding an international
monetary system in which there's stability of exchange rates
and in which countries do not use manipulated currencies to try
to get an advantage. That is the ultimate zero-sum game. Today
on this earth what is manifesting itself is trade wars
exacerbated by monetary units of account that are being
manipulated for advantage. That is the ultimate zero-sum game.
So my hope is that there would be an attempt by the United
States, both at the congressional and at the executive branch
level, to build a new system that is tied together with the
free trade zone with Africa. This would produce a system in
which exchange rates are stable as well as an IMF that actually
helps Third World countries grow instead of punishing them with
fiscal austerity and high interest rates.
I don't see how we can ever receive the benefits of a free
trade zone with Africa at a time in which the IMF is running
around Zimbabwe or other African countries as well as Asia or
Latin America, and telling them to float their currency in
order to boost exports and raise taxes to balance the budget.
If we had followed that policy, our country would not be in a
surplus today.
I appreciate this hearing, Mr. Chairman. I want to thank
you for the vision for which you, Charlie, and many other
Members of this Committee are responsible.
I turn it over to my good friend, whom I greatly respect,
Ambassador Young.
[The prepared statement follows:]
Statement of Hon. Jack Kemp, Co-Director, Empower America, Board
Member, Constituency for Africa, Former Secretary, U.S. Department of
Housing and Urban Development, and Former Member of Congress
Thank you, Mr. Chairman, for inviting me to testify on H.R.
434, the ``African Growth and Opportunity Act.'' Before I
begin, let me pass along warm greetings from Mel Foote,
Executive Director of the Constituency for Africa, and its
Board of Directors. And I am especially pleased to be here with
my old friend, Ambassador Andrew Young, who originally got me
involved with CFA when he was Chairman of the Board.
It is a pleasure to be here to discuss how to spread the
blessings of freedom, enterprise, democracy and human rights to
the widest possible group of people--and specifically, to the
people of Africa, a place where for too long, too many of those
benefits, of those human rights, have been lacking.
The legislative initiative toward Africa again under
consideration by this committee is vitally important. The
legislative goals in this bill constitute a roadmap toward
development: eliminating government corruption and minimizing
government intervention in the market; encouraging private
ownership and removing restrictions on investment; lowering tax
rates and establishing stable money; promoting the free
movement of goods and protecting property rights. If African
countries navigate by these stars, and if the United States
works with them to reduce tariff and nontariff barriers to
trade and to negotiate free trade areas, there is no limit to
the continent's potential.
Since I last spoke to the Committee on the subject (April
1997), I have visited Africa as a participant at the African
African-American Summit in Harare, Zimbabwe, where I had the
honor to meet President Nelson Mandela and many other
distinguished African and African-American leaders.
Mr. Chairman, much of Africa is growing dynamically today--
growing economically, politically, socially and most of all in
the attention of the United States and the world. Shifts toward
political and market liberalization are revitalizing and
energizing the continent. We see a new generation of leaders
implementing democratic reforms, expanding economic growth and
unleashing the human spirit that will help bring greater
prosperity and democracy to African nations. Problems and
challenges abound, but the potential of both human and physical
resources is enormous.
Many of Africa's leaders, like President Museveni of Uganda
and his colleagues, have revived the East African Community and
brought trade liberalization and renewed economic growth to
Uganda and the region.
We have the spirit of Thabo Mbeki, who rejected the cramped
goals of mere subsistence and African recovery or Western aid.
It is not enough, as he has said, for us to work for ``African
development.'' He said we must seek nothing less than an
``African Renaissance.''
And we have the great Leon Sullivan, whose memorable words
on the universal desire of people to improve their living
conditions and be free, I quoted all over the world and during
my trip to Africa two years ago.
Post-colonial and post-Cold War Africa has made
considerable progress but its progress has not yet reached
enough people. Though political stability has improved for much
of the continent, too many African nations are still plagued
with violence, disease and political unrest. And though
economic growth is healthy, development is slowed by remaining
political and economic barriers that hinder Africans from
reaching their fullest God-given potential.
By removing those barriers we can build an even stronger,
more prosperous, more democratic Africa--a community of nations
mutually benefiting each other, secured and sustained by broad-
based economic growth, trading openly with the rest of the
world. In that spirit, I am pleased to be here today to discuss
a way in which America might assist in this endeavor, not in a
paternalistic sense, but as a true partner of the African
continent and its great people.
Some of the common themes in the policy mix of African
countries enjoying strong economic growth, which would make
them excellent partners, are: reasonable tax rates,
particularly on personal incomes that allow individual Africans
to flourish and prosper; stable monetary and exchange rate
policies; and balanced policies on foreign investment with a
focus on privatization and economic growth as the solid
foundation that is the ultimate magnet for investment capital.
Those African countries that have established successful
economic policies want nothing more than to be able to continue
the healthy trends they are experiencing, countries such as in
Botswana and Uganda. But more than this, they wish to be able
to reap the benefits of private capital flows and trade that
follow naturally from such policies. They are not asking for a
handout, or even for a long-term investment on sentimental
grounds. They only seek to harness for their people the same
market forces that have worked so prodigiously for the
developed nations of the world.
When this committee first opened the prospect of American
trade and access to American markets and conceived of a direct
relationship with Africa's new tigers, it was an audacious
proposal. It still is, but it cannot work if it is implemented
in an environment of currency turbulence. Remember the high
hopes we all had for NAFTA--hopes that were crushed under a
collapsing peso? Revival of those hopes has been stunted by the
protectionist sentiments that arose from the currency chaos
that followed the peso's devaluation.
Since I last visited with the Committee to discuss this
subject, currency chaos has spread. The world financial system
has been thrown into turmoil, calling into question the
beneficial effects of market forces and indeed creating doubt
about the whole notion of economic globalization.
Protectionist instincts, never far beneath the surface, are
on the rise as a consequence of the global deflation in
commodities and other raw materials. The U.S. steel industry,
hurt by a record level of imports from Russia, Asia and other
regions, is a prime example. These protectionist instincts are
being misdirected at free and open trade instead of the real
source of the problem--an international monetary arrangement of
floating currencies, in which no currency is linked to a stable
anchor and all countries are tempted to use currency
devaluation as an economic policy instrument during times of
economic duress.
The current system clearly is a menace to the stability and
viability of global markets. Since the 1970s, the Leviathan
known as the International Monetary Fund has impoverished much
of the developing world--such as helping to wipe out the
savings of ordinary citizens and families in Mexico when it
supported the devaluation of the peso four years ago--through
its mindless formula of increasing taxes to balance budgets and
depreciating currencies to promote going-out-of-business export
sales. Despite promises to reform, the IMF continues to inflict
its damaging policies on countries already suffering from
financial and economic collapse. Rather than shelling out
billions of dollars for the Fund, our Treasury Department
should be hard at work figuring out how to reconstitute a
stable international monetary system.
The beginning of chaos in financial markets around the
world can be traced to the devaluation of the Mexican peso four
years ago. At the time, Fed Chairman Alan Greenspan essentially
told the Senate Banking Committee that the impoverishment of
Mexico would not have occurred if we were on a gold standard--
which would have meant that both the peso and the dollar were
convertible into gold at a fixed rate. The same is true of the
Asian crisis, which sent Thailand and Indonesia off track as
the Fed's monetary deflation caused the dollar to depreciate
against gold and other commodities.
The economist and author Judy Shelton makes the connection
between stable money and free trade: ``The real threat to the
global trade system is thus the prevailing free-for-all
approach to currency relations that engenders monetary
nationalism and ultimately fosters a protectionist backlash.
The solution is to set up an orderly international monetary
system that would permit all nations to compete in the global
marketplace based on a common unit of account.''
The great 30-year experiment in floating exchange rates has
clearly failed. Restoring world-wide currency stability must be
our first order of business. Not only Africa, but also the
world would greatly benefit from the establishment of a
coherent and stable monetary foundation to support free markets
and free trade and achieve far greater economic growth.
Some people believe that by setting up currency boards we
can curb monetary disorder. In certain countries under certain
circumstances, that may be the right thing to do. But a
country-by-country approach is an insufficient solution. The
world desperately needs a new international monetary regime
linked to gold.
Such an arrangement would be the very antithesis of the so-
called ``new international financial architecture'' now being
pursued by Deputy Treasury Secretary Lawrence Summers, who
favors continued reliance on government-managed fiat currencies
and who would grant expanded supervisory and central bank-like
powers to that bureaucratic Leviathan, the IMF.
That is why I propose a new international gold-price
standard updated for today's sophisticated financial markets.
We must restore a standard that makes the dollar ``as good as
gold,'' in order to prevent the kind of hyper-inflations and
deflations that Brazil and many Third World countries have
experienced when they anchor their currency to the dollar and
the value of the dollar changes. It is imperative that we do
so. Indeed, the fate of the world economy depends upon
restoring a global monetary anchor as soon as possible. Doing
so would provide a lift to free trade and the global economy,
and Africa would reap the benefits of the new international
monetary system of stable prices and a currency with a constant
value.
In closing, I want to thank the committee for bringing the
``African Growth and Opportunity Act'' up early in the 106th
Congress. Let me reiterate that I believe some of the ideas
contained in this legislation can make an important
contribution to helping Africa take its rightful place in the
global political economy.
A democratic and economic revival of Africa would be
mutually beneficial to Africa and her partners in trade,
business and diplomacy. This is the genius of economic freedom
from which every nation can benefit: no country succeeds at the
expense of another. Everyone benefits from their neighbor's
prosperity. It is the common ground on which to build a stable
community.
Thank you again, Mr. Chairman, for affording me an
opportunity to address this crucial matter today. My very best
to you and your colleagues as you continue your work to open
this new relationship between Africa and the United States. I
would now be happy to answer any questions from the committee.
Chairman Crane. Thank you, Jack.
Fire away, Andy.
STATEMENT OF HON. ANDREW YOUNG, CHAIRMAN, GOOD WORKS
INTERNATIONAL, LLC, FORMER UNITED STATES AMBASSADOR TO THE
UNITED NATIONS, AND FORMER MEMBER OF CONGRESS
Reverend Young. Thank you very much, Mr. Chairman. It is
pleasure to be with you. I'll take my few minutes to try to
talk personally about this.
What we are trying to do with Africa, and what I think you
are trying to do with this bill, is almost the way I understand
what my job was when I left this place and ended up as mayor of
a city, and there were no more government funds. The cities
were in debt. The government was in debt. I had only one choice
for creating jobs, benefits, and opportunities for my citizens.
That was through attracting trade and investment. We generated
over the 8 years I was mayor some $70 billion in private
investment. It came from all over the world. But in order to
get it there, we had to have certain conditions. We use
conditionality as a bad word, but conditions are those policies
that made our government more effective in attracting capital.
For instance, it would take you 7 months to get a building
permit. That's a terrible condition for an investor. We worked
out all of the environmental laws, all of the employment
regulations. We even had very rigid affirmative action laws
that we included. But you could get it done in less than an
hour once we refined it and worked out those conditions. Then
we found that there was no longer an impediment for new
investment. In fact it facilitated new investment.
That is sort of the thing that Africa needs. We have seen,
where we have seen hope in Africa, it has largely been through
private investment. There are some negative things said about
privatization. But what privatization does is bring money,
bring technology, bring management skill. It doesn't take
anything away. When Southwestern Bell bought 30 percent of the
South African Telecom, they brought in over $1 billion. They
also brought in new equipment. They expanded the use, they
dropped the cost of long distance service. They made more lines
available to people who had been previously denied.
If Africa is going to get on the Internet, it is going to
be largely through privatization, private investment, private
technology. No government, no matter how much money you give
them, is going to be able to handle the technology that makes
them part of the global communications network. But the same
thing is true of almost everything else, airports, ports, water
purification systems. Africa does not have to reinvent the
wheel. Africa just needs access to the private capital, the
private technology.
What I see you trying to do in this bill is create a
vehicle of support for those American businesses that are
looking toward Africa. Now I have been in Africa at least a
dozen times last year, from Eritrea, I mean from Ethiopia down
to South Africa, and back up to Ivory Coast. There is both a
tremendous amount of hope and promise, but there's also a
tremendous amount of tragedy. Africa could go either way. I see
this bill as a vote of confidence by the U.S. Congress, which I
think will be followed by initiatives from the executive branch
and from the State Department. Initiatives like debt relief,
which doesn't need to be unconditional, but which could be
negotiated debt relief where instead of just wiping off debt,
you allow people to pay down their debt by investing in
education and in healthcare. Swapping debt for development.
We have had a good effort toward democratization of Africa.
Africa has made clear progress. But we have not had the capital
and the technology to promote the development. I think your
bill will facilitate that process. I certainly encourage its
passage.
[The prepared statement follows:]
Statement of Hon. Andrew Young, Chairman, Good Works International,
LLC, Former United States Ambassador to the United Nations, and Former
Member of Congress
In the past year, it seems that I have spent more time on
the African continent than I have at home in Georgia and I
always return with an increasing sense of urgency. Africa seems
to be teetering on the pinnacle of her history. There can be a
slow but rational descent into a valley of glorious peace and
prosperity or the continent can plunge into a chasm of
violence, disease and famine.
A millenium of colonial domination, exploitation, naive
cold war machinations, and greedy despotism has been countered
by the determined efforts of missionary educators, enlightened
administrators, and United Nations' efforts to end apartheid
and the injustices of colonialism, while strengthening the
social and technical infrastructure needed to secure
sustainable development.
For every African tale of horror that emblazons our media,
I have also seen leaders emerge with vision and the
determination to proclaim the dawn of new possibilities. The
fear of bloodshed and destruction under apartheid has been
replaced by the creative power of truth and reconciliation. The
corruption and tyranny of Nigeria's military dictatorship has
moved towards successful elections and a hopeful transition to
civilian rule. The ruthless repression of the independent press
in Zimbabwe is paralleled by a new generation of young
entrepreneurs in the private sector and the continued presence
of an aging Ian Smith freely walking the streets of Harare.
Tanzania and Kenya survive the shameful embassy bombings and
continue to struggle toward stable and prosperous democracies.
Mozambique seems to be recovering from the cold war destruction
and now attracts billions of dollars in private investment from
Europe and South Africa while Angola continues to struggle with
the results of a misguided U.S. policy that empowered the
Savimbi war machine. Oil flows daily towards U.S. shores from
Cabinda as the Angolan people suffer the legacy of
contradiction. Growth and stability in Senegal and Cote
d'Ivoire exist side by side with chaos in Sierra Leone and
Liberia. Ghana is seen as a small miracle, as hope and despair
wrestle in Uganda, Ethiopia and Eritrea.
Africa's future is in the balance but the future of the
global economy may be swaying in that same balance. We have the
opportunity in the 106th Congress to help sway that balance
toward the expansion of peace and prosperity through the
passage of the Africa Growth and Opportunity Act. This Act
could be passed at a crucial time for Africa. The global
economic crisis, combined with bad weather and weak prices for
commodity exports, slowed the growth in total output in Africa
during the last two years. The world's leading economic experts
do forecast a renewal of growth in Africa in the next few
years, but there are concerns about the timing and the quality
of this growth. Important sources of foreign investment,
particularly from Asia, are now less dependable, and some
commodity export prices remain weak. Africa's share of global
exports remains at less than 3 percent, and there is precious
little by way of investment capital in these countries. Now is
a special time when U.S. assistance can make a difference.
At the present historic moment, this Bill would send a
signal of concern and commitment that Africa needs. It is not
the whole answer, but it is enough to activate private
investment, which will bring much needed capital, technology,
management and training. It would be a sign that the new
macroeconomic policies followed by some African countries are
looked on with favor by leaders in this country. It would
signal U.S. approval of structural reforms that support
economic discipline, and it could signal approval and support
for the successful resolution of armed conflicts. And it would
show a willingness to help African economies through a
development bump, the Asian financial crisis that was not of
their own making.
Africa may be the world's richest continent. Its oil
reserves, mineral resources and a market of some 700 million
people provide a missing link in the equation of the global
economy. Africa's need for transportation, communication, food
security, clean water and health care offers an absorptive
capacity, which is available in very few places on the globe.
The requirements of the Africa Growth and Opportunity Act of
good governance and fiscal responsibility are simply basic
necessities if Africa is to compete favorably for investment
and trade. Corruption must be replaced by transparency and
accountability. Government policies must compete for capital by
assuring an equitable return on investment and providing a work
force that is free to develop the best of their abilities in an
honest marketplace.
We have seen the folly of ``crony capitalism'' in Asia as
well as greed and corruption in past governments of Africa,
Europe and the Americas. The guidelines of the World Bank,
International Monetary Fund and World Trade Organization are
attempts to help nations learn from the mistakes of the past.
Now we must all help these great international agencies as they
take the next step in the evolution of their policy advice and
recognize that there are many paths to economic policy
discipline. Let us use the cultural differences among countries
to form a stronger and even more disciplined policy process,
and let the Africa Growth and Opportunity Act be a statement of
the United States' intention to recognize good African economic
policy.
We must help nations to evolve and negotiate their way into
the global economy. These institutions (World Bank, IMF, and
World Trade Organization) are designed to help in that process.
Only when there is a refusal to negotiate a plan or process of
reform and financial rectitude do these institutions appear to
be authoritarian. At the Georgia State University School of
Public Policy we have been quite successful in working with
governments from more than 30 countries in assisting them with
their negotiations and with reaching agreements that are both
acceptable to the IMF and responsible to the citizens that
governments represent. The governments we have worked with at
the Georgia State Policy Studies School have ranged from in
size from Russia to Jamaica.
Africa needs the growth and opportunity that this act
intends, but it is equally true that the United States needs
Africa.
I am quite anxious about the present stalemate in the
Middle East, both with regard to Israel and the Palestinians;
but, even more so, with Iraq. This situation remains explosive
in a region of aging monarchs and volatile masses. During the
Arab oil embargo of the late 70's, it was African oil that
provided the safety valve for the U.S. economy. The African
Continental Shelf, from Senegal to Angola, is absolutely vital
to the U.S. economy and military security. African oil is more
abundant and defensible than is the oil in Kuwait. In fact,
more recent geological surveys estimate reserves comparable to
those in the Arabian Gulf. Yet, the investment of diplomacy,
finances and military resources in the entire African continent
would barely equal the expenditure in one week in the Middle
East.
The Africa Growth and Opportunity Act may be just the
effort we need to begin a mobilization of conscience, concern
and commitment to our vital interests on the African continent.
Chairman Crane. Thank you, Andrew.
What obstacles, and I'll direct this to both of you, exist
at present to the creation of jobs and investment capital in
Sub-Saharan Africa? How do you feel our bill would address in a
positive way the issue?
Reverend Young. Well, for instance, I think yes, it's true
that Mozambique has a significant amount of debt, debt which I
agree we helped to cause, because we helped, our bad policies
of a period worked to destabilize Mozambique. But in spite of
that, Mozambique has attracted about $1.5 billion of private
investment. There's another $4 billion on the books. That is
largely because the president of Mozambique has been back and
forth here with the Corporate Council on Africa, has worked out
relations with the business world, and has been able to sell
Mozambique as a site for investment and opportunity.
I think that this is going to happen in many more places. I
think my colleague is right on Zimbabwe. We didn't treat
Zimbabwe the same way we treated Uganda on the IMF because we
happen to like President Museveni a little better than we like
President Mugabi, but there is a sense in which Zimbabwe is
even more democratic and where its private sector, which is
unrelated to the government and antagonistic to the government
in many respects, is made up of 30- to 40-year olds who were
educated in British and American universities and moving the
country forward, in spite of sometimes bad government policies
by my friend Robert Mugabe.
Mr. Kemp. Could I add to what Andy said? Seated behind me
with Ambassador Edith Sampala of Uganda, is the minister of
foreign affairs, Minister Amama Mbabazi. We were in South
Africa last summer to hear the presidents of different
countries, such as President Museveni, as Andy Young pointed
out, or Mugabi, or Mbeki, who talked about an African
renaissance. The force of Africa toward private enterprise,
toward trade, toward capital investment, is so irreversible, in
my opinion. There will be policies now and then that are
mistaken, and no one defends that. But there are mistaken
policies all over the world. The right to be free is the right
to make mistakes and correct them.
Andy is right. May I say to the Chairman that this would be
a huge signal to the world that America is taking Africa
seriously. In addition, we are sending more than just a
symbolic message to American business to invest in Africa. We
are sending a signal to the 750 million people in Sub-Saharan
Africa that you too have the same right to trade openly, and
freely, whether it be on the Internet and the World Wide Web or
in textiles or produce or commodity. We are saying that you
have the same rights in the world community today as those
which we are granting to Latin America, Asia, and Eastern
Europe. It seems to me it would be an embarrassment to this
country on the eve of a new century, one that we hope is a
democratic century for the world, not to allow Africa to
participate in this explosion of technology, trade, commerce,
and capital investment.
Chairman Crane. Thank you.
Mr. Levin.
Mr. Levin. Thank you, Mr. Chairman.
Welcome to both of you. I think you have been eloquent and
have put this bill in perspective.
Mr. Kemp, I think you are right about the currency issues.
We just can't resolve them in this bill. The fact we can't
doesn't mean we should not move on this.
To our friend whom we deeply admire, I don't know whether
to call you Congressman, Ambassador, whatever, Reverend.
Reverend Young. That's right.
Mr. Levin. That's better. Reverend Young. I think you have
helped put the issues of so-called conditionality in
perspective. I mean obviously we want our policies to help move
Africa toward free capital and labor markets. There is
conditionality in a sense built into it, because if they move
in the opposite direction, our policies would be different.
So just, Jack Kemp covered it. But Andy, if you would, you
have been there so often. Just say a word about where you think
African nations by and large are moving in terms of free
capital and labor markets. Is there now a trend that you, as
Jack Kemp says, you think is irreversible?
Reverend Young. There is no question that it is
irreversible. While we are debating, the private money from
Europe and Asia is already coming in. I think the presence of
American investment balances it out and keeps it from being
neo-colonialism. Neo-colonialism was a domination or
redomination by one economy. The thing that protects Africa is
American business competing with French and Spanish and
Portuguese and Malaysian business, and working out competitive
contracts that lower prices and that offer more.
Mr. Levin. Thank you. Thank you, Mr. Chairman.
Chairman Crane. Mr. Houghton.
Mr. Houghton. Thank you very much, Mr. Chairman.
Gentlemen, great to be with you. I just want to try to put
this in perspective. The U.S. Government basically is
eliminating or reducing tariffs. They are not putting any
additional money in. They may redirect money from existing
funds for the OPIC, but that's it. So what the basic benefit is
by reducing those tariffs, or eliminating them, the quotas in
the United States, they are providing the opportunity for
American businessmen to go in.
Now how effective is that going to be?
Reverend Young. Just in the places that I know, and I think
you'll hear the African ambassadors, but I have been very
impressed going to Uganda and seeing the American companies
there. Coca Cola alone, from my hometown, has put in more than
$1 billion on the African continent. They are not a charitable
organization. They expect people to drink Coca Cola because
they expect these economies to grow. They also employ more
Africans than maybe any other American corporation. So their
investment creates jobs.
What we are saying is that smaller companies need a little
more encouragement from the Government. We need to push this
trend a little more so that it's more than just a few, a
handful of major multinationals that are moving toward Africa,
but that Africa can have a broad base of private investment.
Mr. Kemp. Could I just add one point? I agree with
Ambassador Young, but I would take it just a step further.
Don't do it for Coca Cola, don't do it for Cargill, who is
going to be testifying later. With all due respect, you ought
to do it for people. Do it for the entrepreneur. Do it for the
right of consumers in Africa and for the United States to be
able to participate in that technology that was addressed by
Jesse Jackson when he showed us a map of the World Wide Web yet
to reach Africa. It will never come to Africa unless we can
begin to show that the United States and the developed world is
as interested in Africa as we are in Eastern Europe.
I would like to make one other point as a postscript. This,
I would like to direct to my old friend and colleague from New
York. I used this metaphor when I testified last year on this
bill. I was in the Miami Airport for the Super Bowl. My wife
and I were walking by the duty free shop. You have never seen a
duty free shop until you are in the Miami Airport. It is made
up of Latinos, Hispanics, Africans, but they are all very
wealthy people. There were first class air passengers on all of
the airlines coming in and out of Miami. I thought ``trade is
not just for rich people''. Right now, however, it is because
they are the ones who can afford to go in a duty free shop,
afterall, they are traveling first class into foreign
countries.
Ultimately a duty and tariff-free world is in the interest
of the poor. They should be able to buy and sell and
participate in trade with all people. Don't do this for big
companies. Do it for small companies. Don't do it for rich
folks. Do it for people who want to someday be rich. Ultimately
this movement toward freedom and democracy is to the benefit of
the poor as opposed to those who are already at the top of the
pyramid, with all due respect to Coca Cola. Do it for the tiny
little businessmen and women both in Africa as well as the
United States, who want to participate in the exciting
technologies of the 21st century.
Mr. Houghton. I guess what I was trying to do was to put
this thing into perspective with the long term, because what
this does is allows American manufacturers to go in and invest,
and come back into this country with their finished product. It
also allows anyone else, hopefully members of that nation, to
borrow money or to get money and to do the same thing.
But it's a small step. I mean I think, I really think that
there is a much larger operation. I think it's a great deal and
we ought to do it, and no question about it. But I don't think
we ought to think that this is the panacea. It's not. It is
only a small, small beginning. Thank you very much, Mr.
Chairman.
Chairman Crane. Thank you.
Mr. Rangel.
Mr. Rangel. Thank you, Mr. Chairman. It is amazing, Jack,
how after listening to you I feel that I'm just not doing
anything. You are just an energizer. It is seriously an honor
to have both of you, who have made such an outstanding
contribution, not just for a better America, but for a better
world, to be a part of the launching of this ship that I know
when it's finally signed into law that people all over the
world would wonder how did it get started. So let me thank both
of you.
Reverend, Congressman, Ambassador Young, could you refresh
my recollection as to the date and time that you left the
United Nations?
Reverend Young. It was December 1979.
Mr. Rangel. 1979. If I recall correctly, your exit was
accelerated by a visit that you had made with members of the
PLO. I just thought that you might want to know that the
Republican leadership of both the House and the Senate has
invited Yasir Arafat to pray with them this morning. It is my
understanding that Mr. Arafat is lobbying the Hill. And if
there is any advice that you would want to give us to protect
our seats, I hope that you might feel free to tell us. But you
should know it's a really fast changing world. Thank you for
your courage.
Reverend Young. Unfortunately, Mr. Chairman--I'm sorry,
Minority.
Mr. Rangel. That's OK. They are getting ready for that.
[Laughter.]
Reverend Young. It wasn't fast enough, because I think that
my concern was that the generations of young Palestinians that
now seem to be very much in control were not even in existence
then. If we could have talked to the PLO, who actually, I never
met with Arafat. I met with a professor at Columbia University
who was the representative of the PLO at the United Nations.
But people were so emotional about it, we never focused on
that.
Mr. Rangel. Well thank you for realizing how important it
was then, and especially now, as all of us move forward to try
to conclude the Y River Treaty. Thank you.
Chairman Crane. Thank you both. We appreciate your support
for our effort here to expand our relations with that neglected
portion of the world.
I now would like to request that the next two panels on the
schedule participate together. That would be Amama Mbabazi,
minister of State for Uganda, Ambassador Mamadou Mansour Seck
from Senegal, and the Ambassador from Mauritius, Chitmansing
Jesseramsing. Also Pete Kooi, with the World Grain Trading
Group, Cargill, Incorporated, Tim Rebhorn, commercial director,
Iron and Steel Initiatives, Enron Corp., and Hon. Percy Sutton,
chairman emeritus, Inner City Broadcasting Corp. in New York.
If you folks will be seated. Let me again remind everyone
that if you can please confine your oral presentations to 5
minutes or less, your printed statements will be made a part of
the permanent record. You can monitor the time constraints by
that little light in front, green light. When it turns red,
please try and wrap up the oral presentation.
With that then, we will proceed in the order in which I
introduced all of you to come to the dais. That's first Hon.
Amama Mbabazi.
STATEMENT OF HON. AMAMA MBABAZI, MINISTER OF STATE FOR FOREIGN
AFFAIRS, REPUBLIC OF UGANDA
Mr. Mbabazi. Mr. Chairman, honorable Members of the Ways
and Means Committee, ladies and gentlemen, good morning. I am
pleased to be here today to share the views of the government
of Uganda on U.S. trade relations with Sub-Saharan Africa, with
particular emphasis on the African Growth and Opportunity Act,
which we regard as an important milestone in the United States-
Africa relations.
I wish first of all, Mr. Chairman, to commend you and
Ranking Member, Honorable Charles Rangel, and all your
colleagues for working tirelessly for this act. I wish also to
thank Members of the House for passing the Act in the House of
Representatives last year. We acknowledge with gratitude the
many well-wishers and supporters of this act from corporate
America, NGO's, the religious community, and the general
public.
Uganda welcomes this initiative. In fact, when it was in
its early stages, President Museveni was one of the first
African leaders to support it. He expressed Uganda's support in
a letter he sent to President Clinton and other letters he sent
to officials of the administration, Senators, and Members of
this House. Uganda still supports this act, and appeals for its
passage through the current 106th Congress.
We support enactment of this Act into law because among
other things, it aims at promoting trade and private sector
investment in Sub-Saharan Africa. This Act, elements of which
have already been reflected in the Clinton administration
policy, marks an appropriate and respectable approach in which
African countries will be engaged as trading partners with the
United States for the benefit of all. We appreciate that we
continue to be consulted and our views are being considered.
This Act is being considered at a critical moment of
tremendous opportunity in Africa. The continent is undergoing
political and economic transformation which we believe will
have significant implications for the world economy in general,
and the United States in particular. Africa offers the United
States a new market frontier. Approximately 700 million people
live in Africa, accounting for more than 12 percent of the
world's population. In 30 years, this will represent 17 percent
of the world's population of about 1.6 billion people.
This is significant because it represents a large, but
untapped market for U.S. products and services. The potential
for the benefits of this new U.S. trade policy for business on
both sides of the continent is enormous.
As for the benefit to Africa, I would like to give you one
example to illustrate the point. Uganda receives in terms of
tax revenue approximately $50 million annually from one of the
biggest private foreign companies operating in the country.
This excludes the revenue the country gets from utilities,
water, electricity and so on, all the amount of money they
spend on buying raw materials for their factory. All put
together, this makes this company one of the biggest sources of
national revenue in Uganda. As President Museveni once noted,
if Uganda had 1,000 of such companies, Uganda would graduate
from the begging club and join the donor's club.
As Uganda's economy grows through trade with the United
States, thousands of jobs will be created in Uganda and in the
United States. Mr. Chairman, this is what real partnership is
all about. We therefore commend this change in America's policy
toward Africa, and welcome your support and increased interest
in our continent.
Let me comment briefly on the current aid relationship
between Africa and the United States. Africa has for long been
an aid recipient from the United States. This aid, in my view,
has not had the same impact it created in Europe under the
Marshall Plan or in Japan after World War II. Aid to Europe and
Japan was very much linked, as Hon. Kemp has just stated, to
trade. That is why it succeeded. We believe that the
development of Africa will also require the same type of aid,
one linked to trade.
Of course there are many reasons which have contributed to
the failure of aid policy in Africa. The most obvious one is
the poor quality of leadership that dominated most African
countries after independence. In many countries, including my
own Uganda, there was dictatorship, which among other things
suppressed entrepreneurship. Today however, there is an
increasing number of African leaders who are committed to
democratic governance and free market policies. The situation
has rapidly improved.
In the case of Uganda, Mr. Chairman, the country has made a
remarkable recovery. Democracy and respect for human rights are
the cornerstone of our country's governance. The economy has
been liberalized and the government has made the private sector
the engine of economic growth.
To implement economic recovery programs, the government has
successfully undertaken the following measures, among other
things: Reduced the intervention of the central government in
the micro management of the economy; privatized state-owned
enterprises; adopted correct macro economic policies which have
resulted in a stable single digit rate of inflation and
stimulated the economic growth at the rate of an average of 6.5
percent for the last 10 consecutive years; removed the few
remaining non-tariff barriers to international trade; initiated
the process of reforming commercial laws; liberalized the
capital account, which makes Uganda one of the most liberal
economies in the world; established a stock exchange; promoted
the expansion of markets which resulted in the creation of
regional markets; and harmonized tariffs within the East
African Cooperation framework.
Given that economic and political reforms have taken root
in Uganda, the new change in the United States/Africa
relationship will bring about a fundamental change in trade and
investment between the two countries. Uganda is in the process
of negotiating a United States/Uganda investment treaty to
facilitate this.
I wish therefore in conclusion, Mr. Chairman, to reiterate
that the passage of this Act will develop closer U.S. trade
relations with the countries of Sub-Saharan Africa. In
particular, it will send a strong message to corporate America
to look closer at the enormous opportunities for investing in
Africa. Investments will stimulate growth and revitalize our
economies. It will open African markets to U.S. products and
services. It will give African products access to the U.S.
markets. We therefore, urge all to fully support this bill.
[The prepared statement follows:]
Statement of Hon. Amama Mbabazi, Minister of State for Foreign Affairs,
Republic of Uganda
Good Morning Mr. Chairman, Hon. members of the Ways and Means
Committee, ladies and gentlemen.
I am pleased to be here today to share with you the views of the
Government of Uganda on U.S. trade relations with Sub-Saharan Africa
with particular emphasis on the ``The African Growth and Opportunity
Act,'' which we regard as an important milestone in United States/
Africa relations.
I wish first of all to commend you, Mr. Chairman, Ranking Member
Hon. Charles Rangel, and all your colleagues for working tirelessly for
this Act. I wish also to thank Members of the House for passing the Act
in the House of Representatives last year. We acknowledge with
gratitude the many well-wishers and supporters of this Act; from
Corporate America, NGOs, the Religious Community and the general
public.
Uganda welcomes this initiative. In fact, when it was in its early
stages President Museveni was one of the first African leaders to
support it. He expressed Uganda's support in a letter he sent to
President Clinton and in other letters to officials of his
administration as well as to Senators and Members of the House of
Representatives. Uganda still supports this Act and appeals for its
passage during the current 106th Congress.
We support enactment of this Act into law because it, inter alia,
aims at promoting trade and private sector investment in Sub-Saharan
Africa. This Act--elements of which have already been reflected in the
Clinton Administration policy--marks an appropriate and respectable
approach in which African countries will be engaged as trading partners
with the United States for the benefit of all. We appreciate that we
continue to be consulted and our views are being considered
The African Growth and Opportunity Act is being considered at a
critical moment of tremendous opportunity in Africa. The continent is
undergoing political and economic transformation which we believe will
have significant implications for the world economy in general and for
the United States in particular. Africa offers the U.S. a new market
frontier. Approximately 700 million people live in Africa, accounting
for more than 12 percent of the world's population. In 30 years, this
will represent 17 percent of the world's population of about 1.6
billion people. This is significant because it represents a large but
untapped market for U.S. products and services. The potential for the
benefits of this new U.S. trade policy for business on both sides of
the continent is enormous.
As for the benefit to Africa, I would like to give one example to
illustrate the importance of private investment; Uganda receives in
terms of tax revenue approximately $50 million annually from one of the
biggest private foreign companies operating in the country. This
excludes the revenue the country gets from utilities--water and
electricity, from buying raw materials from local farmers, wages for
employees, and many other benefits, all put together makes this company
one of the biggest sources of national revenue. As President Museveni
once noted, if Uganda had a thousand of such companies, we would join
the donor's club.
As Uganda's economy grows through trade with the United States,
thousands of jobs will be created in Uganda and the United States. Mr.
Chairman, this is what real partnership is about.
We therefore commend this change in Americas policy toward Africa
and welcome your support and increased interest in our continent.
Let me comment briefly on the current aid recipient relationship
which has so far characterized United States/Africa relations. Africa
has for long been an aid recipient from the United States. This aid in
my view has not had the same impact it created in Europe under the
Marshall Plan or in Japan after World War II. Aid to Europe and Japan
was very much linked to trade and that is why it succeeded. We believe
that the development of Africa will also require the same type of aid--
one linked to trade.
Of course, there are many reasons which have contributed to the
failure of aid policy in Africa. The most obvious one is the poor
quality of leadership that dominated most African countries after
Independence. In many countries, including my own Uganda, there was
dictatorship which among other things suppressed entrepreneurship.
Today however, there is an increasing number of African leaders who are
committed to democratic governance and free market policies. The
situation has rapidly improved.
In the case of Uganda, the country has made a remarkable recovery.
Democracy and respect for human rights are the cornerstone of our
country's governance. The economy has been liberalized and government
has made the private sector the engine for economic growth. To
implement economic recovery programs, government has successfully
undertaken the following measures, among others:
reduced the intervention of the central government in the
micro management of the economy;
privatized state-owned enterprises;
adopted correct macro-economic policies which has resulted
in a stable single digit rate of inflation and stimulated the economic
growth rate to an average of 6.5 percent for the 10 consecutive years;
removed the few remaining non-tariff barriers to
international trade;
initiated the process of reforming commercial laws;
liberalized the capital account, which makes Uganda one of
the most liberal economies in the world;
established a stock exchange
promoted the expansion of markets which resulted in the
creation of the East African Cooperation (EAC) to be upgraded by July
1999 to a common market and the larger common market for Eastern and
Southern Africa (COMESA);
harmonized tariffs within the East African Cooperation
framework.
Given that economic and political reforms have taken root in
Uganda, the new change in the United States/Africa relations will bring
about a fundamental change in trade and investment between the two
countries. Uganda is in the process of negotiating a United States/
Uganda investment treaty to facilitate this.
In conclusion, I wish to reiterate that the passage of the Act will
develop closer U.S. trade relations with the countries of Sub-Saharan
Africa. In particular:
1. It will send a strong message to Corporate America to look
closer at the enormous opportunities for investing in Africa.
Investments will stimulate growth and revitalize our economies.
2. It will open African markets to U.S. products and services.
3. It will give African products access to U.S. markets.
Thank you.
Chairman Crane. Thank you.
Now Ambassador Mansour Seck.
STATEMENT OF HIS EXCELLENCY MAMADOU MANSOUR SECK, AMBASSADOR,
REPUBLIC OF SENEGAL
Ambassador Seck. Thank you, Mr. Chair. As an African
ambassador, I thank Honorable Crane, the Chair, McDermott,
Rangel, Jefferson, Royce, who helped us to understand the
American democracy and also to interact with you and your
staff, because we learned that it is more important sometimes
to learn from and to work with your staff because they are your
memory. For 5 years, I think since 1995, we have been
interacting with them for this piece of legislation.
As an African ambassador, I feel honored and pleased to be
a part of this undertaking for a real partnership between the
United States and the continent of Africa. Maybe for the first
time we Africans have the unique opportunity in this process to
give our thoughts about cooperation for a mutual benefit,
namely, the enactment of the Growth and Opportunity in Africa,
the end of dependence. You will notice that in the title, all
the words are very important. When you say growth and
opportunity in Africa, that means that it's for the well-being
of our people. When you speak about the end of dependency, that
means that we recognize our dignity as human beings, as
partners.
What we want is just a rendezvous of give and take between
our two continents. Therefore, as early as 1996, we sent a
memorandum to the White House, to the Congress, and to the
administration to give our proposal for enhancing our
cooperation. Among the ideas what we said was that we Africans,
we appreciate the Presidential report entitled ``Comprehensive
Trade and Development Policy for the Countries of Africa.'' We
were determined to assist in transforming these concerted
efforts into concrete results.
In our document, we underline that economic assistance
still remains a necessity for the time being, the private
sector is of paramount important. We emphasized the promotion
of trade and investment. As the people before me said, the
continent represents 10 percent or more of the population of
this world, and our market is untapped mostly from the U.S.
services.
The Europeans, the Japanese, the other Asians are aware of
this fact, and they are everywhere in Africa. The U.S. share in
our market is only 7 percent, whereas the Europeans is 44
percent. I remember the late Ron Brown declaring in Dakar,
Senegal during the 1995 African-American Summit that we have to
correct that. We are here not only to welcome the idea, but to
put it into reality.
In our memorandum, we suggest also to have a summit between
your president and our presidents every 2 years, and also a
forum between your ministers and our ministers. You can see
that we're talking about interaction and give and take between
you and us.
We have a lot of negative points, like the crises in
Africa. We don't have to hide them. But we have some positive
points also. For example, the growth of Sub-Saharan Africa, for
the last 3 years in a row has been more than 5 percent. If I
remember, America performed a very good year last year, with 4
percent growth. The secretary of Treasury recognizes that if
you invest in Africa, you have a return of 30 percent. As
somebody said before me, the U.S. exports to Africa represents
$6 billion, creating 100,000 jobs. This is very important.
I have to conclude. Our continent wants only to be treated
like Europe and Asia. Africa in general shares the same
universal values as America, for a quest of well being,
freedom, more justice, more democracy for the global village
where we all are neighbors.
In this context, we already shared side by side World War
I, World War II, and Desert Storm. Senegal and Niger were among
those countries. Senegal, my country lost a lot of soldiers
during this conflict, meaning that we have shared these moral
values, why not share the environment of our economy?
I finish by quoting President Clinton during his historic
visit to Africa. ``Perhaps'' he said, ``the worst sin America
ever committed about Africa was the sin of neglect and
ignorance.'' This is what he said in Uganda. In Senegal, he
said, ``We import about as much oil from Africa as we do from
the Persian Gulf. We export more to Africa than to all of the
former Soviet Union. And Americans should know that our
investments in Sub-Saharan Africa are in return of 30 percent,
higher than any other continent in the world.'' I quote him in
South Africa, ``Yes, Africa needs the world more than ever. It
is equally time that the world needs Africa.'' Thank you very
much, Mr. Chairman.
[The prepared statement follows:]
Statement of His Excellency Mamadou Mansour Seck, Ambassador, Republic
of Senegal
Dear Chair, Ladies and Gentlemen.
