Emergency Committee For American Trade - Publications

SECTION IV.5: RUSSIA, MIDDLE EAST, AND SUB-SAHARAN AFRICA

Russia

Since the dissolution of the USSR in 1992, Russia has been struggling with the challenges of ending state economic control and establishing a stable, market-oriented democratic system. Russia had made some progress in reaching these goals over the last several years, with a reduction in military spending, market economy structural reforms, and an increase in private sector economic activity.

U.S. trade with Russia equaled almost $14.8 billion in 2004. U.S. goods exports totaled $3.9 billion, up 30 percent from $3.0 billion in 2004. U.S. goods imports equaled $15.8 billion in 2005, up 32.8 percent from $11.9 billion in 2004. U.S. foreign direct investment rose to $2.2 billion in 2004 and is largely concentrated in the financial and information sectors. As discussed below, Russia remains subject to the Jackson-Vanik provisions of the Trade Act of 1974, and enjoys normal trade relations status, which is currently granted annually based on Presidential certification subject to a potential Congressional vote of disapproval. As discussed in section II.1, Russia is also in the process of negotiating its terms of accession to the WTO, which would require the United States to terminate the conditional grant of normal trade status or be in violation of its WTO commitments.

The United States remains concerned over a wide range of trade, investment, and intellectual property issues, including corruption and concerns about the rule of law, the lack of transparency, customs regulations, standards and licensing barriers, government procurement, agricultural barriers, import tariffs on commercial aircraft, export subsidies, services, and investment barriers. Many of these issues are being negotiated as part of Russia's accession to the WTO and are discussed in section II.1.

In the 2005 Special 301 cycle, Russia remained on the United States' "Priority Watch List" for its inadequate intellectual property regime, particularly in the areas of copyright, patent and data protection. Piracy has gotten worse as Russia has become one of the world's largest producers and distributors of illegal optical media material, with 36 known plants. Russia will need to take several steps to address this issue, from making it a political priority to implementing effective enforcement measures, including unannounced inspections, to making modifications to the optical disc licensing regime that are necessary to ensure better enforcement. There is also concern over Russia's reimbursement lists for state-healthcare entities that discourage the use of foreign innovative medicines which are often more effective and safer than local pharmaceuticals.

Russia also maintains extensive barriers to investments in numerous sectors, including energy and natural resources, electric power, insurance and major construction projects. It announced limits on foreign participation in key natural resource activities in 2005. Corruption, administrative barriers, contradictory investment regulation and notification rules, selective and discriminatory interpretation and application of laws, inadequate and contradictory legislation, the lack of adequate dispute settlement mechanisms and restrictions on hard-currency medium-term loans also represent major barriers to U.S. investment. While the United States negotiated a bilateral investment treaty with Russia in 1992 (which the U.S. Senate ratified), Russia has failed to ratify it. ECAT urges both the United States and Russia to reactivate BIT discussions.

Russia currently receives normal trade relations (NTR) treatment on an annual basis from the United States, pursuant to the Jackson-Vanik provisions of Title IV of the Trade Act of 1974, which governs the extension of NTR treatment to non-market economy countries. The Jackson-Vanik provisions condition the extension of NTR treatment to compliance with freedom of emigration criteria and require that NTR be renewed annually. Russia has been found to be in compliance with the freedom of emigration criteria since 1994.

ECAT Position: ECAT supports continued efforts to promote the rule of law, greater transparency and accountability in the Russian government, as well as to address issues of specific concern in the U.S-Russia commercial relationship, including the protection of intellectual property rights; financial service barriers, foreign investment barriers particularly in the natural resource sector, import tariffs on commercial aircraft, and agricultural barriers. ECAT supports Russia's accession to the World Trade Organization on commercially strong terms.

Middle East

U.S trade and investment with the Middle East has expanded significantly over the last decade. In 2005, U.S. goods exports to the Middle East reached $2.32 billion. U.S. goods imports from the Middle East totaled $4.934 billion. U.S. services exports to the Middle East have also expanded, from $7.2 billion in 2003 to $8.2 billion in 2004. U.S. investment in the Middle East equaled $19.2 billion in 2004.

The United States has negotiated free trade agreements (FTAs) with Jordan, Morocco, Bahrain and Oman and is in the midst of negotiating an FTA with the United Arab Emirates. The FTAs with Bahrain and Oman and the FTA negotiations with the UAE are discussed in section II.2. Saudi Arabia's accession to the World Trade Organization in 2005 is discussed in section II.1.

