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Here’s a US development program working – stop it immediately!

AGOA_logo2.jpg

“[O]pen trade and international investment are the surest and fastest ways for Africa to make progress,” President Bush said when he signed an extension to the African Growth and Opportunities Act (AGOA) in 2004. Originally signed into law in 2000, AGOA removes US quotas and duties for thousands of products coming from some 40 sub-Saharan African countries.

AGOA has led to an overall increase of 8% in non-oil exports to the US, according to recent research. And Madagascar has been one of the program’s clearest success stories. The island nation’s exports tripled in the first three years of the program, led by strong growth in the apparel and textile sector. This sector remains vibrant in spite of the huge encroachments by China on African textile competitiveness since 2005, as well as the more recent shrinkage in global demand: textiles still account for 60% of Madagascar’s total exports, and 100,000 people are employed in the formal sector alone.

So why is the US now threatening to revoke AGOA in Madagascar?

The US government is using AGOA as a political lever to force President Andry Rajoelina’s questionable government to hold elections within the year. The textile exporters association says that the loss of AGOA would lead to downsizing and possibly even the collapse of the entire industry. Tens of thousands of jobs, and tens of millions of dollars of investment stand to be lost.

A letter that Aid Watch obtained addressed to the association of Malagasy textile exporters from the US trade rep warns ominously: “The recent events in Madagascar will be taken into consideration as the U.S. Government begins its review of Madagascar’s eligibility for AGOA in the coming months. As you know, respect for the rule of law is a condition of eligibility outlined in the AGOA legislation.”

The reasoning seems to be that political instability and violations of democratic procedures hurt the Malagasy people, so the natural US government response is to—hurt them more by taking away their jobs?

But a look at the AGOA eligibility requirements shows there is some room for interpretation. There must be, if non-shining examples of democracy like the DRC, Guinea, and Guinea Bissau get to stay on the list while Madagascar is kicked off. It turns out that the AGOA FAQ page contains a disclaimer: “Progress in each area is not a requirement for AGOA eligibility” [emphasis added].

So the USTR is not required to take Madagascar off the AGOA list, and it should not. Attorney and global regulations enforcement expert Jason Poblete said via email that “a country-wide sanctions regime is not likely warranted” and recommended a more targeted approach, such as adding the coup leaders to the list of “specially designated nationals” restricted from doing business with the US.

Another time for invoking Amanda’s Love Actually test— better for the USTR to do nothing, stay home, and watch a movie.

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13 Comments

  1. Jeff Barnes wrote:

    Bill–

    Your criticism seems unfair. You are always pointing out the importance of good governance and the rule of law as a positive factor for development. Using diplomacy, with its awkward carrots and sticks, is one of the few ways to promote good governance and the rule of law. Obviously suspending Madagascar from AGOA would hurt a lot of people who need jobs, but that always happens when aid is cut off to punish governments. Excluding Madagascar from AGOA strikes me as the lesser of two bad choices, the other being to ignore what was essentially a coup d’etat.

    Posted June 4, 2009 at 12:46 am | Permalink
  2. Diego wrote:

    Jeff,

    The US has been trying this kind of policy elsewhere, especially in Latin America, and it always backfires. Trade restrictions hurt the people and not the government. The government can always claim that the US is interfering with the sovereign choices of the country and can attribute the poverty it causes to US policy. What has the US accomplished with the Cuban trade embargo? More recently, the threat to not renew the ATPDEA trade agreement between the US and Ecuador has only made the socialist government stronger and the image of the US poorer.

    Encouraging trade on the other hand encourages entrepreneurship and leads to a more favorable view of markets, free enterprise, openness, and… the US, giving it more leverage on public opinion in the country. And best of all, it helps the people of both the US and its trade partners. It’s certainly one of the best and most effective forms of aid the US government can implement.

    Best,

    D.

    Posted June 4, 2009 at 2:17 am | Permalink
  3. Bill Easterly wrote:

    Jeff, thanks for the feedback. There’s a big difference between cutting off aid to bad governments and cutting off export opportunities to the private sector in a country with a bad government. The latter doesn’t hurt the government that much, it hurts private individuals, which is unfair and doesn’t work to induce any government change anyway. Best, Bill

    Posted June 4, 2009 at 8:34 am | Permalink
  4. Jeff Barnes wrote:

    Well, USAID has already cut off direct aid to the government. I suspect they are taking this additional measure because they actually think they can influence the gov’t in Madagascar unlike other really bad governments which don’t care about losing exports. Diplomacy is guided more by case by case exceptions than evenly applied principles. You might be right that it won’t work and will just hurt the people who create jobs for the poor. So how does the US or other countries help bring back better governance to Mad? Or is this a case when doing nothing is better than doing something with low odds of success?

    Posted June 4, 2009 at 9:15 am | Permalink
  5. Bill Easterly wrote:

    Jeff, yes to your last statement, especially when low odds of success go along with certainty of damage to Malagasy people. This is a classic case of US govt officials with the choice between doing nothing vs. making it worse, and choosing the latter.

    Posted June 4, 2009 at 12:52 pm | Permalink
  6. on the ground wrote:

    I agree, don’t do anything. The Malagasy authorities are doing enough to destroy their own economy so it seems pointless for the US to pile on. Keeping Madagascar in the AGOA bill will keep several tens of thousands of Malagasy employed. At least until those jobs disappear due to natural causes (demand reduction, end of EPZ advantages, flight to less xenophobic, less isolated and more stable countries). AGOA pressure by the US will allow the HAT gang of old political dinosaurs and get rich quick arrivistes to appeal to nationalistic sentiment and claim they are victims and that the West just doesn’t understand the Malagasy way. Madagascar is going to crash hard and soon anyway and this coup government will have to run on its record in the next election (whenever that will be). It would be good if the US wasn’t the bogeyman and there was still something light at the end of the tunnel when the next government takes over.