As an African Ambassador, I feel honored and pleased to be a part
of this undertaking for a real partnership between the US and the
continent of Africa. Maybe for the first time we Africans have the
unique opportunity, in this process to give our thoughts about a
cooperation for a mutual benefit, namely the enactment of the ``Growth
and Opportunity in Africa, the End of Dependency.'' You will notice
that in the title all the words are important ``Growth and
Opportunity'' represents the well being of our people but the ``the End
of Dependency'' represents our dignity as human beings.
In fact, since 1995, the African diplomatic corps has been working
closely with Congress, the White House and the Administration and even
the business community to build this piece of legislation, which will
create a legal framework within which America and Africa will cooperate
to develop their economies. We want to forge a rendezvous of ``give and
take'' between our two continents, a ``win-win situation''.
Therefore, already in May 1996, we sent a memorandum to the White
House, to the Congress and to the Administration to give our proposal
for enhancing our cooperation.
I will extract some of our main ideas from this document.
I. The African Diplomat Corps Memorandum
First, we appreciate the presidential report entitled
``Comprehensive Trade and Development Policy for the Countries of
Africa'' on February 96 and we stressed, I quote, ``We, African
Ambassadors are encouraged by those positive developments and we are
determined to assist in transforming these concerted efforts into
concrete results''.
As a contribution and in consultation with the US business
community, we issued on June 95 a document entitled ``Policy
Recommendations of the Development of the US Economic Agenda for
Africa.''
In our document, we underline the fact that:
Economic assistance still remains a necessary complement
to help the African countries become viable trading partners;
The private sector is of paramount importance
We emphasized the promotion of trade and investment for
our development in partnership with the US public and private sector.
Africa represents a population of 700 million people who aspire to
be not only consumers but also producers of goods and services. Our
vast untapped market is widely opened to the US goods and services.
The Europeans, the Japanese and other Asians are aware of that fact
and present everywhere in Africa. Today, the US share in the African
market represents only 7% whereas the European market represents 40%.
I remember the late Ron Brown declaring in Dakar, Senegal during
the 1995 African-American Summit that this has to be corrected. We are
here not only to welcome this idea, but to also put it into reality.
We also stress in this document our strong support for a Summit on
a regular basis between the leaders of our 2 continents for a ``US-
Africa Trade and Investment Partnership'' as soon as possible. The idea
of an ``annual high level Forum'' among our ministers to ``evaluate and
monitor the implementation of our partnership'' was also strongly
proposed. We hope to start these meetings in March 1999.
II. Other reasons for the Bill
At this point, I will mention some other reasons why the enactment
of this Bill is important and beneficial to you Americans and to us
Africans.
1. The average growth rate of the GNP for SSA countries for the
last 3 years is 5%, it is almost 10% for some others. Generally, 3% is
a good average for many countries (US 4% in 1998).
2. The US Secretary of Treasury recognizes that the return on
direct investment in Africa is about 30% when the average return
worldwide does not exceed 14%.
3. US exports to Africa total 6 billions dollars, meaning more than
US exports to the former Soviet Union. These exports generate 100,000
jobs in the US.
4. At the end of 1998, more than 48 African countries were
connected to the Internet.
5. 12% of the US population is of African descent.
6. 30 Sub-Saharan African countries are actively democratizing or
are already democracies. My country Senegal for example, has 30
different political parties and has never experienced any military coup
d'etat.
7. The state-owned companies are in the process of being privatized
all over the continent.
8. Senegal and Niger were part of Desert Storm campaign against
aggression and injustice.
9. The House passed this bill last year already.
III. Comments of the Bill
In the section entitled ``The Findings,'' you can read ``The
Congress finds that it is in the mutual economic interest of the US and
Sub-Saharan Africa to promote stable and sustainable economic growth in
Sub-Saharan Africa and that sustained and economic growth in Sub-
Saharan Africa depends in large measure upon the development of a
receptive environment for trade and investment''.
The US seeks to assist SSA countries and the private sector in
these countries to achieve economic self-reliance by:
Strengthening and expanding the private sector
Encouraging increased trade and investment between the US
and SSA
Reducing tariffs, non-tariffs barriers and other obstacles
Assisting SSA in their efforts for regional integration
Negotiating free trade areas
Establishing a US-SSA trade and investment partnership
Focusing on countries committed to accountable
governments, economic reforms and the eradication of poverty
Establishing a US-SSA Economic Cooperation Forum
Supporting the building of civil societies.
In section 3 titled ``Statement of Policy,'' the Congress supports
``Economic Self-reliance'' for SSA particularly for those countries
committed to:
Economic and political reforms
Market incentives and private sector growth
Eradication of poverty and
The importance of women to economic growth and
development.
The section 4 titled ``Eligibility requirements'' states that to be
eligible, an African country must:
Respect the human rights
Promote free movements of goods and services between the
US and SSA
Promote exports through joint-venture projects
Protect property rights
Promote appropriate fiscal system and avoid double
taxation
Promote measures to create a conducive environment to
domestic and foreign investments
Promote regional markets
Eliminate government corruption
Support the private sector
Privatize government-controlled enterprises
Observe the rules of law
Comply with international regulations issued by the World
Trade Organization (WTO) and the IMF
Promote the micro-enterprises
Section 5 ``The US-SSA Trade and Economic Cooperation Forum'' reads
in the declaration of policy that:
``The President shall convene annual high level meetings between
appropriate officials of the US government of the SSA countries in
order to foster close economic ties between the US and SSA''.
``The President shall direct the Secretary of Commerce, the
Secretary of Treasury, the Secretary of State and the USTR to host the
first annual meeting with counterparts of such secretaries from the
governments of SSA countries, the secretary general of the OAU, the
Government officials etc. . . . to discuss matters like expanding trade
and investment relations between the US and SSA''.
``The President will encourage US NGOs and private sector to host
annual meetings with their African counterparts in conjunction with the
US-Africa Forum.
``The President shall meet with the heads of African governments no
later than 12 months after the enactment''.
Section 6 through section 16 proposes a US-SSA Free Trade Area
eliminating barriers and encouraging exports.
Section 7 stresses that the lack of competitiveness of SSA in the
global market makes it a limited threat to US jobs.
African textile and apparel exports to the US represent less than
1% of the total of 54 billions dollars.
Even if that percentage remains around 3%, there will be no threat.
In fact Asian, among them China, export more than 70% of that market
without being considered a threat.
Kenya, Mauritius and other African countries must adopt an
efficient visa system ``against unlawful trans-shipment of textile and
apparel goods and the use of counterfeit documents''.
``The President shall continue the existing no quota pole on
countries in SSA.'' He will submit a report to the Congress on the
growth in textiles and apparels exports to the US each year in order to
protect workers and US consumers.
In section 8, The Generalized System of Preferences states that
``The President may provide duty-free treatment for any article set
forth'' if, after the advice of the International Trade Commission, he
considers that such article is not sensitive.
The duty-free rule will terminate in June 2009.
In section 9, US role in the African debt reduction, especially for
HIPC countries will happen through the International Bank for
Reconstruction and Development (IBRD), the IMF and ADB.
In section 11, the ``OPIC will initiate equity funds in support of
projects in SSA. Funds of 500 millions should be used in support of the
infrastructure projects in SSA. It also state that ``The Eximbank will
facilitate operative support by US commercial banks for trade with the
SSA''.
Section 16 provides the possibility for the US to donate to
governments of SSA ``air traffic control equipment that is no longer in
use with a technical assistance.''
IV. Critics of the Bill
1. We know that the bill is not perfect. Now, even European
countries like France are amending their constitution to comply with
the European Union treaty.
2. In this bill, there is a guarantee of continuous oversight.
President has to report to the Congress every year to assess the
success of this undertaking. On the other side, African countries are
free to make their own assessment.
3. Together Africa and the US can improve the bill as we go along
with its implementation.
4. In many of the requirements for eligibility, even though some of
them are hard to meet. We have experience with the same
conditionalities with the Bretton Woods Institution (World Bank and
IMF).
Conclusion
This bill must represent a wide framework within which America and
Africa will express their will to work together for the integration of
Africa into the global economy of the next millenium. A win-win
situation of mutual benefit will be the result especially for the US
business community.
Our Continent wants only to be treated like the Continents of
Europe, Asia and America. Africa in general shares the same universal
values than America: quest for our well being, for our freedom, for
more justice and for more democracy in the global village where we all
are neighbors.
If in this context, we already shared side by side World War I,
World War II and Desert Storm. If we risked our lives for the same
freedom and justice, why can't we share the same economic environment
for the well being of our people?
One of our dreams, for Africa is to be a part of a network
enhancing our cooperation with the US. Last year, Congress enacted the
``Seeds of Hope Act.'' This year, we hope that not only the House and
the Senate will pass this bill, but also that the US will ratify the
``Convention to combat Desertification'' that have already ratified by
almost all the African countries.
I will conclude by quoting President Clinton during his historic
visit to our continent.
In Uganda, March 1998: ``Perhaps the worst sin America ever
committed about Africa was the sin of neglect and ignorance''.
In Senegal, March 1998: ``We import about as much oil from Africa
as we do from the Persian Gulf. We export more to Africa than to all
the former Soviet Union. And Americans should know that our investments
in SSA are in a return of 30%, higher than any other continent in the
entire world''.
In South Africa, March 1998: ``Yes, Africa needs the world more
than ever. It is equally time that the world needs Africa''.
We African Ambassadors thank Honorable Crane, McDermott, Rangel,
Jefferson, Royce, Payne, McKinney, Jackson Lee, Norton, Hastings, Hall,
to name few, for introducing this bill.
I thank also Honorable Gingrich and my dear friends General Collin
Powell and Jack Kemp, for supporting this bill.
I thank you.
Chairman Crane. Thank you.
Our next witness is Mr. Jesseramsing.
STATEMENT OF HIS EXCELLENCY CHITMANSING JESSERAMSING,
AMBASSADOR, REPUBLIC OF MAURITIUS
Ambassador Jesseramsing. Chairman Crane, Members of the
Committee, I would like to thank you for your invitation for me
to speak on the African Growth and Opportunity bill. I would
also like to commend you on the admirable speed with which your
Committee is dealing with this historic piece of legislation.
Certainly all of us in Africa are watching with great interest
and excitement the passage of this bill through this Congress.
We warmly applaud the support that this Committee has provided
for the Africa bill, both in the 105th Congress and what's
going on in this present Congress.
The Africa bill is a good bill for America. It's a good
bill for Africa. It is a modest bill, but one that lays a solid
foundation for the development of a strong framework to
encourage mutually beneficial economic partnership. It is
fitting that considering the traditional ethnic, racial, and
cultural links that bind the African continent over the
centuries with America, the United States is strengthening its
ties, its economic ties with Africa.
Despite being a forgotten continent in the mind of many
Americans, Africa imports more from the United States than does
the whole of the former Soviet Union. These imports directly
provide work for thousands, hundreds of thousands of Americans.
But, Mr. Chairman, African exports to the United States are
overwhelmingly raw primary products, which are then refined
here in America and transformed into manufactured products,
both creating many, many more American jobs, and also providing
the American customer with a greater variety of affordable
goods.
As a latecomer to the African marketplace, the United
States finds itself in competition with the European companies
that have been implanted in the African soil for decades, if
not centuries. This is part of history. It's the colonial past.
It's the empires that were built around.
If 7 percent of African imports are American, then 44
percent come from Europe. Mr. Chairman, we know well your
dedication to free trade. So we welcome greater American
interest in Africa to stimulate competition, and offer Africa
additional sources for both goods and markets.
The question was put earlier about the terms of
investments, what do Americans gain in terms of trading with
Africa. If you take the case of many African countries,
certainly South Africa and Mauritius, recently things which
were unheard of where all the investments and all the biddings
were done by European countries, Qualcomm is now in Mauritius.
They won a bid. Microsoft has installed itself. Then again, we
bought Boeing planes and so on, instead of you know, the
traditional ones of going to Europe for Airbus and so on. So
there is a movement toward buying American.
The Africa bill would set up the institutional framework
that will expand the increasingly dynamic partnership between
the United States and Africa, and would permit African
countries a greater freedom in their commercial and economic
choices.
Mr. Chairman, Africa we know has had a negative image. It's
too often stereotyped in the international media. Yes, there
are conflicts, but there are conflicts in Europe also. There is
unemployment, there is underdevelopment, but yes, there is
today, hope. There is a renaissance in Africa. Then we have to
remember that two power houses in Africa, South Africa,
Nigeria, are now reintegrating the international community.
Regional economic blocs such as the South African Development
Community, SADC, the Economic Community of Western African
States, ECOWAS, the Common Market for Eastern and Southern
Africa, COMESA, and the East African Cooperation Tri-partite
Commission are all overcoming national and natural boundaries
to create more vibrant and modern economies.
From the almost total domination of state-run economies
during the cold war period, most African countries are nowadays
democratizing and adopting liberal economic policies. Eight out
of ten Sub-Saharan African countries are now members of the
World Trade Organization and are implementing International
Monetary Fund and World Bank programs of reform. There is a
strong democratization process going on in Africa. This has
been heralded by the U.S. State Department itself. Africa is on
the move, and this bill is important at this historic moment.
It is important to Africa that this bill passes the U.S.
Congress with all its provisions, especially its trade
provisions in tact. With the rapid globalization of the world
economy, there is every danger that Africa finds itself
marginalized. More advanced developing countries in South East
Asia and Latin America have suffered major economic upheavals
as they adjust to this new climate of the world economic order.
We in Africa have fragile economies, and we are much more
vulnerable.
It is certainly not in the interest of the United States to
have an Africa in chaos. The Africa bill is opportune as
African countries seek to create the proper enabling
environment for business and commercial development that it
would be a crime of historic proportion not to have it passed.
We in Africa believe that the Africa bill will develop our
economies, to increase trade and investment opportunities, thus
making us more able to better withstand the shocks of the world
market and also to be a strong economic partner with the United
States.
In conclusion, the way forward for Africa must be through
the development of a manufacturing sector, which will create
meaningful and sustained employment for the unemployed, develop
an industrial culture, and develop a work force that will be
also consumers, and end this cycle of poverty and despair for
the youth of Africa. The Africa bill does provide the basic
modest trade proposals. These proposals are a drop in the ocean
for the U.S. economy, but for us it's a riverswell and it will
revitalize and invigorate the economies of Sub-Saharan Africa.
Several African countries, including my own, Mauritius,
have developed quickly after implementing sound economic
policies. Mauritius, which in the sixties was a typical African
basket case, boasts today a dynamic economy with full
employment and a strong democratic framework. It is also
encouraging regional cooperation through our own Mauritian
investments in other African countries.
Finally, Mr. Chairman, we're talking of 700 million people,
men, women, children, may live a better life and longer and
happier life if they can actively participate in national
policies through a democratic process, if they can participate
more effectively in their national economy through liberal
economic policies, and also if they can feel they are not the
forgotten of this world, but that they have a hope for a better
tomorrow.
Mr. Chairman, and Members of the Committee, this bill does
in its own modest way, it lays the foundation for an improved
today and does give that hope for a better, far better
tomorrow. Thank you.
[The prepared statement follows:]
Statement of His Excellency Chitmansing Jesseramsing, Ambassador,
Republic of Mauritius
1. Background
It is quite appropriate that the genesis of the Africa
Growth and Opportunity Bill was in the Uruguay Round Agreement
Act (Section 134) passed by the US Congress on December 8th
1994. That the US Congress had to mandate the President to
develop a trade and investment policy toward Africa emphasized
how little attention had previously been paid to the African
continent as a possible economic partner for the United States.
Furthermore Section 134 recognized the need to integrate Africa
into the new Uruguay Round/GATT international trading system in
the context of the developing globalization of the world
economy. Failure of such an integration would confirm the
increasing marginalization of a massive continent of 700
million people rich in mineral, natural and human resources.
The history of American interaction with Africa until now
has been marked by the military demands of the Cold War, the
strategic importance of a few individual African countries and
a general benign economic neglect. Yet despite this Africa has
been an important source of primary products for the United
States and is a major market among the developing and
transitional economies of the world.
As the United States comes to terms with its new role as
sole super-power with the end of the Cold War and as the major
and most dynamic economy in the world so it has to rethink its
relations with the African continent. This re-thinking is also
spurred on by a more dynamic and economically important Afro-
American community that is justifiably seeking to develop ties,
economic and cultural with the motherland from which so many
millions of its sons and daughters were dramatically and rudely
torn.
As the United States does carry out this rethinking about
its relationship with Africa it also recognizes that an Africa
in chaos is a serious threat to the national security of
America. As the burden of the role of international policeman
is thrust, willingly or unwillingly, on the shoulders of the
United States, and as the hot spots of the world increase both
in number and in intensity, the United States has no interest
in an Africa that is disintegrating into intra-state and inter-
state conflicts. Not only conflict but a lack of sophistication
and preparedness in African countries permits serious threats
to US interests and personnel as shown so dramatically in the
terrible bombings of the US embassies in Dar-es-Salaam and
Nairobi last year.
The United States can no longer afford to ignore Africa. It
can no longer afford to permit a poor level of development on
the continent. The United States must act now for every minute
lost in encouraging economic development in Africa today will
cost ten times more in the future for the developed countries.
It makes much more sense to have strong and economically viable
trading partner than a dangerous, unstable economic time-bomb
waiting to go off.
Past efforts to help Africa on the part of the United
States have not achieved the expected results. The aid
programmes which have been in place for some time certainly
help particular groups and needy people. There is no question
that they should be continued and certainly stepped up, for
Africa has serious need of all the help it can get.
Present efforts to deal with the heavy indebtedness of many
of the African countries should be pushed vigorously forward
and the writing off of these debts by the international
community would be a major push to bring many African countries
out of their convoluted poverty situations. But there must be a
way forward, a dynamic programme that offers hope, sound
economic programmes and a sense of partnership rather than
subservience. This way forward is the Africa Growth and
Opportunity Bill.
2. The Immediacy of the Problem
A major obstacle to African countries in their fight to integrate
the global economy is the limited window of opportunity that faces
them. The post-Uruguay Round implementation of free trade measures and
greater global economic integration is moving ahead apace. By the year
2005 the Multi Fiber Agreement (MFA) will be phased out, the Free Trade
Area of the Americas (FTAA) will be in place, and NAFTA will have
reached complete economic integration.
Time is certainly not on the side of the Sub-Saharan African (SSA)
countries.
The Africa and Growth and Opportunity Bill does provide a basis for
the development of meaningful trade and investment opportunities
between the United States and Africa. But just as importantly, it does
provide for these opportunities in the immediate term.
The failure to enact this legislation will create serious delays
that will certainly considerably hamper the efforts of the African
countries to profit from the window of opportunity that is available at
present. This in turn may have the consequence that finding solutions
to problems in Africa in the future will be far more costly and
daunting to the international community than speedy and effective
action at the present time, It will certainly also mean that Africa
will not be able to play its anticipated role as a developed partner in
trade with the United States, providing markets for US goods and
business opportunities for US companies.
This is why Mauritius urges the US Congress to pass the Africa
Growth and Opportunity Bill with especially its trade and investment
provisions intact, as soon as possible, for delay may be fatal to this
legislation.
3. Trade and Investment Provisions
This submission, while supporting unequivocally the whole Bill as
it stands, will concentrate specifically on those two economic elements
which can be of immediate effect on the Sub-Saharan African countries,
(a) OPIC Funds
The Africa Bill does provide for the setting up of funds for
infrastructure projects and equity to be overseen by the Overseas
Private Investment Corporation (OPIC). The poor situation of the
infrastructure in Sub Saharan Africa, particularly in terms of
transport, with 14 land-locked countries, is a major handicap for our
continent to participate in the growing international trade of the post
Uruguay-Round world. The speedy enactment of this Bill would permit the
use of these funds to improve in the immediate the physical
infrastructure of the Sub-Saharan African countries.
(b) Textile and Apparel
However, the major element in the Africa Bill which would allow for
the immediate development of some manufacturing basis in Africa, is the
provision for quota and duty-free access to the United States for
exports of textile and apparel from Sub Saharan Africa.
Mauritius is the main exporter of apparel to the United States in
the SSA region and our experience has shown that this method of
industrialization can help considerably to overcome some of the grave
problems facing African countries today.
To create sustainable growth, to create employment for young job
seekers, to gain foreign exchange and to develop an export-oriented
economy. African countries have realized the necessity to develop their
manufacturing base. History has shown that the cheapest and most
quickly set up manufacturing industry is apparel production. Since some
SSA countries are also producers of raw materials such as cotton, the
development of the clothing industry could create a more sold
integrated industry if it uses local fabric or regionally produced
fabric from another SSA country.
However there are few SSA countries which have begun their textile
or apparel industries, and those that have, are for the most part in an
infant stage. Any SSA country wanting to develop its textile and
apparel industry has only a very short time in which to do so for with
the new Uruguay Round GATT Agreement and the setting up of the WTO, the
quota restrictions on the world's major textile producers will be ended
with the phase out of the Multi-Fiber Agreement (MFA) on 1st Jan. 2005.
Therefore on that date countries like China, India, Pakistan,
Bangladesh, Vietnam which have massive cheap labour pools, raw
materials and a long tradition of textile and apparel production will
have unrestricted access into the markets of the developed countries
and will clearly sweep away any competition from inexperienced
competitors such as Sub Saharan Africa.
This is the importance of the duty free element in the Africa
Growth and Opportunity Bill, for with that duty at about 17% on
average, the Sub Saharan African countries could continue to compete if
they have that advantage over the other exporters who would have quota
free but not duty free and would still have to pay the 17% tariff.
(I) US International Trade Commission. The US International Trade
Commission was asked by the US House of Representatives Ways and Means
Committee to look into the effect on the US economy of providing quota-
free and duty-free exports to the United States of Sub-Saharan African
exports of textiles and apparel.
Their conclusions published in the USITC Investigation No. 332-379,
Publication 3056 of September 1997 were as follows:
Since SSA countries exports in these categories
represented less than 1% of total global imports into the USA, even a
doubling or tripling of such SSA exports would have little effect on
the US economy;
The USITC estimated that such measures would entail at
most the loss of some 676 jobs in the United States.
The USITC believed that at least 16 SSA countries would
benefit immediately from these measures, and that others could benefit
in the future if they set up such industries.
(II) US Industry attacks against Africa Bill Textile Provisions.
The American Textile Manufacturers' Institute (ATMI) is concerned that
textile fabric from the Far East and Asia will be made up into clothing
in Sub Saharan Africa and will enter the USA quota-free and duty-free
under the Africa Bill, thus undermining its own strategy of using the
Caribbean and Mexico for apparel making from US textile fabric.
Therefore they have stated that the granting of quota-free and
duty-free to SSA countries will have the following negatives for the US
economy.
(III) Responses to these Arguments--Job Losses. There has been a
major loss of jobs in the US textile and apparel industries over the
past twenty years. During that period SSA exports have represented less
than 1% of total imports in this sector into the USA. The job losses in
these industries have been principally engendered from the relocation
of US companies to the CBI countries and Mexico.
The USITC has stated that complete quota-free and duty-free entry
of textile and apparel from SSA would create not more than 676 job
losses.
Even if SSA countries doubled or tripled their exports to the USA
it would not cause major job losses in the USA which is principally,
due to higher wages, an up-market clothing producer, and not a cheap
low-market producer as the African countries would start of as. Any job
losses would probably occur in Asia as production is shifted from there
to Africa.
Transshipment. The US Customs have criticized the ATMI for their
scaremongering statement in the ATMI's submission to the House Ways and
Means Committee of the 105th US Congress in a letter from Ms. Janet L.
Labuda, Director, International Trade Management, US Customs to the
ATMI.
``I am very concerned by the fact that false and misleading
information was disseminated and that this information was attributed
to US Customs. To prevent this from happening again, I would request
that your organization submit information or statements to US Customs
prior to their public release when any information or statement is
attributed to US Customs.''
46 of 48 SSA countries have quota-free entry to the USA and all
have quota-free and duty-free entry to Europe under the Lome
Convention. Yet up till now neither the USA nor the EU have found any
major transshipment through Africa to their markets. In fact the SSA
exports to the USA represent less than 1% of all imports and so any
transshipment, if there should be any, is minimal. US Customs have
found no case of transshipment going through Africa since 1996.
The Africa Growth and Opportunity Bill does also provide for
control against illegal transshipment through the introduction of a
Visa system in partnership with US Customs. Furthermore heavy penalties
are imposed on any company which is caught involved in illegal
transshipment.
(IV) Foreign Workers. The ATMI in its attempts to de-rail the
Africa Bill, as well as some US NGOs have stated that the textile
provisions will not help African workers but foreign, i.e. Asian
workers, will be brought into Africa to carry out the production. They
have based themselves on the experience of the Northern Marianas,
islands which are part of the United States.
The whole purpose of encouraging the development of a textile and
apparel industry in Africa is precisely because there is a very large
unemployment problem there and it would be suicidal politically for
mainland African countries to introduce foreign workers in place of
their own unemployed. Furthermore the suggestion that foreign workers
are needed in Africa is tainted with the concept that African workers
cannot do the work, which is false.
Owing to its tiny population (1.1 million) and rapid economic
development Mauritius has been forced to use foreign workers, but, they
represented in 1997, 5.3% of the total work force and 8.6% of the
textile and apparel industry work force. The Mauritian textile industry
is 72% wholly owned by Mauritians and Mauritian capital makes up an
important part of the remaining companies. All foreign workers in
Mauritius are governed by the local labour laws, and are protected by
minimum standards of working conditions that are enforced by the
Government of Mauritius. Furthermore, since the workers are under
contract and so only temporarily in the island, the Government of
Mauritius ensures that companies employing foreign workers have return
air tickets for these workers to leave if and when they want, even
before the expiry of their contract. Mauritius is a long time democracy
with freedom of association, reflected in very free trade unions,
freedom of speech reflected in a very free press, and any abuses of
foreign workers' rights would be quickly brought to the notice of the
general public.
A good number of Mauritian enterprises have also set up factories
in other African countries creating jobs and sustainable economic
growth: for example, in Madagascar where 25,000 jobs have been created
by the 44 Mauritian companies in the Malagasy Free Zone, as well as in
Lesotho, Mozambique and Tanzania. Africa is helping Africa.
Mauritian textile and apparel companies export to renowned up-
market companies in the United States and Europe all of which require
strict adherence to their Codes of Conduct for production, including:
no child labour, no forced labour, no compulsory overtime, acceptable
working conditions, and freedom of association.
4. Conclusion
The Africa Growth and Opportunity Bill comes at a decisive moment
in the relations between he United States and Africa. The visits of
President Clinton, Vice President Gore, the First Lady, Hilary Rodham
Clinton, Secretary of State Hon. Albright and other members of the
Cabinet have focused attention on the real possibilities of increased
economic partnership between Africa and the United States. The
unprecedented Presidential visit to 6 Sub-Saharan African countries has
certainly given the impetus for increased collaboration between the
United States and Africa.
The Congressional Delegation visit led by Congressman Charles
Rangel, together with a large number of American businessmen from a
wide panoply of companies, covering manufacturing, telecommunications,
information and financial services, to several African countries
including Mauritius in December 1997, also reflected this growing
interest in economic relations between the United States and Africa.
The Bill comes at a historic moment as we enter together the 21st
century with the sincere hope that Africa, having undertaken
successfully its ``Renaissance,'' may take its rightful place at the
table of nations, no longer as supplicant but as mature participant
capable of being a solid partner in international economic development.
However, the opportunity to achieve something of concrete,
something of worthwhile, is only present for a short time and we must
seize that time. Delay and disappointment today will cause greater
problems in the future.
There are economic measures in this Bill which can create the
necessary ennobling environment for mutually beneficial business
development between the United Sates and Africa. These measures are the
essence of the Bill, and without them, the Bill would not be able to
deliver it's promises.
While there is concern by the US domestic textile and apparel
industries about these provisions, the facts are there to show that
Sub-Saharan Africa will not be a major threat to the US economy, but in
reality will be able to develop into an important source of jobs and
exports for US companies. The Africa Growth and Opportunity is
therefore a win-win situation for both USA and Africa.
Chairman Crane. Thank you, Mr. Jesseramsing.
Mr. Kooi.
STATEMENT OF PETER A. KOOI, PRESIDENT, WORLD GRAIN TRADING
GROUP, CARGILL, INCORPORATED, MINNEAPOLIS, MINNESOTA
Mr. Kooi. Mr. Chairman, Members of the Committee, thank you
very much for your invitation to discuss economic opportunities
and development in Africa. My name is Peter Kooi. I am a
corporate vice president and president of the World Grain
Trading Group of Cargill, Incorporated. Cargill is a privately-
held agribusiness company founded over 130 years ago in Iowa.
Today Cargill is headquartered in Minneapolis, Minnesota, and
is involved in marketing, processing, distributing commodities
with some 80,000 employees in 65 countries. We have trading
relationships in an additional 130 countries.
Cargill is no stranger to the developing world, nor to
Africa. We believe the legislative initiative you are
considering today is needed to accelerate economic and
political development in Sub-Saharan Africa.
I am Cargill's representative to the South African
Development Council. Cargill is an active member of the
Corporate Council on Africa. We have been pleased to
participate in President Clinton's historic trip to Africa, and
Secretary Daley's recent trade mission there. Cargill's current
businesses in Africa include processing and trading in cotton,
coffee, cocoa, oilseeds, rice, sugar, and grain, and in rural
development, through a subsidiary company, Cargill Technical
Services. We now have offices and facilities in 10 African Sub-
Saharan countries, with annual sales of $220 million from our
asset-based businesses, and total trade of $1.3 billion.
Our experience in Africa convinces us that unlocking
Africa's latent agricultural productivity is the best way to
begin self-sustaining broad-based development. Let me give an
example from Uganda. We currently purchase 4,000 tons a month
of coffee from small farmers. Our plant in Kampala employs
local workers, who clean, grade, and bag coffee for export to
Europe. With Cargill's practice of reinvesting most of its
earnings inside the country, Uganda benefits from increased
local cash-flow, spending power, as well as from our investment
in the processing facility.
As successful as these efforts in Uganda and elsewhere may
be, the development needs in Africa can not be met by the
private sector alone. What Africa needs, and what the African
Growth and Opportunity Act passed last year begins to offer is
a partnership, each participant in the effort working with its
unique skills, resources, and abilities, can contribute to the
solution.
To move Africa from subsistence to dynamic growth requires
real collaboration among local governments, multi-lateral
development banks, and agribusiness. For a country to be
attractive to agribusiness does not require a huge asset
investment, but it does require some investment. In countries
like Uganda, to use my earlier example, investors in
agribusiness development do need one specific infrastructure.
It's transportation. If the farmer is to get his coffee to the
buyer, and the buyer to get the coffee to the processing plant,
and the plant to get it to an export port, the coffee can
become a world-priced product, generating cash for more
internal investment and foreign exchange earnings for the
national account. This moves the cycle of improvement upward.
To achieve stable political and economic environments,
local governments can be well supported through the World Bank
and MDBs. The provisions in the legislation for continual
consultation on policies is a critical part of that support. No
one outside of the country can make the next step happen. The
governments locally must establish responsible, fair, and
transparent trade, fiscal, and monetary policies with properly
valued exchange rates, a legal system based on the rule of law,
not the rule of individuals. Law that enforces laws against
bribery and corruption. Secure rights of property ownership, a
reliable enforceable law of property and contracts, credit
policies focused on the farm sector, and a movement toward
democracy, civil development, and greater individual freedoms.
Were these conditions or at least most of them exist,
private enterprise and especially agribusiness can help take
the development process to the next level. We come to the
pathway through which needs can be met both within Africa and
in the parts of the world that are markets for African
products. As economies are strengthened and local and regional
prosperity grows, the Africans themselves have increased
capacity to purchase. They seek improvements in their diets and
in the way they live, creating a market for imported food,
clothing, and consumer and capital goods, technology and
further investment.
The African countries can, and if we all contribute to the
effort, will become a larger market for those goods reflecting
the United States' comparative advantages. This upward spiral
requires each partner in the development process to play its
role well. The African governments, foreign government like the
United States, the aid community, multilateral development
banks, universities, and research organizations and private
enterprise, each must contribute what we are most capable of
doing for the benefit of the people of Africa and the people of
the United States.
Again, thank you for the opportunity to speak with you this
morning. I would be pleased to answer questions.
[The prepared statement follows:]
Statement of Peter A. Kooi, President, World Grain Trading Group,
Cargill, Incorporated, Minneapolis, Minnesota
Mister Chairman, Members of the Committee:
I am pleased to submit this testimony to discuss economic
opportunities and development in Africa. My name is Peter Kooi.
I am President of the World Grain Trading Group of Cargill,
Incorporated. Cargill is a privately-held agribusiness company
founded over 130 years ago in Iowa. Today, Cargill is
headquartered in Minneapolis, Minnesota, and is involved in
marketing, processing and distributing commodities, with some
80,600 employees in 65 countries, and we have trading
relationships in 130 additional countries.
Cargill is no stranger to the developing world, nor to
Africa. We believe the legislative initiative you are
considering today is needed to accelerate economic and
political development in Sub-Saharan Africa. I am Cargill's
representative to the South African Development Council and
Cargill is an active member of the Corporate Council on Africa.
We have been pleased to participate in President Clinton's
historic trip to Africa and Secretary Daley's recent trade
mission there.
Cargill has been a trading partner with African countries
for many years, and also has been part of African development
through our subsidiary, Cargill Technical Services (CTS). We
have been active ``on the ground'' within Africa since 1981.
Our current businesses in Africa include processing and trading
cotton, coffee, cocoa, oilseeds and rice; sugar, tallow,
rubber, malt and grain trading; and the rural development work
of CTS. We now have offices and facilities in ten African Sub-
Saharan countries, with annual sales of $220 million from our
asset-based businesses trading within Africa, and total trade
(inside and through exports and imports) of $1.3 billion. In
these ten countries, Cargill has a full-time workforce of about
1000, and we employ another 1300 seasonal workers. Only 15 of
these people are foreign service employees, or expatriates.
Our experience in Africa convinces us that sustainable
development must begin with agriculture. Attached to this
testimony is a copy of the November 1998 Cargill Bulletin,
``Agriculture and Sub-Saharan Africa.'' Agriculture is the
foundation stone for every African economy. Unlocking Africa's
latent agricultural productivity is the best way to begin self-
sustaining, broad-based development. Let me illustrate how that
happens by describing how we have invested in Africa.
Our efforts in Africa focus on providing a market for the
farmer and the goods he produces. We help the farmer learn how
to use inputs to improve yields and to plant and harvest more
efficiently. We add value to farm production through our in-
country processing, ginning and milling businesses. We provide
the farmer with a way to market their products. In some cases,
such as coffee, cocoa or cotton, where Africa has a comparative
advantage to other parts of the world, that market may be the
export market. In just the past month, we increased our
investment in Africa as we began construction of a cocoa
processing plant in Cote d'Ivoire. In other cases, we help to
create a local or regional market.
Let me give a couple examples.
The first is from Uganda. We currently purchase 4,000 tons
of coffee every month from small farmers. Our plant in Kampala,
employing local workers, cleans, grades and bags the coffee for
export to Europe. And, with Cargill's practice of reinvesting
most of its earnings inside the country, Uganda benefits from
increased local cash flow and spending power, as well as from
our investment in the processing facility.
In South Africa, the government has taken steps in recent
years to adopt policies supportive of open markets and economic
development. We have seen changes in the marketing of maize,
one of the country's most important agricultural products.
Previously, the government-owned and -run maize marketing
boards were intended to ``assure food security.'' In fact, what
they did was prevent the development of a functioning market
system. Prices were fixed by the boards, without reference to
the demands of the market, so farmers planted what the boards
would pay for, and not what the market wanted. For example, in
many years the board supported the production of yellow maize,
despite a strong demand for white maize.
The new government did not want to support the old system
that was seen, more than anything, as protection for the white
commercial farmers. It wanted to build a system that would be
responsive to the market, make food more cheaply available to
all their consumers and take advantage of the unique strengths
of South African agriculture. The Ministry of Agriculture
worked with the partnership I have described above. The
ministry brought together agribusiness companies with agronomic
experts and South African farmers and built a new, stronger and
more transparent system.
They began by removing price controls from the domestic
market, though they did not immediately disband the boards.
This slow and cautious approach allowed all parts of the
economy to adjust to the change, and protected the farmers'
planting decisions for the short term. As a first step,
internal prices were allowed to be established by the rules of
supply and demand, rather than by artificial restrictions of a
government-run board. Slowly, they opened the export market,
and for a period, the commodity traders competed in the export
markets side-by-side with the state-run boards. Gradually,
traders were allowed to take price risk, then price supports
were removed, and exports were allowed to freely respond to and
compete in the international market.
A small futures exchange was created for white and yellow
maize, so that prices in those commodities were more
transparent to the market. The government set up a grain
information service, so that farmers could learn how to make
informed planting choices and compete in the free market,
rather than being dictated to by the boards. Exports and
imports both moved freely into and out of the country.
White maize prices rose 150 percent, driven by predictions
of the impact of El Nino, stimulating farmers to continue
planting white maize, and leaving the yellow maize to be
imported. South African farmers are able to capitalize on the
market demand for white maize and find it more cost effective
and better for the economy to import yellow maize when there is
a shortage. Maize trading has now reached 30,000 metric tons
daily.
In South Africa, Cargill has assisted and participated in
this change. We believe that situations like these from Uganda
and South Africa are good examples of our company living its
vision statement: ``to raise standards of living around the
world by delivering increased value to producers and
consumers.'' We increased outputs of already established crops,
and we added value through our trading and processing
businesses, creating jobs and income.
In other parts of Africa, Cargill has been ginning and
trading cotton in Malawi, Tanzania and Zimbabwe (where we are
contributing strength to the local economies by employing women
in the gins). We have been exporting cocoa beans from Nigeria,
the Cameroon, Ghana and Cote d'Ivoire for several years.
As successful as these modest efforts may be, the
development needs in Africa cannot be met by the private sector
alone.
Nor can they be met by the aid community alone. Private
Voluntary Organizations (``PVO's) can help to initiate
development efforts and spread their benefits, but sustainable
growth requires well-functioning markets and entrepreneurial
opportunities. Government's role is to create an environment,
infrastructure and socio-political stability that promote
development, reform and growth in their countries. They do need
help and support. The challenges of Sub-Saharan Africa,
particularly debt burdens, population growth, under employment,
poverty and disease, would confound any government operating in
the best of circumstances.
What Africa needs, and what the African Growth and
Opportunity Act passed by the House of Representatives last
year begins to offer, is a partnership. Each participant in the
effort--working with its unique skills, resources and
abilities--can contribute to the solution.
Let me briefly describe how the members of that
partnership, working together through various stages of
development, can raise standards of living in Africa.
People living in poverty have little margin for error in
feeding themselves. Crop fluctuations or other natural
disasters create risks of severe hunger. Those risks usually
can be overcome through trade or relief efforts. What can
compound shortages and imperil relief from imports is civil
strife. When civil order fails, risks of famine increase and
assistance efforts are imperiled. Consequently, maintaining
civil order and building political legitimacy are critical
responsibilities of governments and the institutions that seek
to help them. Indeed, order and legitimacy are necessary
preconditions for effective assistance.
Beyond the point of crisis, Non-governmental organizations,
or ``NGO's,'' working with the World Bank and through
development banks, can help. Cargill Technical Services, which
often partners with aid institutions, has provided technical
assistance in helping farmers to improve their productivity.
This has ranged from help and advice on research into better
seed varieties to development of better storage facilities
(African farmers may lose up to 40% of their harvested crop to
insects, rodents and weather damage) to the development of
village-sized hand-operated oilseed presses to allow farmers to
produce edible oil for their own needs.
U.S. and international research institutions provide help
over longer time lines by adapting technologies to local needs,
supporting indigenous research and extension services and
building up local agricultural support institutions.
While the improvements realized through these efforts are
necessary, they are not sufficient for self-sustaining growth.
They are not enough to break out of a subsistence economy to a
dynamic growing economy.
To make this next step requires real collaboration among
local governments, multilateral development banks and
agribusiness. In some respects, the answer for the next level
of development lies in a phrase made famous in a movie made
some years ago: ``If you build it, they will come.''
Investors choose countries with at least the basic
infrastructure, as well as stable political and economic
environments, needed to earn decent returns. For a country to
be attractive to agribusiness does not require huge asset
investment, but it does require some investment. In countries
like Uganda, to use my earlier example, investors in
agribusiness development do need specific infrastructure:
transportation and energy.
To achieve stable political and economic environments, the
role of the local governments becomes critical. Their efforts
can be well supported through the World Bank and the multi-
lateral development banks, and the provisions in the
legislation for continual consultation on policies are a
critical part of that support. But no one outside of the
country can make this next step happen. The governments locally
must establish:
responsible, fair and transparent trade, fiscal
and monetary policies;
properly valued exchange rates;
a legal system based on the rule of law, not the
rule of individuals;
laws that are enforced against bribery and
corruption;
secure rights of property ownership;
a reliable and enforceable law of contracts and a
fair, transparent dispute resolution system;
credit policies focused on the farm sector; and,
a movement toward democracy, civil development and
greater individual freedoms.
Where these conditions (or, at least most of them) exist,
private enterprise, and especially agribusiness, can help take
the development process to the next level. We become the
pathway through which needs can be met--both within Africa and
in the parts of the world that are markets for African
products. Agribusiness uses the global market to match the
needs of the rest of the world with the capabilities of Africa.
When the countries of Africa are meeting needs beyond their
borders and are meeting the needs of their people beyond mere
survival or subsistence, indigenous wealth is generated.
As economies are strengthened and local and regional
prosperity grows, the Africans themselves have increased
capacity to purchase. They seek improvements in their diets and
in the way they live, creating a market for imported food,
clothing and consumer goods. They also become a market for
capital goods, technology, and further investment. The African
countries can and, if we all contribute to the effort, will
become a larger market for those goods reflecting the United
States' comparative advantages.
