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

Working Paper
November 2013

African exports of clothing to the United States in response to the preferences granted under the African Growth and Opportunity Act (AGOA) have been impressive and the program should be renewed, but by itself the program is not sufficient because this performance has not brought the more dynamic development benefits that were hoped for. Beneficiary countries still do not have viable internationally competitive industries that could survive without the preferences nor have they diversified into new products and markets or added greater domestic value. Edwards and Lawrence demonstrate that this outcome is a predictable consequence of incentives under the Multi-Fiber Arrangement (MFA) quotas and the AGOA trade preferences. The MFA encouraged exports of low quality and low value added products by AGOA countries and higher quality and higher value added products by quota-constrained countries. AGOA preferences further encourage use of more expensive imported fabrics, deterring the use of the cheaper fabrics more likely to be produced in the countries receiving the preferences. They therefore advocate complementing AGOA preferences with more comprehensive development policies.