    Posted June 5, 2009 at 8:48 am | Permalink
  7. Mike McConnell wrote:

    What a timely article. Taking control of the government is a means to get access to the cash flow of aid for you and your friends, among other things.

    Cutting aid to government therefore strikes at the heart of the problem and hurts the perpetrators of the coup. Unless the coup’s backers are big exporters, cutting aid to the private sector, or to programs that reach directly to the people, is really not something that affects those in power. It only hurts the businesses and workers of the country, already suffering from the turmoil. What a misguided policy.

    Posted June 5, 2009 at 11:07 am | Permalink
  8. SS wrote:

    @ Easterly

    “There’s a big difference between cutting off aid to bad governments and cutting off export opportunities to the private sector in a country with a bad government.”

    - a very good answer and one which I think policy makers should way carefully before embarking on sanctions.

    So agreed -

    Now how about an answer to my repeated question on World Bank industrial policy?

    SS

    Posted June 5, 2009 at 2:34 pm | Permalink
  9. Bob Noah wrote:

    You’ve won for yourself another devoted reader. I am especially eager to read your most recent book, The White Man’s Burden, which I agree has been heavy indeed. Ask around. Especially among those who’ve felt his footprints.

    Bob

    Posted June 5, 2009 at 6:09 pm | Permalink
  10. Polly wrote:

    With another woman I spent the month of November,2008 in Madagascar. I am a retired teacher who taught for 5 years in Nigeria in the ’60′s and 4 years in China in the ’80′s. One of my strongest impressions of the Malagasy people was that they are still strongly influenced by the French colonialism. I had the impression that most of the fine factories were foreign owned. I was distressed by the “coup”, but feel it is a step on the road to self-determination. Naturalists from Europe and US are demonstrating how to save the environment while providing jobs and industry is doing the same. It takes more than a generation to change a population and the Malagasy people need a lot of support through this transition. AGOA should be kept.

    Posted June 7, 2009 at 2:35 pm | Permalink
  11. Leon Yu wrote:

    Dear Mr. Easterly,

    I am an operator and investor in Madagascar working under AGOA for the past eight years. Your blog address has been given to me by a friend from “Am Cham” newly formed in Madagascar, which I am also a member.

    Firstly, thank you very much for sharing your insight of Madagascar track records of working with AGOA over the years and call for the stop of revoking Madagascar from AGOA for very good reason. I would like to tell you that we share your exact view of not only revoke Madagascar from AGOA would not help the situation at all but would actually make it much worse. Because if tens of thousands would be out of job tomorrow due to AGOA, would there be any relatively peaceful situation in the society as now? Would there be no uprising like the past six months? Would the population here understand the truth behind the revocation of AGOA? We ought to understand that whatever ideas we, the outsider, have for Madagascar’s politics or the forming of their government must have the understanding and support of the population. To be exact, we need to think about all these from their point of view and have our feet in their shoes. In fact, I doubt very much that there would be a large percentage of population knowing what AGOA means. Meanwhile, Madagascar, the people and the population being taken off the map of AGOA that would be most unfair.

    During the past months of trouble here, we, the operators found no sign of problems in our operation and factories, everything was normal! Even when there was no form of transportations during trouble times, the workers would walk to work and it would mean walking over two hours in some cases, and our attendance in the factories was always around 95%. We appreciate very much the determination of all the local workers of AGOA that they are willing to work towards their good future no matter the situation, as long as we would allow them!!

    Where our investment is concern, as you are most certainly aware of, that the total export under AGOA in Madagascar would take easily up to 60% of their entire exports. Now, imagine the amount of good investment we entrusted to AGOA in Madagascar over the years. If Madagascar will be taken off from AGOA, we are talking about a total annihilation of the entire industry in Madagascar that the local workers and investors built with a lot of hard work over the years.

    Should U.S.A take such action towards the people of Madagascar and our industry under the current global economic crisis?

    AGOA was designed to help the growth of Africa country and ultimately the betterment of the people’s life. On the other hand, the revocation of Madagascar from AGOA would not hurt the same people that we were trying to help?

    Thank You with My Best Regards

    Posted June 7, 2009 at 5:57 pm | Permalink
  12. Erwin Lapuz wrote:

    Revocation of AGOA in Madagascar will not only hurt the Malagasy people, but also a number of other nationalities.

    Presently, there are about a thousand Filipino expatriates working in Madagascar, commonly within the textile and garment industry. And we haven’t even counted those who came from Nepal, Mauritius, China, South Africa, Kenya and France.

    Should the AGOA eligibility of Madagascar is revoke–the textile and garment industry is expected to collapse, displacing thousands of Malagasy people from their jobs, as well as, the foreign expatriates. This is already an international concern, not just between Madagascar and the US.

    We, the Filipinos, are raising our fear with the Department of Foreign Affairs, likewise, with the Philippine Overseas and Employment Administration. We hope that thru this effort, the Philippine Government can help us bring our flights to the appropriate authorities in the US.

    Madagascar is not our country, yet it has become a home for most of us.

    Posted June 16, 2009 at 7:06 am | Permalink
  13. I am Malagasy, living in Madagascar, and too rarely find such objective articles about Madagascar’s political problems.

    Shared this one (too) in FriendFeed’s Madagascar group

    Thanks a lot for this very good (and wise!) blog post!

    Posted August 6, 2009 at 11:04 am | Permalink