Eventually, these countries will join, in real economic,
social and political terms, the international marketplace,
realizing food and economic security. Once that position is
achieved, internal threats to peace subside and openness to
international intercourse increases.
This upward spiral requires each partner in the development
process to play its role well. The African governments, the
foreign governments (like the United States), the aid
community, the multilateral development banks, universities and
research organizations and private enterprise--each must
contribute what we are most capable of doing, for the benefit
of the people of Africa and the people of the United States.
[Attachments are being retained in the Committee files.]
Chairman Crane. Thank you. Next, Mr. Rebhorn.
STATEMENT OF TIM REBHORN, COMMERCIAL DIRECTOR, IRON AND STEEL
INITIATIVES, ENRON INTERNATIONAL, HOUSTON, TEXAS
Mr. Rebhorn. Mr. Chairman, Members of the Committee, thank
you for the opportunity to testify today in support of
expanding trade relations between the United States and Africa.
Enron is one of the world's leading integrated electricity and
natural gas companies, which owns and operates approximately
$30 billion in energy-related assets globally. I am an
infrastructure project developer for Enron, which means that I
travel to Africa and look for and implement investments for my
company.
In Africa, Enron is currently developing energy-related
infrastructure projects valued at over $3 billion. We are
currently exploring potential opportunities in more than 10
African countries and expect a high level of activity there in
the future. A project which is representative of our interests
in African investment is the Pande Gas/Maputo iron and steel
project in Mozambique. The project will utilize trapped natural
gas discovered some 30 years ago, and will facilitate
construction of a 600-kilometer natural gas pipeline to supply
competitively priced fuel for the capital city, spur further
industrial development along the corridor between Johannesburg
and Maputo, and create 8,000 direct and indirect jobs in the
Maputo area.
After 20 years of civil war, Mozambique has emerged as an
example of what democracy and private investment can do. The
government will hold multi-party elections this year, and has
instituted legislation to encourage private investment in
infrastructure, which has been virtually ignored for the last
two decades.
So, if the African nations are doing their part to
encourage investment, and the private sector is wading in, how
can Congress help support U.S. policy objectives for economic
growth in Africa? The large equity investment Enron and its
partners will make in this project requires over $1 billion in
loans to support the total capital requirement for the project.
This amount of debt is simply not available from commercial
lenders for either this project in Mozambique or for projects
in the majority of countries in Sub-Saharan Africa.
Fortunately, sources of debt like the U.S. Eximbank, OPIC, and
the World Bank, are available to finance projects in developing
regions. It's noteworthy that this debt is backed by assets and
contracts which make up the project. The lenders will not make
such loans to the project available unless there is sufficient
comfort that the loans will be repaid from revenues generated
by the project--the same standard applied by commercial banks.
Since many African countries lack a long repayment history,
they suffer from the unavailability of commercial funding for
their much-needed infrastructure projects. This legislation
helps remedy this problem in a way that is an efficient,
market-based use of American tax dollars which properly
incentivizes African governments, while at the same time,
creates new markets for U.S. goods and services. These projects
will in turn generate revenue for the African governments in
the form of royalties and taxes, which can be used for the
provision of basic services and debt repayment.
Enron supports the passage of the African Growth and
Opportunity Act in the 106th Congress. We believe this
legislation will increase United States-Africa trade and
investment flows, support continued economic growth in Sub-
Saharan Africa, and further Africa's successful integration
into the global trading community. Enron's support of this
legislation is predicated on our belief that the legislation
fosters an environment for growth and democratization in which
U.S. companies like Enron can successfully compete.
Currently U.S. business is at a serious disadvantage in
gaining access to the African market. British and French
investments were 300 percent and 200 percent greater
respectively than U.S. investments during the nineties.
Enactment of the African Growth and Opportunity Act will change
this equation by helping U.S. companies compete with the
already established and growing market presence of our foreign
competitors. This legislation enhances trade and investment
policy to support the economic partnership between the United
States and Sub-Saharan Africa and promotes U.S. competitiveness
in the region.
Sub-Saharan Africa represents new opportunities for
American exporters, particularly for infrastructure and energy
projects. These projects can offset some of the setbacks U.S.
exporters are currently experiencing in Asian markets, and
position U.S. companies to capture their fair share of
opportunities created by this growth. New export markets in
Africa will increase the number of domestic jobs created over
the next decade. Higher living standards in Africa will in turn
contribute to stability, peace, and democracy--fundamental
goals of U.S. foreign policy.
The African Growth and Opportunity Act is crafted to create
an important economic opportunity for the United States and
African interests. I personally have seen tremendous growth in
Africa while developing our project in Mozambique. I know that
the African people will welcome the challenges contained within
this legislation. I respectfully request that this
Subcommittee, the Full Committee, and the Congress support this
legislation, and let the world know just how much the United
States and Africa can accomplish working together.
I would be pleased to answer any questions from this
distinguished Committee. Thank you for your attention to my
testimony.
[The prepared statement of Mr. Rebhorn follows:]
Statement of Tim Rebhorn, Commercial Director, Iron and Steel
Initiatives, Enron International, Houston, Texas
Mr. Chairman, Members of the Committee, thank you for the
opportunity to testify today in support of expanding trade
relations between the United States and Africa.
My name is Tim Rebhorn, and I am an infrastructure project
developer for Enron International in Houston, Texas. Enron is
one of the world's leading integrated electricity and natural
gas companies, which owns approximately $30 billion in energy
related assets, produces electricity and natural gas, develops,
constructs and operates energy and water facilities worldwide
and delivers physical commodities and risk management and
financial services to customers around the world.
Enron In Africa
In Africa, Enron is currently developing energy related
infrastructure projects valued at over $3.0 billion. Enron has
been active developing projects in Africa for several years. We
are currently exploring potential opportunities in more than 10
African countries and expect a high-level of activity there in
the future.
A project which is representative of our interest in
African investment is the Pande Gas/Maputo Iron & Steel Project
in Mozambique. We have cooperated closely with the Government
of Mozambique during the development of this project. The
project will create a large anchor customer which will utilize
the natural gas discovered some 30 years ago in Mozambique, but
which has lain dormant. This anchor project will facilitate
construction of a natural gas pipeline to supply competitively
priced fuel to the capital city and spur further industrial
development along the corridor between Johannesburg and Maputo.
An example of the spurred industrial development is the
Maputo and Matola ports, which before the war in Mozambique
handled more than 12 million tons of cargo per year, but now
handle less than 3 million tons annually. These ports are in
much need of investment. The Pande Gas/Maputo Iron & Steel
Project will increase volumes through the ports by an
additional 200%, help to fund rejuvenation of the harbor
infrastructure, and provide an additional outlet for products
in Mozambique and South Africa to world markets.
The present value of the tax and gas revenue to the
Government of Mozambique from the Pande Gas/Maputo Iron & Steel
Project is $350 million. Most importantly, the 8,000 direct and
indirect jobs created during the construction and operation of
the project will become the base of a skilled workforce that
will enable significant additional investment to the area.
The large equity investment Enron and its partners will
make in this project requires over $1 billion in loans to
support the total capital requirement. This amount of debt is
simply not available from commercial lenders for either this
project in Mozambique or for projects in the majority of
countries in Sub-Saharan Africa. Fortunately, sources of debt
like the US Export-Import Bank, Overseas Private Investment
Corporation (OPIC), and the World Bank are available to finance
projects in this important region. It is note-worthy that this
debt is backed by assets and contracts which make up the
project, and the lenders will not make such loans to the
project available unless there is sufficient proof that the
loans will be repaid from revenues generated by the project--
the same standard applied by commercial banks. However, since
many African countries lack a long re-payment history, they
suffer from the unavailability of commercial funding for their
much needed infrastructure projects. The legislation you are
considering today remedies this problem in a way that is an
efficient, market-based use of American tax dollars, while at
the same time is a creator of additional new markets for U.S.
goods and services.
The Africa Growth and Opportunity Act
Enron supports the passage of the African Growth and
Opportunity Act in the 106th Congress. We believe this
legislation will increase U.S.-Africa trade and investment
flows, support continued economic growth in Sub-Saharan Africa,
and further Africa's successful integration into the global
trading community. Enron's support of this legislation is
predicated on our belief that the legislation fosters an
environment for growth and democratization in which U.S.
companies like Enron can successfully compete.
Since 1995, real GDP growth in Sub-Saharan Africa has
averaged 4 percent or more annually. Although today this
represents one of the higher growth rates in the global
economy, one must consider the small economic base from which
they begin and recognize they still have a long way to go.
Private capital is waiting to flow into Africa--incentives like
those provided by this legislation in the form of trade
privileges helps create an environment which encourages an
atmosphere comfortable for investors and helps the U.S.
government reach its policy objectives sooner.
In the past few years, over 2,000 state enterprises have
been privatized in African countries, raising over $2.3 billion
in government revenue. This revenue is invested in education,
public health, common infrastructure, and repayment of debt.
Enron believes privatization of the African energy sector is
imperative for enhanced economic growth and we encourage the
governments of the African nations to proceed down the path of
privatization. We discourage the disincentive of continued
bilateral and multilateral direct aid to government controlled
pipeline and power projects--if the project is necessary, the
market can find a better way to complete it more efficiently.
Promote U.S. Competitiveness in Africa
Currently, U.S. business is at a serious disadvantage in gaining
access to the African market. The African market, with its 800 million
consumers, has already been recognized by our European competitors.
British and French investments were 300% and 200% greater,
respectively, than U.S. investments during the early 1990s. The British
and French investments helped establish the substantial European
presence in the region which we see today.
Enactment of the African Growth and Opportunity Act will change
this equation by helping U.S. companies compete with the already-
established, and growing market-presence of our foreign competitors. To
this end, the bill establishes the U.S.-Africa Economic Forum and
directs the President to negotiate a U.S.--Africa Free Trade Area.
U.S. exporters are ready and eager to do business in Sub-Saharan
Africa. The needs of the emerging African nations present a unique
opportunity to create new infrastructure projects, such as expanded
power generation and transmission. This legislation enhances trade and
investment policy to support the economic partnership between the
United States and Sub-Saharan Africa and promotes U.S. competitiveness
in the region.
Expand U.S. Export Opportunities in Africa
The African Growth and Opportunity Act provides the framework
necessary to increase U.S. investment in the region. The bill will
expand the availability of export finance, insurance and guarantees
which will support increased U.S. exports and create more export-
related jobs for American workers. For example, risk insurance by the
Overseas Private Investment Corporation (OPIC) and loans/loan
guarantees by the Export-Import Bank of the United States will help
U.S. exporters gain access to developing African markets. Accordingly,
the bill will establish a $150 million equity fund and a $500 million
infrastructure fund for Sub-Saharan Africa and require the Export-
Import Bank and OPIC to take prompt measures to increase their
activities in Sub-Saharan Africa. These programs will provide loans and
insurance to U.S. companies not otherwise made available or too
expensive to be economically feasible.
The African Growth and Opportunity Act provides effective responses
to the challenges facing Sub-Saharan Africa in increasing trade and
attracting new foreign investment. To help stimulate African exports,
the bill, in turn, builds on the well-established principles of the
Generalized System of Preferences (GSP) to support African
entrepreneurship and trade-related employment.
This legislation also challenges each African country to meet the
standards of democratization and human rights that are deeply held by
the citizens of the U.S.
Trade With Africa Is Good For The United States
Sub-Saharan Africa represents new opportunities for
American exporters, particularly for infrastructure and energy
projects. These projects can offset some of the setbacks U.S.
exporters are currently experiencing in the Asian markets. The
total number of jobs supported by U.S. exports of goods and
services reached a record 12 million by 1999. New export
markets in Africa will significantly raise the number of
domestic jobs created over the next decade. Increased
prosperity and higher living standards in Africa in turn will
contribute to stability, peace and democracy -fundamental goals
of U.S. foreign policy.
Trade With The United States Is Good For Africa
Enactment of the African Growth and Opportunity Act will
make a significant contribution to the economic development of
Sub-Saharan Africa and help to raise the standard of living for
the people of this region by making the resources of our
private investment and trade more widely available. Economic
progress will, in turn, contribute to stability, peace and
democracy, which are long-term objectives of the more than 40
African nations this bill intends to reach. The African
Diplomatic Corps and African leaders have been working
assiduously towards the passage of the African trade bill, and
they believe this legislation is designed to advance the best
interests of the African people by raising their standard of
living.
The African Growth and Opportunity Act is crafted to create
an important economic opportunity for U.S. and African
interests. I personally have seen tremendous growth in Africa
while developing our project in Mozambique, and I know the
African people will welcome the challenges contained within
this legislation. I respectfully request that this
Subcommittee, the Full Committee, and the Congress support this
legislation and let the world know just how much the U.S. and
Africa can accomplish together.
I would be pleased to answers any questions from this
distinguished Committee. Thank you for your attention to my
testimony.
Chairman Crane. Thank you. Before our final witness, I
would like to yield to our distinguished colleague, Mr. Rangel.
Mr. Rangel. Thank you, Mr. Chairman, for giving me the
honor to introduce Percy Sutton, our next witness.
Mr. Sutton, I was adding up the number of years that we
have known each other. When it came out to be over 50 years, I
started redoing it, thinking that there must have been
something wrong with my arithmetic. But to my colleagues, I can
think of no one other than my late brother, Ralph, that has
been more instrumental in my political advancement, whatever
success it's been. I wanted to publicly thank him, not only for
sharing with me that friendship, but the great contribution he
has made to our country as a Tuskegee war veteran and the first
one to fly when discrimination prevailed in World War II, and
to come back home and to continue that in the civil rights
field, to be successful as a State legislator, then as borough
president, to be successful as a businessman. But here today to
thank you for the bridge that you have built between the United
States and Africa, the friendships that you have made, the
trade and contact that you have done, and the fact that you are
still willing to become that partner with all of Americans,
especially those from the Village of Harlem. Thank you for
taking the time out to share your experiences with us today. I
personally and politically appreciate it. We would like to hear
from you.
STATEMENT OF HON. PERCY E. SUTTON, CHAIRMAN, AFRICAN
CONTINENTAL TELECOMMUNICATIONS LIMITED, CHAIRMAN EMERITUS,
INNER CITY BROADCASTING CORPORATION, NEW YORK, NEW YORK, AND
FORMER PRESIDENT, BOROUGH OF MANHATTAN
Mr. Sutton. Thank you very much, Mr. Congressman.
Mr. Chairman Crane, Mr. Ranking Member of the Subcommittee,
Mr. Levin, Ranking Member of the House Ways and Means
Committee, Congressman Rangel, Ms. Dunn, Mr. Jefferson, old
friend, all, Mr. Houghton, good seeing you again, Sir. Some of
you may remember, I was here last year to testify with regard
to this bill and I left here quite satisfied and excited that
the Senate surely would pass the bill. It didn't happen. So
today when I saw the Senator from Texas, Mr. Gramm present, I
thanked him for being present. I reminded him that I was from
San Antonio, Texas. He said as I passed him, he said, good, I'm
testifying here today. Ask some of your family in Texas to
support me. I am not prepared to ask all of them to support
him, but we'll divide up. It's a large family. To get support
of this bill, I will ask half of them at least to support the
Senator in his next move.
My lady, gentlemen, I come from a large family in Texas. I
grew up on a farm. I watched planes fly over me. I got
interested in technology as a child. In my family, my father,
my mother were Pan-Africanists. I am a Pan-African. My mother
and father taught each of my 14 brothers and sisters, all from
the same mother and father, that Africa was our homeland, Mr.
Jefferson. My mother comes from New Orleans. And that we must
all, every Sutton as we went forward in life, we were
businesspeople. As we went forward in life, we must support
Africa as our homeland. We must fight for the freedom of
Africa. We were not even free then, because our businesses were
operating under segregated circumstances in San Antonio, Texas.
The civil rights movement, my brothers and sisters were going
to jail in the civil rights movement, as I went to jail in the
civil rights movement. But always we were taught that Africa
was a place to go and to help, as we helped ourselves here in
America.
I am, my lady and gentlemen, a lawyer and I'm a
businessperson. I own radio stations around America. I own
radio stations in New York City. Two of those radio stations
were at one time considered the voice of Africa during the
freedom movement. To those stations came leaders and
representatives of the African freedom movement to get their
story to the public. We did so, in California, Texas, Michigan.
I am also in the cable television business. I am here today
not as a chairman emeritus, not because my wife and my son
voted against me and put me out as chairman of Inner City
Broadcasting Corp., that happens with age, but I did also want
to tell you there is a life after government service.
I was for many years in the State legislature and president
of Berman Hotten in New York City for 12 years, too long. I ran
for mayor. When people say I left government, I didn't leave
government. I was evicted from government many years ago. To
see today my old friend Jack Kemp being here testifying, to see
Andy Young, persons that I have known all through the years, to
see them involved in Africa makes me very, very happy. I am
happy because I feel that I am paying tribute to my mother and
father. But more important than that, for 40 years, I have been
in and out of Africa supporting causes, freedom movements. One
of the dreams that I have always had is that one day the
African Nation would be treated as some other nations are, free
trade. For no nation, no continent can come to status in this
world without a free economy, good government, and access to
the rest of the world.
To be a person in the media, in politics, in government,
and to all of the years see other nations developing through
trade, we've done it. We have used tariffs, we've used
sanctions, we have used a variety of things to discourage trade
and to improve trade. I said I was going to put a face on this.
When I saw young Mr. Jackson, who I have known since he was
a child, testifying here today against the bill, I love him, I
love his father, I have been his father's lawyer from the time
since his father has been a father, and all those years to see
him testifying saying let's get the bills settled, let's get
debt first. And then he put a map up there. The map showed how
few things there are in Africa. He was talking about the
Internet. Well let me complete this and tell you another reason
why I am supporting this bill.
I have a large investment in a telecommunications company.
It is called African Continental Telecommunication, as do
others have a large investment. We have more than 18 licenses
to produce telecommunications. We have a proposal and a
contract with a major company that will use $450 million of
labor and materials to get our satellite up over the continent
of Africa. When launched in the year 2003, that satellite will
permit one to speak into the hand-held phone, reach the
satellite, and come down to another hand-held phone anywhere in
the continent of Africa, or come down to enter the Earth
station to be transmitted to anywhere else in the world.
In the course of doing this, in the course of raising
money, we have as our investment banker, Lehman Brothers, a
major investment banking company. But as we have sought to get
investments from other persons here in America, in the past a
difficulty has been that too often American investors look at
Africa as though it was a place into which you pour money and
don't get anything out. That is not a fact of life.
Let me read to you. There is a man now who was in some pain
who is before a judge. The concern is whether or not he shall
be able to continue the free-wheeling way that he's been
operating. He is called Bill Gates. He has a little company
called Microsoft. He has, I understand, some wealth in this
world. He said, ``Africa is one of the most exciting continents
we're working in,'' that is Microsoft, ``and despite its
complexities, we see it as one of the fastest growing regions
that Microsoft is currently operating in. The Internet is the
single most important tool that will open Africa up to the rest
of the world. It is the future of communication worldwide, and
Africa is not as far behind as some people believe.''
Surveys show that many of Africa's businesses think Mr.
Gates is right. More than half of the companies sampled for the
Africa Competitive Report responded that Internet access is
widely available, although prices remain high. However, there
is a general trend of optimism now held by African businesses
with regard to the application of technology. Twenty-three
African nations in the survey reported that they anticipated
access to the Internet will soon increase in quality, while
decreasing in price. Why do I mention that? I mention that
because when Mr. Jackson talked about the Internet, one of the
things that our satellite will do, this satellite that reaches
the entirety of this continent of 750 million people, where
only 3 percent of the entire continent have telephones in their
businesses or in their homes, or telephones are easily
available.
I became interested when Congressman Rangel at the time I
was evicted from public office in 1977 after 12 years, arranged
for me to meet with a number of persons of importance that he
thought might be helpful to me in Africa. I got into spot oil
trading out of Nigeria. It was great money, but one of the
cruelest and injurious feelings one can get, when one has
barrels of oil out in the ocean going to the refinery, but
can't get insurance because one can't get to the telephone to
reach Lloyds of London, standing in line. In my trading in
heavy machinery in other parts of Africa, to wait and wait and
wait for a telephone. One of the things as a part of the
infrastructure is telecommunications.
But let me tell you also of the value of our trading with
Africa. Africa is an open market. If we can enter into a free
trade agreement with them, if we can have access to their
economies, and they have access, the trade is really going to
be to our benefit. In our satellite, more than 400 million
manhours of work or materials and other things go into
producing that satellite. American labor benefits from that.
Then African labor takes over. So they are in each of the
instances.
Let me close with this. For all of those people who say,
and my friends in the labor movement may I just tell you that I
am a life member of the Transport Workers Union from the time
that I was conducting the subways of the city of New York and
going to law school and to graduate school at the same time, I
tell you that the advantages my lady and gentlemen, the
advantages are all to us. To think that it has taken this long
before you, Mr. Chairman, before you, Mr. Houghton, became
sponsors, to get even initiation of action on free trade, is to
condemn that which should have happened. Condemn the fact that
nobody of real strength became interested.
I thank you very much for entertaining this. As someone who
has been in government, in politics, may I wish you good
elections.
[The prepared statement follows:]
Statement of Hon. Percy E. Sutton, Chairman, African Continental
Telecommunications Limited, Chairman Emeritus, Inner City Broadcasting
Corporation, and former President, Borough of Manhattan
Mr. Chairman Crane, and distinguished members of this very
important Sub-Committee on Trade, of the House Ways and Means
Committee, of the House of Representatives, I come to you from the
Village of Harlem in the City of New York.
Mr. Chairman, and distinguished members, I am especially grateful
for the opportunity to be able to offer my comments to you, as you seek
to structure, once again, an important economic access route for the
developing nations of Sub-Saharan Africa.
I come with warm feelings about that which you, propose in your
legislation. Really, it is more than a warm feeling, it is a feeling of
high excitation, as Sub-Saharan Africa Free Trade is, in my view, an
essential element in an African nation's move toward economic
development and maturity.
In today's society, we are all members of a Global village, with
interacting economic gains or losses as a part of our every day
existence. In these circumstances, Free Trade is as essential to a
nation's economic development and advancement as is its energy supply,
its natural resources, its telecommunications, its highways, its roads,
its rivers, and its various means by which its populace inter-connects
and advances economically, within its own borders, and gains access to
the economies of other nations, outside its borders.
My presence here is occasioned by a notice and invitation from my
next door neighbor in Harlem; my colleague and friend--Harlem's ``star
of stars''--the Honorable and beloved Charles B. Rangel, your colleague
and ranking member of the House Ways and Means Committee.
I am most grateful to the Honorable Charlie Rangel. It was so very
good of him to reach out to me and suggest that I appear here, as he
knows of my long-time emotional, business, cultural and social interest
in, and attachment to, the continent of Africa.
I am a Pan Africanist. I became so as a son of Pan Africanist,
parents, who lived and breathed their love for Africa.
You can imagine, I hope, my sense of pleasure in being here today
to support your proposed legislation, which will help my nation of
birth, these United States, while also helping the place of birth of my
ancestors: Africa.
Mr. Chairman, and distinguished members, no continent and no nation
can come to appropriate social, economic or cultural, competitive
status without a stable government, an open economy and a well
developed infrastructure. An infrastructure inclusive of
telecommunications; a matter about which you will learn, I have intense
interest and involvement.
Your legislation to initiate Free Trade with nations in Sub-Saharan
Africa, is a great step towards economic advancement of those nations
and is of benefit both to the continent of Africa and the United
States.
Mr. Chairman, and distinguished members, for more than forty years
I have, on a regular basis, visited, conducted business in,
communicated with, supported, promoted and/or advanced efforts designed
to bring the nations of Africa into economic openness and into a
favorable relationship to these United States.
I did so in my love for both Africa and America, and out of my
conviction that there was mutual benefit to be found from inter-
relationships between nations on the African continent and the United
States. Relationships as to form of government, culture, political
practices, products or economies. I did so also because I have an
ancestral and emotional attachment to Africa, as the continent of my
forebearers.
My father and mother were educators and business people in Texas.
They gave to me and my brothers and sisters many educational and
business opportunities; although both the education and business
opportunities were under strictly segregated circumstance--as was the
practice during my ``growing up'' years in Texas.
In all of the years of my youth, my father and mother were
constantly pounding into their children's heads a love for Africa. They
told us that Africa was our Homeland and that we had an obligation to
be involved in the future of our Homeland and its people, as free
people; governing themselves as free people, in an open society.
Mr. Chairman, distinguished members, The African Competitive Report
of 1998, published by the World Economic Forum, following the gathering
at the May 1998, Southern Africa Economic Summit, held in Winhoek,
Namibia, stated that:
One of the greatest challenges in the 21st century is the
integration of the African continent into the Global economy.
Your efforts in this proposed legislation, I am confident,
can play a very large role in integrating the African continent
into the Global economy; with mutual benefits to the nations of
Africa and the people of the United States.
As a part of integrating Africa into the Global economy, it
is clear that reducing the United States import restrictions,
to allow textiles and clothing and other products from Sub-
Saharan Africa, would help to develop the textile and clothing
industries, in at least eight African nations, at a very small
loss of American jobs. Such an opening of the U.S. market to
African products would help U.S. consumers, with only a small
number of job losses by American labor. Which losses can be
matched by job gains elsewhere in the American economy.
Similar import restrictive policies in the European Union
and east Asia restrict products from African nations. But they
also restrict the development of African consumers of imported
goods.
Because the connection between manufactured exports and
growth of a nation's economy is very strong, it is unlikely
that nations in Africa will achieve and sustain rates of
growth, necessary to an open and free economy, without further
development of the manufacturing of exports. And, it is
unlikely that the manufacturing sector of African nations will
develop as needed as long as major international markets remain
closed to them.
Recently foreign businesses have begun to look at Africa
with much more favor and African policymakers are moving
steadily on the path of governmental and economic reform, and
free economies; all of which is reassuring to foreign
investors. Indeed, the latest World Investment Report, states
that: ``Returns on foreign, direct investment in Africa, are
high, especially in comparison with other emerging nations.''
One major American company's chief executive; Mr. Bill
Gates of Microsoft, stated recently:
Africa is one of the most exciting continents we are working
in, and despite its complexities we see it as one of the
fastest growing regions that Microsoft is currently operating
in. The Internet is the single most important tool that will
open Africa up to the rest of the world. It is the future of
communication worldwide and Africa is not as far behind as some
people believe.
Surveys show that many of Africa's businesses think Mr. Gates is
right. More than half of the companies sampled for The Africa
Competitiveness Report responded that Internet access is widely
available, although prices remain high.
However, there is a general trend of optimism now being felt by
African businesses, with regard to the application of technology to
various business operations. In twenty three (23) African nations
surveyed companies report that they anticipate that access to the
Internet will soon increase in quality, while decreasing in price.
Mr. Chairman, and distinguished members, please permit me to give
you some historical background as to why I feel so strongly about the
possibility of the successful implementation of your Free Trade
efforts, if your proposals are enacted into law. Let me deal with the
great economic possibilities for both the United States and the nations
of Sub-Saharan Africa operating under a Free Trade law.
I am the founder, and now Chairman Emeritus, of Inner City
Broadcasting Corporation, a New York City-based radio, cable
television, television production and entertainment company, with
interests in telecommunications.
With regard to our radio operations; from the year 1972, to the
present, our company's radio stations in New York: WLIB-AM and WBLS-FM,
have been considered by many as the ``Voices of Africa, in America.''
During the various African freedom movements, in the 1970's and
1980's, one of our radio stations, WLIB-AM, served as a vehicle for
African freedom movements contact with American supporters.
Both of our New York radio stations: WLIB-AM and WBLS-FM, were
often the place of first stop on the schedule of leaders and
representatives of the African freedom movements, upon their arrival in
the United States. Aware of Americas historic sense of support of
freedom for all people, they came to us seeking access to our radio
microphones; to tell their story to the American public. They received
access to our microphones, our hearts, our finances, and the American
public.
For many years I, my family and my company, have supported
activities, propagandizing the development of open economies on the
African continent. You, in your action, in this legislation are giving
to me, my family and my company great hope.
Mr. Chairman, and distinguished members, for more than forty years
I have, on a regular basis, visited, read about, communicated with,
supported, promoted and advanced efforts designed to bring the nations
of the continent of Africa to the forefront of world attention. I did
so, in the conviction that there were mutual benefits to be had from
the sharing of cultures, practices and products between the United
States and the continent of Africa.
Now, through successful legislative enactment of the African Growth
and Opportunity Act, and the beneficial elements which you include in
your legislation, the United States--Sub-Saharan Africa Trade and
Economic Cooperation Forum and the Free Trade area, I believe that I
shall, in my lifetime, see many nations with democratically elected and
stable governments and profitable and growing open economies. Economies
encouraged by your action and that of the U.S. Senate and the President
of these United States, in the year 1999.
Mr. Chairman, and distinguished members, another business in which
I play a role is, the African Continental Telecommunications Limited
(ACTEL); an Africa-based telecommunications company designed to furnish
state of the art, satellite-based telecommunications services to the
entire continent of Africa.
ACTEL is represented by Lehman Brothers investment bankers, and
ably directed by the former head of AT&T's Skynet Satellite Services as
the President and Chief Executive Officer. I serve as Chairman of
ACTEL.
It is the business of ACTEL to not only furnish telephone service
to the residents and businesses on the African continent but to also
provide Internet and telemedicine and distant learning; as well as
other much-needed telecommunications-based, technology-based, services,
delivered to the people and businesses on the African continent. There
is a great need for these telecommunications services in Africa.
Mr. Chairman Crane, distinguished members, in the entire continent
of Africa, fewer than three percent (3%) of the residents and
businesses have telephones on their premises, or easily accessible to
them.
While my colleagues in ACTEL and I look at the tiny rate of three
percent (3%) teledensity, in the entirety of Africa, we at the same
time, see a ninety seven percent (97%) opportunity for ACTEL to do good
financially, while doing well for the development of the nations on the
African continent, in their economies and social, cultural and
governmental activities.
This three percent (3%) teledensity, in a continent of more than
seven hundred fifty million (750,000,000) people, unless improved upon
in the near future, does not bode well for a speedy economic
development in the nations of Africa; even if nations in Sub-Saharan
Africa gain the benefit of your proposed legislation. However, I am
convinced that such legislation will help develop a climate that will
encourage investments in ventures in Africa. And I am also convinced
that our company ACTEL will be a beneficiary of this climate.
Mr. Chairman, and distinguished members, I was here to testify last
year, when you began your good work on this subject of Free Trade, in
relation to Africa. I testified in strong support of your action.
After testifying we, in ACTEL, were highly energized and pleased by
the later action of the 105th Congress of the U.S. House of
Representatives, in its passage of the African Growth and Opportunity
Act, H.R. 1432. For a moment, we were very excited by the possibility
of the United States Senate considering, endorsing and enacting your
legislation.
Particularly appealing to me and my colleagues in ACTEL were those
provisions which would create a United States--Sub-Saharan Africa Trade
and Economic Cooperation Forum, and a United States--Sub-Saharan Africa
Trade Area. Both provisions would assist our company's, efforts by
creating a climate of greater acceptability of the continent of Africa
as a ``go to'' place, for American investors and product and service
providers. Unfortunately the U.S. Senate did not act upon your
proposals and we are here again; with great hope that this time the
Senate will give support and act to legislate favorably.
Mr. Chairman, and distinguished members, although not presently
publicized, I can attest to you that there are great opportunities for
American investors in Africa. And the end product of many of these
investments can greatly benefit the businesses and people on the
continent of Africa; while also benefiting American investors and
American labor and products and services.
The company, Inner City Broadcasting Corporation and my wife and I,
personally have invested more than sixteen million ($16.0M) dollars in
this African telecommunications project, ACTEL. We believe in it for
ourselves. We believe in it for America and we believe in it for
Africa.
The investors in African Continental Telecommunications Limited
(ACTEL) have an opportunity for dramatic and highly profitable returns
on their investment. While doing so, these investors are also
contributing to the advancement of the economics of Africa; as ACTEL
carries essential telephone and other telecommunications related
services to the people and businesses on the African continent, ACTEL
will also provides job opportunities and investment and business
opportunities to the African populace.
These job and business opportunities made available to the African
populace by ACTEL, will be good, will not be low paying, non-desirous
positions; but rather, they will be jobs and good contractual
agreements to provide business products and services to ACTEL as well
as other opportunities ranging from common labor through high
administrative, finance and high technology management positions; all
the way up to the highest management positions in the company; as well
as powerful Board of Directors and Advisory Council memberships.
A completed ACTEL project will have a ratio of one (1) American to
twenty (20) Africans. Fewer than twenty (20) Americans, or non-
Africans, will be involved in ACTEL's management and work force: A work
force exceeding two thousand (2,000) diversified positions.
In ACTEL's development launching and operation, American companies
will supply more than eighty percent (80%) of the materials, machinery,
equipment and apparatus. However, once in operation Africans will
become eighty percent (80%) of the labor force and one hundred percent
(100%) of the contracted supplier business force. This is good for
Africa. It is good for America.
Mr. Chairman, distinguished members, an historic difficulty in
gaining a foothold for ACTEL in Africa, has not been the obtaining of
the working agreements, rights and licenses, to do business in the
individual nations of Africa--as many Americans and other nationals
have experienced--rather, ACTEL's difficulty has been in the absence of
an existing Free Trade agreement between the United States and the
majority of the nations of Africa to create a favorable climate for
potential investors in African ventures. It is this favorable climate
that your Free Trade bill will produce that makes us hopeful.
A Free Trade climate between the United States and nations of
Africa in your legislation's economic focus, creates a favorable
impression in the mind of an investor who is faced with considering an
investment in a business, operating on the continent of Africa.
We, in ACTEL, do not, in any way, blame the absence of a Free Trade
agreement between the United States and the nations of Africa for our
inability to gain early investors in ACTEL. However, the absence of a
Free Trade climate has been a constant injury to our ability to gain
additional investors, as too many Americans still have a view of Africa
as the ``dark continent,'' a continent into which investors pour money,
but don't get money out. While such is not the case, as attested to by
Microsoft's Bill Gates. It has remained too long as a perception.
Notwithstanding this too often held belief we, in ACTEL have made
much progress and will commence our initial operation of ACTEL in
Africa by delivering telecommunications services via VSAT first in the
nation of Zambia, no later than the fourth quarter of this year, 1999.
Then, Zambia; then Botswana; Zimbabwe; Malawi, Namibia; and Mozambique,
Ghana and other nations, until 2003.
By the third quarter of the year 2003 ACTEL will be furnishing
``state of the art'' telecommunications services to every nation on the
continent of Africa.
I close, Mr. Chairman and distinguished members, by recalling that
last year there were complaints from some elements of organized labor
in the United States against your proposed legislation.
Opening up the American market to African exports has been opposed
by some in the U.S. labor movement who see importance of textiles,
apparel and certain products from Africa as a threat to the American
labor movement.
Permit me, on a personal basis, as a Life member of the TWU
(Transport Workers Union), since my days in graduate and law school, to
express the belief that the impact of African exports to the United
States will be minuscule, compared with the general benefit accruing to
American labor as Free Trade between the African continent and the
United States moves forward and American workers labor to produce
products to be exported to African nations.
In this regard, our company ACTEL will generate more than three
thousand job-hours of labor for American laborers during the process of
manufacturing the apparatus, machinery and equipment and the assembling
and launching of our Pan-Africa satellite. Many of these job-hours will
be at high wages paid to American laborers. Thereafter, in operation
African labor and business will benefit from jobs and business
opportunities arising from ACTEL.
Mr. Chairman, and distinguished member, I think that, at least in
our instance, both the American labor and the African labor force will
benefit.
I conclude by thanking you, so very much, for hearing my comments.
I thank you for your action on behalf of Free Trade with the Sub-
Saharan nations of Africa.
And, as one who, at one time, was involved in politics and
government, I wish to you, good elections.
Chairman Crane. Thank you, Mr. Sutton. Let me thank all of
our witnesses who testified.
We will now call our next panel rather than going through
our normal question and answer because we're about to get
confronted with votes on the floor. We are going to have to
call some of our next panel back after that 1-hour break.
So thank all of you for your testimony. As I say, all
written remarks will be made a part of the permanent record
too.
With that, now I would like to call our final panel, Robert
Rogowsky, Carlos Moore, Karen Fedorko, Dale Apley, and Mark
Levinson. We will proceed in the order that I introduced you.
That was Robert Rogowsky, Carlos Moore, Karen Fedorko, Dale
Apley, and Mark Levinson.
STATEMENT OF ROBERT A. ROGOWSKY, DIRECTOR OF OPERATIONS, U.S.
INTERNATIONAL TRADE COMMISSION
Mr. Rogowsky. Thank you, Mr. Chairman, and Members. It is
an honor to be here to talk on this important issue. At the
request of the Committee on Ways and Means, the U.S.
International Trade Commission conducted a study of the
competitiveness of the textile and apparel industries in Sub-
Saharan African countries, and the economic impact on U.S.
producers, workers, and consumers of tariff-free and quota-free
entry of imports of textiles and apparel from Sub-Saharan
Africa.
I want to focus my comments on the following question. What
would have been the effect on the United States textiles and
apparel sector if other things being held equal, the tariffs
and quotas applied to U.S. imports of these products from Sub-
Saharan Africa had been eliminated in 1996. This is the
question that the Commission tried to answer.
The Commission's analysis is not an econometric analysis.
There is some confusion about that. I think that part of the
criticisms we faced have been the fact that people have
misunderstood the analysis. The Commission's analysis is not a
statistical forecast analysis. It does not tell what will
happen if tariffs and quotas are
actually removed. It provides an assessment of the effects of
the proposed policy change, if in place, in the year we studied
it.
To provide a more complete picture of the possible effects
of elimination of quotas and a reduction of tariffs, ITC staff
calculated lower and upper bound ranges of the effect. I want
to highlight the upper bound or worst case scenario. These are
the circumstances that led to the largest reduction in U.S.
shipments and employment. In this exercise, staff stretched
each of the factors that affect the calculation to its highest
reasonable levels to estimate a maximum effect on the United
States. Under this upper bound scenario, imports of apparel
increased by 46 percent to about $557 million. Net U.S. welfare
increases by approximately $96 million. Imports from the rest
of the world decline by about approximately .2 percent.
Domestic shipments decline by about .1 percent. Assuming that
the decline in employment tracks a decline in production, about
676 jobs are eliminated.
Arguments have been made that the study did not deal
adequately with transshipment through and foreign investment
into Sub-Saharan Africa. These factors in fact were
incorporated implicitly into the staff's quantitative analysis
by expanding Sub-Saharan Africa's supply capability.
At the request of the staff of the Ways and Means
Committee, ITC staff went beyond this to also analyze what
would happen if U.S. imports from Sub-Saharan Africa increased
nearly tenfold. This increase raised Sub-Saharan African
imports to the United States to 3.5 billion. In this case, the
decline in U.S. apparel shipments is about six-tenths of 1
percent, or $767 million worth.
So although the quantitative analysis conducted by staff is
not an explicit analysis of investment and/or potential
transshipment through, it does shed light on the potential
effects of significant foreign direct investment into and
transshipment through those countries.
Is it likely that Sub-Saharan Africa will achieve this
level of export growth in the foreseeable future? The general
economic conditions suggest that it will be difficult to reach
those levels. Let me stop here, and say I would be happy to
answer any questions.
[The prepared statement follows:]
Statement of Robert A. Rogowsky, Director of Operations,
U.S. International Trade Commission
On January 14, 1997, the U.S. International Trade
Commission (Commission) received a request from the Committee
on Ways and Means of the U. S. House of Representatives for an
investigation under section 332(g) of the Tariff Act of 1930
(19 U.S.C. 1332(g)) regarding the likely impact of granting
quota-free and duty-free entry to textiles and apparel from 48
countries of Sub-Saharan Africa (SSA). Specifically, the
Committee requested that the Commission provide--
(1) a review of any relevant literature on this issue
prepared by governmental and nongovernmental organizations;
(2) an assessment of the competitiveness of the textile and
apparel industries in SSA countries, to the extent possible;
(3) a qualitative and quantitative assessment of the
economic impact on U.S. producers, workers, and consumers of
quota-free entry for imports of textiles and apparel from SSA.
The Committee also asked that the Commission address the
potential shifting of global textile and apparel production
facilities to SSA that might occur as a result of the changes
contained in proposed legislation. (The Committee specifically
referenced H.R. 4198, African Growth and Opportunity: The End
of Dependency Act of 1996, introduced in the 104th Congress,
and stated that a similar bill would be introduced in the 105th
Congress); and
(4) a qualitative and quantitative assessment of the
economic impact on U.S. producers, workers, and consumers of
eliminating the exclusion of textiles and apparel from SSA
countries from coverage under the Generalized System of
Preferences (GSP), in addition to quota-free entry for imports
from these countries.
The Committee also requested that the Commission identify
the specific types of textile and apparel articles which are
most likely to be produced in SSA and which would have the most
significant impact on U.S. producers, workers, and consumers.
The following sections delineate the major findings of the
Commission's report and address these concerns.
Product Coverage
The articles covered by the Commission's investigation are
those subject to textile agreements, namely textiles and
apparel of cotton, other vegetable fibers, wool, manmade
fibers, and silk blends. U.S. imports of textiles and apparel
from SSA grew by an annual average of 18.8 percent from 1991-
96, to $383 million, or less than 1 percent of total U.S.
sector imports. In 1997, U.S. imports of these goods reached
$454.9 million. Most textiles and apparel imports from SSA
consisted of apparel (93 percent of the 1996 total),
particularly basic cotton pants, shirts, and blouses. These
goods are especially suited to production in countries at the
initial stages of industrialization because manufacturing
involves standardized runs, simple tasks, and few styling
changes.
Approximately 80 percent of textile and apparel imports
from SSA in 1996 came from three countries--Mauritius (43
percent), South Africa (20 percent), and Lesotho (17 percent).