Morocco

The U.S.-Morocco FTA was approved by the Senate by a vote of 85-to-13 on July 21, 2004, and by the House, by a vote of 323-to-99, on July 22nd. The President signed the implementing legislation into law on August 17, 2004. Morocco's parliament approved the FTA on January 19, 2005, and the FTA entered into force on January 1, 2006.

Major Provisions of the U.S.-Morocco Free Trade Agreement

Among the primary provisions of the U.S.-Morocco FTA are the following:

Agriculture: Provides expanded access through tariff reduction, tariff elimination and an expansion of tariff rate quotas. U.S. exports of pistachios, cranberries, pecans, whey products, processed poultry products, and pizza cheese will immediately receive duty-free treatment upon entry into force. Tariffs on other products will be phased out in five years, including on walnuts, grapes, pears, and cherries. The Agreement covers all agricultural products. Key U.S. agricultural exports that will also have expanded opportunities include sorghum, corn, soybeans, and beef.
Manufactured Goods: Provides that more than 95 percent of consumer and manufactured exports will be duty-free upon entry into force of the agreement. All remaining tariffs will be removed within nine years.
Textiles and Apparel: Provides duty-free treatment for qualifying textiles and apparel (based on a yarn forward rule), with an additional 30 million square meter equivalent allowance for Moroccan exports containing third-country fabric.
Services: Liberalizes service trade and investment in Morocco through a negative list approach with relatively few exceptions and includes strong disciplines on transparency.
Investment: Expands investment opportunities and incorporates generally strong protections, including an investor-state mechanism, for U.S. investment.
Intellectual Property Rights: Includes state-of-art protections for trademarks, patents, copyrights, and trade secrets, including strong penalties, patent term restoration and data exclusivity.
Information Technology: Parties committed to non-discrimination and national treatment of digital products, and to not impose customs duties on products delivered electronically.
Government procurement: Includes important new anti-corruption and transparency rules for government contracting.
Transparency: Includes state-of-the-art transparency standards, including in such important areas as customs and regulatory rulemaking.
Labor and environment: Includes commitments to enforce effectively domestic labor and environmental laws. The parties reaffirmed their commitment to International Labor Organization principles and that it is inappropriate to weaken or reduce labor or environmental protections to encourage trade or investment. The parties also agreed to ensure that their environmental laws provide for high levels of environmental protection.
Dispute settlement: Provides that obligations in commercial, labor and environment areas are enforceable through a strong and innovative dispute settlement system allowing for monetary fines and other penalties for the failure to meet commitments.

Opportunities Created

Morocco is an emerging market, with imports from the United States amounting to $54.4 million in 2005. U.S. imports from Morocco totaled nearly $40 million in 2005. Leading U.S. exports include aircraft, corn, and machinery, and there have been recent increases in U.S. exports of textiles and pharmaceutical products. This agreement is important to create new opportunities for U.S. companies, workers, farmers and their families. The U.S.-Morocco FTA will help U.S. companies, which have been at a disadvantage with the EU (which has an association agreement with Morocco covering industrial goods). This agreement will also help Morocco lock in key economic reforms, including initiatives to streamline investment procedures and eliminate barriers to investment.

ECAT Position: ECAT supports full implementation of the U.S.-Morocco FTA.

Jordan

On October 24, 2000, the United States and Jordan signed the U.S.-Jordan Free Trade Agreement. The U.S.-Jordan FTA was approved by the House on July 31, 2001, by voice vote and by the Senate on September 24, by voice vote. The President signed the implementing legislation into law on September 28, 2001, and the U.S.-Jordan FTA entered into force on December 17, 2001.

Major Provisions of the U.S.-Jordan Free Trade Agreement

Negotiated prior to the renewal of Trade Promotion Authority, the U.S.-Jordan FTA represents an important step to the very strong agreements negotiated after Trade Promotion Authority was renewed, except that it fails to incorporate a strong or time-limited dispute settlement chapter providing time-limits on dispute settlement. The primary provisions of the U.S.-Jordan FTA are the following:

Agriculture and manufactured goods: The FTA provides for the elimination of virtually all industrial and agricultural tariffs within 10 years.
Services: Provides some liberalization in service trade.
Intellectual Property Rights: Includes strong protections for intellectual property.
Information Technology: Jordan became the first country in the Middle East to join the WTO Information Technology Agreement, and the U.S.-Jordan FTA was the first to include e-commerce provisions, including binding commitments not to impose customs duties on electronic transmissions, not to impose unnecessary regulation on electronic commerce and not to place unnecessary barriers to market access for digitized products or on delivery services through electronic means. ?? Transparency: Includes strong transparency standards.
Labor and environment: The U.S.-Jordan FTA was the first trade agreement to include commitments to enforce effectively domestic labor and environmental laws. The parties reaffirmed their commitment to International Labor Organization principles and that it is inappropriate to weaken or reduce labor or environmental protections to encourage trade or investment. The parties also agreed to ensure that their environmental laws provide for high levels of environmental protection. The U.S.-Jordan FTA made no provision for technical assistance or a cooperative framework for labor and environment.
Dispute settlement: The U.S.-Jordan FTA does not include state-of-the art dispute settlement. There are no time limits for the formation of panels and panel reports are explicitly considered non-binding.

Opportunities Created

The U.S.-Jordan trade and investment relationship remains modest, but is growing. U.S. goods exports to Jordan more than doubled since 2000, expanding from $312 million in 2000 to $643 million in 2005. Exports have particularly expanded of vehicles and machinery. Imports from Jordan have expanded even more rapidly, from $73 million in 2000 to $1.3 billion in 2005, mostly in apparel, which have been spurred in significant part by Qualifying Industrial Zones (QIZs) with Israel. This agreement will help Jordan lock in key economic reforms and promote greater and more diverse economic opportunities.

ECAT Position: ECAT supports full implementation of this agreement in a manner that liberalizes trade and investment flows between the United States and Jordan.

Sub-Saharan Africa

U.S. trade and investment with the 48 countries of sub-Saharan Africa (SSA) have increased overall in recent years, but still represent a low percentage of total U.S. trade and investment. Total two-way goods trade between the United States and the SSA countries increased 36.2 percent from $44.5 billion in 2004 to $60.6 billion in 2005. U.S. goods exports to the SSA countries equaled $10.3 billion in 2005. U.S. goods imports from the SSA countries increased from $35.9 billion in 2004 to $50.3 billion in 2005, with energy representing the 80.9 percent of U.S. imports. U.S. services exports to the SSA countries equaled $6.4 billion in 2004, representing a modest 8.5 percent growth since 1993. U.S. foreign direct investment in the SSA countries expanded from $2 billion in 2000 to $22.3 billion in 2004.

African Growth and Opportunity Act

The United States has long provided many of the SSA countries with duty-free access for non-sensitive goods through the Generalized System of Preferences (GSP) program. After years of Congressional and Administration consideration, the United States expanded those benefits through the African Growth and Opportunity Act (AGOA), which was enacted on May 18, 2000, as part of the Trade and Development Act of 2000.

The impetus for AGOA grew out of recognition � both in the United States and in Africa � that trade and investment can serve as an engine for African economic growth and development. The AGOA provides duty-free, quota-free treatment for certain apparel from eligible sub-Saharan African (SSA) countries and provides duty-free access to certain products not currently eligible for such treatment under the Generalized System of Preferences program (GSP). The AGOA also provides a framework for trade-capacity building to help countries take advantage of the trade preferences. The AGOA establishes the U.S-sub-Saharan Africa Trade and Economic Cooperation Forum to facilitate regular ministerial-level trade and investment policy discussions. The primary provisions are as follows:

Eligibility Criteria: Sub-Saharan African countries eligible for the benefits of AGOA must meet the GSP's eligibility requirements, as well as several new requirements, including making progress toward establishing or adopting (1) a market-based economy, (2) the rule of law and political pluralism, (3) economic policies to reduce poverty, (4) a system to combat corruption and bribery, and (4) the protection of internationally recognized worker rights. Eligible countries must also be found to be making progress toward eliminating barriers to U.S. trade and investment. Countries may not be found to be eligible if they engage in activities that undermine U.S. national security or foreign policy interests or engage in gross violations of internationally recognized human rights.
Textile and Apparel Provisions: The AGOA provides duty-free, quota-free treatment through September 30, 2008, for the following articles:
Apparel assembled in eligible SSA countries from U.S. fabric made from U.S. yarn;
Apparel that is cut and assembled or knit-to-shape in sub-Saharan Africa from U.S.-made fabric that is made from U.S. yarn and assembled with U.S. thread;
Apparel wholly assembled from regional fabric, up to a cap of 1.5 percent of total U.S. apparel imports in year one, growing to 3.5 percent of such imports in year eight; lesser developed SSA countries may use third country fabric for the first four years of the program;
Knit-to-shape sweaters made from cashmere or fine merino wool up to 18.5 microns;
Apparel cut and assembled or knit-to-shape in sub-Saharan Africa from fabric or yarns not available in commercial quantities in the United States; and
Hand-loomed, handmade, and folklore articles.
Eligible countries must also adopt effective visa systems, domestic laws and enforcement procedures to prevent unlawful transshipment; permit the U.S. Customs Service to verify information; and cooperate fully with the United States to prevent circumvention and transshipment.
The AGOA also establishes procedures to monitor imports and investigate injurious import surges of articles made from regional and/or third country fabric and authorizes a tariff snapback (to the normal trade relations tariff rate) where an injurious import surge is found.
Trade Benefits for Other Products: The AGOA provides duty-free treatment for eligible sub-Saharan African countries through September 30, 2008, for other import-sensitive articles (except textiles and apparel) that are currently ineligible for such treatment under GSP, including certain footwear and luggage. The legislation also eliminates the restrictions under the GSP program that limit the quantity of imports that can receive GSP benefits for eligible sub-Saharan African countries.
Economic Forum: The AGOA directs the President to create a United States-Sub-Saharan Africa Trade and Economic Cooperation Forum to hold annual high-level meetings with African Ministers to discuss expanding trade and investment relations.
Other Provisions: The AGOA directs the President to develop a plan for engaging in free trade agreement negotiations, where feasible, with sub-Saharan African countries and supports comprehensive debt relief and increased involvement by OPIC, Ex-Im and the U.S. Foreign and Commercial Service in Africa.

As part of the Trade Act of 2002, Congress amended AGOA to:

Clarify that knit-to-shape products are covered by the duty-free, quota-free benefits of AGOA (contrary to Customs' interim ruling);
Clarify that hybrid products (cut in the United States and SSA beneficiary countries) are eligible for the duty-free, quota-free benefits (contrary to Customs' interim ruling);
Expand the eligibility of products from the least-developed countries to include apparel made from non-U.S. and non-regional yarn;
Raise the cap on duty-free, quota-free apparel imports made from regional fabric and regional yarn to seven percent over the next eight years;
Grant Namibia and Botswana the ability to use non-African fabric in apparel production as a "lesser developed beneficiary sub-Saharan African country," and
Make a technical correction to allow merino sweaters to be eligible for the duty-free, quota-free benefits.

The President has determined that 37 countries are currently eligible for AGOA benefits in 2006. They are Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Chad, Republic of Congo, Democratic Republic of Congo, Djibouti, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Sao Tome and Principe, Senegal, Seychelles, Sierra Leone, South Africa, Swaziland, Tanzania, Uganda, and Zambia These countries are eligible for the non-apparel trade benefits under AGOA.

To be eligible for the duty-free apparel benefits, the Administration must make a separate determination that the country has adopted an effective visa system and enforcement mechanism to prevent illegal transshipment. The following countries have been designated as eligible for the apparel benefits: Benin, Botswana, Cameroon, Cape Verdi, Ethiopia, Ghana, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Swaziland, Tanzania, Uganda and Zambia.

AGOA Acceleration Act of 2004

The U.S. Congress approved the AGOA Acceleration Act of 2004, which:

Extends the AGOA program from 2008 until 2015;
Extends third-country fabric provision from September 2004 until 2007 with a phased decline of benefits;
Modifies the AGOA rule of origin for textiles and apparel to allow limited non-AGOA collars and cuffs;
Expands folklore definition for printed fabric;
Provides assistance to develop sustainable infrastructure and increase trade capacity, including through the promotion of eco-tourism;
Assigns additional personnel to the region to provide technical agricultural assistance; and
Facilitates customs coordination at ports and airports.

Implementation and Impact of AGOA

Since its enactment, AGOA has helped to promote progress on several of its major policy objectives. AGOA has helped spur an expansion of U.S.-African trade; trade capacity-building assistance to support regional integration and development has begun to grow; the United States is currently negotiating the first-ever free trade area agreement with sub-Saharan African countries; and, by offering trade benefits to those countries undertaking sometimes difficult economic and political reforms, AGOA has provided a powerful incentive and reinforcement for African efforts to improve governance, open markets, and reduce poverty. In addition to promoting these goals, the annual AGOA forum has also provided a platform for high-level dialogue on ways to improve U.S.-African trades and economic cooperation. Though the AGOA has had a positive impact on African reforms, there is much progress that needs to be made and there are significant barriers to this progress.

