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AGOA Rules: The Intended and Unintended Consequences of Special Fabric Provisions

Author

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  • Edwards, Lawrence
  • Lawrence, Robert Z.
Abstract
Lesotho and other least developed African countries responded impressively to the preferences they were granted under the African Growth and Opportunities Act with a rapid increase in their clothing exports to the US. But this performance has not been accompanied by some of the more dynamic growth benefits that might have been hoped for. In this study we develop the theory and present empirical evidence to demonstrate that these outcomes are the predictable consequences of the manner in which the specific preferences might be expected to work. The MFA (Multi-fiber Arrangement) quotas on US imports of textiles created a favorable environment for low value-added, fabric-intensive clothing production in countries with unused quotas by inducing constrained countries to move into higher quality products. By allowing the least developed African countries to use third country fabrics in their clothing exports to the US, AGOA provided additional implicit effective subsidies to clothing that were multiples of the US tariffs on clothing imports. Taken together, these policies help account for the program’s success and demonstrate the importance of other rules of origin in preventing poor countries from taking advantage of other preference programs. But the disappointments can also be attributed to the preferences because they discouraged additional value-addition in assembly and stimulated the use of expensive fabrics that were unlikely to be produced locally. When the MFA was removed, constrained countries such as China moved strongly into precisely the markets in which AGOA countries had specialized. Although AGOA helped the least developed countries withstand this shock, they were nonetheless adversely affected. Preference erosion due to MFN reductions in US clothing tariffs could similarly have particularly severe adverse effects on these countries.

Suggested Citation

  • Edwards, Lawrence & Lawrence, Robert Z., 2011. "AGOA Rules: The Intended and Unintended Consequences of Special Fabric Provisions," Scholarly Articles 4669675, Harvard Kennedy School of Government.
    • Handle: RePEc:hrv:hksfac:4669675
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    References listed on IDEAS

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    Cited by:

    1. Newman, Carol & Page, John & Rand, John & Shimeles, Abebe & Soderbom, Mans & Tarp, Finn (ed.), 2016. "Manufacturing Transformation: Comparative Studies of Industrial Development in Africa and Emerging Asia," OUP Catalogue, Oxford University Press, number 9780198776987.
    2. Co, Catherine Y., 2014. "Supply-side constraints, capital goods imports, and the quality of Sub-Saharan African countries exports," WIDER Working Paper Series 142, World Institute for Development Economic Research (UNU-WIDER).
    3. Sam Jones & John Page & Abebe Shimeles & Finn Tarp & John Page & Abebe Shimeles, 2015. "Aid, Employment and Poverty Reduction in Africa," African Development Review, African Development Bank, vol. 27(S1), pages 17-30, October.
    4. Rotunno, Lorenzo & Vézina, Pierre-Louis & Wang, Zheng, 2013. "The rise and fall of (Chinese) African apparel exports," Journal of Development Economics, Elsevier, vol. 105(C), pages 152-163.
    5. Temprano Arroyo, Heliodoro, 2018. "Promoting labour market integration of refugees with trade preferences: Beyond the EU-Jordan compact," Kiel Working Papers 2108, Kiel Institute for the World Economy (IfW Kiel).
    6. Xavier Cirera & Francesca Foliano & Michael Gasiorek, 2016. "The impact of preferences on developing countries’ exports to the European Union: bilateral gravity modelling at the product level," Empirical Economics, Springer, vol. 50(1), pages 59-102, February.
    7. Rotunno, Lorenzo & Vézina, Pierre-Louis & Wang, Zheng, 2013. "The rise and fall of (Chinese) African apparel exports," Journal of Development Economics, Elsevier, vol. 105(C), pages 152-163.

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    JEL classification:

    • F00 - International Economics - - General - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O00 - Economic Development, Innovation, Technological Change, and Growth - - General - - - General
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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