Kenya followed with 7 percent of the total. Textile and apparel
imports from most of the remaining SSA countries were very
small; 24 of the countries each shipped less than $100,000 in
1996. Although textiles and apparel accounted for slightly less
than 3 percent of total U.S. merchandise imports from SSA in
1996, they represented a significant share of the shipments
from several SSA countries. For example, textiles and apparel
accounted for 99 percent of total U.S. imports from Lesotho, 76
percent for Mauritius, and 38 percent for Swaziland.
Economic Overview of Sub-Saharan Africa
SSA is made up of a diverse set of countries. In 1995,
South Africa had the largest economy, with a gross national
product (GNP) of $131 billion; Nigeria was second, with $28
billion. The smallest, based on available information, was Sao
Tome and Principe, with GNP amounting to $45 million. Most
countries in the region rank among the poorest in the world.
The World Bank classified 38 of the 48 SSA countries in the
lowest income group (GNP per capita of $765 or less in 1995)
and 6 in the lower middle income group ($766 to $3,035); the
remaining 4 countries are in the upper middle income group
($3,036 to $9,385). The average annual growth rate of the
region's gross domestic product (GDP), fell from 1.7 percent
during 1980-90 to 1.4 percent during 1990-95. The region's
growth was much lower than that of most other lower and middle-
income country groups during 1990-95.
Although many SSA countries rely heavily on agriculture,
the services sector accounts for the largest share of SSA GDP.
From 1980 to 1995, services' share of SSA GDP rose from 38 to
48 percent, while industry's share fell from 36 to 30 percent,
and agriculture's share declined from 24 to 20 percent. The
latest available data show that agriculture accounted for 68
percent of SSA employment in 1990. Manufacturing value added
accounted for more than 20 percent of GDP in only six SSA
countries--between 20 and 25 percent for Burkina Faso,
Mauritius, and South Africa, 30 percent for Zambia and
Zimbabwe, and 36 percent for Swaziland.
Overall SSA exports decreased by 24 percent during 1980-93,
to $62 billion. A major portion of the decline was accounted
for by the drop in exports of Nigeria (55 percent) and the
Democratic Republic of the Congo (36 percent). The share of SSA
exports accounted for by fuels, minerals, and metals fell from
61 to 40 percent during the period; ``other manufactures'' rose
from 16 to 36 percent. On a geographic basis, SSA exports to
the European Union (EU) declined by 31 percent during the
period, to $18.9 billion, and exports to the United States fell
by 21 percent, to $13.0 billion. Exports to the rest of the
world dropped by 21 percent to $30.1 billion. The decline in
SSA exports to the EU occurred despite trade preferences
afforded SSA under the Lome Convention.
During the past decade, many SSA countries began the
process of economic reform. To varying degrees, these countries
initiated reforms that were designed to stabilize foreign
exchange rates, liberalize trade and investment, and promote
foreign direct investment (FDI) and free enterprise.
Nevertheless, SSA still lags behind other developing countries
in terms of net private capital flows, including FDI. Although
the levels of net FDI and portfolio equity have increased
during the 1990's for the region as a whole, in 1997 total
foreign investment in SSA accounted for only 3.3 percent of
total foreign investment in all developing countries.\1\ A
small number of SSA countries have attracted most of the net
private capital and FDI flows into the region. For example,
Nigeria, Angola, and Ghana accounted for approximately 58
percent of net FDI in 1995.
---------------------------------------------------------------------------
\1\ Based on preliminary estimates. Source: World Bank, Global
Development Finance 1998, Country Tables, pp. 14-38.
---------------------------------------------------------------------------
Such low levels of FDI and foreign exchange earnings have
not been sufficient to meet the developmental needs of the
regions. SSA countries, as a group, have had to borrow from
international institutions, leading to a significant debt
burden for the region. The World Bank classifies 31 of the 48
SSA countries as ``severely indebted.'' The ratio of total
external debt to either GNP or exports of goods and services
for SSA is higher than the respective ratios for other regions,
such as South Asia, Latin America and the Caribbean, and the
Middle East and North Africa. Such high debt burdens can have a
detrimental effect on economic growth both by acting as a
disincentive to investment and by potentially increasing
uncertainty.
The size of the domestic markets in most of the countries
in the region may also serve as a disincentive to both domestic
and foreign investment. Extreme poverty hinders the growth of a
consumer market in many of the region's countries. Moreover, in
recent years, SSA textile and apparel producers have had to
contend with growing competition from U.S. exports of used
clothing and other used textile items. At $92 million in 1996,
these products were the eighth largest U.S. export to the
region. Several SSA countries have expressed concern about the
adverse impact that shipments of used apparel and textile
articles have had on their domestic textile and apparel
sectors, as such goods depress demand for locally made goods.
The growth in U.S. exports of these goods has served as a
disincentive to investment in new production capacity or to
upgrading existing plants and equipment.
Finally, although the level of infrastructure varies among
SSA countries, the region as a whole lags behind other low- to
middle-income regions. SSA's infrastructure deficiencies
contribute to the region's difficulty in attracting FDI and
additional domestic investment.
Competitive Position of the Textile and Apparel Sector in SSA Countries
Recent data on the value added for the textile and apparel
sector are limited. Of the SSA countries currently competing in
the global market, South Africa has the largest textile and
apparel sector ($2.0 billion in 1993), followed by Mauritius
($288 million in 1992), and Zimbabwe ($236 million in 1993).
Mauritius stands out since the sector accounts for 45 percent
of its manufacturing value added.
SSA is a very small exporter of textiles and apparel to the
global market, accounting for less than 1 percent of world
exports of such goods in 1995. SSA textile and apparel exports
grew by an annual average of 5.4 percent during 1990-95 to $1.7
billion, two-thirds of which consisted of apparel. Textile and
apparel exports accounted for about 2 percent of the region's
total exports in 1995. Mauritius and South Africa together
generated three-fourths of SSA's sector exports in 1995. The
EU, with its colonial ties to SSA, was the primary market for
the region's exports of textiles and apparel, accounting for
just over one-half of the total in 1994. The United States
followed with just under one-fourth of the total. Other SSA
countries accounted for 13 percent of exports.
If SSA countries are granted free access into U.S. textile
and apparel market, transportation costs are an important
factor that will determine the level of exports. Because SSA
textile and apparel exports, and African exports as a whole,
are relatively small, SSA exporters cannot enjoy the cost
advantages from the economies of scale in shipping afforded to
exporters in larger markets, such as in East Asia. A recent
quick survey of freight forwarders offers some insight. Port-
to-port costs for apparel shipped from Hong Kong to New York is
$2,620 per 40 foot container and takes 20 days. In the same
mode, Mauritius faces $4,300 and 42 days. South Africa faces
$3,800 and 40 days; Uganda, $8,270 (with inland freight) and 42
days. Most of the shipping lines go to SSA via such European
ports as Antwerp or Rotterdam. After stopping in Europe,
containers shipped to Kenya or Zimbabwe may go via Durban,
South Africa, where the container must be transferred to a
feeder carrier that may service Durban only every 15 days. Most
shippers service South Africa and east Africa weekly, and sail
to west Africa every 21 days.
Long delivery times, high transportation costs, and
uncertainties involved in shipping finished products from SSA
are important disincentives to developing production there. In
addition to high quality, the highly competitive U.S. apparel
retail market demands low-inventory and quick response supply.
SSA countries, therefore, must overcome substantial hurdles
beyond gaining free access to the U.S. textile and apparel
market to meet these requirements.
In the Commission's report, the 48 SSA countries are
divided into three groups. The first group comprises the seven
countries that are established textiles and apparel industries
that have been able to compete in developed country markets
such as the United States and the EU. The second group consists
of nine countries that are considered to have the potential to
expand exports of textiles and apparel to the United States
based, in part, on past production and export performance. The
third group includes the 32 remaining SSA countries, which are
less likely to compete in the U.S. market for such goods.
The seven countries in the first group are
Mauritius, South Africa, Lesotho, Kenya, Swaziland, Madagascar,
and Zimbabwe. Mauritius has the most developed, export-oriented
apparel industry in SSA, exporting quality apparel all over the
world. U.S. textile and apparel imports from Mauritius peaked
at $191 million in 1995, and then fell to $165 million in 1996.
The price competitiveness of Mauritian textiles and apparel has
declined recently because of rising labor costs brought on by a
tight labor market. As a result, some Mauritian sector trade
has shifted to neighboring Madagascar. U.S. textile and apparel
imports from Madagascar, which has a low-cost, relatively
skilled workforce, rose from less than $1 million a year in the
early 1990s to $11 million in 1996.
U.S. textile and apparel imports from South Africa
have grown rapidly since 1991, when the United States lifted
the trade embargo imposed against South Africa under the
Comprehensive Anti-Apartheid Act of 1986. Imports rose from
$1.5 million in 1991 to $77 million in 1996; the pre-embargo
peak was $55 million in 1985. South Africa is the largest
producer of textiles and apparel in SSA, but it exports only a
small share of its production. Factors such as low productivity
and the limitations initially imposed during the period of
international sanctions hamper its ability to compete globally,
especially with Asian firms. In addition, South Africa has
relatively high labor costs, so South African firms tend to
focus on the production of higher quality or niche products for
export. Nonetheless, South Africa has a developed
infrastructure and an established textile and apparel sector
upon which to expand production. Both Lesotho and Swaziland,
which have close trading relationships with South Africa, have
long-term potential to develop globally competitive textile and
apparel sectors.
The trade sanctions imposed on South Africa
encouraged firms there to shift production of textiles and
apparel for export to neighboring Lesotho and Swaziland. The
resulting increase in U.S. textile and apparel imports from
Lesotho from negligible levels in the mid-1980s to $27 million
in 1991 and to $52 million in 1992, led to the establishment of
U.S. quotas. However, reflecting the imposition of the quotas
and the lifting of the U.S. trade embargo on South Africa,
textile and apparel imports from Lesotho leveled off at
slightly more than $60 million during 1994 and 1995, and then
rose to a high of $65 million in 1996. Since 1995 Lesotho's
exports of textiles and apparel to the United States have not
been covered by quotas. Textile and apparel imports from
Swaziland more than doubled between 1991 and 1994 to $15
million, and then fell to about $11 million in 1995 and 1996.
Both Lesotho and Swaziland, which have close trading
relationships with South Africa, have long-term potential to
develop globally competitive textile and apparel sectors.
Zimbabwe's textile and apparel sector has shown
the capability to export to developed country markets, which
account for most of its exports of textiles and apparel. The
50-percent growth in Zimbabwe's sector exports during 1990-95
partly reflected efforts by apparel exporters to shift their
product mix to more fashionable and higher valued goods.
Zimbabwe's textile industry mainly exports low-valued cotton
goods, such as yarn and unfinished fabric. For the most part,
the industry is unable to competitively produce quality
finished fabrics or other textiles for export to developed
country markets. Moreover, the country's textile and apparel
manufacturers are at a disadvantage relative to other major SSA
supplier countries such as Kenya and South Africa, given both
the distance of these firms from major ports and the fact that
it is a land-locked economy.
U.S. textile and apparel imports from Kenya rose
about sixfold during 1991-94, to a high of $37 million, before
decreasing to just under $28 million in 1996. These imports
fell following the establishment of U.S. quotas on Kenya's
shipments of certain shirts and pillowcases in 1994. However,
in 1996, none of the quotas applied to Kenya's exports to the
United States were filled. Kenya's textile and apparel sector
appears to have both the capacity and capability to regain a
share of the U.S. market.
The nine countries in the second group that are
considered to have the potential to expand exports of textiles
and apparel to the United States are Botswana, Cameroon, Cote
d'Ivoire, Ghana, Malawi, Mozambique, Nigeria, Tanzania, and
Zambia. The preference margins provided by the proposed
legislation could afford these countries a chance to develop
textile and apparel sectors capable of competing in the U.S.
market under the right circumstances. These circumstances
include (i) being able to attract sufficient foreign investment
and know-how and (ii) the WTO's Agreement on Textiles and
Clothing (ATC) eliminating quotas on all members is does not
eliminate any advantage the proposed legislation might offer.
The 32 remaining countries (group 3), which are
considered less likely to compete in the U.S. textile and
apparel market, are among the poorest in the world. Some of
these countries have no formal textile or apparel industry.
Moreover, although various disincentives to investment that
have been discussed above affect the region as a whole, the
countries in this third group are particularly hampered by
small internal markets for these products, inadequate
infrastructure, political instability, and/or limited natural
resources.
Quantitative results
The quantitative analysis undertaken by Commission staff addresses
the following question: What would have been the effect on the two U.S.
industry sectors (textiles and apparel) if, ceteris paribus, the
tariffs and quotas applied to U.S. imports of these products from SSA
had been eliminated in 1996? By assuming that all other U.S. policies
(monetary, fiscal, and trade) remain the same, the analysis focuses on
the effect from changes in the specific policies under question, in
isolation from the rest of the U.S. economy. The analysis is not a
forecast; it does not tell what will happen if tariffs and quotas are
actually removed. It provides an assessment of the effects of the
proposed policy change.
The quantitative analysis is based on the value of U.S. domestic
shipments in 1996, the respective 1996 values of U.S. imports from SSA
and from the rest of the world, the average imported weighted tariffs
applied to these goods in 1996 and staff estimates of the tax
equivalents of the quotas applied to the U.S. imports of apparel from
Mauritius, which were the only ones that were actually binding. Because
only these two quotas imposed constraints, it is not surprising that
removal of the quotas had little impact. The analysis also relies on
several behavioral parameters that reflect the degree to which U.S.
consumers, U.S. producers, SSA suppliers, and other foreign suppliers
respond to price changes in the U.S. market.
The information on these market behavior parameters was taken from
previous research on textiles and apparel and is documented in the
Commission's report. Supply responses from SSA are of particular
concern. Short term responses may come from existing inventories,
shifting supply from existing customers, and increasing hours of
operation of existing manufacturing facilities. Long term responses
involve adding new manufacturing capacity and employing and training
new workers. Given the limited empirical research in this area,
however, and to provide a more complete picture of the possible effects
of elimination of quotas and the reduction of tariffs, staff used lower
and upper-bound ranges rather than relying on a given estimate for each
of the parameters.
I want to highlight the upper-bound scenario, the worst-case from
the U.S. industry perspective. This is the circumstance that leads to
the largest reduction in U.S. shipments and employment. This situation
occurs with: (i) moderate price responsiveness of U.S. consumers in
terms of their aggregate purchases, (ii) high price responsiveness on
the part of U.S. producers, (iii) a high price responsiveness of SSA
and other foreign producers, and (iv) a willingness on the part of
consumers to shift purchases between goods produced in the United
States, SSA, and the rest of the world in response to changes in the
respective prices for these products. In this exercise, staff stretched
each of these parameters to its highest reasonable level to estimate a
maximal effect on the U.S.
Under the ``upper-bound'' scenario, eliminating both tariffs and
quotas, U.S. imports of apparel increase by 46 percent (to $557.3
million). Net U.S. welfare increases by approximately $96 million.
Imports from the rest of the world decline by 0.2 percent. Domestic
shipments decline by 0.1 percent. Assuming that a decline in employment
tracks a decline in production, around 676 jobs (or, more precisely,
full time job equivalents) are eliminated.
Subsequent to the release of the study, arguments have been made
that the study did not deal adequately with transshipment and foreign
investment in SSA as means of increasing SSA exports to the U.S.
market.\2\ These issues, in fact, have been incorporated implicitly
into staff's quantitative analysis by including scenarios in which SSA
suppliers are able to respond very aggressively to changes in price.
Transshipment and increased foreign investment mean SSA countries can
increase their supply to the United States. These factors are accounted
for in the analysis by expanding SSA's supply capability.
\2\ The transshipment of textiles and apparel through third
countries to avoid quotas, as well as other types of textile fraud, is
by no means a trivial concern. It is a priority of the U.S. Customs
Service, which has expanded efforts to combat such illegal
transshipments. Although official data are not available on the extent
of these transshipments, the Customs Service has documented a number of
instances where SSA countries have been used as illegal points of
transshipment. Under textile agreements negotiated with exporting
countries, the United States may send ``jump teams'' to foreign
countries to verify production capacity of a factory. In addition, the
United States may apply transshipments to the quota of the true country
of origin and charge up to three times the amount of the transshipment
against quotas in the event of repeated circumvention by a country.
First, staff compared the results of the ``upper-bound''
scenario (same assumptions regarding the price responsiveness
of U.S. consumers, U.S. producers, and other foreign
suppliers), but completely eliminates any supply constraint on
apparel from SSA (an infinite supply elasticity). Under this
scenario, tariff and quota removal results in a 61 percent
increase in U.S. imports from the region ($616.2 million).
However, the changes in U.S. imports from other suppliers and
U.S. production do not differ significantly from the initial
``upper-bound'' scenario. In other words, our quantitative
analysis in both cases suggests a decline in U.S. apparel
production of around one-tenth of 1 percent.
Second, at the request of the staff of the Ways & Means
Committee, ITC staff also analyzed what would happen if U.S.
imports from SSA were to increase ten-fold, reaching $3.5
billion (i.e., roughly $2.9 billion greater than the results
generated by the quantitative analysis outlined above). Even in
this case, the decline in U.S. apparel shipments is relatively
small (i.e., by six-tenths of one percent, or $767.1 million).
Although the quantitative analysis conducted by staff is not an
explicit analysis of strategic investment in the region or
potential transshipments through the region, the sensitivity
analysis does shed light on the potential effects of
significant FDI into and transshipment through SSA on the U.S.
economy.
It is unlikely that SSA will achieve this level of export growth in
the near term because of the general economic climate prevailing in the
region. Although several SSA countries have developed successful
textile and apparel industries, the industries in most of the countries
within the region face a wide variety of constraints. Government
ownership of lucrative or critical sectors of the economy precludes
much foreign investment. In many Sub-Saharan countries, banking,
insurance, petroleum, utilities, telecommunications, mining, and in
some cases, manufacturing sectors are government-owned monopolies.
Regulatory impediments--such as slow and insufficiently transparent
licensing, outdated business laws, and unreliable judicial systems that
do not provide effective dispute settlement--also deter foreign
investment. Many countries still impose price controls and restrictions
on foreign-exchange transactions, profit remittance, and foreign
ownership of land and assets. Tax administration is poor in some
instances and tax rates are often high.
Infrastructure development in the region lags behind other low- to
middle-income regions and contributes to the region's difficulty in
attracting FDI. These problems, significantly greater than the average
experience in either East Asia or in Latin America and the Caribbean,
include inadequate roads and port facilities, poor communications
(average waiting time for a telephone line in 1995 was 15 years versus
one year in East Asia), unreliable public power, and poor access to
necessities such as water. The high debt burden makes exchange rates
uncertain and deters foreign investment. Political stability remains
problematic. Some of the more successful economies, such as Mauritius,
face a serious labor shortage and relatively high labor costs.
I hope that this clarifies the scope and findings of the
Commission's study. I would be pleased to address any questions that
remain.
Chairman Crane. Thank you very kindly.
Our next witness, Mr. Moore.
STATEMENT OF CARLOS MOORE, EXECUTIVE VICE PRESIDENT, AMERICAN
TEXTILE MANUFACTURERS INSTITUTE
Mr. Moore. Thank you, Mr. Chairman. I am representing the
American Textile Manufacturers Institute. We are the national
trade association of the textile mill products industry. Let me
emphasize that our members make fabrics, yarns, thread, and
home furnishings that we supply to apparel makers and other
customers around the world.
Mr. Chairman, no one quarrels with the objective of the
Sub-Saharan trade legislation, to help promote economic growth
and improved well being of the people of Sub-Saharan Africa.
However, we understand that the bill to be introduced in the
House will be virtually identical to the badly flawed version
of the African Growth and Opportunity Act that was narrowly
approved last year by the House.
If this is the case, it is truly unfortunate, because that
bill will not achieve its objective of helping Africa. It will
imperil the livelihoods of thousands of U.S. textile workers.
The textile and apparel provisions of this bill will not
promote jobs and economic growth in Africa. They will promote
instead massive illegal transshipments of Asian apparel through
Sub-Saharan Africa to gain duty-free access to the U.S. market.
China will be the winner, and Africa and the U.S. will be the
losers. For these reasons, our board of directors unanimously
agreed to oppose that version of the legislation. ATMI will
focus its efforts to convince our supporters in the House and
Senate to amend the bill or prevent its passage.
Let me turn for a minute now to how the bill creates a
transshipment super highway. As U.S. Customs has testified on
many occasions, illegal transshipments of apparel and textiles
are already a major problem. In 1993, acting deputy
commissioner of Customs, Sam Banks, testifying before a House
Committee said, ``you could take a pretty conservative estimate
that the problem is a $2 billion problem.''
So you can see, we already have a severe transshipment
problem, even without this bill. It is a problem that stretches
around the globe, encompassing almost 40 countries that U.S.
Customs have identified as major transshipment routes. We have
included in our written statement a map from the U.S. Customs
Service showing this.
Africa remains a transshipment route. Recently, a Hong Kong
national, Peter Yeung, was charged in New York by the U.S.
Attorney with massive quota fraud. U.S. Customs identified two
of his transshipment routes to be through Sub-Saharan countries
of Zimbabwe and Mozambique.
Because this legislation also removes duties, the incentive
to cheat will become even more enticing. Mr. Chairman, by
putting in U.S. yarn and fabric and thread provisions,
transshipments will be stopped cold in their tracks. U.S.
Customs would be in charge of the administration of the bill,
and it can effectively administer exports of cut pieces, as it
does now under the so-called 807A program with other countries.
I would like now to turn to the ITC report. Just how bad is
it? You have heard a defense of it. But keep in mind one thing.
Supporters of the House bill make two arguments that seem to be
in direct conflict. First, they argue that the House bill and
its textile provisions will be a vitally important tool for
significant economic development and growth for sub-Sahara.
Then in nearly the next breath they State that U.S. textile
workers and manufacturers have no need to worry because the ITC
study shows that imported apparel will grow only slightly.
Both these arguments can not be true. If the House bill
would actually succeed in promoting significant development
through more apparel exports to the United States, there would
be a bigger impact. Otherwise, if this bill will not produce
the development, the Committee and the Congress are wasting
their time with those provisions.
Regarding the transshipment issue, the ITC simply assume
there would be none. They did take it into account, but then
they assumed it away. They also chose to ignore the historical
record. They say that there will be only $179 million annual
increased imports. They ignored Mexico. They ignored the growth
of trade under NAFTA. They ignored the Northern Marianas, if
you want to cite a more comparable example, where imports have
grown by over $700 million over the last few years.
But the biggest factor that they ignored is, and you heard
it today, they said that other things being equal. Other things
are not equal when you remove duties. There is an enormous
incentive to invest. They did not include that enormous
incentive to invest. That is why you get such a small amount of
trade. Now they did examine some upward bound, but again,
that's an assumption.
Finally, Senator Gramm, Mr. Chairman, said that it was not
feasible to use U.S. yarns and fabric. I would like to point
out that it takes less than a month, 17 days to be precise, for
a cargo ship to go from Charleston to Cape Town. This is based
on Lykes Line's own data. The cost of shipping is not
prohibitive. It's relatively small compared to the duty savings
of the apparel.
I would like to also point out the U.S. textile industry
already ships nearly $1 billion worth of rolled fabric to Asia
each year. Much of that comes back to the United States in
garment form. If it was non-competitive, why would Asia be
buying this fabric? We also ship half a billion dollars worth
of cut pieces to many countries around the world. Look at Sri
Lanka, an Asian country thousands of miles farther away from
the United States than Africa. It buys $26 million worth of
rolled fabric a year, which it sends back in garment form. It
gets no duty break.
Mr. Chairman, if Sri Lanka can make money using U.S.
fabric, why couldn't Sub-Saharan countries, with lower wage
rates, lower transportation costs, faster transit times, and
zero duties?
In conclusion, we would urge the Committee to change this
bill in today's markup to put in the provisions we suggest that
will create a true partnership in all of the efforts to develop
jobs in Africa. How successful would such a partnership be? I
would like to just cite the apparel investment opportunities.
For example, a $50 million investment would build a single
integrated textile mill of modest size. It would create jobs of
around 150 workers. A $50 million investment in apparel
manufacturing could build 10 world scale apparel plants and
create jobs for over 5,000 workers.
Mr. Chairman, we urge you to take into account the change
in provisions that we suggest for textiles and apparel. Thank
you.
[The prepared statement follows:]
Statement of Carlos Moore, Executive Vice President, American Textile
Manufacturers Institute
This statement is submitted by the American Textile Manufacturers
Institute (ATMI), the national association of the textile mill products
industry. ATMI's members collectively account for approximately three
quarters of the textile fibers processed in the United States and are
engaged in the manufacture and marketing of nearly every kind of
textile product.
Our testimony is divided into three segments: (1) a short section
regarding the history of Sub-Saharan Africa legislation in the last
Congress and the political ramifications of proceeding down the same
path as last year; (2) our analysis of the bill's flaws and potential
impact on our industry and workers; and (3) a discussion on the merits
and feasibility of the Senate Finance Committee bill from the last
Congress, which required the use of U.S. yarn and fabric for imported
garments assembled in Sub-Saharan Africa to qualify for duty-free,
quota-free treatment, and which we believe turns the bill into a win-
win situation for both American and African workers.
Background/ATMI Position
No one quarrels with the objective of the Sub-Saharan Africa
legislation -to help promote economic growth and improve the well-being
of the people of Sub-Saharan Africa. However, ATMI understands that the
bill to be introduced in the House of Representatives will be virtually
identical to the badly flawed version of the African Growth and
Opportunity Act that was narrowly approved last year by the House.
This legislation as currently written will not achieve its
objective and will imperil the livelihoods of thousands of U.S. textile
workers. The textile and apparel provisions of this bill will not
promote jobs and economic growth in Africa; they will promote instead
massive illegal transshipments of Asian apparel through Sub-Saharan
Africa to gain duty-free access to the U.S. market. China will be the
winner and Africa and the U.S. will be the losers. For these reasons,
ATMI's Board of Directors unanimously agreed to oppose this legislation
and ATMI will focus efforts to convince our supporters in the House and
Senate to amend it or to prevent its passage.
When the House considered this proposal last year, we pointed out
its significant flaws and urged the House to permit an amendment that
would have addressed our industry's concerns and created a true
economic partnership between the United States textile industry and a
newly energized apparel sector in Sub-Saharan Africa. This amended
legislation would have provided a ``win-win'' situation for workers in
the United States and in Africa. Regrettably, a separate vote did not
occur.
However, the Senate Finance Committee replaced the House textile
and apparel section with new U.S. yarn and fabric provisions. We urge
the Subcommittee in its mark-up scheduled for later today to substitute
the same provisions into the version that will be considered by the
House. If last year's flawed House bill can be changed so that both
African and U.S. workers benefit, ultimate passage becomes virtually
assured.
How is the Bill Flawed?
Turning now to the specifics of the legislation, ATMI is opposed to
the African Growth and Opportunity Act in the form that the House voted
on last year. Our primary concern remains:
The bill is an open invitation to massive customs fraud
that will turn Sub-Saharan Africa into a 48-nation transshipment
superhighway. The result will be that billions of dollars of illegal
Asian transshipments will enter the U.S. at zero duty, resulting in job
losses for thousands of workers, many of whom are African-Americans, in
the U.S. textile/apparel/fiber industry complex.
In addition, the bill will deprive workers in Sub-Saharan
Africa of the much-needed investment which a fraud-free bill might
otherwise encourage.
The bill has other flaws:
It is bad trade policy in that it unilaterally opens up
the U.S. market without providing any benefits to U.S. workers. Indeed,
many Sub-Saharan countries ban the importation of U.S. textile and
apparel products and will be able to continue to ban their importation
under this bill even though this violates their WTO commitments.
It relies on an International Trade Commission study \1\
that contains three major flaws and which dramatically underestimates
the number of U.S. jobs which could be lost as a result of this
legislation.
---------------------------------------------------------------------------
\1\ Likely Impact of Providing Quota-Free and Duty-Free Entry to
Textiles and Apparel From Sub-Saharan Africa; Investigation No. 332-
379; September; 1997.
---------------------------------------------------------------------------
It will permit Asian manufacturers to legally exploit an
ineffective rule of origin to gain the benefits of the bill by doing
very little actual manufacturing in Sub-Saharan Africa. As a result,
the bill will chiefly benefit Asian manufacturers, not African workers.
We also have concerns that highly skilled, low-wage Asian workers may
be imported into Sub-Saharan Africa, displacing job opportunities for
African workers. We note that this phenomenon is already occurring in
Mauritius, the Northern Marianas, Oman, Qatar and Bahrain.
Asian transshipments through Sub-Saharan Africa will cause
additional economic hardship and large-scale job losses in the
Caribbean by threatening billions of dollars of textile and apparel
trade that has developed on the basis of export sales of apparel to the
U.S. market. Thousands of workers in Mexico face a similar threat.
The bill violates the rules of the World Trade
Organization (WTO) and thus will require a waiver from that body. This
will almost surely lead to demands for equivalent treatment by other
WTO members which could, if granted, amount to billions of dollars of
quota giveaways to Asian textile and apparel exporters. Ironically,
Asian exporters could thus ``win'' in two ways: by sending billions of
dollars of illegal transshipments through Africa and also by demanding
and receiving increases in quota levels or other concessions.
It contravenes commitments made to the U.S. textile
industry and Congress by the Administration during the Uruguay Round to
maintain the balance of concessions whereby quota phaseouts and tariff
reductions will follow the WTO agreement.
Each of these points is further elaborated on in Attachment I.
We would state to the committee at the outset that our opposition
to the legislation in its present form is not because we oppose trade
agreements. On the contrary, we support trade agreements that create
meaningful economic partnerships between the United States and its
trading partners. Consequently, ATMI supported the U.S.-Canada Free
Trade Agreement and we supported and worked hard for the passage of
NAFTA. ATMI also supports the thus far unsuccessful attempt to bring
Chile into NAFTA and we work for the passage of Caribbean Basin parity
legislation. Our industry is not opposed to trade liberalization that
is balanced, reciprocal, enforceable and beneficial to the parties
concerned. The African Growth and Opportunity Act, however, is none of
that; it is bad trade policy and ill-conceived legislation.
The simple truth is the textile and apparel provisions of this
legislation, as currently written, will fail to assist Sub-Saharan
Africa and will hurt U.S. workers and productions by creating new
incentives for massive illegal transshipments of textiles and apparel
products from Asia through Africa. Instead of creating an economic
partnership between the United States and Sub-Saharan Africa, it will
create an economic partnership between Africa and Asia to the detriment
of African and U.S. workers.
How the Bill Creates a Transshipment Superhighway?
As U.S. Customs has testified on many occasions, illegal
transshipment of textile and apparel products is already a major
problem. This bill, however, does not merely make that problem worse--
it creates a whole new and immensely lucrative reason to cheat. Today,
the sole reason that countries illegally transship through third
countries is to avoid quotas imposed on their own exports. The
countries that most often fill their quotas--China and Pakistan--are
the biggest transshippers and they do so in a big, big way. In 1993
Acting Deputy Commissioner of Customs Sam Banks, testifying before a
House committee, said, ``you could take a pretty conservative estimate
that the problem is a $2 billion problem'' (see Exhibit A).
So you can see that we already have a severe transshipment problem
even without this bill. It is a problem that stretches across the
globe, encompassing almost 40 countries that U.S. Customs has
identified as ``major transshipment routes'' (see Exhibit B). Who else
is involved is an open question. According to testimony before
Congress, U.S. Customs has found evidence of transshipment activity in
virtually every country that it has visited, including Canada, Mexico,
France, Chile, Mongolia and Syria and Yugoslavia. Recently a Hong Kong
national, Peter Yeung, was charged in New York by the U.S. Attorney
with massive quota fraud. U.S. Customs identified two of his
transshipment routes to be through the Sub-Saharan countries of
Zimbabwe and Mozambique.
Because this legislation also removes duties, the incentive to
cheat will become immeasurably more enticing. Today, importers of Asian
apparel pay more than $4 billion a year in duties to the U.S. Treasury
regardless of whether they illegally transship those goods or not. If
this bill passes, Asian manufacturers could reduce their costs by
enormous amounts each year by transshipping those goods through Sub-
Saharan Africa and thus avoiding duties--money which would then not be
received by the U.S. Treasury.
As it is written now, this bill creates an incentive for anyone
already tempted to avoid quotas to transship through Sub-Saharan Africa
and avoid duties. In addition, this bill expands the universe of
potential transshippers from those whose quotas fill--a relatively
small number of countries--to anyone who pays duties. In the highly
competitive world of international textile and apparel trade where
pennies saved in the production of a garment are regarded as
significant, this bill represents an invitation for unscrupulous
importers and exporters to cheat on a massive scale.
Who will stop this potential flood of new transshipments? The
proposed legislation entrusts enforcement of this agreement to Customs
agencies in Sub-Saharan Africa. These are the same agencies that the
U.S. Government (among others, including some of the African
governments in question) has described as being characterized by
``systemic corruption'' (see Attachment I:1.5). So the argument of some
African nations that they will be able to police themselves is highly
questionable. Many have not been able to do so now--why should anyone
think they will be able to when those willing to cheat are attracted by
duty-free access to the U.S.? We would ask the Committee to consider
whether they would trust their own jobs to Customs officers in
countries with a reputation for corruption? We respectively suggest
they should not ask U.S. textile workers to do the same.
Unfortunately, even if we could guarantee that Customs agents in
Sub-Saharan Africa had the manpower, the training and the ability to
monitor this trade, this legislation still does not include a single
truly effective anti-transshipment measure to prevent transshipments.
The visa system this bill proposes is smoke and mirrors. This system,
which would be administered by Customs officers in Sub-Saharan Africa,
requires no verification of where the goods are made, no inspections of
facilities, and was, in fact, never designed to stop transshipments.
China, Hong Kong, and Pakistan have operated under an identical visa
system for more than fifteen years--and transshipments from and through
these countries continues to be rampant.
Other proposed anti-transshipment measures--such as triple charging
or banning companies who are caught transshipping--presupposes that
either Customs officials in Sub-Saharan Africa can and will catch
transshippers and turn them over to U.S. Customs or that U.S. Customs
will do it on its own. These are, by the way, the same anti-fraud
measures currently in place with every major Asian exporting nation. We
will let you judge the results by their success thus far: triple-
charging last year amounted to around $10 million (out of billions of
dollars in suspected transshipments). While a number of Hong Kong and
Macau companies that have been put on suspected transshipper lists, the
evidence is that many have reincorporated under new names and begun
transshipping again.
Questions were raised last year about our statement concerning
transshipments and Customs enforcement. In fact, we understand that
your Subcommittee asked U.S. Customs to review our statement and that
U.S. Customs addressed several points that we made. Let me state
categorically that Customs did not challenge any of our arguments about
massive transshipment that would result from the bill and the serious
problem of Customs dealing with Asian goods moving through 48 Sub-
Saharan African countries. Instead, Customs commented on several minor
technical points such as how large a presence it has overseas (note: we
amended our statement to note that it has a single office in the Sub-
Saharan African region).
The U.S. yarn and fabric provisions will transshipment cold in its
tracks. The bill puts U.S. Customs in charge of the trade that will
occur with Sub-Saharan Africa by requiring exports from the region to
use U.S. fabrics and yarns in order to gain duty-free and quota-free
benefits. U.S. Customs can effectively administer the exports of U.S.
cut pieces of fabric as it does now under the so-called 807A program
with other countries. U.S. Customs can also keep track of uncut fabric
sent to Sub-Saharan Africa for cutting and sewing. It can then grant
duty-free access to the apparel sent back to the U.S. that corresponds
to the fabrics sent from the U.S. This approach requires no significant
increase in Customs resources and does not rely on other countries'
customs services.
Just How Bad is the ITC Report?
Supporters of the House bill make two arguments that seem to be in
direct conflict. First, they argue that the House bill will be a
vitally important tool for significant economic development and growth
for Sub-Saharan Africa. Then, in nearly the next breath, they state
that U.S. textile workers and manufacturers have no need to worry
because the ITC study shows that imported apparel from Sub-Saharan
Africa will grow only slightly--by a maximum of $179 million annually.
Both these arguments cannot be true.
If the House bill were to actually succeed in promoting significant
economic development through growth in apparel exports to the U.S.,
these exports will, obviously, have to be more than the small increase
in trade predicted by the ITC. Otherwise, the Committee and the
Congress are wasting their time with the legislation.
So what is wrong with these two arguments? Let us assume that
nothing is wrong with the first one: the House bill results in major
growth in Sub-Saharan apparel exports to the U.S. (We believe for
reasons already stated that most of this trade would be Asian
transshipments.) Could the ITC report be wrong?
Mr. Chairman, the Committee may be wondering why ATMI doesn't also
join the chorus and quote the ITC report? After all, the ITC says very
little trade (and hence very little damage to U.S. workers and output)
will result. We can only wish this conclusion was correct, but it is
not and its flaws must be disclosed to prevent its use from clouding
the real damage that the proposed House bill would produce.
As we pointed out last year, the ITC study has three major flaws:
(1) it dismisses the transshipment issue out of hand; (2) it ignores
real-life examples where duty-free, quota-free access for textiles and
apparel has been granted; and (3) it uses a fatally flawed econometric
model whose basic assumptions deny common sense and make the entire
study worthless.
Regarding the transshipment issue, the ITC simply assumed there
would be none. It ignored the reality of Asian manufacturers who
already illegally transship several billions of dollars a year to the
U.S. and the fact that these same manufacturers have already used Sub-
Saharan Africa as transshipment routes. The ITC then went on to assume
that dropping duties from 18% to 0% would not constitute an incentive
for Asian manufacturers to transship through Sub-Saharan Africa. We ask
the Committee to consider whether this makes any sense. As you can see
by the attached map prepared by the U.S. Customs Service, Asian
manufacturers already illegally transship goods through almost 40
countries just to avoid quotas while continuing to pay full duties.
Consider Mr. Peter Yeung from Hong Kong who is currently charged with
transshipping through two Sub-Saharan countries. If Asian manufacturers
could also save 18% of their costs by transshipping through Sub-Saharan
Africa rather than other countries, why wouldn't they?
Unfortunately, the ITC also chose to ignore the historical record
as well. The ITC claims that as a result of this bill, imports of
apparel from Sub-Saharan Africa will increase by at most only $179
million over a ten-year time period. It got this number from an
econometric model that it evidently trusted more than the facts at
hand.
The basic fact is that when you grant duty-free access for textiles
or apparel to ANYONE, imports increase dramatically. In the five short
years that NAFTA has been in effect (1994-1998), imports of textiles
and apparel from Mexico have grown 261 percent in physical terms and
288 percent in dollar terms. This is what happens when textile and
apparel imports are made quota-free and duty-free. This is not economic
theory; this is real life.
Now, you may wonder whether Mexico is a relevant example, being a
close neighbor with long-standing trade ties. Let us look then at the
Northern Marianas, a tiny island enclave in the western Pacific,
halfway around the world and thousands of miles farther away than
Africa. The Northern Marianas, which is smaller in size than the city
of Jacksonville Florida, has received duty-free, quota-free status as a
result of being a U.S. territory. And, over the last five years,
exports of apparel from the Northern Marianas have increased by over
$700 million or over 300%. Today, the Northern Marianas constitutes the
fastest growing source of imported apparel in the world. These islands
have no other ``comparative'' advantage than having duty-free and
quota-free access to the United States. In fact, the labor is even
imported from China and other low wage Asian countries.
How then did the ITC come by its figure of $179 million and the
loss of only 676 U.S. jobs? You may be surprised to learn that the ITC
created this number by assuming that NO ONE would invest in Sub-Saharan
Africa. According to the ITC, the correct figure for new investment in
Sub-Saharan Africa if this bill passes is ZERO. If the ITC is correct,
then the Congress should drop this bill and move on to other business.
The Subcommittee doesn't have to take ATMI's word regarding the
flaws in the ITC report. A study conducted last year by the Economic
Strategy Institute (ESI) confirmed that the ITC's econometric study
assumed that the bill would lead to no new investment. We ask that the
Committee review the ESI study (Attachment II) carefully before they
cite the ITC's ``numerology'' on this issue.
How Feasible is it to Use U.S. Yarn and Fabric?
Last year, the Senate Finance Committee reported a bill which
sought to make this a mutually beneficial trade bill, and would help
both Africa and the United States by creating a new economic
partnership between the U.S. textile and Sub-Saharan apparel
industries. This approach is comparable to the effort made on the House
floor last year to improve the bill, and it is worthy of the
committee's support this year.
We urge the Subcommittee to make a change to the proposed bill that
would both ensure that goods are actually made in Sub-Saharan Africa--
not in Asia--and would not displace U.S. textile jobs. That change
would be to require apparel made in Sub-Saharan Africa to use U.S.
fabrics made of U.S. yarns if the apparel is to enter the U.S. duty-
free and quota-free. These are the same provisions made in the Senate
Finance Committee's bill last year.
With such an approach, Asian manufacturers would be denied the use
of Sub-Saharan Africa as a transshipment platform--any garment entering
the U.S. from Sub-Saharan Africa without documented proof that it had
been assembled in a specific plant in Sub-Saharan Africa from fabric
sent to that plant from the U.S. would have to pay full duty. These
manufacturers would use Sub-Saharan Africa as a legitimate assembly
platform--they would invest and create real jobs in Sub-Saharan Africa
because the heretofore cheaper alternative of transshipping had been
denied to them.
Such a system would be a win-win both for workers in Sub-Saharan
Africa and for workers in the United States. Apparel investment and
jobs would flow to Africa as it became a new legitimate assembly
platform for the U.S. market while textile workers in the U.S. would
benefit from increased orders of U.S. manufactured fabrics and yarns
(see Exhibit C).
How successful would such a partnership be? As one of the primary
purposes of the bill is to create jobs in Sub-Saharan Africa, apparel
investment should be targeted rather than textile investment, which is
much more capital intensive and creates far fewer jobs per dollar
invested. For example, a $50 million dollar investment would build a
single integrated weaving mill and create jobs for around 150 workers.
