Introduction

CHAPTER 2 Preferential Access to the United States and Manufacturing Export Performance: A Product-Level Analysis

Ana M. Fernandes, Hibret Maemir, Aaditya Mattoo, and Alejandro Forero Rojas

Introduction

Did preferential access to the US market durably boost African manufacturing export performance? To address this question, this chapter uses productlevel data that take advantage of two trade policy changes in the United States at the turn of the twenty-first century: • The expansion of Generalized System of Preferences (GSP) products for least developed countries (LDCs) in 1997 and the implementation of the US African Growth and Opportunity Act (AGOA) in 2001— which together allow us to assess whether preferential access boosts the exports of all eligible products in general and of apparel specifically • The 2005 phaseout of the Multifiber Arrangement (MFA), which allows us to assess whether any expansion in apparel exports persisted beyond the erosion of trade preferences.

The analysis relies on a highly detailed trade and tariff database that we constructed by combining US Census Bureau data on imports with US tariff data published by the US International Trade Commission (USITC), which jointly result in 26 years of data (1992–2017) on exports to the United States at the country Harmonized System (HS) 6-digit- level.

Analytical Context and Emerging Patterns

To place the US trade policy changes in context, well before the entry into force of the AGOA in 2001, nearly 30 percent of the HS 8-digit tariff lines in the United States had zero most-favored-nation (MFN) tariffs, and another 35 percent were duty-free for LDCs under the 1970s GSP regime. The expansion of GSP products for LDCs in 1997 freed another 16 percent of US tariff lines from duties.

The AGOA (a more favorable GSP arrangement) was unprecedented, allowing duty-free US entry of apparel products for the first time, as part of a further 6 percent of tariff lines being made duty-free. Under the AGOA, eligible African apparel exporters received privileged access to the US market not only because other countries continued paying tariffs but also because the main non-African exporters remained subject to quotas under the MFA.1 These quotas were entirely phased out by 2005, unleashing competition from China and other Asian countries and eroding the preferences that African countries enjoyed in the US market.

The raw data reveal that oil accounted for the bulk of African exports to the United States under the AGOA, but we focus on manufacturing exports because boosting manufacturing was the main purpose of the AGOA. African manufacturing exports to the United States grew steadily in the first post-AGOA years and then flattened at about the time of the 2008–09 Global Financial Crisis. A more interesting pattern is seen in African apparel exports to the United States, which first boomed then declined after the end of the MFA quotas and have stagnated in recent years.

Delving deeper into apparel, we find that the aggregate picture for African exports is based on four country-level stories: • Missed opportunities: Countries mostly in Central and West Africa never took meaningful advantage of the AGOA. • Boom-bust patterns: Countries mostly in Southern Africa experienced a boom right after the AGOA took effect, followed by a bust. • Growth and stagnation: Countries like Lesotho and Mauritius experienced a period of growth, followed by stagnation. • Late and sustained growth: Countries in East Africa saw sustained success, albeit starting late in some cases.

How far are the patterns in the raw data attributable to (a) the GSP LDC and AGOA trade preferences and, (b) for apparel, the erosion of preferences when the MFA quotas were phased out? To identify a causal impact of the US trade policy changes on African countries’ exports over a 26-year period (1992–2017), we take a treatment-and-control group approach. This approach relies on estimating a regression—designated as a triple-differences specification—following that proposed by Frazer and Van Biesebroeck (2010). The specification identifies the impact of GSP LDC or AGOA preferences by comparing (a) exports to the United States for eligible countries of eligible products with (b) exports to the United States for the control group (including noneligible products in eligible countries, noneligible products in control countries, and eligible products in control countries) before and after the US trade policy changes.

The specification identifies the causal impact of the AGOA and GSP LDC policy changes, because it accounts for unobserved differences and dynamics at the country-product, country-year, and product-year levels by including the corresponding large set of fixed effects.