Overall imports from the AGOA countries have increased since 1999 (the year before AGOA was enacted), from $13.8 billion in 1999 to $47.3 billion in 2005. Most of the increase in U.S. imports was in energy products, which were not significantly affected by the AGOA legislation. Nevertheless, non-energy U.S. imports from the AGOA countries, particularly apparel products that receive substantial AGOA preferences, increased nearly 83 percent, from $4.7 billion in 1999 to $8.6 billion in 2005. U.S. exports to the AGOA countries grew from $5 million in 1999 to $9.6 billion in 2005.

The increased trade in textiles and apparel and other areas promoted by AGOA has had a positive impact on African economic, political and social reforms. The ongoing review of a country's eligibility status has proven an effective tool in motivating countries to create and maintain conditions that will promote economic growth, although many of the difficulties facing sub-Saharan Africa, such as inadequate infrastructure and a lack of technical capacity, remain. The AGOA and other growth assistance measures are working to overcome these barriers to expanded trade and economic growth. With the help of the AGOA framework, the United States remains committed to helping sub-Saharan Africa address the challenges of debt relief, poverty reduction, infrastructure development and HIV/AIDS and other infectious diseases.

The economic forums mandated by the AGOA have also been important events to spur progress in the U.S.-SSA relationship. Most recently, at the fourth annual AGOA Forum held in July 2005 in Senegal, President Bush announced the African Global Competitiveness Initiative. In addition to allocating $200 million over a five-year period, the initiative greatly expands the trade-capacity-building efforts underway as part of the AGOA. The initiative seeks to enable African economies to become better integrated into regional and global markets and to take full advantage of the trade opportunities afforded by the AGOA. The goals of the AGCI are to expand sub-Saharan Africa's trade under the AGOA and to improve the region's external competitiveness.

The initiative emphasizes trade-capacity building in the following areas:

Improve the climate for private investment in Africa;
Expand AGOA trade and intra-African trade;
Strengthen the emphasis on information and communications technology in facilitating investment and trade-related efforts in Africa;
Stimulate private sector development;
Encourage and promote export diversification;
Reduce time-to-market and transport costs by facilitating trade at borders and along transport corridors;
Strengthen the financial sector;
Facilitate investment in infrastructure and address general barriers to competitiveness; and
Improve the capacity of African countries to meet international quality standards and United States animal and plant health inspection requirements.

Following the expiration of the Multi-Fiber Agreement on January 1, 2005 and, its quotas on textile and apparel products from most countries, SSA countries have experienced substantial competition in the U.S. market in a sector that AGOA was intended to help expand. It is expected that the SSA will face increasing competition in this sector in coming years, undermining to some degree the economic growth that can be fostered by the current AGOA framework.

Several technical implementation issues have also arisen with respect to AGOA, which have undermined the benefits it provides. On October 5, 2000, the U.S. Customs Service published interim rules to implement the benefits of AGOA (and the Caribbean Basin Trade Partnership Act discussed in section IV.3). Over five years later, these rules have yet to be finalized, which has limited the full benefits available under AGOA. In addition, interpretations by U.S. Customs and Border Protection (formerly called the U.S. Customs Service) severely limit the ability to use U.S. components. Another problem is the requirement that every importer provide sourcing and supply chain details on AGOA goods. This information is extremely confidential and if disclosed to a competitor could be very harmful.

Economic growth continues in the countries of sub-Saharan Africa, but much higher growth is needed to decrease poverty overall. Average per capita income remains lower now than at the end of the 1960s. Civil conflict, problems in governance, extensive state control of the economy, the HIV/AIDS epidemic, trade barriers and other economic problems continue to plague many of the countries of the region. Outdated and inadequate infrastructure, including ports, roads, and schools, also continues to slow growth and development. These issues need to be addressed.

In countries, such as Ghana, however, that have undergone economic reform and promoted liberalized trade and domestic markets, growth has been the strongest and poverty has declined. To continue to realize the potential benefits of AGOA and promote economic growth more broadly, therefore, eligible SSA countries need to diversify greatly their export base, develop intra-regional trade linkages, and enhance their external competitiveness. The United States views trade capacity building and technical assistance programs as essential components of its trade and investment policy. As discussed in section II.2, in 2003, the United States began negotiations with the five countries that make up the Southern African Customs Union (SACU) (Botswana, Lesotho, Namibia, South Africa and Swaziland) to create a U.S.-SACU Free Trade Agreement.

ECAT Position: ECAT supports full implementation of the African Growth and Opportunity Act in a manner that fosters greater trade and investment between the United States and the countries of sub-Saharan Africa and supports greater economic growth and opportunities for this region.