Compare this to a $50 million investment in apparel manufacturing,
which would build ten apparel plants and create jobs for over 5,000
workers \2\. With apparel investment, it is much easier to target to
meet your development needs.
---------------------------------------------------------------------------
\2\ Source: Werner International
---------------------------------------------------------------------------
Many Asian countries fill their apparel quotas each year--and every
year importers must look outside of Asia to fill orders. Sub-Saharan
Africa already offers importers lower wages and better proximity. What
this bill adds is the kind of duty break that propelled Mexico in four
years time to become the premier supplier of apparel for the U.S.
market. Running at an average savings of 18% per garment, such savings
offer enormous advantages in the extremely competitive world of textile
and apparel garment production.
However, supporters of the House bill have raised questions about
such an approach. Some have said that it would not be cost-effective if
U.S. fabric had to be used. They say that transportation takes too
long; one person testified it would take 80 days to ship from the U.S.
to Africa. Another said the fabric would add enormous and prohibitive
costs to a garment. Where such bizarre notions come from we cannot
say--only that the people who stated them are ignoring the realities of
international trade in textiles and apparel.
The truth is that it takes less than a month--17 days to be
precise--for a cargo ship to go from Charleston, South Carolina to Cape
Town, South Africa. This is according to Lykes Lines, an international
shipping company, which ships to South Africa from the United States.
(If 17 days sounds like a long time, keep in mind that orders for
garments are typically made six to nine months in advance of actual
production.)
[GRAPHIC] [TIFF OMITTED] T6044.006
Regarding the cost of shipping, according to Lykes Lines
and ATMI member companies who already export fabric to Sub-
Saharan Africa, the shipping cost for U.S. apparel fabric sent
to South Africa ranges from $.09 to $.14 per garment. This
accounts for approximately 1.3 percent of the total cost of a
finished garment. Duty savings, on the other hand, ranges from
$1.25 to $1.66 per garment (see below). We should note as well
that transportation costs from the U.S. to Kenya, Senegal, the
Ivory Coast and Ethiopia were also analyzed and they were all
slightly less than South Africa's costs.
Cost of Shipping Fabric Is Small Compared to Duty Savings
----------------------------------------------------------------------------------------------------------------
Ocean Freight Cost to
Garment Ship Fabric For One Duty Savings if Garment
Garment To Capetown, SA Enters U.S. Duty-Free
----------------------------------------------------------------------------------------------------------------
Man's Cotton Twill Trouser.................................. $.09 $1.53
Man's Cotton Oxford Dress Shirt............................. .07 1.66
Man's Cotton Golf Shirt..................................... .14 1.25
----------------------------------------------------------------------------------------------------------------
Sources: Lykes Lines, ATMI member companies.
Regarding the relative cost of U.S. fabric, an argument has been
made that this cost will be prohibitive. Of the many false statements
uttered about this proposal, this is the most astounding. While an
attached analysis by Werner International (see Attachment III) shows
that this is not so--in fact, it shows that garments sourced in Sub-
Saharan Africa with U.S. fabric are cheaper, by almost 10 percent, than
identical garments made in the Far East, we ask the Committee to
consider the following facts:
1. The U.S. textile industry already ships nearly one billion
dollars worth of rolled fabric to Asia each year--much of which comes
back to U.S. in garment form. If the U.S. fabric were non-competitive,
then why would Asia--thousands of miles further away from the U.S. than
Africa--be buying so much U.S. fabric\3\? (See Exhibits D & F)
---------------------------------------------------------------------------
\3\ According the WTO, the United States is the 6th largest
exporter of textile products in the world.
---------------------------------------------------------------------------
2. Over one-half billion dollars worth of apparel is shipped from
Asia to the United States each year made of U.S. textile components
under the 807 program.\4\ If the U.S. textile products were non-
competitive, we wonder why would Asia be doing so much shopping for
products in the U.S.? Keep in mind that Sub-Saharan Africa
manufacturers would pay ZERO duty while Asian manufacturers must still
pay around 12% under the 807 program (see Exhibit E).
---------------------------------------------------------------------------
\4\ This figure does not even include rolled uncut fabric from the
U.S. which is not eligible for duty savings under the 807 program.
[GRAPHIC] [TIFF OMITTED] T6044.003
[GRAPHIC] [TIFF OMITTED] T6044.004
[GRAPHIC] [TIFF OMITTED] T6044.005
[GRAPHIC] [TIFF OMITTED] T6044.007
[GRAPHIC] [TIFF OMITTED] T6044.008
[GRAPHIC] [TIFF OMITTED] T6044.009
Let us cite several specific cases. Morocco currently sends the
U.S. $36 million a year worth of apparel made from U.S. textile
components. Morocco has nearly the same shipping times, U.S. fabric
costs and transportation costs as any Sub-Saharan Africa country. And
under the 807 program, Morocco still pays a duty on the value added in
that country--while Sub-Saharan Africa would pay ZERO duties.
Look also at Sri Lanka, an Asian country thousands of miles farther
away from the U.S. than Africa, which buys $26 million worth of U.S.
rolled fabric a year. Sri Lanka sends all of this fabric back to the
U.S. in garment form . . . and it gets no duty break at all! If Sri
Lanka can make money using U.S. fabric, why couldn't a Sub-Saharan
Africa country, with lower wage rates, lower transportation costs,
faster transit times and a duty break averaging 18 percent? The same
question might be posed with respect to the $40 million worth of fabric
which the U.S. exported to the Philippines in 1997.
As for those importers that say they would never source goods out
of Sub-Saharan Africa under such a plan, we point out that these same
importers claimed that the rules of origin under NAFTA were so
restrictive that they would not be able to do business. And yet Mexico
and Canada have shipped billions of dollars worth of additional textile
and apparel products since NAFTA has passed. In fact, these same
importers have made Mexico the largest supplier of apparel to the
United States.
These are also the same importers who said that rule of origin
changes made during the Uruguay Round would cripple their ability to
import from the Far East--and yet the Far East has increased its
apparel exports to the U.S. by billions of dollars since the agreement
was signed. Their arguments must be taken with a grain of salt.
Conclusion
In conclusion, the African Growth and Opportunity Act as expected
to be considered by this Subcommittee needs to be changed. We support
its aims and objectives, but conclude that the evidence is overwhelming
that the bill's own objectives will not be realized. Instead, we are
convinced that African workers will lose out, Asian manufactures will
win, fraud and corruption will increase. And, further, contrary to what
its supporters contend, grave harm will be inflicted on the livelihoods
of thousands of American workers, including many African American
workers, in the textile/apparel/fiber complex.
Therefore, we urge the Committee to change this bill in today's
markup by substituting the textile and apparel provisions of the bill
with new language that requires U.S. yarns and fabrics. Such a change
would create a new and meaningful economic partnership between the U.S.
textile industry and a newly energized Sub-Saharan apparel sector. It
would benefit both Sub-Saharan Africa and the United States and
therefore would gain broad support and stand the best chance of being
enacted.
[The attachments are being retained in the Committee Files.]
Chairman Crane. Ms. Fedorko.
STATEMENT OF KAREN FEDORKO, EXECUTIVE VICE PRESIDENT, AND
GENERAL MANAGER, MAST INDUSTRIES, INC., ANDOVER, MASSACHUSETTS
Ms. Fedorko. Mr. Chairman, I want you to know how much MAST
Industries and The Limited, Inc. appreciate your efforts along
with Mr. Rangel, Mr. McDermott, Mr. Jefferson and others to
persevere in this important legislative initiative. We also
appreciate the Administration's ongoing support and especially
the tireless efforts of Assistant U.S. Trade Representative
Rosa Whitaker. Thank you.
Last September I visited Zimbabwe, Ghana, Madagascar, and
several other African countries with my boss, Marty Trust, and
other colleagues. I met scores of African entrepreneurs. Mr.
Chairman, every single one of the businesspeople I met had the
same question. When will the African Growth and Opportunity Act
become law? Make no mistake, the dynamic businesspeople of
Africa do want more trade with the United States. They are
intensely focused on this Congress's effort to make that
happen.
I would like to offer a perspective on why this bill and
the incentives it offers are necessary. The enormous economic
promise of Africa is clear. But as a businessperson, I also
know that Africa can still be a challenging place. If any of
you doubt the difficulties of doing business in Africa, I
invite you to try to have Federal Express deliver an urgent
shipment of clothing samples to a factory in Madagascar in less
than 5 days, or try to book yourself on a non-stop flight to
any port in Africa. It's not possible from Washington. It's
still not possible to find a local access dial in for American
Online in Madagascar and many other countries. AT&T USA-Direct
dial service is likewise unavailable. Direct shipping and air
cargo service for most African ports to the United States east
coast can't be done.
I raise these difficulties not as a criticism of Africa,
but in order to demonstrate how much those of us in the
American business community need a push toward Africa. Last
year's Africa bill caused people like me to reconsider the view
that Africa is just too hard. We need to continue to fight
against that impulse. I ask you to help us by making another
run at this legislation.
Mr. Chairman, Africa deserves a chance to compete for a
share of the U.S. clothing market. I am convinced that the
elements the House approved last year would make that happen.
But there has been a fundamental misunderstanding about this
question of just who Africa would be competing with. I would
like to clear that up.
If the bill you passed last year is enacted, African
garment producers won't be competing against American textile
and apparel workers, but Africa will be competing with Korea,
China, Taiwan, Hong Kong, and other large-scale Asian garment
exporters. The chance to compete with these Asian producers is
exactly what Africa needs in order to grow.
Speaking for our company, I cannot think of a single
instance in which orders we might place with African suppliers
would displace any production which we are currently
contracting with U.S.-based clothing manufacturers. We are
looking to Africa for simpler products and for products that
just aren't produced in the United States, like hand-linked
sweaters that Madagascar is starting to make. That is a product
that competes directly with China, not Virginia or North
Carolina or Georgia. Under the incentives scheme contained in
last year's bill, 100 percent of the new orders we would
consider placing in Africa are currently placed in East Asia.
Another concern raised about the textile provisions of the
African Growth and Opportunity Act is that this would lead to
massive illegal transshipment of apparel through an African
quota-free zone. I find the notion advanced by lobbyists from
the textile industry who oppose trade with Africa, that Africa
will automatically become, in their words, a transshipment
superhighway, somewhat offensive and insulting to African
countries. The notion that democratically-elected governments
would cheat their own people out of opportunities for some
manufacturer in another continent is absurd. A country like
Madagascar wants every job possible for its own people.
I know the prime ministers of the two biggest apparel
exporters in Sub-Saharan Africa. They are committed to policing
their borders and enforcing a standard of zero tolerance with
respect to illegal transhipment. I also know that U.S. Customs
will have unrestricted access to any factory producing goods
for our company.
I hasten to add, however, that the goal of expanded trade
will not be achieved if the textile provisions are watered down
with restrictive origin rules for fabric and other components.
The House did the right thing last year by rejecting a proposal
which would have provided quota-free benefits only to garments
assembled in Africa using 100 percent U.S.-formed and cut
fabric. I am not aware of a single major retail company that
would move to expand trade with Africa under a U.S. fabric only
rule.
Mr. Chairman, I have built my career on developing
partnerships with garment makers around the world. We are ready
to partner with dynamic entrepreneurs in Sub-Saharan Africa to
develop solid business relationships, convey our technical and
marketing expertise, and promote African prosperity that will
benefit U.S. exporters in all sectors of our economy. A hand
up, rather than a handout. Trade, not aid. The African Growth
and Opportunity Act is the right thing to do, and it will lead
to partnerships that this Committee, this Congress, Democrats
and Republicans, and especially the American people can be
proud of.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Karen Fedorko, Executive Vice President, and General
Manager, MAST Industries, Inc., Andover, Massachusetts
Mr. Chairman, I appreciate the opportunity to comment on the Africa
Growth and Opportunity Act. My comments today reflect the views of Mast
Industries, Inc. on behalf of itself and The Limited, Inc. MAST
Industries, a global contract manufacturer of casual clothing, is a
subsidiary of The Limited, Inc., the world's largest specialty retailer
of apparel, operating over 5,600 stores nationwide and with over $9
billion in U.S. sales. The Limited, Inc. is the 18th largest private
sector employer in the United States.
Our companies were disappointed that the Africa trade legislation
passed by the House last year failed to be considered by the full
Senate. And so I want to extend our gratitude to this Committee for
persevering in the effort to advance this important bill. I especially
want to single out Chairman Crane, Mr. Rangel, Mr. McDermott, Mr.
Royce, and Mr. Jefferson for their vigorous support. I also want to
acknowledge the efforts of the Clinton Administration to keep this
initiative moving forward, including President Clinton's endorsement
during his State of the Union address. We particularly appreciate the
hard work of Assistant U.S. Trade Representative Rosa Whitaker.
Until I became involved in this issue in the middle of last year, I
had had little exposure to the legislative process here in Washington.
But I have been enormously impressed by the broad bipartisan support
that exists for the Africa Growth and Opportunity Act, and by the
remarkably diverse coalition of U.S. businesses that are clearly so
interested in helping Africa reach its economic potential. I hope we
can take advantage of these factors in 1999 to win enactment of this
bill.
I have also been struck by the tremendous interest in this
legislation among African business people. Last September, I visited a
number of African countries along with colleagues from MAST Industries,
including our President, Martin Trust. Our itinerary included Zimbabwe,
Ghana, and Madagascar, and our aim was to evaluate clothing production
capacity in those and other countries. During our visit, I met scores
of African entrepreneurs. And Mr. Chairman, every single one of the
business people I met in Africa had the same question for me: ``when
will the Africa Growth and Opportunity Act become law?'' Make no
mistake. The dynamic business people of Africa do want expanded trade
with the United States, and they are intensely focussed on this
Congress's efforts to help bring that about.
U.S. Business Needs a Push Towards Africa
Since I started focussing more on Africa a year or so ago, it has
also become clear to me that the challenges of doing business there
remain considerable. I am talking here about very practical things that
really matter for a business like the one I'm in. If any of you doubt
the difficulties of doing business in Africa, I invite you to try to
have Federal Express deliver an urgent shipment of clothing samples to
a factory in Madagascar in less than five days. Or try to book yourself
on a direct airplane flight to any point in Africa (it can't be done
from Washington!). It's still not possible to find a local access dial-
in for America Online in Madagascar and many other African countries,
and AT&T's USA-Direct service is likewise unavailable. Direct shipping
and air cargo service from Antananarivo to the U.S. East Coast can't be
done.
I raise these practical difficulties not as a criticism of Africa,
but in order to demonstrate how much those of us in the American
business community need the special ``push'' towards Africa represented
by the Africa Growth and Opportunity Act. The bill that this Committee
approved last year, and which met with success on the House floor, will
go a long way to reversing the belief among many in the business
community that it is simply not worth the time and effort to try and
develop real and lasting relationships with African entrepreneurs. On
behalf of both American and African business people, I urge you to
fight to make this legislation a reality.
Africa Deserves a Chance to Compete
The refreshing thing about the Africa Growth and Opportunity Act is
that it recognizes that facilitating trade between the United States
and Africa is one of the best ways to promote stable economic and
political development and vigorous markets for American exports. And it
recognizes that this can absolutely be done without harming American
companies and their workers. This proposal is not about threats to U.S.
jobs. It's about giving African countries an opportunity to compete--I
repeat, ``to compete''--for their fair share of American trade and
American investment.
The establishment of a quota-free zone for qualifying Sub-Saharan
countries, and the possibility of duty-free GSP treatment for some
textile and clothing products made in Africa, simply makes good sense.
These provisions, which were included in the bill passed by the House
last March, will help African countries begin to rely on trade instead
of aid. They are the elements of the legislation that will have the
most direct impact in strengthening trade and investment ties between
the U.S. and Africa. And they will not have a negative impact on
textile and clothing workers in this country--despite what others have
tried to argue. I urge the Committee to ensure that these provisions
from last year's bill are preserved in any legislation that moves
forward in 1999.
I should also note that the tariff reductions envisioned in this
legislation represent more than a benefit for Africa. They also
represent a very real ``tax cut'' for every American family that buys
clothes. When you consider that man-made fiber T-shirts can be taxed at
29% when they come into this country, you get a sense of how heavily
taxed this country's clothing consumers are--taxes which fall,
disproportionately, on those least able to afford them. By eliminating
taxes on some imports of clothing from Africa, your legislation makes
at least a start in addressing that problem.
But Compete Against Whom?
You've just heard me say that Africa deserves a chance to compete
for a share of the clothing market in this country, and I'm convinced
that the bill you approved last year would make that happen. But
outside this Committee, there has been a fundamental misunderstanding
about this question of just who Africa would be competing against, and
I'd like to try to clear that up.
Contrary to what some have argued, if the bill you passed last year
is enacted, African garment producers will not be competing against
American textile and apparel workers. African manufacturers would be
competing with Korea, China, Taiwan, Hong Kong and other large-scale
Asian garment exporters. The chance to compete with these longtime
Asian producers is exactly what Africa needs in order to grow.
The argument that the quota-free and GSP provisions of the bill
will lead to a flood of imports, displacing American garment workers
are just not realistic. The production capacity on the continent is
extremely low, and the range of products we could expect to source in
Africa would probably be quite narrow for the foreseeable future. Let's
not lose sight of the fact that, in 1997, imports from Sub-Saharan
Africa accounted for only about one percent of global U.S. clothing
imports, a level that has remained constant for at least the past five
years.
Speaking for my own company, I cannot personally think of a single
instance in which orders we might place with African suppliers would
displace any production which we are currently contracting with U.S.-
based clothing manufacturers. We depend on our American suppliers to
provide us with the kind of specialized, technology-intensive textile
production that American workers do better than anyone else. We would
be looking to Africa for simpler products, and for products that just
aren't produced here in the United States, like the fully-fashioned
hand-linked sweaters that Madagascar is starting to export. That's a
product that competes with China, not with Virginia or North Carolina
or Georgia.
The bottom line is that, under the incentive scheme contained in
last year's bill, Africa would suddenly become significantly more
competitive with producers we currently work with in East Asia, and I
do foresee that we would shift orders away from Asian vendors and
towards some of our new contacts in Africa. In that case, obviously,
the effect in terms of total imports to the U.S. would be a ``wash,''
with no impact at all in terms of employment in the U.S. industry. In
fact, when I do the numbers for our company under a scenario of the
bill passed last year by the House, 100 percent of the new orders we
would consider placing in Africa are currently placed in East Asia.
Once again--the bill the House passed last year makes Africa more
competitive vis-a-vis Asia, and does not pose a threat to the U.S.
industry.
Ensuring that Imports from Africa are Legitimate
Let me address another concern that has been raised about the
textile provisions of the Africa Growth and Opportunity Act, namely the
fear that this would lead to massive illegal transshipment of apparel
through an African ``quota-free zone,'' or other efforts to circumvent
rules of origin.
As a general matter, these concerns have been overblown. The anti-
circumvention safeguards which the House included in last year's bill
were reasonable and effective. Moreover, we should ask ourselves, why
would African countries want to shortchange themselves of the
opportunity for the growth provided by new manufacturing opportunities?
The government officials and garment producers I've met throughout
Africa know very well that it is completely in their own interest to
guard vigorously against transshipment. As apparel production in some
parts of Africa increases, our company is actively encouraging African
factory managers to establish an ``open-door policy'' with U.S. Customs
and the Governments that I talk with in the region clearly intend to
have ``zero-tolerance'' toward illegal transshipment.
I would also like to comment on the proposal that would limit the
duty free and quota free benefits of the Africa legislation to apparel
that is ``wholly assembled'' in Sub-Saharan Africa. None of the
merchandise that I have purchased from the region is assembled anywhere
except within the Sub-Saharan region. The idea here is to ensure that
only garments that are completely assembled in African factories
benefit from the preferences extended under the legislation, and to
eliminate the possibility for manipulation of origin rules. From my
perspective, the ``wholly assembled'' concept is a very workable
proposal. It would be relatively easy to verify. And, ultimately, it
advances the goal of developing a strong garment production capacity
that will enable African countries to compete effectively against
producers in Asia. Our company would support such an addition to the
Africa legislation.
A ``U.S. Fabric Only'' Rule Won't Achieve the Bill's Objectives
I hasten to add, however, that the goal of expanded trade will not
be achieved if the textile provisions are watered down with restrictive
origin rules for fabric and other components. The House did the right
thing last year by rejecting a proposal which would have provided
quota-free benefits only to garments which are sewn together in Africa
from fabric which is both formed and cut in the United States. In our
business, this sort of offshore assembly of U.S.-made pieces is known
as ``807A'' trade.
From the perspective of retailers and importers, the addition of a
``U.S. fabric only'' restriction to the Africa bill would eliminate the
commercial significance of these provisions and would gut the objective
of building stronger commercial ties between companies like mine and
garment producers in Africa.
``807A'' works in the Caribbean, since distances are short and
turnaround times can be quick. But shipping individual U.S.-cut garment
pieces to Africa for assembly and subsequent reshipment back to the
United States is too costly and much too slow, particularly in a
business like ours, where fashion trends require us to move in hours or
days rather than weeks or months. I am not aware of a single major
retail company that would move to expand trade with Africa under a
``U.S. fabric only'' rule.
To those who hold up so-called studies claiming that a ``U.S.
fabric only'' rule is feasible--I would issue this challenge: name one
single U.S. company that has pledged to utilize this regime. Putting a
bunch of numbers on piece of paper is one thing. Finding a company that
will commit to new investments in Africa under these restrictive rules
is quite another. To those companies lobbying to restrict this bill to
``U.S. fabric only'' rule, I would pose this question: ``if we adopt
this rule will your company place new orders in Africa?'' I am pretty
sure I know what their answer will be to that question. My company is
already doing tens of millions of dollars of new business in Africa. We
understand the art of the possible. And under the bill passed by the
House last year, we will significantly expand what we do in Africa.
However, if the bill is passed with a ``U.S. fabric only'' rule,
that new business won't follow. At the end of the day, proponents of a
U.S.-only rule really do not want to expand trade with Africa--despite
their efforts to mask their opposition with complicated policy
``alternatives'' that would do nothing to actually encourage greater
trade and investment in Africa.
It's Time for a Partnership with Africa
As someone who has developed partnerships with garment makers
around the world, I am convinced that the time has come for producers
in Africa to have a piece of the action. My company, MAST Industries,
is committed to the concept of partnership with our global
manufacturing partners. We want very much to partner with dynamic
entrepreneurs in Sub-Saharan Africa--to develop solid business
relationships, to convey our technical and marketing expertise, and to
promote African prosperity that will benefit U.S. exporters in all
sectors of our economy.
I want to make a prediction today. If the Congress passes this bill
and the President signs this legislation (as he has promised to),
millions of dollars of new orders will placed in African countries
almost overnight. US businessmen and women start traveling to Africa in
large numbers and as the standard of living in African countries rises,
you can bet that US exporters and US jobs will also benefit--from farm
products to pharmaceuticals, from airlines to online services, from jet
engines and aircraft to financial services, from software to hardware.
Make no mistake about it--this bill will mean good jobs and good wages
for Americans and a desperately needed opportunity to alleviate poverty
and strengthen young democracies in Africa.
A hand up rather than a handout--trade, not just aid. It is the
right thing to do. This will be a partnership that this Committee, this
Congress, Democrats and Republicans and especially the American people,
will be proud of.
Mr. Chairman, thank you again for the opportunity to appear, and
for this Committee's efforts to advance this important legislation.
Chairman Crane. Thank you, Ms. Fedorko.
We are going to have to go into recess now until 1 o'clock
sharp. If there are conflicts with any of you as far as flight
connections, things like that, feel free to make your exit. But
otherwise, if you are going to be here, if you could as many of
you as possible, be back here at 1 p.m., we're in your debt.
The Committee now stands in recess until 1 p.m.
[Recess.]
Chairman Crane. The Committee will reconvene. Any of our
witnesses who are still--oh, very good. All right, I think next
in line is Mr. Apley.
STATEMENT OF DALE J. APLEY, JR., DIVISIONAL VICE PRESIDENT,
PUBLIC POLICY, KMART CORPORATION, TROY, MICHIGAN
Mr. Apley. Thank you, Mr. Chairman, and Members of the
Committee, for the opportunity to comment on the African Growth
and Opportunity Act. Today my comments reflect the views of
Kmart Corp., the Nation's third largest retailer. Kmart Corp.
was founded 100 years ago in Detroit, Michigan as the S.S.
Kresge Co. Since our beginning, the consuming public has looked
to our stores for the every day necessities of life at prices
their family budgets can afford.
Kmart operates more than 2,100 traditional discount and
Super Kmart centers in the United States. On average, there is
a Kmart store located within 15 miles of every home in the
United States. With more than 250,000 employees, we are the
seventh largest employer in the United States, offering jobs
and benefits to a broad cross section of our Nation's work
force. Kmart has a reputation as a discount retailer that
provides a wide selection of products from clothing and beauty,
healthcare, to sporting goods and small appliances at low
prices that hardworking, average Americans can afford. This is
and always has been our business.
We want to provide the widest choice at the best price.
With our roots strongly established in the United States, we
prefer to directly source the products we sell from U.S.
manufacturers to meet the standards our shoppers expect.
However, as a member of the greater economy, we also recognize
the competitive importance of international trade to our
company, our customers, and the Nation's economy. Insisting on
adherence to high standards for the production and manufacture
of all goods, we import products from facilities worldwide.
That is why I am honored to be able to add Kmart's support
for the African Growth and Opportunity Act. The fact that
Secretary Daley and Secretary Kemp, Ambassador Young, Senator
Gramm were here today to express their support for this
legislation is a testimony to the strong bipartisan consensus
behind expanding U.S. trade and investment relations with
Africa.
The benefits of increased trade with Sub-Saharan Africa are
clear. With any emerging economy, the development of the
employment base and the national infrastructure ultimately give
under-developed countries the basic ability to do business with
other
nations. The elimination of quotas for qualifying Sub-Saharan
countries and the duty-free GSP treatment for some textile and
clothing products made in Africa will expand export
opportunities from these areas and allow the people of these
countries to compete seriously in the global marketplace.
While Kmart Corp. has been sourcing a variety of products
from various outlets in Africa, the enactment of this bill
would encourage us to increase our orders with African
suppliers. We are confident that we can expand our activities
in Africa without any reduction in the work contracted with
U.S.-based manufacturers. We foresee that any increase in
orders with African producers would simply represent a shift
away from production in Asia. This bill would simply allow Sub-
Saharan Africa to compete with China, Pakistan, India, and the
countries of S.E. Asia, and does not pose a threat to the U.S.
industry.
The International Trade Commission's recent analysis has
confirmed this by stating that Africa's ability to produce
textiles over the next decade is still very limited, and that
they will likely increase their exports in the next decade by
at least 3 percent. Currently Sub-Saharan Africa accounts for
less than 1 percent of total U.S. imports on textiles and
apparel. The commission's final analysis concluded this bill
would create a small shift from Far Eastern suppliers than U.S.
manufacturers.
Kmart has a long reputation of working in partnership with
reputable suppliers who share a commitment to human rights and
the ethical standards of conduct. To maintain our commitment to
these principles, we have established a workplace code of
conduct, which requires all Kmart suppliers and their
subcontractors to provide a clean, safe, and healthy work
environment, and to engage in fair and ethical employment
practices. This code of conduct is enforced through a global
independent monitoring firm and requires all suppliers and
subcontractors to make their facilities available for
inspections at any time. We work closely with our suppliers to
maintain our standards, and reserve the right to terminate
relationships and cancel orders with suppliers that don't
comply with these strict standards.
We understand that our customers depend on the quality and
value of our products and the underlying integrity of the
workplaces which produce them. Kmart is on the forefront of the
fight against child labor, forced labor, unfair wages, and
discrimination. The African Growth and Opportunity Act will
help forward this endeavor, and force other facilities to raise
their standards because of the duty-free provisions of the
bill, which are built upon the very successful GSP program.
While the African Growth and Opportunity Act is good for
retailers, it is also good for America as a whole. Africa is an
untapped emerging market in the world, and it has potential for
expansive growth. This legislation would provide a launching
pad for the American exports to Africa, by enabling us to
expand our imports from Africa. The United States can not
increase imports to a country that does not have the means to
buy our goods. By buying goods from African countries, we would
be exchanging capital, which in turn could be used to purchase
American products. Importing Sub-Saharan African goods will
create a great export opportunity for the United States, and
increased exports to Africa will create not only capital, but
also jobs in the United States.
The African Growth and Opportunity Act is a win-win
prospect for everybody. The legislation would help us to ensure
that companies such as Kmart are able to provide the best
quality goods to our customers at the lowest possible prices.
On a larger scale, as the African economy emerges, this bill
offers a great opportunity for U.S. businesses to maximize
trade and investment opportunities in Africa.
The African Growth and Opportunity Act will stimulate
private investment in Africa, and will shift the U.S. policy
toward Africa from aid to trade for the Sub-Saharan countries
that have committed to economic and political reform. I hope
that each member will recognize Africa's tremendous potential
and the importance of this legislation to all parties involved,
and in doing so, will support the African Growth and
Opportunity Act. Thank you.
[The prepared statement follows:]
Statement of Dale J. Apley, Jr. Divisional Vice President, Public
Policy, Kmart Corporation, Troy, Michigan
Mr. Chairman and members of the Committee, thank you for the
opportunity to comment on the Africa Growth and Opportunity Act.
I am Dale Apley, Divisional Vice President, Public Policy of Kmart
Corporation, the nation's third largest retailer.
Kmart Corporation was founded 100 years ago in Detroit, Michigan as
the S.S. Kresge company. Since our beginnings, the consuming public has
looked to our stores--first their local Kresge ``five and dime'' stores
and now their hometown Kmart, Big Kmart or Super Kmart Center--for the
everyday necessities of life at prices their family budgets can afford.
Today, Kmart operates more than 2,100 traditional discount and
Super Kmart Centers in the United States. On average, there is a Kmart
store located within 15 miles of every home in the United States.
With more than 250,000 employees, we are the 7th largest employer
in the United States, offering jobs and benefits to a broad cross-
section of our nation's workforce.
Kmart has a reputation as a discount retailer that provides a wide
selection of products--from clothing to health and beauty care, to
sporting goods and small appliances--at low prices that hard-working,
average Americans can afford. This is and always has been our business.
We want to provide the widest choice at the best price. With our
roots strongly established in the U.S., we prefer to directly source
the products we sell from U.S. manufacturers that meet the standards
our shoppers expect. As a member of the greater economy, we also
recognize the competitive importance of international trade to our
Company, our customers, and the nation's economy. Insisting on
adherence to high standards for the production and manufacture of all
goods, we also import products from facilities worldwide.
That is why I am honored to be able to add Kmart's support for the
Africa Growth and Opportunity Act. The fact that Secretary Daley and
Secretary Kemp are here today to express their support for this
legislation is a testimony to the strong bipartisan consensus behind
expanding U.S. trade and investment relations with Africa.
The benefits of increased trade with Sub-Saharan Africa are clear.
With any emerging economy, the development of an employment base and a
national infrastructure ultimately give underdeveloped countries the
basic ability to do business with other nations. The elimination of
quotas for qualifying Sub-Saharan countries, and the duty-free
Generalized Systems of Preferences treatment for some textile and
clothing products made in Africa will expand export opportunities for
these areas and allow the people of these countries to compete
seriously in the global marketplace.
While Kmart Corporation has been sourcing a variety of products
from various outlets in Africa, the enactment of this bill would
encourage us to increase our orders with African suppliers. We are
confident that we can expand our activities in Africa, without any
reductions in work contracted U.S.-based manufacturers.
We foresee that any increase in orders with African producers would
represent a shift away from production in Asia. This bill would simply
allow Sub-Saharan Africa to compete with China, Pakistan, India, and
the countries of Southeast Asia and does not pose a threat to the U.S.
Industry.
The International Trade Commission's recent analysis has confirmed
this by stating that Africa's ability to produce textile over the next
decade is still very limited, and that they will likely increase their
exports in the next decade at best by about 3 percent. Currently, Sub-
Saharan Africa accounts for less than 1 percent of total U.S. imports
of textiles and apparel. The Commission's final analysis concluded that
this bill would create a small shift from Far Eastern suppliers than
U.S. manufacturers.
Kmart has a long tradition of working in partnership with reputable
suppliers who share our commitment to human rights and ethical
standards of conduct. To maintain our commitment to these principles,
Kmart has established a Workplace Code of Conduct, which requires all
Kmart suppliers and their subcontractors to provide a clean, safe and
healthy work environment and to engage in fair and ethical employment
practices. This Code of Conduct is enforced through a global
independent monitoring firm and requires all suppliers and
subcontractors to make their facilities available for inspections at
any time. We work closely with our suppliers to maintain our standards
and reserve the right to terminate any relationship and cancel all
orders with any supplier that doesn't comply with these strict
standards.
We understand that our customers depend on the quality and value of
our products and the underlying integrity of the workplaces which
produce them, and Kmart is on the forefront of the fight against child
labor, forced labor, unfair wages and discrimination. The African
Growth and Opportunity Act will help forward this endeavor and force
other facilities to raise their standards because the duty-free
provisions of the bill are built upon the very successful Generalized
System of Preferences (GSP) program, which links worker's rights and
workplace conditions to trade concessions.
While the African Growth and Opportunity Act is good for retailers,
it is also good for America as a whole. Africa is an untapped emerging
market in the world and it has the potential for expansive growth. This
legislation would provide a launching pad for American exports to
Africa by enabling us to expand our imports from Africa. The United
States cannot increase exports to a country that does not have the
means to buy our goods. By buying goods from African countries, we
would be exchanging capital which can in turn be used to purchase
American exports. Importing Sub-Sahara African goods will create a
great export opportunity for the U.S., and increased exports to Africa
will create not only capital, but also jobs in the United States.
While many legislators, companies and consumers already recognize
the advantages of increased trade with Africa, some have expressed
concern. I have already explained that the United States will prosper
economically from the African Growth and Opportunity Act, but some are
afraid that the provisions that eliminate quotas will encourage quota
fraud and transshipment of clothing produced in Asia. This is
absolutely untrue. U.S. Customs officials have reported that Africa is
not currently a platform for transshipment. In addition, because
production of apparel in the African countries is extremely limited, a
dramatic increase in apparel exports would be quickly noticed and
easily tracked by the U.S. Customs Service. Nevertheless, as an extra
precaution, the House-passed version of the African Growth and
Opportunity Act addresses the potential for transshipment problems by
requiring the importers of textiles and apparel to obtain import visas
for all products shipped from Sub-Saharan Africa. It also imposes a
``one strike and you're out'' penalty for Sub-Saharan exporters who
commit quota fraud.
The African Growth and Opportunity Act is a win-win prospect for
everyone. This legislation will help to ensure that companies, such as
Kmart, are able to provide the best quality goods to our customers at
the lowest possible prices. On a larger scale, as the African economy
emerges, this bill offers a great opportunity for U.S. businesses to
maximize trade and investment opportunities in Africa. The African
Growth and Opportunity Act will stimulate private investment in Africa
and will transfer the U.S. policy toward Africa from aid to trade for
Sub-Saharan countries committed to economic and political reform.
I hope that each member will recognize Africa's tremendous
potential and the importance of this legislation to all parties
involved and in doing so, will support the African Growth and
Opportunity Act. ]
Chairman Crane. Thank you.
Mr. Levinson.
STATEMENT OF MARK LEVINSON, CHIEF ECONOMIST, UNION OF
NEEDLETRADES, INDUSTRIAL AND TEXTILE EMPLOYEES, AFL-CIO
Mr. Levinson. Thank you, Mr. Chairman. My name is Mark
Levinson. I am the chief economist of UNITE, which represents
250,000 workers in textile, apparel, and other related
industries. I appreciate the opportunity to testify at this
hearing.
The bill's most glaring omission is its failure to include
labor rights as a pre-condition for countries to gain
eligibility for expanded trade. In the absence of core labor
rights as defined by the International Labor Organization,
there is nothing to ensure that the wealth generated by
increased trade is shared by the workers in Africa. If we have
learned anything from the debate on and defeat of fast track,
it is that the American people believe that trade and
investment agreements should protect workers, as well as
investors.
There are many in Africa who agree with us. Representatives
of trade unions in the African regional organization of the
International Confederation of Free Trade Unions met last June
to consider the African Growth and Opportunity Act. One of
their conclusions was that ``without a guarantee that workers
rights will be respected, violations of their rights will
worsen.'' The South African Clothing and Textile Workers Union
has informed UNITE that they ``are strongly opposed to the
conditionalities in the bill.'' They see the bill as ``an
attempt to protect and advance the interests of corporations
and will not advance the interests of Africa's poor.'' Consider
the situation of South Africa and Lesotho and Swaziland.
Lesotho and Swaziland each lie entirely within South Africa's
borders. They are small countries, and each is considerably
poorer than South Africa. In each country, worker's rights are
not respected. In each country, according to the U.S.
International Trade Commission, there is a significant chance
that a competitive exporting industry will emerge. In Lesotho,
many companies pay below the minimum wage and have very long
working hours, often locking workers in until an order is
finished. The U.S. State Department has noted in its annual
Human Rights Report that no legally sanctioned strike has
occurred in Lesotho since independence in 1966, and that
employees are often threatened with expulsion from the country
and loss of employment if they join unions.
Observance of workers' rights, of workers' human rights in
Swaziland is even more rare than in Lesotho. There, an official
of a trade union federation recalls a strike can be punished by
a fine or a maximum of 5 years imprisonment, or both.
Subsequently, can be banned for 5 years from holding trade
union office. Police intimidation and violence against trade
union demonstrations and strikes are ruthless.
Lesotho and Swaziland have one-half of 1 percent of the
population of Sub-Saharan Africa, but account for almost 20
percent of the region's apparel exports to the United States.
While these countries have 7 percent of the population of South
Africa, their apparel exports to the United States are 42
percent greater than South Africa's. The current bill before
the Subcommittee would create a situation in which South
African apparel workers face the reality of investment shifting
to those countries where labor costs are lower because of human
rights abuses.
Another example. In Uganda, the Uganda Textile Garment
Leather and Allied Workers Union is the sole union organizing
in the apparel sector. It has a membership of over 2,400
workers in 16 factories. In 13 of these factories, the union
represents well over 50 percent of the workers. Following
privatization, which this bill encourages, all but one former
state-run company withdrew recognition of the union. The one
company that hasn't is threatening to follow the others in
withdrawing its recognition of the union. The African Growth
and Opportunity Act does nothing to prevent this kind of attack
on workers.
Are these not examples of the race to the bottom? By
failing to link trade and investment with worker rights, the
African Growth and Opportunity Act does nothing to prevent such
a destructive race.
There are other provisions in the bill which lead me to
question whether it is in the interest of most Africans. The
bill requires countries to adopt market-oriented policy changes
analogous to those imposed under the structural adjustment
programs of the World Bank and the IMF, government spending
cuts, reduced corporate taxes, wholesale privatization, removal
of trade barriers, and diminished protection for national
industries.
As Harvard economist Danny Roderick put it in a paper on
Africa, the fundamentals for long-term growth are human
resources, physical infrastructure, macro economic stability,
and the rule of law. Governments that undertake investments in
these areas will be rewarded with increased rates of growth.
Too much focus on outward orientation and openness can even be
counter-productive if it diverts policymakers' attention away
from the fundamentals listed above and treats trade rather than
per capita income as a yardstick of success.
I agree with what ATMI said on transshipments, so I won't
repeat that. I also agree with what they said about the ITC
study. I would like to point out to the Committee what the ITC
in its own testimony said about their study, ``The analysis is
not a forecast. It does not tell what will happen if tariffs
and quotas are actually removed.'' Some of the bill's
supporters I think should understand that limitation of the ITC
study.
Let me just end with the following thought. U.S. policy
toward Africa should be judged by its effect on the lives of
ordinary people. Broad-based development requires that workers
enjoy internationally recognized human rights and that policies
produce improvements in physical infrastructure, production of
basic commodities for national, regional, and international
markets, promotion of locally-owned enterprises, and sufficient
government control to balance private capital needs with
broader social needs. This bill falls short in all of these
areas. Thank you.
[The prepared statement follows:]
Statement of Mark Levinson, Chief Economist, Union of Needletrades,
Industrial and Textile Employees, AFL-CIO
My name is Mark Levinson. I am Chief Economist of UNITE which
represents 250,000 workers in textile, apparel and other related
industries. I appreciate the opportunity to testify at this hearing.
UNITE supports the goal of the African Growth and Opportunity Act: ``to
promote stable and sustainable economic growth and development in Sub-
Saharan Africa.'' We believe, however, that many provisions of the bill
work directly counter to that goal.
Trade, Investment and Labor Rights
In a speech at the World Trade Organization (WTO) last year,
President Clinton stated:
In order to build a trading system for the 21st century that
honors our values and expands opportunity, we must do more to
ensure that spirited economic competition among nations never
becomes a race to the bottom--in environmental protections,
consumer protections, or labor standards. We should be leveling
up, not leveling down. Without such a strategy, we cannot build
the necessary public support for continued expansion of trade.
Working people will only assume the risks of a free
international market if they have confidence that the system
will work for them.
I agree with President Clinton. But the African Growth and
Opportunity Act does not embody these principles. The bill's most
glaring omission is its failure to include labor rights as a
precondition for countries to gain eligibility for expanded trade. In
the absence of core labor rights, as defined by the International Labor
Organization, there is nothing to ensure that the wealth generated by
increased trade is shared by the workers in Africa. That leads to an
economic race to the bottom. If we have learned anything from the
debate on and defeat of fast track, it is that the American people
believe that trade and investment agreements should protect workers as
well as investors.
There are many in Africa who agree with us. During President
Clinton's trip to Africa a year ago, South African President Nelson
Mandela announced that the South African government has serious
reservations about the African Growth and Opportunity Act. ``To us, it
is not acceptable,'' he said.
Representatives of trade unions in the African Regional
Organization (AFRO) of the International Confederation of Free Trade
Unions (ICFTU) met last June to consider the African Growth and
Opportunity Act. One of their conclusions was that: ``Without a
guarantee that workers' rights will be respected, violations of their
rights will worsen.'' The South African Clothing and Textile Workers
Union (SACTWU) has informed UNITE that they are ``strongly opposed to
the conditionalities'' in the bill. They see the bill as ``an attempt
to protect and advance the interest of corporationsand will not advance
the interest of Africa's poor.''
African workers who have struggled to gain recognition for
fundamental human rights confront the threat of having their gains
undermined by competition from within Africa as well as from without.
Andrew Kailembo, General Secretary of ICFTU-AFRO, put it this way:
How can those using unfair or even oppressive labor practices
and denying their own citizens freedom of association have
access to international markets? Why should goods produced in
slave like conditions be allowed to compete with those produced
in relatively free conditions? It is in this context that the
link between the core labor standards and international trade
becomes inevitable. It is not a push for any global minimum
wage; neither is it a protectionist ploy against competition.
Consider the situation of South Africa and Lesotho and Swaziland.
Lesotho and Swaziland each lie entirely within South Africa's borders.
They are small countries and each is considerably poorer than South
Africa. And in each country, workers' rights are not respected.
In the opinion of the U.S. International Trade Commission (ITC),
``there is a significant chance that a competitive exporting industry
will emerge'' in Lesotho. And in Swaziland, according to the ITC,
``[g]iven proper investment and some degree of government coordination
to encourage the development of this sector, Swaziland could become a
significant exporter of textile and apparel goods to the United States
if Sub-Saharan African countries were granted preferential access to
the U.S. market.''
Most of the investment in the Lesotho textile and apparel sectors
comes from South Africa and Taiwan. According to the International
Confederation of Free Trade Unions (ICFTU), this investment has taken
place on the basis of a guarantee that the companies would be able to
disregard labor legislation. Many companies pay below the minimum wage,
and have very long working hours--often locking workers in until an
order is finished. Employers refuse sick-pay leave and engage in almost
constant unfair dismissal practices. In many factories, deductions are
made from wages for workers found talking, or using the toilet more
than once a day. On several occasions police have addressed workers at
factory floor level advising them to leave the union, or elect new
leaders, or allow the police to form a union for them.
Lesotho maintains several export-oriented industrial zones where 70
percent of employment is in the textiles, garment and leather sectors.
Lesotho's labor law is supposed to apply in the country's industrial
zones, but police stations at the entrances to the zones stop union
organizers from getting in. The U.S. State Department has noted in its
annual human rights report that no legally sanctioned strike has
occurred in Lesotho since independence in 1966, and that employees are
often threatened with expulsion from the country and loss of employment
once they join unions. There is credible evidence, the State Department
found, that some employers in the textile and garment sector use
blacklists to deny employment to workers who have been fired by another
employer within that sector.
Among the incidents that have occurred in Lesotho:
Last February, workers and management at one of the
largest clothing manufacturers in Lesotho had been involved in a wage
dispute for one week. Following a court eviction order, armed police
stormed the building, shooting at random, reportedly injuring more than
40 workers and killing one woman.
In 1995, police opened fire on striking workers at Maseru
Clothing and Mustang Shoes, injuring 18 workers, one of them seriously.
In 1993, three textile and apparel sector companies
dismissed their entire work forces, amounting to over 1,500 workers,
when workers there formed unions.
Observance of workers' human rights in Swaziland is even more rare
than in Lesotho. There, an official of a trade union federation who
calls a strike can be punished by a fine or a maximum of five years'
imprisonment, or both, and subsequently can be banned for five years
from holding trade union office. Police can attend union meetings.
Police intimidation and violence against trade union demonstrations and
strikes are ruthless. In August 1994 police killed one worker and
seriously wounded others during a month-long strike at a sugar company.
Government agents attempted to murder the Swaziland Federation of Trade
Unions' General Secretary in 1995. The ICFTU concluded in a recent
report to the World Trade Organization that violations of freedom of
association and the right to collective bargaining in Swaziland are so
serious and widespread that they have a negative impact on wages and
working conditions in every sector, including the traded sector.
Lesotho and Swaziland have 0.5% of the population of Sub-Saharan
Africa but account for fully 23% of the region's apparel exports to the
U.S. And while these countries have 7% of the population of South
Africa, their apparel exports to the U.S. are 42% greater than South
Africa's. The current bill before the Subcommittee would create a
situation in which South African apparel workers face the reality of
investment shifting to those countries where labor costs are lower
because of human rights abuses.
In Uganda, the Uganda Textile, Garment, Leather and Allied Workers'
Union is the sole union organizing in the apparel sector. It has a
membership of 2,420 workers in 16 factories. In 13 of these factories
the union represents well over 50% of the workers. Following
privatization, all but one former state-run company withdrew
recognition of the union. This one company is threatening to follow the
others in withdrawing its recognition of the union. The African Growth
and Opportunity Act does nothing to prevent this kind of attack on
workers.
Are these not examples of the ``race to the bottom'' that President
Clinton warned against? By failing to link trade and investment with
worker rights, the African Growth and Opportunity Act does nothing to
prevent such a destructive race.
Rigid Eligibility Requirements
There are other provisions in the bill that lead me to question
whether it is in the interest of most Africans. The bill requires
countries to adopt market-oriented policy changes analogous to those
imposed under the structural adjustment programs of the World Bank and
the International Monetary Fund: government spending cuts, reduced
corporate taxes, wholesale privatization, removal of trade barriers and
diminished protection for national industries.
The African Growth and Opportunity Act would even threaten current
GSP beneficiaries in Africa with a loss of preferential tariffs if they
fail to meet these market-oriented eligibility requirements. And while
the bill also lists poverty reduction, social investment and human
rights as factors to be considered in assessing eligibility, without
clear enforcement mechanisms these criteria are eclipsed by the bill's
central concern with market liberalization.
Achieving economic development through exports and foreign
investment is problematic in much of Africa, where infrastructure and
social services have deteriorated following IMF/World Bank-mandated
government spending cuts. Market liberalization does not address that
problem or promote development of local industries. In fact it may
undermine the very sectors which would allow African economies to
develop the capacity to supply the U.S. market.
In a paper on Africa, Harvard University economist Dani Rodrik put
it this way:
The fundamentals for long-term growth are human resources,
physical infrastructure, macroeconomic stability, and the rule
of law. Governments that undertake investments in these areas
will be rewarded with increased rates of growth.Too much focus
on ``outward orientation'' and ``openness'' can even be
counterproductive if it diverts policy makers' attention away
from the fundamentals listed above and treats trade rather than
per-capita income as a yardstick of success.
Trade and investment initiatives should not take the place of
development assistance. Debt relief is crucial for many countries to be
able to take advantage of new programs. Currently, debt service
payments claim 80% of Africa's foreign exchange earnings and total four
times the amount spent on health care throughout the region.
The African Growth bill acknowledges the importance of continued
development assistance programs and the urgent need for substantial
debt relief but makes no additional funding available for these
programs.
The problem with this bill is summarized well by the distinguished
African political scientist Mahmood Mamdani:
After a decade of liberalization, the issues for Africa are
those that expand the boundaries of meaningful choice in the
era of globalization. The U.S. African Growth and Opportunity
Act, tilt[s] the balance of reform away from choice to an
external imposition. Rather than a helping hand, it read like a
set of terms that every African country must meet before
getting ease of access to the American market. Many people here
wonder whether the United States is opting for regimes that are
willing to impose economic reforms designed in Washington, even
if the same regimes deny the opposition the right to organize
If the era of single-party politics taught us one thing, it is
that monopoly is as corrupting in politics as in the economy.
Transshipment is a Problem
The U.S. Customs Service has already identified eight Sub-Saharan
African countries as transshipment routes. By creating a large region
of quota-free and duty-free textile and apparel imports, the bill will
exacerbate the transshipment problem.
The bill attempts to deal with transshipment by setting up a visa
system. Every significant textile and apparel exporter to the U.S.
currently is required to have a visa system to certify the country of
origin of their exports. There is a little evidence that it works.
Transshipment remains a major problem and this legislation creates a
new financial incentive to transship. Thousands of American jobs have
been lost due to violations of our international agreements. Thousands
more could be lost because of this legislation. In addition, the duty-
free status for goods shipped through Africa will cost the Treasury
hundreds of millions of dollars in lost revenue.
We are also concerned about ``legal'' transshipment. Section
503(a)(2) of the Trade Act of 1974 requires that the direct costs of
processing operations performed in the beneficiary country be at least
35% of the value of the product. The African Growth and Opportunity Act
amends that by allowing 15% percent of the value to be met by inputs
from the United States. Thus only 20% of the value of a garment needs
to be of African origin in order to qualify for duty-and quota-free
treatment. This means that an American importer can ship plastic bags,
hangers, thread, buttons, shoulder pads, etc., valued at 15% of the
finished item to the African factory. A Chinese manufacturer, for
example, could cut Chinese fabric, sew it into a garment and ship it to
Africa. The African factory could sew in a ``Made in Africa'' label,
inspect the garment, trim loose threads, do any necessary repairs,
press the garment, package it (all valued at 20% of the finished item)
and ship it to the U.S. duty-free and quota-free. Is this the best way
to encourage a legitimate apparel industry in Africa; or is it a way
for importers to get around quotas and duties in other countries?
Another problem is that the bill does not require that African
workers be actually employed making the goods that are shipped duty-
free and quota-free to the U.S. market. Some companies have found it
advantageous to import workers, who are forced to work under conditions
amounting to indentured servitude, into African countries. For example,
there are several thousand guest workers in Mauritius working in that
country's growing apparel industry. Without a requirement that a high
percentage of indigenous workers be used in industries shipping goods
to the U.S. under the pending bill, there is no guarantee that Africans
will benefit.
Significant Damage Could be Done to U.S. Industry
The bill states that ``it will be very difficult'' for textile and
apparel exports to the United States from Sub-Saharan Africa to
increase from less than 1 percent share of total U.S. imports to three
percent of total imports. In fact a study by the ITC claims that the
African Growth and Opportunity Act will cause a minor increase of
imports and negligible job loss.
Can these predictions be taken seriously?
In 1986, after the passage of the Caribbean Basin Initiative, the
U.S. International Trade Commission reassuringly claimed that
``Caribbean countries play a relatively minor role in U.S. imports of
textiles and apparel,'' supplying $500 million or 3 percent of the
total in 1984. In 1997, imports of textile and apparel products from
CBI countries were valued at $7.8 billion. Imports from CBI countries
currently constitute almost 14 percent of all U.S. textile and apparel
imports.
In 1993, prior to NAFTA, Mexico supplied only $1.1 billion of
apparel to the United States--under 4 percent of total U.S. apparel
imports. In its 1993 report the ITC said that ``even if U.S. apparel
imports from Mexico grow by as much as 200 percent in the long run the
U.S. industry's labor force will likely decline by about three
percent.'' According to the 1997 ITC report on the effect of NAFTA,
total employment in the apparel industry declined by 138,000, a 14%
decline. (Of course, not all of this can be attributed to Mexico). The
ITC also predicted that removal of U.S. quotas and tariffs would likely
result in an increase in U.S. apparel imports from Mexico of roughly 45
percent in the short term and 57 percent in the long term. In fact,
between 1993 and 1997 imports of apparel from Mexico increased by 350%.
Mexico now accounts for over 13% of U.S. apparel imports.
Perhaps the Committee will understand if UNITE has little
confidence in studies by the ITC which predict little harm to the
domestic industry.
Conclusion
There is nothing wrong with African countries having access to U.S.
markets. But this should not be done at the expense of workers in
America or in Africa. Market access should be linked to adherence to
internationally recognized labor rights. As an incentive to promote
labor rights, apparel and textile quota should be transferred from
countries that do not respect labor rights to those that do.
U.S. policy toward Africa should be judged by its effect on the
lives of ordinary people. Broad-based development requires that workers
enjoy internationally recognized human rights, and that policies
produce improvements in physical infrastructure; production of basic
commodities for national, regional and international markets; promotion
of locally owned enterprises; and sufficient government control to
balance private capital needs with broader societal needs. This bill
falls short in all these areas.
The essential point was expressed well in a letter to the Senate
last year circulated by Randall Robinson of TransAfrica and signed by
many prominent African Americans:
Under the cover of an appealing name . . . the Lugar-Crane
bill contains numerous provisions mainly aimed at benefiting
large foreign private investors and multi-national corporations
at the expense of true and equitable African development.
Chairman Crane. Thank you.
Mr. Rogowsky, Mr. Moore says that your commission's study
of our bill contains three major flaws which dramatically
underestimate the number of U.S. jobs that could be lost as a
result of the bill. Are you aware of that?
Mr. Rogowsky. Yes, Sir.
Chairman Crane. Could you respond?
Mr. Rogowsky. Yes. I can. They, for the most part, argue
that we do not take account of transshipment and foreign
investment into Africa. I think they make their case a little
too strongly to say that we say it is zero or that we ignore
it. We don't ignore it.
I think partly it is because they misunderstand the kind of
analysis that we performed. They are looking at a statistical
kind of analysis in which one creates a forecast of the future,
in which case you would look at our examination of past
investment and past transshipment, by which you would then
project into the future of what that investment and
transhipment might be.
That is not the kind of analysis that we did. I think they
misunderstand it. If you'll excuse my economic jargon for just
a second, what we did was a comparative static nonlinear
partial-equilibrium analysis, which is basically an assessment
that looks at the world as it exists today and it takes a
policy change, puts that policy change into the world as we
know it today, and tries to understand what that change would
be, how that would affect other policies, how it would affect
production, how it would affect employment, how it would affect
imports. That was the analysis we performed.
So instead of having an historical look at transshipment
and investment in Africa, what we did was incorporate those in
the amount of imports that would come in from Africa. That was
the variable that we changed. So there assumed in the analysis,
by virtue of the increase in imports. We took it beyond that
which we would think would happen in Africa by doing a near
tenfold increase. That tenfold increase would incorporate quite
a bit of investment, successful investment, and quite a bit of
transshipment. I will also say that the data that we used
included transshipment data that was already in, because that's
counted in as Africa trade.
So I think our analysis actually does a good job of
projecting what a pretty optimistic view of African production
would be and its effect on the United States.
Chairman Crane. I would like to just add that this bill
contains the strongest language ever proposed to enforce
against illegal transshipment of textile and apparel products.
That's not to say it's perfect, but it's tougher than anything
before.
Let me ask, and I'll address this to Ms. Fedorko, the
textile and apparel provisions of the bill, according to Mr.
Moore, would promote instead massive illegal transshipments of
Asian apparel through Sub-Saharan Africa to gain duty-free
access to our market. What is your assessment of that?
Ms. Fedorko. I would say that in a very time-sensitive
business that we're in, to be transshipping garments through
different regions of the world just doesn't make any sense. I
think that if we are going to manufacture and produce a product
in a particular region of the world, we want to be able to
produce that product wholly in that particular area, and get it
to the United States as quickly as possible and into our retail
companies.
Chairman Crane. Is it realistic to contemplate a U.S.
fabric rule that would require shipment to Sub-Saharan Africa
and then shipment back here, I mean economically?
Ms. Fedorko. A U.S. fabric clause would absolutely mean
nothing. For us to ship fabric or components from the United
States to Africa, manufacture the products in Africa, ship the
products back to the United States, just doesn't make any
sense. I mean it's just too long, too time consuming, and it
just doesn't work for our business.
Chairman Crane. Too expensive too.
Ms. Fedorko. Yes.
Chairman Crane. Thank you.
Mr. Levin.
Mr. Levin. Thank you, Mr. Chairman. This has been an
excellent panel. You know, looking or hearing your disagreement
one might get discouraged, but actually I am encouraged because
at least we're talking about an issue that I think is relevant,
and some have suggested it isn't. But here we are, Trade
Subcommittee, and we are talking as we should be about the
potential impact of a bill on businesses and jobs in the United
States, pluses and minuses. So the notion that it doesn't
matter, it's irrelevant, just pass the bill, I think we're
learning that we have to take on the set of issues that the
five of you have been talking about, and about which you
disagree.
I think it is encouraging the President, we're talking
about developing economies and the impact of trade with them
and competition with them with their different structures than
the United States on American businesses and workers. The
President, in his economic club speech in Detroit talked very
much about the need to consider these factors, and there must
not be a race to the bottom, the same language that you said,
Mr. Levinson, though he favors the bill and you don't. But
there is agreement on that, and that we need to work to level
up and not level down. So we're making progress here. We're at
least now incorporating in our consideration a broader view of
what trade issues are.
So let me just say a word and ask a question. It is being
said though in this case, we're talking about a very small
impact. It isn't like some of the larger trade issues. Whatever
is said about the study from the ITC, we're talking about at
this point a relatively small impact, that we have to look at
all of them.
Second, that it would displace, what would be displaced
would not be American sourcing, but sourcing from other
nations. I think we need to go into both of those. But I want
to concentrate for 1 second on whether the labor market, I
don't like labor rights so much as a phrase, but the labor
market, labor standards, core labor rights issues aren't
involved.
Now, Mr. Levinson, as I understand the way this is
structured, the trade provisions tie into GSP. With GSP, as I
said in my opening statement, you have provisions that are very
explicit in terms of core labor standards. As I understand,
I'll just read to you from the GSP, it says, ``The President
shall not designate any such countries not taking or is not
taking steps to afford internationally recognized worker rights
to workers in that country.'' The Committee report, and I find
this a positive step forward, because you know we have been
arguing whether we should consider labor market issues as well
as others. The Committee report pointed out that the GSP
program has within it a clear set of references to these
issues.
So enlighten me. It seems to me to be there in a meaningful
sense.
Mr. Levinson. Well, that is an important point. The way I
read this bill, it even threatens current GSP beneficiaries in
Africa with the loss of preferential tariffs if they don't meet
a whole set of criteria listed in this bill, the
conditionalities in this bill. Now I think that I think is a
problem with this bill, and that labor rights aren't in those
conditionalities.
Mr. Levin. But they are in the GSP.
Mr. Levinson. They are.
Mr. Levin. And so it seems to me that there is agreement
here that there are conditionalities, that we are not assuming
that regardless of how they go or what the impact is on the
United States, more trade is automatically better. We are
saying there are conditionalities. It seems to me that the
conditionality regarding core labor rights is built in through
the GSP mechanism.
We ought to talk about this further because we are going to
mark this bill up. I am going to support it, and I think it is
a good step forward, but I think we need to look at that issue.
We also need to look at the transshipment issue. If we don't
have time today, before the next markup. It's been said these
are the strongest transshipment provisions, Mr. Chairman, that
have been incorporated into law. I think that is one of the
issues we need to work out now and then with the Senate.
So maybe because the red light is on, we should be in
further touch, all of us, after this meeting to see if what you
say may not be there isn't really there. Thank you, Mr.
Chairman.
Chairman Crane. Mr. Camp.
Mr. Camp. Thank you, Mr. Chairman. I wanted to thank all of
the panel for being here. I am sorry I wasn't here for your
verbal testimony. We had a meeting with the Speaker. But I did
want to thank Mr. Apley. I have read his written comments, and
particularly for setting out in a very clear way what the
benefits of increased Sub-Saharan trade would be. I appreciate
all of you coming. Thank you.
Chairman Crane. Mr. Jefferson.
Mr. Jefferson. Thank you, Mr. Chairman. I suppose I want to
make a statement, and perhaps it will work itself into a
question. Let's see if it does. I was on a trip with the
President, the trip that he made to Africa in March of last
year. This issue of transshipment and corruption came up in a
meeting in Uganda, where there were six African heads of state,
the president of Uganda, of the Democratic Republic of Congo,
of Kenya, of Tanzania, of Eritrea, and of Ethiopia. I'm sorry,
Eritrea wasn't there. It was represented by someone, but the
Ethiopian president, Meles, was there.
When the issue came up as to whether this bill was going to
permit the sort of transshipment activities being discussed by
Mr. Moore, that Chinese products would be substituted for
African products and simply labeled as if they were coming from
Africa, each one of them stood to take strong exception to that
whole line of thinking. They made the point I think very, very
strongly that they wanted to create jobs in their own
countries, they wanted to have their people working, they
wanted to create the industry and manufacturing there, on their
own soil. They would have no interest whatsoever in having a
system that permitted transshipment as the order of the day
with respect to this sort of manufacturing.
So they were perplexed, it seemed, as to how we could think
that this is what the Africans had in mind. They pledged to us
every effort they could make to make sure it didn't happen,
because if it did, the bill would mean very little to their own
people.
So I think you ought to take into account not the reports
that are being made by someone who suggests that there is
systemic corruption as your report says here in Africa. Perhaps
there is, but this bill in some respects, or this bill would
not make any sense at all were it not for the new spirit of the
leadership in Africa that is saying today this is the old
Africa. This is not what we want to do in the future. This is
not what is going to happen under this bill. They made their
pledge quite strongly to us. I think is the spirit in which I
believe we ought to pursue this legislation, that the African
governments are depending upon this as a way to strengthen
their own economies, and not the other way around. There's
also, as has been pointed out by the Chair and others, very
strong provisions in here that make that difficult to be done
in any event.
I want to know if this issue of ``you can't have it both
ways,'' Mr. Moore, that you said a minute ago about the ITC
thing, that it will have very little impact on our jobs in this
country, and at the same time, be beneficial to Africa. I
think, although and I maybe should ask both of you that
question, I think that it means that in the large sense of all
the textiles, the billions of dollars, the $49 billion or
something like that in textiles coming to this country from
various places around the world, the impact if Africa expands
another 2 percentage points or whatever, will be minimal
compared to what's already going on here. But on the other
hand, in their own countries, on their own soil, there will be
tremendous activity around the production. Therefore, many more
jobs created, I think some figure in the hundreds of thousands
or something like that, of jobs in Africa, but very little job
loss here.
Why do you think that one can't exist with the other, that
they are inconsistent? Why is the ITC report wrong in that
regard?
Mr. Moore. Was this for me, Mr. Jefferson?
Mr. Jefferson. For both of you really, but I hope you'll
give it a shot. Then maybe I can be responded to.
Mr. Moore. Well, the evidence of what's happened in the
past whenever we have gone to a duty-free, quota-free
arrangement with a country would show quite different outcomes
from the ITC report. The ITC reported that gains from Mexico
would be rather modest with NAFTA. The gains from Mexico,
because of duty-free, quota-free textiles and apparel have been
enormous, with 300-
percent increases in an already substantial amount of trade. In
fact, Mexico passed China in 1998 as our largest supplier of
imported apparel. So it does grow.
The more relevant example may be the Northern Mariana
Islands. They have no comparative advantage. The only
comparative advantage is that they are a territory of the
United States and they have quota-free, duty-free access to our
market. This year they will ship us well over $1 billion of
apparel, up from practically nothing a few years ago. They
don't even have the labor. The labor is imported Chinese labor
or Bangladeshi. So the incentives are there. That is what was
ignored in the ITC report, much less the major mistake that
with the ITC report they assume that there was not going to be
any significant new development, any new investment, excuse me.
So they assumed away the problem.
Mr. Jefferson, if I might make just a comment about
transshipment, because you made a statement there and several
others, including the chairman, about transshipments. Today
China, by whatever estimate, transships illegally somewhere
between $2 and $4 billion. We have spent a lot of money with
investigators in the Far East. We found evidence, clear
evidence of transshipment, which we have shared with our
government. But most of that transshipment today goes through
two places, Hong Kong and Macau.
Now they have a rule of law, a transparent system. They are
not as big as the District of Columbia maybe. I may have my
geography a little wrong, but I know they are pretty small. I
have been there many times. Yet we can not seem to curb
effectively that transshipment. It's not a question of the
African countries not wanting to curb transshipment. I think
the Hong Kong authorities want to curb it. It's just very
difficult to do, very difficult to trace where that product was
produced. I think that by expanding it through Africa, they
will take away jobs from African production. They will take
away jobs from U.S. textile workers.
Chairman Crane. Let me interrupt here. I am sorry, Mr.
Jefferson and witnesses, but we have 5 minutes left to mark up.
So I have got to thank you all for your participation. Sorry
for the extenuating circumstances. I look forward to hearing
from you again too. Thank you.
[Whereupon, at 1:35 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of Paul Ryberg, Jr., President, African Coalition for Trade,
Inc.
This statement is submitted by the African Coalition for Trade,
Inc. (ACT) for the record of the Committee of Ways and Means' February
3, 1999 hearing on the African Growth and Opportunity Act (the Africa
Bill). On behalf of the private sector in Sub-Saharan Africa (SSA), ACT
encourages the Committee on Ways and Means to give favorable and prompt
consideration to the Africa Bill, which would establish a long-overdue
comprehensive U.S. policy in support of economic development in SSA.
ACT is a non-profit, member supported trade association dedicated
to enhancing the opportunities for mutually beneficial trade and
investment between the private sectors in the United States and SSA.
ACT's membership consists of private sector organizations from
Madagascar, Mauritius, Mozambique and South Africa. Most of ACT's
members are themselves chambers of commerce and trade associations,
each with numerous companies as their members. ACT, therefore,
indirectly represents the views hundreds of private sector companies in
SSA. In addition, the Common Market of Eastern and Southern Africa
(COMESA), a regional trade promotion and integration body consisting of
21 African nations, is an associate member of ACT.
Experience has shown that the foundation necessary for sustained
economic development can best be established through direct private
sector participation. The Africa Bill puts this experience into action
by encouraging private sector participation in the economic development
of SSA through incentives for investment and expanded opportunities for
mutually beneficial trade. While the Africa Bill will definitely assist
in the further economic development of Africa, it will simultaneously
benefit the United States by creating new opportunities to export U.S.
products, which will in turn create new jobs in the United States. In
short, the Africa Bill makes good sense for both Africa and the United
States.
While all provisions of the Africa Bill are important, Sections 8
and 9 of the bill are critical to the successful economic development
of SSA. Sections 8 and 9 would: (1) lift U.S. quotas on apparel
imported from countries in SSA that adopt satisfactory measures to
prevent transshipment and (2) eliminate U.S. import duties on ``non-
sensitive'' apparel products from these countries. Of all the
provisions of the Africa Bill, only Sections 8 and 9 would create new
jobs in the short term and create an opportunity for an immediate
expansion of trade necessary to fuel economic development in this
region.
While providing quota-free/duty-free access for textiles and
apparel from SSA would provide an immediate boost to the economic
development of those countries, implementing Sections 8 and 9 would
have at most only a marginal impact on the U.S. apparel and textile
industry and on U.S. employment. Because of the safeguards already
built into Sections 8 and 9, there is virtually no risk to the U.S.
textile/apparel industry, and the U.S. International Trade Commission
(ITC) has confirmed that the impact on the U.S. industry would be
negligible.
I. Establishing Successful Apparel Industries Is An Important First
Step In The Economic Development of Sub-Saharan Africa.
In a common pattern that has been repeated around the world, one of
the first steps taken by countries to develop their economies is to
establish an apparel industry. Because the start-up capital costs are
relatively low and the technological requirements are not usually
great, apparel manufacturing is one of the few viable options available
to developing countries trying to establish a manufacturing base.
Apparel manufacturing creates immediate employment opportunities in
developing countries, which typically have high unemployment. Creating
a successful apparel industry has typically served as a building block
for developing countries to expand into other areas of manufacturing.
This pattern has begun to be followed in SSA. Prior to the early
1980s, almost no apparel manufacturing existed in SSA. In 1983, only
two SSA countries--South Africa and Mauritius--exported apparel to the
United States, and their combined exports totaled only 26.608 million
square meters (sm), or 0.3 percent of total U.S. apparel and textile
imports.\1\ By 1998, 10 SSA countries were exporting apparel and
textiles to the United States, totaling to 143.473 million sm or 0.55
percent of total U.S. imports.\2\
---------------------------------------------------------------------------
\1\ December 1983 Major Shippers Report, U.S. Department of
Commerce, International Trade Administration, Office of Textiles and
Apparel (Major Shippers Report).
\2\ November 1998 Major Shippers Report.
---------------------------------------------------------------------------
To place this in perspective, no SSA country ranks among the top 40
apparel and textile exporters to the United States, while every other
region of the world is represented in the top 40. As a further point of
reference, in 1998 Mexico--by itself--exported to the United States 25
times the total volume of apparel and textile products supplied by all
of SSA.
Even more telling, when the Africa Bill was first introduced in
1996, SSA accounted for 0.68 percent of total U.S. textile/apparel
imports. By 1998, SSA textile/apparel exports had dropped to a 0.55
percent share of total U.S. imports. By comparison, during this same
period, imports from Mexico grew by 60 percent, and imports from the
Caribbean Basin Initiative (CBI) increased by 35 percent.\3\ In short,
apparel and textile imports from SSA are declining as a share of total
U.S. imports and remain literally a drop in the bucket of the total
U.S. market.
---------------------------------------------------------------------------
\3\ November 1998 Major Shippers Report.
---------------------------------------------------------------------------
In light of the elimination of import quotas on major textile and
apparel exporters in 2005 pursuant to the Uruguay Round Agreement on
Textiles and Clothing (ATC), coupled with the tremendous advantages
already enjoyed by Mexico under NAFTA, SSA will never achieve
meaningful access to the U.S. market unless something is done
immediately to assist in the development of apparel manufacturing in
SSA. The Africa Bill will provide the necessary impetus for developing
a successful apparel industry in SSA, which in turn will provide the
foundation for further economic development in the region.
II. The Uruguay Round ATC and NAFTA Create New Risks For Sub-Saharan
African Apparel Exports.
The gradual phasing out of country quotas under the Multifiber
Arrangement (MFA) by 2005, as required by the Uruguay Round ATC, will
result in intense competition for access to the U.S. market. Without
the Africa Bill, it is doubtful whether small and relatively new
producers like the SSA countries can even maintain their existing small
market share, once the quotas are lifted on large, low-cost producers
like China, Pakistan, India, Hong Kong and Indonesia. SSA exporters,
therefore, face a very limited window of opportunity to establish
meaningful apparel trade with the United States.
Even before the Uruguay Round was completed, however, U.S. trade
policy had begun to shift in favor of Western Hemisphere regionalism,
as exemplified by NAFTA, the negotiations to create a Free Trade Area
of the Americas (FTAA), and proposals to expand the trade preferences
accorded to the CBI countries. There is a real risk that further
expansion of Western Hemisphere trade preferences may curtail commerce
between the United States and SSA unless steps are taken to provide new
trade opportunities for SSA. This risk can be seen most clearly in the
case of NAFTA.
Under the Uruguay Round ATC, U.S. quotas on apparel imports will be
phased out over ten years. Under NAFTA, however, U.S. quotas on Mexican
apparel products that meet NAFTA's rule of origin were eliminated
January 1, 1994, and U.S. quotas on non-originating Mexican apparel
products will be phased out more quickly than under the ATC, with most
such quotas to be eliminated by 2001.
Equally important, Mexican apparel products have a permanent duty
advantage as a result of NAFTA. Under the ATC, U.S. tariffs on SSA
apparel exports will be reduced--but not eliminated--over ten years. In
contrast, under NAFTA, U.S. tariffs on qualifying Mexican apparel
products were reduced effective January 1, 1994, to lower than MFN
levels and will be eliminated completely by 1999-2003. Moreover, non-
originating Mexican apparel products are subject to preferential duty
rates under tariff rate quotas. As illustrated by the following table,
SSA apparel products are already at a substantial duty disadvantage
compared to the same products imported from Mexico.
----------------------------------------------------------------------------------------------------------------
Imported From Africa Imported From Mexico
Under GATT Under NAFTA
---------------------------------------------------
HTS No. (Category) Product Reduced
1998 Duty Duty by 1998 Duty Reduced
[In 2004 [In [In Duty [In
percent] percent] percent] percent]
----------------------------------------------------------------------------------------------------------------
6205.20.20 (340).................... Men's/boys' cotton 20.5% 19.7% 3.3% 0% (1999)
shirts.
6203.42.40 (347).................... Men's/boys' cotton 17.3 16.6 2.9 0 (1999)
trousers.
6204.62.40 (348).................... Women's/girls' cotton 17.3 16.6 2.9 0 (1999)
trousers.
6110.20.20 (345).................... Knit cotton sweaters.. 19.0 16.5 10.3 0 (2003)
6206.30.30 (341).................... Women's/girls' cotton 16.0 15.4 0 0
blouses.
----------------------------------------------------------------------------------------------------------------
Thus, NAFTA grants Mexico preferential access--in terms of both
quotas and duties--for its apparel and textile exports to the United
States. Of course, these NAFTA preferences for Mexico have affected
imports from all other regions, not just SSA. For instance, there has
been much discussion of the negative impact of NAFTA on textile/apparel
imports from the CBI countries, and legislation has been proposed to
provide ``NAFTA parity'' for the CBI. By comparison, however, SSA
textile/apparel exports to the United States have suffered far worse
than have CBI exports since NAFTA took effect:
U.S. Textile/Apparel Imports from CBI vs. SSA, 1995-1998\1\
----------------------------------------------------------------------------------------------------------------
Imports from CBI Imports from SSA
----------------------------------------------------------------------------------------------------------------
% of Total % of Total
Million sm Imports Million sm Imports
----------------------------------------------------------------------------------------------------------------
1995............................................ 2,171.972 11.8 140.458 0.76
1996............................................ 2,389.444 12.5 130.128 0.68
1997............................................ 2,978.703 13.0 141.016 0.61
1998............................................ 3,223.413 12.4 143.473 0.55
% Change...................................... 48.4% 5.1% 2.2% 27.6%
----------------------------------------------------------------------------------------------------------------
\1\ Major Shippers Reports, 1995-November 1998. Data for 1998 represents imports during 12 months ending
November 1998.
Thus, despite the disadvantages suffered by the CBI countries due
to the NAFTA preferences enjoyed by Mexico, the CBI countries have
nevertheless managed to expand their textile/apparel exports to the
U.S. market by nearly 50 percent since NAFTA took effect, and their
share of the total U.S. import market has actually increased by 5.1
percent. By contrast, U.S. textile/apparel imports from SSA have grown
by a mere 2.2 percent in absolute volume during the same period, while
SSA's share of total U.S. imports has fallen a dramatic 27.6 percent
since NAFTA took effect. It is clear, therefore, that the need for
``NAFTA parity'' is far greater for SSA than for the CBI countries.
While no one expects that enactment of the Africa Bill would make
SSA fully competitive with Mexico, providing quota-free/duty-free
access for SSA products will make SSA competitive with other regions
and enable SSA to obtain reasonable access to the U.S. market in the
face of the challenges presented by the Uruguay Round ATC and NAFTA.
III. Textile/Apparel Imports From SSA Pose No Threat To The U.S.
Industry.
The U.S. ITC has concluded that granting quota-free/duty-free
access to apparel and textiles from SSA, under the terms proposed by
the Africa Bill, would lead to an increase in apparel imports from SSA
of between 26.4-45.9 percent, and an increase in textile imports of
10.5-16.8 percent.\4\ In other words, under the Africa Bill apparel/
textile imports from SSA would still be less than 1.0 percent of total
U.S. textile/apparel imports.
---------------------------------------------------------------------------
\4\ Likely Impact of Providing Quota-Free and Duty-Free Entry to
Textiles and Apparel From Sub-Saharan Africa, U.S. International Trade
Commission, Investigation No. 332-379, Publication No. 3056 (September
1997) (hereinafter referred to as ITC Report).
---------------------------------------------------------------------------
Even with this assumed growth, SSA would remain far and away the
smallest regional supplier of textiles and apparel to the United
States. There is no risk of the U.S. market being swamped with apparel
imports from SSA.
Moreover, the types of products SSA would be likely to export
confirm that there would be little, if any, harm to the U.S. apparel/
textile industry as a result of the Africa Bill. Start-up apparel
manufacturing operations, like those that would be established in SSA,
almost always produce low-end products such as cotton T-shirts and
underwear. The U.S. apparel industry, however, manufactures primarily
more sophisticated and more value-added products, and very little of
the entry-level type products is currently produced in the United
States. As a result, increased imports from SSA would displace imports
from other countries, primarily in Asia, rather than U.S. production.
In addition, the Africa Bill has built-in safeguards to prevent
injury to the U.S. apparel/ textile industry. Section 9 of the Africa
Bill provides that duty-free treatment will be accorded only to
products that are found not to be ``import-sensitive.'' In other words,
if imports from SSA of a particular type of apparel product are
considered likely to cause harm to the domestic industry, such products
will not be eligible for duty-free treatment, thereby eliminating most
of the incentive to export such products.
IV. There Is Little Risk of Transshipment Through SSA
It has been suggested that massive illegal transshipment of Asian
apparel through SSA will occur if SSA is granted quota-free/duty-free
access to the U.S. market. The facts, however, prove the contrary.
The assertion that massive transshipment would occur simply ignores
the viable anti-transshipment measures already contained in the Africa
Bill. Thus, Section 8 requires the adoption of ``functioning and
efficient'' visa systems in each of the SSA countries as a precondition
of quota-free access to the U.S. market. In close cooperation with the
U.S. Customs Service, Mauritius implemented such a visa system in 1995,
and it has proven to be highly effective in preventing transshipment.
Similarly, the Africa Bill continues the standard rules of origin
for apparel--the ``Breaux-Cardin'' rules of origin--which require that
35 percent of the value of the product must be added in SSA in order
for the product to be eligible for duty-free access. The cost of the
fabric used in making a garment typically constitutes approximately 60
percent of the total value of the garment. With only 40 percent of the
value remaining to be accounted for by cutting, sewing and finishing,
it is readily apparent that all of the assembly and finishing has to
occur in SSA for the Africa Bill's value-added requirement to be met.
It will not be possible, therefore, for partially assembled garments
from Asia to qualify for quota-free/duty-free access as a result of
minor processing in SSA.
Moreover, the Custom Service has developed aggressive new tactics
to prevent transshipment, including ``jump teams'' to conduct on-site
inspections, requiring import documentation to prove the productive
facilities and the number of employees at the factory, etc. If there
were a sudden surge in apparel imports from a country in SSA that had
not previously been an exporter to the United States, we are confident
that the Customs Service would immediately and effectively investigate
whether the imports were legitimate or transshipped.
Most importantly, transshipment through SSA has not been a problem
in Europe, where SSA apparel has had access for years similar to that
proposed by the Africa Bill. Moreover, 46 of the 48 SSA countries
already have quota-free access to the U.S. market. If SSA were an
attractive opportunity for transshipment, one would suspect that the
absence of quotas on these countries would already have led to
significant transshipment. The U.S. Customs Service has recently
confirmed, however, that transshipment is not a significant problem in
SSA.\5\ Indeed, the Customs Service's most recent list of transshippers
identifies nearly 100 companies known to have illegally transshipped
apparel to the United States, but not one of the companies on the list
is located in SSA. 63 Fed. Reg. S3493 (Oct. 5, 1998). In short, illegal
transshipment through SSA will not be a problem under the Africa Bill.
---------------------------------------------------------------------------
\5\ See May 15, 1998 edition of Inside U.S. Trade and reprinted
letter from Janet L. Labuda, Director of International Trade Manager of
the Customs Service. In her letter, Ms. Labuda chastised ATMI for
distorting the facts in its submissions in opposition to the Africa
Bill and stated: ``While it is true that we have found some
transshipment from Sub-Saharan countries, we would not consider these
significant or part of an organized pattern. The most recent
transshipment findings were isolated instances generally occurring
prior to 1996.''
---------------------------------------------------------------------------
V. The 807A/809 Programs Are Not Viable Alternatives For SSA
It has been suggested that the limited quota-free/duty-free apparel
trade provisions of the Africa Bill should be replaced with the 807A or
809 programs.\6\ The proponents of the 807A/809 alternative suggest
that this approach should work in SSA because of the success of the 807
program in the CBI region.\7\ The 807 program has indeed been a success
in the CBI, making the CBI countries, taken together, the number one
supplier of apparel to the United States. The 807 program has worked in
the CBI for three reasons: (1) direct involvement by U.S. apparel or
textile companies--usually to the point of full or partial ownership of
the operations in the CBI; (2) low transportation costs due to
proximity to the United States; and (3) ``quick response,'' i.e., the
ability to complete and deliver orders in the shortest possible time,
again due to short transport times. None of these factors is present in
the case of SSA.
---------------------------------------------------------------------------
\6\ Under the 807A program only apparel assembled in SSA from
fabric that was made and cut in the United States would qualify for
quota-free/duty-free treatment. Under the 809 program only apparel made
in SSA from uncut U.S.-origin fabric would be eligible.
\7\ Under the 807 program, preferential access and reduced duty
treatment apply to apparel assembled abroad from U.S.-origin
components.
---------------------------------------------------------------------------
First, the 807 program is theoretically available to SSA today, but
U.S. apparel and textile companies have shown no interest in
establishing operations in SSA under 807. Indeed, in testimony before
the ITC in Investigation No. 332-379, Mr. Larry Martin, President of
the American Apparel Manufacturers Association, admitted that, even
under the quota-free/duty-free terms of the Africa Bill, U.S. companies
were unlikely to establish operations in SSA, primarily due to the
great distance from the United States and resulting long transport
time.
Second, SSA exports are generally at a competitive disadvantage,
compared to similar products exported from other regions, because of
the considerably higher freight costs involved in shipping products
from SSA to the United States.\8\
---------------------------------------------------------------------------
\8\ ITC Investigation No. 332-379, Transcript of May 1, 1997
hearing at 47.
Overall, the countries of Sub-Saharan Africa generally are at
an important transport cost disadvantage relative to
competitors . . . [I]nternational transport cost have a
significant adverse impact on the level of African exports.\9\
---------------------------------------------------------------------------
\9\ Alexander Yeats, Azita Amjadi, Ulrich Reinche, Francis Ng, Did
External Barriers Cause the Marginalization of Sub-Saharan Africa in
World Trade, World Bank (1996). The authors also observed that
transportation costs are up to 25 percent higher for the 14 land-locked
countries of SSA than for the coastal countries.
In its investigation of the textile provisions of the Africa Bill,
the ITC likewise concluded that the African transportation cost
disadvantage affects the apparel industry, with the cost of shipping
apparel from SSA to the United States exceeding the cost of
transporting like products from either Asia or the Caribbean by a
significant margin.\10\
---------------------------------------------------------------------------
\10\ ITC Report at 3-18--3-19.
---------------------------------------------------------------------------
The proposed 807A/809 program for SSA would compound this existing
freight disadvantage by adding the requirement that the fabric must
first be transported from the United States to SSA. As a result of this
additional freight cost, the 807A/809 proposal would increase the total
cost of finished garments made in SSA by at least 10 percent, as
compared to the total cost of the same garment made from African-origin
fabric.
Even with duty-free treatment under the 807A/809 program, the
additional 10 percent freight disadvantage transport cost makes the
benefit of duty-free access illusory. After the duty reductions
required by the Uruguay Round ATC, the average U.S. duty on SSA apparel
will be approximately 14.1 percent.\11\The 10 percent additional
transportation costs required by the 807A/809 proposal virtually wipe
out the benefit of duty-free access.
---------------------------------------------------------------------------
\11\ Peter Harrold, The Impact of the Uruguay Round on Africa, The
World Bank, Report No. 311 (1995).
---------------------------------------------------------------------------
Third, the 807A/809 proposal would add considerably to the time
required to produce apparel in SSA and deliver the finished product to
buyers in the United States. It takes approximately 50 days to receive
delivery of fabric from the United States to the 11 SSA countries
located on the east coast of Africa, and transport time is even longer
for the 14 land-locked countries of SSA. Significantly, most of the SSA
countries with existing apparel industries are either on the east coast
of Africa or are land-locked.
In the modern apparel industry, the time required between placing
an order and receiving delivery of finished garments is critical and
can make the difference between the buyer's choice of one supplier over
another, all other factors being equal. Adding 50 days to the turn-
around time for SSA apparel will place SSA exporters at another serious
competitive disadvantage vis-a-vis Asian and Western Hemisphere
producers.
In summary, none of the factors necessary for the 807A/809 program
to succeed--involvement by U.S. companies, low transportation costs,
and quick turn-around--would be present in SSA. The 807A/809 program,
therefore, would be doomed to failure in SSA.
VI. The Africa Bill Will Benefit African Workers
Certain opponents of the Africa Bill have made the incredible
assertion that passing the bill will lead to a flood of non-African
workers (allegedly from Asia) being imported to SSA to work in the
apparel factories. These critics assert that African workers will not
benefit from the Africa Bill.
This contention has no basis in fact. The countries of SSA have a
huge supply of available labor. In some SSA countries, the unemployment
rate is as high as 50 percent. Moreover, labor costs in most SSA
countries are fully competitive with Asian wages. It makes no economic
sense, therefore, for SSA apparel manufacturers to import foreign labor
instead of utilizing the abundant and competitively priced local labor.
It has been pointed out that foreign labor is currently used in
Mauritius. This is due to unique and temporary circumstances in
Mauritius that are not duplicated elsewhere in SSA and that are
currently being phased out in Mauritius. Mauritius is a small island
off the east coast of Africa. It has a total population of only 1.1
million. Mauritius has a long history of stable and open democracy and
respect for human rights, including strict protection of labor rights.
Labor in Mauritius is unionized, the right to collective bargaining is
guaranteed by law, the unions are quite active in protecting the rights
of their members, and working standards and conditions are regulated by
the government.
Because of growth in employment in both the apparel industry and
other sectors, coupled with its limited labor pool, Mauritius has
experienced a tight labor market in its apparel industry. By contrast,
most other countries in SSA have high unemployment.
As a result of these unique conditions in Mauritius, its apparel
manufacturers were forced to employ a limited number of foreign
nationals. Foreign workers have been used on a temporary basis while
(1) the apparel industry has been making the transition from low-cost,
labor-intensive manufacturing to higher value-added products that are
more capital-intensive and (2) Mauritian companies develop apparel
manufacturing facilitates in neighboring countries with abundant labor.
Consistent with the regional integration objectives of the Africa Bill,
Mauritian companies have opened or are currently investing in
production facilities in high-unemployment countries like Madagascar,
Lesotho, and Mozambique. These new plants employ workers from the
depressed local labor markets, providing thousands of jobs. In
Madagascar, for example, Mauritian companies have created 25,000 new
jobs over the past five years.
The Government of Mauritius authorized the use of foreign workers
on a temporary basis only, and it is planning to phase out their use
altogether. Foreign workers constitute only 8.6 percent of the apparel
industry work force. Moreover, these workers receive standard Mauritian
wages and are fully covered by the Mauritian labor laws.
There is no basis for the contention that local workers in SSA will
not benefit from passage of the apparel trade provisions of the Africa
Bill. On the contrary, the Africa Bill will provide tens of thousands
of new job opportunities in SSA, and the benefits of these new jobs
will go to the local workers, not to imported foreign labor.\12\
---------------------------------------------------------------------------
\12\ For example, the South African apparel industry has estimated
that enactment of the African Bill would lead to the creation of 30,000
new apparel jobs in South Africa alone. See March 26, 1998 edition of
The Cape Argus.
---------------------------------------------------------------------------
Conclusion
The apparel trade provisions of the Africa Bill present a unique
opportunity to assist SSA apparel to become competitive in the U.S.
market. The bill would lead to a modest increase in apparel imports
from SSA, and it would create tens of thousands of new jobs in SSA. The
development of a healthy apparel industry in SSA would, in turn, serve
as a catalyst for economic development in other sectors in the region,
thereby making SSA a significant trading partner with the United States
and, ultimately, a substantial and reliable market for exports of U.S.
products.
There is a limited window of opportunity for SSA apparel exports to
establish themselves in the U.S. market, however, as the quotas on
larger, lower-cost producers are being phased out by 2005 pursuant to
the Uruguay Round ATC. If SSA apparel exports have not managed to
obtain a meaningful share of the U.S. market prior to 2005, SSA apparel
exports to the United States probably never will become anything more
than a drop in the bucket. In that event, SSA will have lost one of the
few proven foundations for sustainable economic development.
Statement of The Boeing Company, Arlington, VA
Boeing appreciates this opportunity to comment on its trade
relationship with Africa and affirm its support for the Africa Growth
and Opportunity Act. The company congratulates the Congress and the
Administration for its efforts to focus government institutions and
policy on African trade issues. Efforts within U.S. export-enhancement
agencies--Export Import Bank, Overseas Private Investment Corporation,
and Trade and Development Agency--are particularly beneficial. Boeing
also applauds the Congress, Department of Transportation Secretary
Rodney Slater, and the Administration for their leadership in promoting
Africa's air safety and security--necessary precursors to growth--
through the Safe Skies for Africa initiative.
Taking the next step of passing the Africa Growth and Opportunity
Act through both houses of Congress will strengthen the efforts already
underway, and initiate sorely-needed reforms and enhancements for
deepening our commitment to trade with our African partners.
Boeing has a long history of providing commercial jet airplanes to
African carriers. From the first model 707-320 delivered to a South
African carrier in 1960, to the delivery of one of the most popular
airplanes in the world, the twin-aisle 767-300ER, to an Ethiopian
carrier last month, we value our partnership with African airlines. In
fact, 66 percent of today's African fleet is Boeing-built, 367 of 559
jet airplanes valued at $18 billion (1998 dollars) in U.S. exports.
These exports mean jobs, not just for Boeing employees in 27 states,
but also for its extended supplier chain of approximately 6000 small,
medium, and large U.S. companies across the nation.
The Boeing Company is planning for continued growth on the African
continent. Despite the challenges engulfing certain African countries,
the company estimates Africa will require nearly 750 additional new and
used airplanes in the next 20 years, totaling approximately $30 billion
in high-tech, high-value potential U.S. exports. This export total for
airplane equipment excludes the substantial potential U.S. exports that
accompany airplane sales--exports generated by the need to support the
equipment, cargo handling, security and safety, and passenger handling
components of a complete air transportation infrastructure and system.
And the jobs benefits are not limited to our shores. Demand for
Africa-based services and manufacturing to support increased travel and
tourism industries is growing, increasing wealth and opportunity.
A robust transportation system is one of the basic building blocks
needed for economic growth, and air transport systems are a major piece
of the puzzle. As cultural and regulatory engagement and economic
investments grow, so do the demands for safe, reliable, and efficient
passenger, package and cargo delivery. In Africa's case it is
particularly vital because of the continent's vast geographic spread
and the fact that surface transportation links between points are less
developed.
As African nations continue to develop they will require
substantial new investments, straining existing trade and investment
regimes, including the U.S. export-support agencies ExIm, OPIC, and
TDA. We must broaden bilateral and multilateral relations to support
growing U.S. exports and investments, and aid in increasing the
purchasing power of African countries so they can participate fully in
the rapidly integrating global economy. The African Growth and
Opportunity Act will help relieve pressures by increasing dialogue
between nations and support for ExIm, OPIC, and TDA. This will
strengthen the economic position of African trade partners and clear
away some of the barriers that bog down and harm trade relations.
Boeing urges all Members of the House and Senate to support this
legislation.
Africa will progress down the path of development with or without
heightened U.S. involvement. Our government can, however, influence the
rate and direction of the continent's development and grow the
bilateral relationships.
We have a choice as a nation to engage Africa more meaningfully as
it develops or accept the status quo. Boeing urges the Congress to
support the African Growth and Opportunity Act and similar efforts to
deepen our commercial, institutional, and cultural links, benefiting
countries on both sides of the Atlantic.
Statement of The Ferroalloys Association
On behalf of The Ferroalloy Association (TFA) and its members, we
write to express our concerns over two provisions which were included
in last year's African Growth and Opportunity Act and hereby request
that our comments be included as part of the written record. The
Ferroalloys Association supported the goal of the act ``to facilitate
the social and economic development of the countries of Sub-Saharan
Africa in a manner which strengthens and expands market-led economic
growth consistent with equitable and efficient development and which
reduces poverty and increases employment among the poor.'' However, as
mentioned, there are two specific provisions within the Generalized
System of Preferences (GSP) section of the bill that TFA opposed and
will continue to oppose in any new proposal put forward in the 106th
Congress.
Background on The Ferroalloys Association
The Ferroalloys Association is an industry advocacy group made up
of the producers of chromium, manganese, silicon, vanadium ferroalloys
and related basic alloys/metals in the United States. Founded in 1971,
TFA represents over 20 companies with facilities in 25 different
states.
Approximately 100 years ago, the U.S. ferroalloy industry emerged
with the introduction of the electric arc furnace. Soon thereafter, it
expanded rapidly to meet the needs of the United States for projectiles
and armor plates during the Spanish American War.
Ferroalloys are high strength metals created by submerged electric
arc smelting, induction melting, alumino/silicothermic reduction
processes, and vacuum reduction furnaces, as well as by electrolytic
processes. More than fifty different alloys and metals in hundreds of
compositions and sizes are produced by the ferroalloy industry for use
in the manufacturing of batteries, stainless steel, iron, and aluminum.
The industry also produces vital materials used in the production of
chemicals, semi-conductors, solar cells, coatings, and catalysts.
In the 1970's and 80's, the U.S. ferroalloy industry declined
sharply, largely due to foreign import penetration and rising
environmental standards. From 1970 to 1990, the annual domestic
production of alloys dramatically decreased from 2,340,000 to 645,000
net tons per year, while imports increased from 350,000 to 1,490,000
net tons per year. Foreign competitors flooded the U.S. market at
significantly lower prices, resulting from foreign government
subsidization of electricity costs, capital investments,
transportation, and taxes. As a result, U.S. producers faced high
operating costs and declining prices which forced them to reluctantly
lay off workers and shut down plants at an alarming rate. These
closings resulted in plants abandoning vital research and development
programs in order to remain in business. Simultaneously, the U.S.
government imposed strict environmental standards on metals producers,
forcing companies to direct large amounts of capital to environmental
control equipment.
Although American ferroalloy producers still suffer from high
levels of import penetration, they are recovering and more able to
compete in the global market. Improved federal government support,
coupled with the industry's renewed commitment to quality and
performance, will enable the domestic ferroalloy industry to reclaim
its place in the world economy. The U.S. ferroalloy industry has
resurfaced as a core of producers who are attempting to gather the
resources and public policy support necessary to effectively compete in
the fierce global market. Increased technological quality, along with
stronger U.S. trade laws designed to challenge import penetration,
enabled domestic producers to become more globally competitive,
resulting in greater industry success.
Rule of Origin Change Could Lead to Duty Circumvention
First, TFA is concerned with the change in the rule of origin
calculation for countries in Sub-Saharan Africa. Decreasing the
percentage value of an article from ``processing operations performed''
in the eligible countries may ultimately lead to a situation of duty
circumvention. Other countries will run their products through Sub-
Saharan African nations, having only minor packaging changes actually
take place there, in order to ``originate'' in those countries. This
does a disservice both to the U.S. Treasury which will collect lower
duties, and more importantly to the Sub-Saharan African nations who do
not get the advantage of increased higher paying jobs associated with
more substantial processing. The only entity which benefits from this
provision are the third-party countries which undertake duty
circumvention.
Waiver of Competitive Need Limit Violates the Purpose of the GSP
Program
Second, TFA opposes the designation of all Sub-Saharan Africa
nations on par with Least Developed Beneficiary Developing Countries
(LDBDCs) with the automatic waiver of the competitive need limit.
Specifically, TFA opposes the inclusion of this language which violates
two of the founding purposes of the GSP program. The GSP program was
initially proposed to ``promote the development of developing countries
which often need temporary preferential advantage to compete
effectively with industrialized countries.'' A permanent waiver of the
competitive need limit violates the ``temporary preferential
advantage'' purpose, and does not permit any inquiry into whether or
not the nation can ``compete effectively with industrialized
countries'' in that industry. TFA is not necessarily opposed to the
idea of waivers of the competitive need limit. However, the GSP program
already effectively deals with this issue by only allowing the waiver
for properly designated LDBDCs. Thus, the decision as to whether or not
a country is an LDBDC should decide whether or not a country can waive
the limit. In fact, several Sub-Saharan Africa nations are already
considered LDBDCs. There is no need to give a blanket waiver to all
Sub-Saharan Africa nations.
Conclusion
In closing, TFA would like to make it clear that domestic
industries other than ferroalloys will be harmed if these provisions
are included in the 106th Congress. Unfortunately, this bill has been
portrayed as only a concern of the textile industry. Clearly, this is
not the case. If the issues TFA outlined above are not addressed, this
bill will have detrimental effects on the ferroalloy industry and many
others. TFA strongly urges the Trade Subcommittee to look closely at
the language contained in last year's version of the bill and oppose
its inclusion.
Statement of the Footwear Industries of America, Inc.
I. Introduction and Statement of Position
This statement is submitted on behalf of Footwear Industries of
America, Inc. (FIA), a trade association representing domestic
manufacturers and distributors of nonrubber footwear, and a substantial
portion of their suppliers. The domestic nonrubber footwear industry
encompasses men's, women's, children's, athletic, work, slippers, and
other footwear. The industry is located in 34 states where it operates
in over 300 footwear manufacturing establishments.
This statement responds to the Subcommittee on Trade's request for
input from interested parties regarding trade with Sub-Saharan Africa.
The domestic nonrubber footwear industry is opposed to the
elimination of the exclusion of nonrubber footwear from coverage under
the GSP for Sub-Saharan African countries. Tremendous import growth
over the years has devastated this domestic industry and left it a
shell of what it once was. Duty-free treatment for nonrubber footwear
will stimulate rapid growth in imports from Sub-Saharan African
countries, which will erode further the fragile health of the remaining
domestic producers. More factories will close and more workers will
lose their jobs. Economic development in Africa should not come at the
expense of U.S. industry, particularly one that has already suffered so
much from imports.
II. The Nonrubber Footwear Industry is Extremely
Import-Sensitive
U.S. imports of nonrubber footwear have increased so rapidly over
the past years as to capture almost the entire U.S. market. Imports of
nonrubber footwear rose from 726 million pairs in 1984 to 1.24 billion
pairs in 1997. In 1997, imports had almost 93 percent of the U.S.
market. Job losses in this industry due to imports have been
staggering.
The huge growth in imports has displaced domestic production and
caused plant closings and layoffs. In the last three years alone 30
factories have shut their doors. Most of these factories were located
in small towns with limited employment opportunities for laid off shoe
workers. The toll in lost jobs has been staggering as employment in the
nonrubber footwear industry fell by 65 percent between 1984 and 1997,
from 114,700 workers to only 40,500.
The U.S. Government has long recognized the products of the
nonrubber footwear industry as import-sensitive:
they are statutorily excluded from duty-free treatment
under certain trade preference programs, including the Caribbean Basin
Initiative, the Andean Trade Preference Act, and the Generalized System
of Preference;
most categories of nonrubber footwear were exempted from
duty cuts in the Tokyo and Uruguay Trade Rounds because injury due to
imports had been found to exist; and
they were deemed to be among the most sensitive U.S.
products in the NAFTA tariff negotiations with Mexico, designated for
stage C (i.e., ten-year phase out).
Further evidence of the injury suffered by the domestic industry is
found in the numerous trade actions it has been forced to take over the
years, including four Section 201 cases, a 301 case, and several
countervailing duty cases.
The Government understood that less developed countries, eager to
industrialize and with low paid work forces, posed a real threat to
domestic producers. Today the plight of the domestic industry is even
more precarious and the vulnerability to imports that much greater.
III. Sub-Saharan African Countries Have the Potential to Become Major
Suppliers to the United States
Less developed countries regard the development of a footwear
industry as an important first step along the road of
industrialization. As shoe-making technology has spread throughout the
world, these countries have built footwear factories and directed much
of the production to the United States. New suppliers have emerged
rapidly to compete with existing suppliers.
U.S. imports of nonrubber footwear illustrates this development. In
1984 Taiwan and Korea were the two largest suppliers of nonrubber
footwear to the United States accounting for 59 percent of total
imports. Imports from China of 12.7 million pairs accounted for less
than 2 percent of imports. By 1996 China had become the largest
supplier of nonrubber footwear to the United States (750.9 million
pairs) accounting for 68 percent of total imports. Although Taiwan's
and Korea's share of total imports in 1996 fell to less than 3 percent,
imports from the two countries were still large (27.9 million pairs
valued at $341 million).
Sub-Saharan Africa has not yet become a major player in worldwide
nonrubber footwear trade. But the building blocks of a formidable
footwear industry--cheap labor, a desire to industrialize, and a
rapidly developing leather industry--are in place. FIA notes in
particular a major effort by international development organizations to
help in the development of the African leather industry. These
organizations, the International Trade Centre UNCTAD/WTO, the Food and
Agricultural Organization of the United Nations, and the United Nations
Industrial Development Organization, are undertaking major efforts to
not only grow the African leather industry but also to help it expand
into the production and exportation of leather-related goods including
footwear.
Duty-free entry of nonrubber footwear from Sub-Saharan African
countries will be a powerful stimulant to the production of nonrubber
footwear in African countries. And much of this production will make
its way to the United States as African producers will enjoy a
significant competitive advantage in the U.S. market over other foreign
producers, who must pay U.S. duties on these products. The
transshipment of nonrubber footwear through Sub-Saharan African
countries by non-African producers to avoid U.S. duties will lead to
even greater levels of imports from the region
IV. Conclusion
The domestic nonrubber footwear industry has been wracked by
imports. Footwear was excluded from coverage under the GSP in order to
provide some protection for domestic producers. Eliminate this
exclusion now and soon the domestic industry will have to contend with
increased imports from yet another region of the world. Africa needs to
grow and prosper. But this must not come at the expense of closed shoe
factories and unemployed shoe workers. FIA requests that other means be
found to stimulate development in Africa.
Statement of the International Mass Retail Association, Arlington, VA
This statement is submitted on behalf of the International Mass
Retail Association, which represents the mass retail industry--
consumers' first choice for price, value and convenience. Its
membership includes the fastest growing retailers in the world--
discount department stores, home centers, category dominant specialty
discounters, catalogue showrooms, dollar stores, warehouse clubs, deep
discount drugstores, and off-price stores--and the manufacturers who
supply them. IMRA retail members operate more than 77,000 American
stores and employ millions of workers. One in every ten Americans works
in the mass retail industry, and IMRA retail members represent over
$411 billion in annual sales.
IMRA fully supports initiatives to liberalize trade between the
United States and the countries of Sub-Saharan Africa (SSA). Recent
trends in the U.S. retail market offer SSA apparel, home furnishings,
and footwear producers opportunities to develop their exports in a way
that will foster job growth and development in the region--to the
immediate benefit of American consumers, and the long-range benefit of
U.S. exports and investment. We believe it will do this without harm to
U.S. textile and apparel producers. In addition to Afrocentric
products, opportunities abound for the export from SSA producers of
basic apparel in the low- to mid-priced ranges--the consumer markets of
key importance to IMRA members.
In some SSA countries, sufficient domestic and foreign investment
has already produced factories capable of competing with those in Asia;
in others, however, much needs to be done to remove significant
constraints to competitiveness. The United States could do much to
encourage development in these economies by removing its textile and
apparel barriers to their exports, and by expanding and making
permanent GSP benefits in the region.
For this reason IMRA fully supports the provisions of the Africa
Growth and Opportunity Act, as passed by the U.S. House of
Representatives in 1998.
The Sub-Saharan Region Offers Sourcing Opportunities
SSA suppliers offer U.S. retailers opportunities to source two very
different types of products: ethnic Afrocentric home furnishings and
clothing, and low- to moderately priced basic apparel products.
The American market is unique among developed country apparel
markets in that a relatively large and a growing market exists for
ethnic apparel and home furnishing products, and in particular for
Afrocentric apparel and home furnishings. Just under 34 million
consumers--almost 13 percent of the U.S. population--describe
themselves as African-American. School curricula are increasingly
emphasizing ethnic heritage, fueling a future generation of demand for
consumer products tailored to an appreciation of that heritage. A
market for Afrocentric products, from woodcarvings and books to home
furnishings (throw pillows and sheets, for example) to apparel, has
been growing. Some estimate the total spending power of African
American consumers at $300 billion.
Retailers are responding to this growing demand for ``Afrocentric''
products. Many IMRA members have initiated product lines directed at
African-American customers, which incorporate goods--apparel as well as
handicrafts--with African-inspired themes. Indeed, an entire handicraft
export industry developed in Ghana to supply major U.S. retailers.
Demand for ethnic, handcrafted merchandise is particularly strong
in the growing home products sector, and to a much smaller extent in
apparel. So far U.S. manufacturers have supplied most of this demand.
U.S. suppliers have taken African designs and modified them to American
tastes. Nevertheless, authenticity is important for some consumers.
Consequently, retailers are keen to source such products from Africa.
In apparel, SSA countries are most competitive today in exporting
basic garments, such as shirts, T-shirts and trousers. The U.S. market
for these products is highly competitive, and price is a major factor
in a consumer's decision to purchase a given product. These items are
``bread and butter'' items for IMRA member stores.
Apparel and home furnishings sourcing from SSA is complicated by a
host of factors that are in most cases the consequence of
underdevelopment. With time and opportunity, many of them can be
eliminated and the region can compete.
Importers require particularly large volumes in the U.S. market,
which is dominated by mass retailers such as those represented by IMRA.
To meet these orders, African exporters must either coordinate the
production of many independent, small, traditional producers or invest
in a factory where the items can be manufactured or assembled in-house.
There has yet to be much investment in facilities in Africa to
manufacture crafts in large quantities, and achieving volume production
in handicrafts continues to revolve around the coordination of many
small producers in most cases. One of Africa's greatest impediments to
handicraft exports today is lack of experienced export intermediaries
to play this coordinating role.
Poor sea freight infrastructure in Africa often delays shipments.
Ships routinely arrive in port late and leave late. Ocean freight rates
in SSA are expensive compared to Asia. Arrival and departure dates of
ships are subject to change at a moment's notice and security at the
port is often a problem for exporters who do not load and seal their
own containers. Many exporters are thus forced to send goods via
airfreight, which costs at least three times more than sea cargo.
Exporters in landlocked nations like Zimbabwe rely almost exclusively
on airfreight because customs duties and other ``fees'' on intra-
African trade are generally extraordinarily expensive.
Poor internal infrastructure creates hurdles for on-time delivery.
During the rainy seasons dirt roads can become impassable. Lack of
electricity keeps workers from being able to work longer hours to meet
a deadline and limits production to a single shift.
Because of significant delivery problems throughout SSA, handicraft
intermediaries in Africa as well as foreign wholesalers who have
specialized in African craft imports state that they have to keep
rather significant levels of inventory in order to ensure on-time
delivery. This adds another cost to the product since inventories must
be financed and stored.
Using letters of credit (LCs) for imports of handicrafts from
Africa is virtually impossible unless there is an experienced
intermediary handling the order because many artisans are ill prepared
for dealing with international financial documents. But even if there
is a qualified intermediary, using a letter of credit poses problems in
Africa. Delivery delays, which are commonplace, can invalidate an LC.
Delays and extra costs ensue to open a new LC. In addition, African
banks are reluctant to extend credit based on LCs, particularly to
first-time exporters, because there is a significant risk of non-
shipment. Until African exporters develop a track record of success,
banks will be reticent to lend.
Providing Duty-Free Treatment Through GSP Can Make A Difference
SSA suppliers face so many difficulties that it's a wonder that
anyone is really interested in doing business there. But there is
interest, and the textile examples provided below show how reducing
duties can make a big difference in sourcing decisions. Table 1 shows
the average per-dozen values for total U.S. imports of men's cotton
blue denim trousers in 1995. It shows that two of the three leading SSA
suppliers of this product to the United States were quite competitive
in basic cost compared to Mexico and China, and higher than CBI
producers, with per-dozen values of $86 (South Africa and Lesotho).
However, import duties of 17.4 percent ad valorem and freight charges
boost these SSA producers' costs considerably, putting them well out of
the range of Mexico and CBI producers, but still below China. Mauritius
remains a relatively expensive source even if duties are eliminated. If
duties were eliminated on U.S. imports of these SSA products, some SSA
suppliers clearly would become quite strong alternative suppliers to
China and other similarly priced Asian suppliers.
It is important to note, however, that duty-free status would not
jeopardize suppliers in Mexico or the CBI. These areas enjoy proximity
advantages that SSA suppliers can never achieve. For this reason,
efforts that would tie SSA textile benefits to the use of U.S. inputs
such as yarn or fabric simply will not work. No IMRA member would be
interested in doing business in Africa--even duty free--if the program
requires the movement of raw materials and intermediary inputs from the
United States, 10,000 miles to Africa and then a return trip with
finished product. Those who would attempt to create a trade program
that parallels the program in the Caribbean Basin have missed the
essential point: Africa is much farther away, and much less well
developed than Mexico or the CBI.
For these reasons IMRA supports The Africa Growth and Opportunity
Act which would extend the GSP program for nine years and remove the
statutory exclusions for products like textiles and apparel. This
approach, which does not limit inputs to production will attract more
investment in the region, stimulate the production of regional fabrics
and yarns, and give the countries of SSA a real tangible benefit with
which to compete against the large Asian suppliers.
For Textile Products, Duty Free is Not Enough
Obviously, the elimination of duties reduces the usual costs of
doing business and can make the countries of Sub-Saharan Africa more
competitive with other, far more developed suppliers, particularly
those in Asia. Reducing tariffs is very important to spurring
development in the region, because, by-and-large, the countries of Sub-
Saharan Africa are not governed by import quotas.
But reducing tariffs alone is not sufficient.
IMRA's members say that intangible ``uncertainty costs'' also limit
their ability and desire to do business in the region. These costs
include such intangibles as the child labor situation, intellectual
property rights protection, and of course the most important intangible
of all--the chance that the United States will impose quotas on
products from the source country in the near-or mid-term. In the past,
it has not taken a large level of exports for the United States to
invoke its safeguard rights under the Agreement on Textiles and
Clothing (ATC) to impose new quotas on so-called ``sensitive''
categories like cotton shirts and pants.
Table 2 provides a textbook example of the chilling affect this
safeguard has on development. Kenya had begun to develop a promising
textile and apparel export industry when in 1994 the United States
effectively shut it down by imposing quotas on ``sensitive'' categories
like cotton shirts and trousers. The quotas not only limited Kenya's
export potential, but they scared off retailers and importers. The fact
that today Kenya does not fill its quotas does not mean that the quotas
have no impact, it simply means that the potential for development has
been shut down.
History tells us that quotas on categories such as cotton shirts
and trousers are almost inevitable. This fear or uncertainty cannot be
minimized, but it is also extremely difficult to quantify. IMRA
strongly believes that Congress should establish an explicit ``no-quota
policy'' so that investors can have some assurance that quotas or the
threat of quotas will not shut down investment.
For this reason IMRA supports the Africa Growth and Opportunity
Act, which would maintain an explicit no-quota policy for the SSA
region.
Domestic Impact
Trade liberalization does not just provide benefits to the nations
of SSA. U.S. consumers benefit as well. In 1997, IMRA conducted an
economic analysis of providing duty free treatment for textile and
apparel exports from the Sub-Saharan region. Using the International
Trade Commission's COMPAS model we determined that a no-tariff policy
would lower consumer costs, without significant damage to domestic
producers. Tariff elimination applied to exports from the Sub-Saharan
region would lower the cost of all apparel sold in the United States,
including U.S.-made apparel. Such a policy would also direct economic
resources into sectors of the U.S. economy where they would be used
more efficiently. We estimate that the value of lower prices and
greater economic efficiency will total between $72.2 million to $93.1
million each year at wholesale. The retail value of these cost benefits
would be higher.
Offsetting these gains would be extremely modest losses by U.S.
producers of $5.6 million to $7.2 million--a far cry from the enormous
loss of jobs that some producers have suggested, should we expand trade
opportunities with the SSA region. Indeed, our analysis is based on
providing duty-free treatment to all products from the SSA region. The
Africa Growth and Opportunity Act would apply duty-free treatment only
to those products, which the President determined were not import
sensitive. While this provision will reduce somewhat the benefits to
consumers, it should eliminate any worry that the bill will harm
American workers.
For this reason, IMRA strongly opposes recent suggestions that the
trade benefits accorded SSA be limited only to products, which contain
U.S. fabric and/or yarn. This proposal is simply unworkable. No IMRA
member would be interested in doing business in Africa if it first had
to purchase U.S. fabric and/or yarn, then ship it to Africa tens of
thousands of miles round-trip for assembly.
Such a proposal will not encourage investment in Africa.
Transportation costs are too high, and distances between the United
States and Africa are too vast. Even if transportation costs were
lower, U.S. retailers would have no incentive to make such investments,
since similar programs exist for Caribbean and Mexican suppliers. North
American suppliers have one overriding advantage--their proximity to
U.S. markets which makes turn-around times shorter and allows retailers
to place orders much closer to the intended selling seasons.
If Congress is serious about encouraging investment in Africa, it
must develop a program that works for Africa. The idea of tying African
production to U.S. inputs simply will not accomplish the goals intended
in the Africa Growth and Opportunity Act. Moreover it perpetuates a
colonial-style approach to fostering development in the region that the
Act, as initially drafted, is intended to end.
Table 1.--Men's Cotton Blue Denim Jeans, 1995 (HTS No. 6203.42.4010)
[Dollars per Dozen]
----------------------------------------------------------------------------------------------------------------
Int'l. SSA
Customs Import Freight, Supplier
Source Value Duties Insurance Total Total if
Charges* Duty-Free
----------------------------------------------------------------------------------------------------------------
Mauritius...................................... $108.59 $19.11 $11.99 $139.69 $120.58
South Africa................................... 86.75 15.26 3.18 105.17 89.93
Lesotho........................................ 86.23 15.18 3.05 104.46 89.28
Mexico......................................... 89.72 0.57 0.77 91.06 n.a.
CBI Countries.................................. 76.83 4.76 1.84 83.43 n.a.
China.......................................... 88.22 15.51 4.35 108.08 n.a.
----------------------------------------------------------------------------------------------------------------
*Freight from the port of export to the first port of entry to The United States.
Source: The Trade Partnership from U.S. Census data.
Table 2.--U.S. Apparel Imports from Kenya, 1994-96
------------------------------------------------------------------------
1994 1995 1996
------------------------------------------------------------------------
Cotton Apparel:
334 MB Other Coats (doz.)...... 3,348 16,160 16,992
336 Dresses (doz.)............. 503 2,525 19,087
340 MB Woven Shirts (doz.)..... 395,039 388,247 230,591
347 MB Trousers (doz.)......... 249,236 184,795 197,041
MMF Apparel:
636 Dresses (doz.)............. 0 12 16,257
Silk Blend and Veg. Fiber
Apparel:
847 MB Trousers (doz.)......... 72 1,547 16,215
Home Furnishings:
360 Cotton Pillowcases (Nos.).. 1,973,160 598,656 426,576
361 Sheets (Nos.).............. 158,424 510,864 67,560
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Office of Textiles and Apparel,
Major Shippers 1996.
Statement of the Luggage and Leather Goods Manufacturers of America,
Inc., New York, NY
I. Introduction and Statement of Position
This statement is submitted on behalf of the Luggage and Leather
Goods Manufacturers of America, Inc. (LLGMA), a trade association
representing the U.S. luggage, flat goods, and handbag industries, in
connection with the House Ways and Means Trade Subcommittee's request
for input from interested parties on legislative proposals to expand
trade with Sub-Saharan Africa.
Last year, the Committee passed legislation, H.R. 1432, the African
Growth and Opportunity Act, which would eliminate the statutory
exclusion of textile and non-textile luggage, handbags, and flat goods
from the Generalized System of Preferences (GSP) for Sub-Saharan
African countries. The U.S. travel goods industry is opposed to the
elimination of the exclusion of its products from the GSP program. The
industry is similarly opposed to quota-free treatment for textile
products.
Textile luggage of all types is subject to quotas when imported
from China, Taiwan, and Korea. Textile handbags and flat goods are also
subject to various textile restraints. Tremendous import growth over
the years has ravaged the domestic travel goods industry. Duty-free and
quota-free treatment for luggage, flat goods, and handbags will
stimulate rapid growth in imports from Sub-Saharan African countries,
which will erode further the fragile health of domestic producers. More
factories will close and more workers will lose their jobs. Economic
development in Africa should not come at the expense of the U.S. travel
goods industry.
II. The Luggage, Flat Goods, and Handbag Industries are Extremely
Import-Sensitive
The increase in U.S. imports of luggage, flat goods, and handbags
over the past years has been remarkable. To provide some measure of
protection for the travel goods industry, its products were excluded by
statute from GSP eligibility 15 years ago. Since that time, U.S.
imports of luggage have quadrupled, reaching over $2.3 billion; imports
of flat goods have tripled to $500 million; and imports of handbags
have almost doubled to $1 billion. Over 80 percent of luggage imports
and 70 percent of flat goods and handbag imports originate in less-
developed countries.
The growth of imports has displaced domestic production and caused
plant closings and layoffs. Many companies have exited the business
altogether or have been forced to import some or all of their product
lines in order to compete. Employment in the luggage industry fell by
more than 20 percent between 1984 and 1997. The loss of jobs in the
flat goods and handbag industries was even more severe as the number of
employees plunged by 58 percent between 1984 and 1997. These imports'
low prices have exerted powerful downward pressures on domestic prices
further hindering the viability of domestic producers.
The U.S. Congress and Executive Branch have long recognized the
luggage, flat goods, and handbags industries as import-sensitive:
they are statutorily excluded from duty-free treatment
under certain trade preference programs, including the Caribbean Basin
Initiative (CBI), the Andean Trade Preference Act (ATPA), and the GSP;
their tariffs were cut only slightly or not at all in the
Uruguay Trade Round negotiations; and
they were deemed to be among the most sensitive U.S.
products in the NAFTA tariff negotiations with Mexico, designated for
stage ``C'' (i.e., ten-year phase out).
Congress took affirmative action in 1984 to add a statutory
exclusion to the GSP program for luggage, flat goods, and handbags of
non-textile\1\ materials on the basis of extreme import sensitivity. At
the time Congress granted the exemption, it was understood that less-
developed countries, eager to industrialize and with low paid work
forces, posed a real threat to domestic producers. Today the plight of
the domestic industry is even more precarious, as imports in this
sector have tripled since 1984, and the vulnerability to imports that
much greater.
---------------------------------------------------------------------------
\1\ Textile luggage, flat goods, and handbags are subject to the
GSP statutory exclusion for textiles and apparel since they are
considered to be ``textile and apparel products which are subject to
textile agreements.''
---------------------------------------------------------------------------
III.Sub-Saharan African Countries Have the Potential to Become Major
Suppliers to the United States
One of the defining characteristics of the world economy today is
the mobility of the factors of production to those regions and
countries with the lowest labor costs. This is particularly true in the
case of labor-intensive industries such as luggage, flat goods, and
handbags, factories for which can be built quickly and production
expanded rapidly. Foreign producers of these products scour the globe
for low-wage countries and then quickly establish production facilities
to make goods for export to the United States. When labor costs
increase, these producers often shut down their facilities and move
their operations to other low-wage countries.
Trends in U.S. imports of luggage illustrate the changing
composition of supplier countries as producers have shifted production
to take advantage of lower wage rates. In 1984 Taiwan and Korea were
the two largest suppliers of luggage to the United States accounting
for 78 percent of total imports. In 1998, China, the Philippines, and
Thailand were the predominant suppliers of luggage to the U.S. market.
Although there has been a major and rapid shift of luggage production
to lower cost countries, Taiwan and Korea continue to be major
suppliers of luggage to the U.S. market.
Duty-free entry of luggage, flat goods, and handbags from Sub-
Saharan African countries will create powerful incentives for foreign
producers of these goods to establish new or additional operations
there. First, prospective foreign producers will enjoy wage rates among
the lowest in the world. Second, they will greatly benefit from a
burgeoning leather industry that is being developed via monetary as
well as ``hands-on'' assistance by international development banks and
organizations. Third, they will enjoy a major competitive advantage
over producers in other developing countries, which are required to pay
the significant U.S. duties on these goods.
The domestic industry will also be vulnerable to transshipment of
luggage, flat goods, and handbags through Sub-Saharan African countries
to avoid U.S. duties and quotas. In recent years, many foreign
producers have resorted to the illegal transshipment of their goods
through third countries to evade U.S. quotas. The U.S. Customs Service
has undertaken strenuous efforts to combat this problem, but the
magnitude of the task is immense. Forty-eight Sub-Saharan African
countries with duty-free access to the United States will impose on
Customs a near impossible enforcement burden. This illegal movement of
goods will exacerbate further the import problem faced by the domestic
industry.
IV. Conclusion
The domestic luggage, flat goods, and handbag industries have been
battered by imports, particularly from less-developed countries. To
provide some measure of protection for the leather-related industries,
Congress excluded their products from coverage under GSP. Eliminating
this exclusion and the potent threat of quota restraints now will lead
to an influx of imports from Sub-Saharan African countries and will
inflict more harm upon these domestic industries. Economic development
in Africa is a worthy goal, but the preservation of American industry
and American jobs is important, too. LLGMA urges the Subcommittee to
remove luggage, flat goods, and handbags from preferential tariff and
quota provisions of legislative proposals to enhance U.S. preferential
trade benefits for Sub-Saharan African countries.
National Cotton Council of America
Washington, DC 20036
February 1, 1999
The Honorable Philip M. Crane
Chairman, Subcommittee on Trade
Ways and Means Committee
U.S. House of Representatives
Washington, DC 20515
Re: Sub-Saharan Africa Trade Preferences
Dear Mr. Chairman:
The National Cotton Council of America would like to go on record
again concerning proposals to grant significant textile trade
preferences to Sub-Saharan Africa. The National Cotton Council is the
central organization of the United States cotton industry. Its members
include producers, ginners, oilseed crushers, merchants, cooperatives,
warehousemen, and textile manufacturers. While a majority of the
industry is concentrated in 17 cotton producing states, stretching from
the Carolinas to California, the downstream manufacturers of cotton
apparel and homefurnishings are located in virtually every state.
In attempting to grant trade preferences to the Sub-Saharan region,
the legislation in fact opens doors for Asian textile and apparel
manufacturers to use Africa merely as an export platform for sending
their own textile and apparel products to the United States. If our
competitors follow their past practice, they will produce apparel
articles in Asia (using Asian yarns and fabrics), send them to the Sub-
Saharan region for labeling and packaging and then export those items
to the U.S. labeled as being produced in the Sub-Saharan region.
Labeling and packaging work obviously does not lead to long-term
manufacturing capabilities.
The significant duty break contained in the legislation creates a
huge incentive for Asian countries to transship their products. Even
without a special duty break, transshipments are already a $2-4 billion
problem which U.S. Customs has had little success in bringing under
control. Further, the textile provisions contain an ineffective overall
rule of origin and lack any rule of origin at all for the component
products (the textile fabrics and yarns). The bill contains no
effective enforcement mechanisms against fraud.
Experience in this hemisphere shows that preferential textile
trading arrangements can be drafted in such a way as to benefit the
countries involved and the United States as well. Such an arrangement
would provide duty-free and quota-free access to the U.S. textile
market for apparel articles that had been manufactured in the region
using U.S. textile components. By providing duty-free and quota-free
access, such an arrangement would give African workers a significant
competitive advantage.
This arrangement would also ensure that countries cannot transship
their products and would also mean that workers in Africa, not Asia,
would do the most valuable and important work.
We have additional concerns that can also be addressed through
minor amendments to the legislation. For example, at least two of the
countries that could benefit from this legislation (Tanzania and to a
lesser extent Kenya) have ignored generally accepted international
trading rules, including those designed to settle disputes quickly and
easily. We believe applying countries should be determined to adhere
generally to internationally accepted trading norms before the
President grants beneficiary status.
The National Cotton Council of America, therefore, recommends that
the legislation be amended to:
1. Extend duty and quota free access for apparel products from a
beneficiary country that have been assembled in those countries from
U.S. textiles. Specifically, we recommend the legislation provide
benefits to apparel articles assembled in the country from U.S. fabrics
made from U.S. yarn and to apparel articles cut and assembled in the
country from U.S. fabric made from U.S. yarn and sewn in the African
region with U.S. thread. These benefits are similar to those commonly
referred to as 807(a) and 809 textile benefits. Handloomed, handmade
and folklore articles originating in the participating country would
also be given preferential treatment.
2. Include provisions (as part of an 807a/809 type program)
designed to prevent illegal transshipment of textile articles through
appropriate penalties and even suspension of benefits if the problem is
not corrected.
3. Allow public comment on the Presidential determination of
eligibility and include a requirement that applying countries comply
with generally accepted international trading rules.
We are aware of the interest in this legislation and the sincere
efforts to promote the economies of the Sub-Saharan region. We look
forward to working with you on this matter.
Sincerely,
Jack S. Hamilton
President
Statement of the National Retail Federation
I. Introduction
The National Retail Federation (NRF) is the world's largest retail
trade association with membership that includes the leading department,
specialty, discount, mass merchandise, and independent stores, as well
as 32 national and 50 state associations. NRF members represent an
industry that encompasses more than 1.4 million U.S. retail
establishments, employs more than 20 million people--about 1 in 5
American workers--and registered 1998 sales of $2.7 trillion. NRF's
international members operate stores in more than 50 nations.
NRF strongly supports the ``Africa Growth and Opportunity Act''
(H.R. 434), which, with minor modifications is identical to H.R. 1432
as passed by the House of Representatives in 1998. Unlike the weaker
version of the Africa trade initiative reported last year by the Senate
Finance Committee, H.R. 434 will provide much-needed incentives for
American companies to work with producers in Sub-Saharan Africa in ways
that will promote economic development in the region. Increased
economic development and expanded trade opportunities in Sub-Saharan
Africa will benefit not only Africans, but also U.S. consumers,
exporters (including those in the U.S. textile and apparel industries),
and importers (including U.S. retailers). As a result, H.R. 434 will
enhance the competitiveness of countries in Sub-Saharan Africa as
suppliers, and help attract much-needed foreign investment in the
region.
II. Sub-Saharan Africa Faces Significant Hurdles to International
Competitiveness Which Will Only Worsen With Time
It should come as no surprise that the obstacles to economic
development in Sub-Saharan Africa are daunting. Due to a variety of
factors, including political and economic instability and poor
infrastructure, many international investors and product buyers have
historically shunned the region. While there have been improvements
recently, many producers in Sub-Saharan Africa have poor business
skills, are relatively inexperienced with letters of credit, and fail
to appreciate the importance of meeting delivery deadlines. Many cannot
produce to U.S. order, size, and quality requirements. Distances to
ports can be long and complicated by cumbersome customs controls that
delay shipments unnecessarily, forcing many exporters to rely on more
expensive air freight to ship product to the United States.
All these hurdles have one overriding effect--they raise the cost
of doing business in Sub-Saharan Africa. A buyer in time-sensitive
businesses, such as apparel retail, risks delays that result in
shortages during peak selling seasons. Special letters of credit and
air freight costs raise product costs relative to competitors in Asia
and Latin America. The need to ensure quality, guard against illegal
transshipments, and a host of other pitfalls virtually compels a U.S.
retailer to maintain a full-time presence in the region, adding to the
cost of doing business in Sub-Saharan Africa.
Given these obstacles, it is no surprise that when U.S. retailers
face a choice of where to conduct business, whether sourcing products
or investing, Africa is often the last choice behind Latin America and
Asia, both of which have a number of key advantages. Latin America
enjoys the advantage of proximity to U.S. markets and a network of
existing preferential trade arrangements. Asia has good infrastructure,
extended business relationships, and, as shown in the table below, much
lower costs and shorter timeframes in shipping to the United States
than Africa.
----------------------------------------------------------------------------------------------------------------
From To Rate/40' container Best Transit Time
----------------------------------------------------------------------------------------------------------------
Durban............................... New York............... $3635 21 days
Durban............................... Los Angeles............ $3935 30 days
Capetown............................. New York............... $3635 18 days
Capetown............................. Los Angeles............ $3935 27 days
Shanghai............................. Los Angeles............ $2738 15 days
Hong Kong............................ Los Angeles............ $1750 12 days
----------------------------------------------------------------------------------------------------------------
Source: J.C. Penney Company, Inc.
Without some major change in the current situation, Sub-Saharan
Africa will become even less competitive vis-a-vis other developing
countries in Latin America and Asia, particularly after December 31,
2004. After that point, all textile and apparel quotas disappear as a
result of full implementation of the WTO Agreement on Textiles and
Clothing (ATC). Without quotas to impede their trade, Asia and Latin
America's advantages as suppliers of textile and apparel products, with
their large populations and developed industries, are enhanced
substantially. Meanwhile, what few advantages Sub-Saharan Africa
currently has (comparatively few quotas and low labor costs) will be
largely negated. If we do not provide the means for Sub-Saharan Africa
to develop their own textile and apparel industry before the 2005 quota
phaseout is completed, their competitive disadvantage will forever hold
them off the playing field.
Indeed, the serious competitive handicaps facing Sub-Saharan Africa
and the short time frame in which to address the problem, argue for a
trade initiative that goes well beyond those contemplated for other
regions, such as the enhanced trade benefits proposal for the Caribbean
Basin Initiative countries. All things being equal, Sub-Saharan Africa
will continue to lose out to Latin America and Asia.
III. The United States Can Do Much To Offset Some Of Those Hurdles
Although there is relatively little the United States can do
directly, at least in the near term, to eliminate political instability
in Sub-Saharan Africa, or even to build or repair the transportation
system or educate entire work forces, the United States can do much to
lower costs of doing business in Sub-Saharan Africa in ways that would
at least begin the process of economic development in the region. This
includes providing duty-free and quota-free access to exports of
products exported from the region to the United States--including basic
apparel, footwear, and home furnishings. These products in particular,
have proven to be critical to the establishment of manufacturing
capability in developing countries, which, in turn, gives these
countries a basis for economic growth.
Indeed, there is something fundamentally flawed with current
policy, which, with one hand distributes financial aid for development,
but with the other, limits exports to the United States with quotas and
some of the highest tariff rates in the U.S. schedule. For example,
when a Sub-Saharan producer begins to establish itself as a competitive
producer of a given basic apparel product, as have Mauritius and Kenya,
the U.S. response is to limit those countries' exports with quotas. The
quotas--even the prospect of new quotas--have a chilling effect on
much-needed foreign investment in the region, as the case of Kenya
demonstrates. As soon as the United States began to impose quotas on
U.S. imports of men's and boys' cotton woven shirts and cotton
pillowcases, U.S. retail interest in sourcing from Kenya virtually
evaporated. The risks are simply too great that new orders will be
restricted by quota.
IV. H.R. 434 Is A Critical Step In Helping the Economic Development of
Sub-Saharan Africa
Sub-Saharan African producers have the potential to be good,
reliable suppliers to the U.S. market for such products as basic
apparel, footwear, and home furnishings. These are products generally
in short supply because (a) U.S. manufacturers cannot meet all of U.S.
demand for low-cost apparel and (b) other foreign suppliers are limited
by quotas that fill regularly.
While most large U.S. retailers have explored the region's
potential, particularly as a possible alternative to Asia suppliers of
these products, many have backed away from committing large orders to
Sub-Saharan African producers. Indeed, many have left the region
altogether, in part, due to the problems mentioned above. While duty-
free and quota-free benefits available under H.R. 434 will not
necessarily bring them back in droves, these incentives in the
legislation will help to rekindle interest in sourcing from Sub-Saharan
Africa, particularly for several large U.S. retailers. These benefits
could also be just the incentive to spark additional foreign investment
in the region, and thereby provide much-needed jobs and training to the
work force and allow them to become good, reliable, and quality
suppliers to the United States.
V. H.R. 434 Provides Important Trade Benefits To Sub-Saharan Africa
Among the most important benefits in H.R. 434 for Sub-Saharan
Africa are the provisions liberalizing trade in textile and apparel
products, which are intended to stimulate business activity between the
United States and countries in the Sub-Saharan region. Thus, the bill
is of great interest to the U.S. retail industry, which sells the
majority of apparel imported into the United States. The following
provisions offer the greatest incentives for the U.S. retail industry
to expand business activity in the region and are of greatest value to
beneficiary countries in Sub-Saharan Africa:
Elimination of existing quotas on textile and apparel
exports to the United States from Kenya and Mauritius after those
countries establish visa systems adequate to guard against
transshipment;
A requirement that the President continue the existing no-
quota policy with respect to textile and apparel imports from other
Sub-Saharan African countries; and
Authorization for duty-free treatment under the
Generalized System of Preferences (GSP) to products from Sub-Saharan
Africa that are currently excluded from the GSP program if the U.S.
International Trade Commission (ITC) finds that those products are not
sensitive to imports from Sub-Saharan African countries.
Some argue that, like the 1998 Senate Finance Committee version of
the Africa trade bill, H.R. 434 should include a U.S.-yarn and fabric
only rule (so called 807A/809 provisions) in order for textile and
apparel products from Sub-Saharan Africa to be eligible for trade
preferences under the program. They argue that such a restrictive rule
of origin is necessary to minimize the adverse impact of increased
trade on U.S. workers and to diminish the possibility of illegal
transshipment from countries outside the region. The NRF views such a
provision not only as unwarranted, but as negating the very benefits
this legislation would provide Sub-Saharan African countries.
Given the many obstacles to doing business in Sub-Saharan Africa--
distance, lack of infrastructure, undeveloped business culture--
addition of a U.S. fabric-only rule would merely add one more hurdle
making it harder, not easier, for American retailers to begin or expand
business operations in the region. Retailers today no longer have the
luxury of excessively long lead times. In fact, the development cycle
for clothing is shortening. A requirement that fabric be shipped from
the United States to Africa for sewing and then returned to the United
States presents unacceptably long lead times and imposes substantially
higher costs.
Thus, If such a restrictive rule of origin were included in H.R.
434, American retailers would have no incentive to increase their
business activities in Sub-Saharan Africa compared to other, closer and
more advanced regions, such as Asia and Latin America. Thus, the very
advantages that the legislation seeks to provide to Sub-Saharan Africa
would be negated by inclusion of such a rule.
In addition, NRF would argue that such a restrictive rule of origin
that mandates the use of only U.S. yarn and fabric, essentially creates
a government-sanctioned monopoly market for the U.S. textile industry.
Such a requirement is not an example of greater reciprocity in trade as
some would claim. Rather, it is a particularly egregious example of
managed trade, that also smacks of neo-colonialism. However, in the end
a U.S. yarn and fabric-only rule applied to Africa will do little to
help the U.S. textile industry, if, as a result, the U.S. retail
industry is unable to do business there.
Finally, as discussed in greater detail below, NRF would argue that
a restrictive U.S. yarn and fabric only rule is uncalled for if the
sole premise for including it is ostensibly to protect U.S. jobs and
safeguard against transshipment.
VI. The Africa Growth and Opportunity Act Will Not Result in Textile
And Apparel Transshipment Or Any Significant Loss Of U.S. Jobs
The textile interests and other critics of the Africa trade bill
cite two reasons for opposing the initiative--(1) the potential for
Sub-Saharan Africa to become a transshipment point for Asian textile
and apparel products; and (2) job loses in the United States as a
result of competition from imports of African textile and apparel
products. Closer scrutiny of both claims shows them to be unsupported
by any credible evidence and reveals them to be mere bogus scare
tactics promoted by special interests that want to kill the Africa
bill.
A. The Transshipment Issue
Opposition to the Africa trade bill based on concerns about massive
transshipment from Asia through Africa to avoid U.S. textile and
apparel quotas is misplaced for the following reasons:
The high shipping costs to and from Africa (noted in the
chart above) and the extremely long distances involved, would make
transshipping goods from Asia to the United States through Africa
prohibitively expensive and time consuming.
Although the Lome Agreement already provides African
textile and apparel products duty-free and quota-free access to Europe,
there has been no appreciable transshipment from Asia through Africa to
the European Union, to avoid European quotas on Asian products.
H.R. 434 already contains strong protections against
transshipment, including a visa system and authority for the President
to deny trade benefits under the program to otherwise eligible
beneficiary countries if they do not provide sufficient protection
against transshipment.
The U.S. Customs Service has effective procedures in place
to counteract transshipment, as U.S. Customs jump teams have proven in
both Hong Kong and Macau.
With a very small, infant textile and apparel industry, it
would be a fairly straightforward exercise for U.S. Customs to guard
against transshipment by matching the production capacity of factories
in Sub-Saharan Africa with shipments to the United States.
The problems of transshipment is created mainly by our
textile and apparel quota system, and should, therefore, largely
disappear once those quotas are eliminated over the next six years as
required by the WTO Agreement on Textiles and Clothing.
If there is legitimate concern about a potential transshipment
problem, it is not a reason to oppose the bill. Rather, those concerns
should be addressed through measures that will enhance customs
enforcement without undermining the trade benefits of the legislation.
B. The Jobs Issue
The job-loss claims by opponents of the Africa trade initiative are
also not credible. The U.S. International Trade Commission (ITC) and
the World Bank have conducted the only objective and thorough studies
on the potential effects in the United States as a result of the Africa
initiative. Both confirm that the House Africa trade bill will not harm
U.S. jobs or industry. The ITC study in particular calculates that less
than 700 jobs, at most, would be adversely affected by increased
apparel imports from Africa. This possible negative impact on a
comparative handful of jobs in one of the most protected industries in
the United States is simply not a persuasive reason to oppose the
Africa trade initiative for several reasons;
Although the only adverse impact of the initiative would
be on apparel jobs, many U.S. apparel manufacturers support the House
Africa trade bill.
Although the U.S. textile industry opposes the Africa
trade bill, it will be unaffected by trade with Sub-Saharan Africa,
which has no internationally competitive textile industry, and is
unlikely to have one for some time.
While the overall economic impact of the Africa trade
initiative on the United States will be relatively modest, increased
trade with Africa will provide net benefits to the entire country,
including American consumers, through a broader selection of
reasonably-priced products.
Expanded trade with Africa will give competitive U.S.
industries, such as the retail sector, new business opportunities and
the ability to create new and better jobs in both the United States and
Africa.
The United States has an essentially full-employment
economy, in which any jobs lost from trade with Africa would be more
than offset by the overall increase in jobs as a result of healthy
economic growth in the United States, brought about, in no small
measure, by increased trade--both exports and imports.
Trade adjustment assistance is available to the few
workers who may be displaced as a result of increased imports from
Africa.
While expanded trade between Africa and the United States will be
of substantial benefit to the Sub-Saharan Africa region, both the World
Bank and ITC studies demonstrate that increased imports from Africa
will have a negligible impact on the U.S. textile and apparel
industries. Currently, the countries of Sub-Saharan Africa account for
less than 1 percent of total U.S. textile and apparel imports. Even if
one is optimistic and assumes that trade in these products triples as a
result of the Africa trade initiative, the region would still be a
comparatively tiny supplier to the U.S. market. Indeed, even if Sub-
Saharan Africa were to export its entire textile and apparel production
to the United States, it would account for less than 10 percent of U.S.
imports.\1\
---------------------------------------------------------------------------
\1\ There are no solid data for Sub-Saharan Africa (SSA) textile
and apparel production. As an estimate of regional production, the
International Trade Commission (ITC) used value-added data from World
Bank sources for 1993 (the most recent year available) for the seven
largest textile and apparel producing SSA countries. Using this figure,
total production comes to just under $3 billion. Of this, the SSA
exported just over half ($1.55 billion) in 1994, of which approximately
$360 million went to the United States and much of the remainder to
Europe. Total U.S. textile and apparel imports in 1994 were $40
billion. Therefore, if SSA had exported all its 1993 production to the
United States, it would represent 7 percent of total U.S. textile and
apparel imports.
Source: Laura Baughman, The Trade Partnership
---------------------------------------------------------------------------
These conclusions are also supported by European statistics. As
noted above, the Lome; Agreement already provides Sub-Saharan Africa
virtually unrestricted duty and quota-free access to the E.U. market
for their textile and clothing exports. Nonetheless, Sub-Saharan Africa
still accounts for just over 2 percent of textile and clothing imports
into the E.U., with Asian countries, which are still largely subject to
quotas, accounting for the majority of E.U. imports.
When one seriously examines the evidence, it is clear that the
arguments raised by textile interests as reasons to oppose the Africa
bill are merely disingenuous attempts to undermine this important
trade-expanding initiative and preserve a self-serving system that
limits imports at the expense of the American consumer and broader U.S.
policy interests.
VII. Conclusion
In conclusion, America's retailers strongly support H.R. 434. The
retail industry urges both the House and the Senate to pass this
important legislation without adding unwise and unnecessary provisions,
such as a U.S. yarn and fabric-only rule, which would only serve to
defeat the positive goals of the legislation and hurt the very people
it seeks to help. Let us not continue in this legislation the current,
short-sighted development policy for Africa that gives with one hand
while taking away with the other.
Statement of the Neckwear Association of America, Inc., New York, NY
Introduction
This statement is submitted on behalf of the Neckwear Association
of America (NAA), a trade association representing domestic necktie
producers and their suppliers. NAA's member companies account for the
vast majority of neckties produced in the United States. This statement
responds to the Subcommittee's request for public comment on providing
preferential trade access to the U.S. market for countries in Sub-
Saharan Africa.
Last year the House passed H.R. 1432, the African Growth and
Opportunity Act, which would have eliminated the exclusion of apparel
from coverage under the Generalized System of Preferences (GSP) and
liberalized quota access to the U.S. market for textile products that
originate in Sub-Saharan African countries. The neckwear industry is
opposed to these provisions. Rapid growth in imports, particularly from
less developed Asian countries, has harmed the domestic necktie
industry. Duty-free and quota-free treatment for apparel from Sub-
Saharan African countries will subject domestic apparel producers to
increased imports from a whole new area of the developing world.
The U.S. Necktie Industry is Extremely Import-Sensitive
U.S. imports of neckties have grown steadily in the 90's, from 1.7
million dozen in 1990 to 3.0 million dozen in 1997. Much of the growth
in imports came from new Asian suppliers. For example, necktie imports
from Korea jumped from 225,687 dozen in 1990 to 1.2 million dozen in
1997, a more than five-fold increase.
The increase in imports has come at the expense of the domestic
industry. Sales and production have remained stagnant during this
period. Many companies have simply been unable to stay afloat in the
face of low-price imports from developing countries. Those that remain
in business must deal with greatly reduced profit margins, which
creates an uncertain future for their companies and the men and women
they employ. U.S. necktie producers can ill afford further increases in
imports from low-wage countries.
III. Sub-Saharan African Countries Have the Potential to Become Major
Suppliers to the United States
Sub-Saharan African countries are poised to start down the path of
industrialization. All of the ingredients are in place for this to
happen--a very low-wage work force, abundant raw materials, and a
developed world eager to assist in the task. An apparel industry will
be one of the first industries to develop by virtue of its labor
intensity and the relative ease with which sewing and assembly
operations can be established. Sub-Saharan African countries will be no
different than the many other less developed countries that have
developed apparel industries virtually overnight. Duty-free and quota-
free access to the United States for apparel will only hasten this
development.
IV. Conclusion
Neckties and other articles of apparel were excluded by statute
from duty-free treatment under the Generalized System of Preferences in
1974 when the program was first implemented. The exclusion was an
important recognition by Congress and the Executive Branch that the
apparel industry was extremely susceptible to damage from low-cost
import competition. Necktie imports today play a much more substantial
role in the domestic market than they did back then. The NAA
understands and appreciates the importance of helping Africa to develop
economically but this help should not result in lost jobs and lost
output in the U.S. necktie industry.
Statement of Mac Cheek, President, Nilit America Corporation,
Greensboro, NC
Chairman Crane and distinguished members of the Subcommittee on
Trade of the Committee on Ways and Means, I want to thank you for the
opportunity to appear before you today to express our desires and
concerns on U.S. trade relations with Sub-Saharan Africa and any
legislation that may affect such trade. Specifically, we encourage the
U.S. Congress to abstain from placing U.S. country of origin
requirements on yarns and fabric used to make apparel in Sub-Saharan
countries in order for the apparel imports to the U.S. to remain quota-
free. We encourage the U.S. House of Representatives to demonstrate
leadership on this important legislation and maintain the provisions on
textiles and apparel as originally written in Section 8 of H.R. 1432
passed by the House in the 105th Congress.
The provisions of Section 8 provide for ``eliminating trade
barriers and encouraging exports.'' Part of the provisions describe the
minimal impact the export of apparel made in Sub-Saharan countries
(with no restrictions) is having and will have on the U.S. domestic
industry. The provision to ``lay the groundwork for sustained growth in
textile and apparel exports and trade under agreed rules and
disciplines'' can only be managed if special origin requirements are
not placed on goods allowed to be traded freely into the United States.
Before elaborating on our position, I would like to acquaint you
with Nilit America Corporation. We supply fine denier, high-quality
nylon 66 to U.S. hosiery manufacturers and texturerizers. We have been
located in Greensboro, North Carolina since 1991 but were working in
the United States through agents for many years prior to that date. We
directly employ only 7 people in Greensboro but 70 U.S. manufacturers
rely on our supply of fine denier, high-quality nylon 66 thus we
indirectly impact tens of thousands U.S. workers.
We strongly support the expansion of trade benefits to Sub-Saharan
Africa and believe that through free-trade and not aid, these countries
can begin to enter the global marketplace. It is through the
elimination of trade barriers that economies can begin to experience
the benefits of true competition. Nilit America is the offspring of
Nilit Israel. We directly employ over 600 people in Israel, both Arabs
and Jews in one of the designated industrial zones. Nilit America is
the result of the growth in business experienced under the U.S.-Israel
Free Trade Agreement. Our company is an example of the benefits that
can be realized through the elimination of trade barriers. We have
grown over 500% in just five years. The ability to trade freely
products manufactured in Israel with the United States enabled us to
build a firm that allows downstream manufacturers, such as the hosiery
industry, to maintain domestic production and to compete with imports
from low labor cost countries such as China.
The majority of countries in Sub-Saharan Africa are lesser-
developed developing countries. After agriculture, one of the
historical industries which a developing country can quickly assimilate
is the manufacture of textiles and apparel. Given the sensitivity of
allowing unrestricted trade in agricultural products, we should seek to
ensure that other manufacturing options for these countries do not
become subject to restrictive trade requirements. Specifically, in the
last Congress, U.S. interest groups attempted to require that only
apparel products made in Sub-Saharan African countries from fabric that
had been made in the U.S. from yarns that had been made in the U.S.
would be allowed quota free entry. From a practical trade standpoint,
the cost of shipping U.S.-made fabric from U.S.-made yarns to Africa
for assembly before returning the finished goods to the U.S. is cost
and time prohibitive. Such requirements would be so costly as to
effectively ban any quota free apparel merchandise from Sub-Saharan
countries. Similar requirements are in effect under the NAFTA and for
Caribbean countries, however, their close physical proximity to the
U.S. makes such a proposition a viable trade practice.
Of course, Nilit America has a vested interest in ensuring that no
requirements are imposed on textiles and apparel made in Sub-Saharan
Africa since our fine denier high-quality nylon 66 yarns are made in
Israel. It was the U.S.-Israel Free Trade Agreement that ignited the
manufacturing of specialty nylons in Israel and exporting them to the
United States. If we are allowed to ship our fine denier, high-quality
nylon 66 yarns to manufacturers in Sub-Saharan Africa, we can increase
our work force in Israel and the United States. If made in the U.S.
requirements are imposed on apparel made in Sub-Saharan Africa, the
manufacturers will not use our nylon nor likely the U.S. made nylons
given the cost and time involved in exporting from the U.S. to Africa,
thus, the possible benefits of your legislation would be nullified.
Additionally, the legislation targeted to benefit Sub-Saharan Africa
would have an adverse effect on a Free Trade Agreement negotiated
between the U.S. and Israel.
Therefore, we encourage you, Mr. Chairman, and your esteemed
colleagues, to hold fast to the principles of free trade. Do not let
special interest groups influence your decision to develop a viable
open trade relationship with Sub-Saharan Africa. Keep the provisions of
Section 8 as originally proposed in H.R. 1432. If origin-specific
requirements are placed on the apparel products manufactured in Sub-
Saharan the principles contained in Section 8 will be nullified. Your
commitment to free trade and the development of free enterprise in Sub-
Saharan Africa are to be commended. Thank you for this opportunity to
comment and for holding hearings on this important trade issue. Please
feel free to contact me if you have any questions on the issues raised
in my statement.
Statement of the United States Association of Importers of Textiles
and Apparel, New York, NY
Summary
The U.S. Association of Importers of Textiles and Apparel, USA-ITA,
supports legislation to ensure the expansion of U.S. trade with Sub-
Saharan Africa. Providing quota-free and duty-free entry to textiles
and apparel from Sub-Saharan Africa could have a substantial beneficial
impact on Sub-Saharan Africa and on American consumers. This policy
also has the potential to benefit the U.S. domestic textile industry as
well as U.S. retailers and importers.
Given the low levels of development within Sub-Saharan Africa and
the small trade from the region, the need for quotas on these countries
is questionable. Further, given the fact that the few existing quotas
have not been fully utilized, a policy of quota-free treatment alone
arguably would be comparable to the status quo, although it would
provide potential investors with a sense of certainty they do not have
today.
Duty-free treatment is one of the few means available to encourage
investment in the region. Duty-free treatment for Sub-Saharan African
textile and apparel products may be more significant than quota-free
treatment, in terms of a measurable impact on trade.
An express policy of a quota-free, duty-free treatment for textile
and apparel products sourced from the Sub-Saharan region also provides
a basis for these countries to compete against Asian suppliers. Many
traditional suppliers of textiles and apparel are becoming less
competitive as a result of rising costs, tighter quotas, and now, the
financial crisis. The opportunities available under the African Growth
and Opportunity Act will permit the region to better prepare for an era
in which all quotas on textile and apparel products will be eliminated.
There can be no question that it is producers in Asia who would be most
vulnerable to an erosion of trade if the Africa Growth and Opportunity
Act of 1999 becomes law, not U.S. firms.
Discussion
I. About USA-ITA
USA-ITA is an association founded in 1989 with more than 200
members involved in the textile and apparel business. USA-ITA members
source textile and apparel products both domestically and overseas.
Members include manufacturers, distributors, retailers, and related
service providers, such as shipping lines and customs brokers. USA-ITA
member companies account for over $55 billion in U.S. sales annually
and employ more than one million American workers. These are good
jobs--in production, design, freight forwarding, distribution, sales
and other services--well paying, skilled jobs that Americans want to
have.
The ability of USA-ITA members to respond appropriately to consumer
demand, and thereby maintain and increase competitiveness in the world
marketplace, and to expand the number of good jobs in the United
States, is very much dependent upon U.S. textile and apparel trade
policy. So long as there is uncertainty, including the threat that
quotas will be established on speculative and newly developing
opportunities, the ability of importers and retailers to consider these
options and offer the benefits to consumers is greatly constrained.
Therefore, USA-ITA strongly supports the establishment of an express
United States Government policy to provide quota-free and duty-free
entry to textiles and apparel from Sub-Saharan Africa.
II. U.S. Textile and Apparel Importers Need An Incentive To Consider
Sub-Saharan Africa
The reasons why textile and apparel trade from Sub-Saharan
Africa has been so minimal are many.
Distance
Currently, investment in this region is not particularly
attractive for the textile and apparel import community largely
because the region is extremely distant from the United States.
The travel time to reach Sub-Saharan Africa is long. While
there are direct air flights from New York to Johannesburg,
South Africa that take only about 11 hours, other Sub-Saharan
sites are more difficult to reach. By airplane, it takes some
20 hours of flying time over two days to get to either Kenya or
Mauritius, both because of the distance and because connections
are limited. That is just for personnel, such as buyers, to
reach the area. For most of the Sub-Saharan nations, the
infrastructure is also highly limited, making movement beyond
port areas difficult if not overly time consuming or altogether
impossible. That makes land-locked Sub-Saharan nations even
less viable options.
For the movement of goods, however, the time involved is
even more extreme: it takes at least a month, and typically 40
to 45 days for goods to move by ship from Mauritius to New
York. In part this is due to the lack of major container
facilities within Sub-Saharan Africa, so the region is reliant
upon ``feeder'' carriers to move goods to ports where they can
be consolidated with other shipments before actually heading
for the United States. At that point, the distance between Sub-
Saharan Africa and the United States accounts for the rest of
the excessive time involved. And time is a major consideration
in the fashion business. So is cost. The shipping costs
involved, particularly when raw materials also must be brought
into the region, undermine manufacturing savings that may be
achieved through low labor costs. To some extent, the long lead
times and high ocean shipping costs have meant that air
shipping merchandise is an equivalent option, a strong
indicator of the expensiveness of sourcing from Sub-Saharan
Africa.
Political instability
Political instability in the region also has no doubt had
some impact on new investment in the region, and on the
willingness of some companies to maintain investment over the
long term. While there is a limit on the extent to which these
geographic and political disincentives can be ameliorated, U.S.
textile policy also has worked against the region. Unless U.S.
policy is revised, there is little that is likely to entice
American companies to seriously consider the Sub-Saharan
region.
Uncertainty regarding U.S. Textile Policy
Those few American companies that have ventured into new
regions of the world have learned the hard way that U.S.
textile policy can quickly put their plans in jeopardy. The
most recent example comes from those companies that shifted
production into Cambodia. Although the United States conferred
``normal trade relations'' duty treatment on Cambodia in 1997,
companies found themselves in 1999 caught in U.S. Textile
Program plans to establish a comprehensive system of quotas
that now greatly limit textile trade from that nascent
industry.
U.S. companies entering Sub-Saharan African countries have
suffered a similar fate. Their forays into the region have not
necessarily been rewarded--to the contrary, these companies
have been slapped with quotas established under the U.S.
Textile Program and with changes in the origin rules that
determine whether those products are African. The result has
been that although trade from the region has increased
slightly, from 100.8 million ``square meter equivalents,'' or
SME (the standard measure used in the U.S. Textile Program), in
1992 to 138 million SME for the one year period ending November
1998, its share of total imports of textile and apparel imports
into the United States is only 0.58 percent. In recent years,
trade from the region has actually fallen as a percent of total
U.S. textile and apparel imports, with the largest trade
increases from Mexico, Canada and the Caribbean Basin
countries.
For example, there are a number of quotas on trade from
Mauritius, one of the very few Sub-Saharan countries to
actually develop a relatively varied textile and apparel
manufacturing business. Mauritius' trade in textile and apparel
products in 1997 was slightly less than its trade in those
goods in 1992, measured in million SME:
------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 YE11/98
------------------------------------------------------------------------
36.3 46.5 50.5 46.5 34.4 34.2 37.3
------------------------------------------------------------------------
Source: Trade Monitoring Service, International Development Systems,
Inc.
During this period, some two dozen categories of goods
produced in Mauritius were subject to U.S. quotas, although
throughout this period Mauritius' trade has never accounted for
more than 0.29 percent of total imports of textiles and apparel
into the United States.
Kenya, the only other Sub-Sahara African country subject to
U.S. quotas, has suffered an additional and slightly different
fate. First, in 1994, when it was introduced to the U.S.
Textile Program as a result of the establishment of two quotas,
one on pillowcases (category 360) and the other on cotton and
man-made fiber woven men's and boys shirts (categories 340/
640), some 10,000 Kenyans lost their jobs and more than 30
companies exited the textile/apparel business.\1\ Between 1995
and 1996, Kenya's trade in shirts, categories 340/640, declined
by more than 40 percent, from 392,519 dozen to 235,079 dozen.
In 1997, Kenya's trade in woven shirts was 214,073 dozen and
the most recent U.S. trade statistics show that the trade
continues to decline to just 193,671 dozen woven shirts shipped
in the last twelve months.
---------------------------------------------------------------------------
\1\ Source: Asian Wall Street Journal, July 16, 1996, Page A-1, by
Michael Phillips. According to the article, ``Before the move
[imposition of U.S. of quotas], Kenya boasted more than 40 textile and
apparel companies employing at least 14,700 workers.'' The article
cites as its source ``an unofficial study by World Bank Economist Tyler
Biggs.''
---------------------------------------------------------------------------
Second, Kenya is also a victim of the change in the U.S.
rules of origin for textile products, implemented on July 1,
1996. Kenya's trade in bed sheets, which was not under a U.S.
quota, was effectively put out of business as a result of the
rules change. Its related trade in pillowcases, which has been
under quota, also has been devastated. Under the pre-July 1,
1996 rules, if a fitted sheet, a flat sheet, or a pillowcase,
were subjected to sufficient cutting and sewing operations, the
country of origin was where those cutting and sewing operations
occurred.
Now, however, under the new rules, where the fabric is
woven determines origin, regardless of the many and substantial
processes that may follow elsewhere. Within the town of
Mombassa, Kenya that has meant the shut down of the only
manufacturing facilities in the town, because Mombassa produced
fitted and embellished flat sheets, and pillowcases, from
fabric sourced in Pakistan. Kenya is not a fabric producing
country. Thus, Kenya went from shipping 510,864 numbers
(pieces) of cotton sheets (category 361) to the United States
in 1995 to shipping only 67,560 numbers of cotton sheets in
1996, a decline of 86.78 percent. And, trade in cotton
pillowcases (category 360) went down from 598,656 numbers in
1995 to 426,576 numbers in 1996. In 1997 and 1998, there was no
trade in these products.
The quota levels established for these Sub-Saharan
countries also have been extremely small. These small levels of
trade that mean only a few importers can get involved. While it
is the nature of the U.S. textile program that those who come
latest to the business are going to be permitted an
increasingly smaller piece of the quota pie, the knowledge of
this basic reality works as a strong disincentive for an
importer to enter a location such as Sub-Saharan Africa.
The region is already so far away, thereby greatly
increasing costs and time, and making it that much more
difficult to manage, that there must be something else to
overcome these disincentives. One incentive would be to have an
assurance that a sufficient and commercially viable quantity
can be obtained. A larger quantity generally means lower per
piece costs because items such as shipping costs can be
apportioned over that greater quantity. Clearly, a second
incentive would be duty free treatment, again to compensate for
the increased shipping costs.
III. The U.S. Already May Have a No Quota Policy on Sub-Saharan Africa
As a practical matter, there are two related reasons why the United
States may already have a de facto no quota policy with regard to Sub-
Saharan Africa. First, with most of the nations in Sub-Saharan Africa
already members of the World Trade Organization, the likelihood that
any of these countries would have their textile trade subjected to new
U.S. quota actions appears minimal. Since the WTO went into effect on
January 1, 1995, and as a consequence of the rules established by the
WTO's Agreement on Textiles and Clothing, it would be extremely
difficult for the United States to justify a unilateral quota action on
one of these African nations absent an astronomical expansion of trade.
Second, to the extent that there is a reluctance on the part of the
United States to place restraints on South Africa, WTO rules serve to
limit the ability of the United States to limit other Sub-Saharan
countries trading in those same products but shipping smaller
quantities than South Africa.
Until recently, South Africa stood out as an example of how one
Sub-Saharan country has been able to expand its trade in textile and
apparel products, at least in part because no quotas have been imposed
on its trade since the trade embargo was lifted. In addition, there is
a perception that as part of a U.S. policy to support the South African
non-apartheid government, the United States may be more reluctant to
impose limits on that country's trade. Unfortunately, like the region
as a whole, in recent trade statistics even South Africa's exports of
these goods (in million square meter equivalents) have begun to fall:
------------------------------------------------------------------------
1994 1995 1996 1997 YE11/98
------------------------------------------------------------------------
23.8 34.9 48.7 50.0 40.7
------------------------------------------------------------------------
From the perspective of U.S. importers and retailers long
accustomed to the U.S. Textile Program, there is still uncertainty. The
possibility that quotas could be established if they were to take a
chance and begin expanding sourcing from another African nation
continues to serve as a disincentive. It is that perceived threat that
has kept importers from moving forward in Sub-Saharan African nations.
A de facto policy, without an explicit policy statement from the
U.S. Government is not enough. U.S. Textile Program officials appear to
have recognized this fact, at least with respect to the Caribbean. Late
last year, one Administration official, the Chairman of the inter-
agency Committee for the Implementation of Textile Agreements, finally
stated publicly that it is U.S. policy not to restrict textile trade
from the Caribbean with new quotas, thereby explaining why the
Committee had decided to seek a restraint on Cambodia when trade from
Caribbean suppliers was greater. It was only after that statement was
issued that U.S. firms looking toward sourcing in the Caribbean felt
secure in that business decision. A similar statement, in the form of
this legislation, would go a long way toward providing the assurances
necessary for U.S. firms to seriously consider sourcing in the Sub-
Saharan region.
IV. Asia Faces A Greater Risk Than U.S. or North American Producers
From An Express U.S. Policy On Textile Trade With Sub-Saharan Africa
It is only Asia that could lose sales as a result of a change in
U.S. policy toward Sub-Saharan Africa, not American manufacturers and
not Mexican or Caribbean businesses. The reason is a combination of
costs and shipping times.
Currently, Mexico enjoys an advantage unmatched by most other
suppliers, as evidenced by skyrocketing expansion of its textile and
apparel trade to the United States, catapulting it to the position of
Number One supplier of textile and apparel products to the U.S. market
(accounting for almost 14 percent of the imports). Besides its close
proximity to the U.S. market, including a land border that permits the
movement of goods by truck, duties on products which qualify under
NAFTA rules are already at or near zero and soon all qualifying
products will be at zero duties. Thus, Mexican made goods can get to
the U.S. market faster and cheaper than many products from many other
suppliers.
Caribbean-based trade also shares the advantage of close proximity
and low labor costs, accounting for 12.5 percent of the textile and
apparel imports. Arguably, the Caribbean countries do operate at a
disadvantage to Mexico because they do not enjoy NAFTA duty rates and
because there may be some additional shipping time and costs involved.
Asian suppliers cannot compete with the shipping costs and time
advantages offered by Mexico and the Caribbean. In addition, labor
rates in Asian nations have been moving up, making these countries less
competitive on that basis as well. Add to that the fact that Asian
goods are subject to regular most-favored-nation duty rates, while
Mexican made products avoid most of the brunt of high U.S. duty rates,
and the Caribbean is able to reduce its duty exposure through ``807''
type trade, and it is not surprising that Asian suppliers are
considered more costly and even high-end. And for more than the last
year, the continent has been in the throes of a financial crisis that
has led to civil unrest and substantially undermined confidence in
traditional Asian suppliers of textile and apparel products. These
factors are contributing to the expansion of trade from Mexico and the
Caribbean at the expense of Asian suppliers.
[GRAPHIC] [TIFF OMITTED] T6044.010
Thus, while labor costs in Sub-Saharan Africa generally may be low
(although productivity is probably not as great as in more accomplished
textile and apparel producing nations), the remote location of Sub-
Saharan Africa vis-a-vis the U.S. market causing higher shipping costs,
and the application of the high U.S. duty rates places costs for
sourcing from this region above, or at best on a par with, Asia.
Eliminating the duties on African-made products would most likely make
these products more competitive with Asian made goods, but still no
where near the price points possible for Mexican and Caribbean made
goods.
U.S. producers also would not be threatened by the elimination of
duties on Sub-Saharan textile and apparel products. To the extent
domestic production has declined in recent years, it is because U.S.
producers of apparel have chosen to move assembly jobs and plants to
Mexico and the Caribbean while maintaining their ability to meet the
``quick response'' requirements of their customers. Given the costs and
time involved, these producers are not going to move production to
Africa. Moreover, U.S. textile producers are not going to lose sales to
Sub-Saharan Africa because these countries do not have textile
manufacturing facilities. To the contrary, because of the need to
provide raw materials to Sub-Saharan nations, increased production of
apparel and home furnishings there may offer significant opportunities
for U.S. textile mills to sell to those countries.
V. Concerns About Use of Sub-Saharan Africa as an Illegal Transshipment
Point Can Be Effectively Addressed
Throughout the debate on the Africa Growth and Opportunity Act,
some domestic producers have insisted that if Sub-Saharan Africa is
encouraged to expand its textile and apparel trade and is not subject
to quota restraints, it could become a point for illegal transshipment,
with products labeled as made in Sub-Saharan African countries which
are actually produced elsewhere. These concerns are grossly overstated.
Logistically, transshipment from Asia to Africa makes little sense.
However, USA-ITA recognizes that this concern must be fully addressed--
and it can be. The potential for illegal transshipment can be
effectively addressed through inter-governmental cooperation, education
programs, company compliance programs, and eventually visa systems.
USA-ITA is confident that if these governments and their industries
are provided with the necessary training on the U.S. rules of origin
for textile and apparel products, the expectations of U.S. importers
and retailers with regard to matters such as factory verifications,
U.S. Customs entry requirements, and on how a visa, or export
licensing, system operates, the potential for illegal transshipment is
substantially minimized. A cooperation and exchange program between
U.S. and Sub-Saharan customs officials could be particularly effective.
Further, under current U.S. Customs Service ``reasonable care
standards,'' it is incumbent upon all U.S. firms doing business abroad
to establish and enforce effective compliance programs, including the
maintenance of acceptable, accurate and reliable recordkeeping systems
establishing where production took place. The full cooperation of
foreign factories with these requirements is a condition of purchase
orders, as is the right of purchasers to observe the production of the
merchandise and conduct quality control checks. These systems provide
the basis for a strong anti-transshipment compliance program, and the
considerable investment U.S. firms have made in these comprehensive
programs must be recognized.
In addition, while the establishment of visa systems, under which
exporting governments license their exports of textile products to the
U.S. market, may not be immediately feasible for a number of these
countries, because it would require the creation of a new bureaucracy
and a system for controlling documents, ultimately this may be
appropriate. USA-ITA stands ready to assist in both education efforts
and the development of a workable visa program.
[GRAPHIC] [TIFF OMITTED] T6044.011
[GRAPHIC] [TIFF OMITTED] T6044.012