President's Export Council: Is this a useful model for Africa?

President Barack Obama recently named Boeing Chairman, President and Chief Executive Jim McNerney as chairman of the Presidents Export Council (PEC) with Xerox Chief Executive Ursula Burns as Vice Chairwoman of the Council and has 8 private sector members. The PEC was created to advise the President on exports, trade, promotion and other matters relevant to exports and was first created in 1973 by President Nixon according to the U.S. Department of Commerce Charter of the Presidents Export Council.

Originally, the PEC consisted of only 20 private sector members drawn from business and industry, mostly CEO's of major U.S. companies. Eight of the members were chosen "without regard to geographic considerations." Twelve members were selected to provide appropriate regional representation. Six years later, in 1979, President Jimmy Carter reconstituted and expanded the PEC to the current roster of 48 members which was extended to include leaders of labor and agriculture communities, members of Congress, and members of the executive branch. 

The PEC reports its advice through the Secretary of Commerce. Members serve "at the pleasure of the President" with no set term of office and thus, a change in administrations would bring a change in the Council. The PEC’s activities and operations are subject to the Federal Advisory Committee Act and the full council meets at least twice a year with no compensation to members for their services.  The PEC maintains subcommittees according to the council’s interests, and membership in those subordinate committees is drawn from the council’s membership. The PEC in the past has maintained 5 subcommittees as follows:

1. Trade Promotion and Negotiations

2. Technology and Competitiveness

3. Services.

4. Corporate Stewardship

5. Export Administration

When I first heard about the PEC, I wondered whether African Heads of State could benefit from similar Advisory bodies in order to address key economic challenges.  For instance, the PEC has had an impact on US negotiating positions and made significant input in the National Export Strategy.  During the George Bush administration, the growth of the US trade deficit by over 50% was a key issue of concern which the PEC used to influence US negotiations in the WTO Doha round and the regional context.  President Obama’s administration is currently faced with even more dire economic challenges including the recent loss of 8 million American jobs, which will undoubtedly influence the incoming PEC’s work. 

In Africa, this approach could be used to address issues pertaining to competitiveness, agriculture, investment etc. in addition to exports. 

Obama's National Export Initiative 2010

At the recent State of the Union address, US President B. Obama announced his goal of doubling America’s exports over the next five years -– an increase that will support 2 million American jobs. Following this, he issued an Executive Order -The National Export Initiative (NEI), a federal initiative to improve conditions that directly affect the private sector's ability to export.  Currently the US imports from Africa under AGOA, more than it exports to the continent.  The Executive Order will result in the creation of an Export Promotion Cabinet to develop and implement the initiative.  

The NEI is replicated below:

For Immediate Release

March 11, 2010

Executive Order - National Export Initiative

EXECUTIVE ORDER

- - - - - - -

NATIONAL EXPORT INITIATIVE

By the authority vested in me as President by the Constitution and the laws of the United States of America, including the Export Enhancement Act of 1992, Public Law 102-429, 106 Stat. 2186, and section 301 of title 3, United States Code, in order to enhance and coordinate Federal efforts to facilitate the creation of jobs in the United States through the promotion of exports, and to ensure the effective use of Federal resources in support of these goals, it is hereby ordered as follows:

Section 1. Policy. The economic and financial crisis has led to the loss of millions of U.S. jobs, and while the economy is beginning to show signs of recovery, millions of Americans remain unemployed or underemployed. Creating jobs in the United States and ensuring a return to sustainable economic growth is the top priority for my Administration. A critical component of stimulating economic growth in the United States is ensuring that U.S. businesses can actively participate in international markets by increasing their exports of goods, services, and agricultural products. Improved export performance will, in turn, create good high-paying jobs.

The National Export Initiative (NEI) shall be an Administration initiative to improve conditions that directly affect the private sector's ability to export. The NEI will help meet my Administration's goal of doubling exports over the next 5 years by working to remove trade barriers abroad, by helping firms -- especially small businesses -- overcome the hurdles to entering new export markets, by assisting with financing, and in general by pursuing a Government-wide approach to export advocacy abroad, among other steps.

Sec. 2. Export Promotion Cabinet. There is established an Export Promotion Cabinet to develop and coordinate the implementation of the NEI. The Export Promotion Cabinet shall consist of:

(a) the Secretary of State;

(b) the Secretary of the Treasury;

(c) the Secretary of Agriculture;

(d) the Secretary of Commerce;

(e) the Secretary of Labor;

(f) the Director of the Office of Management and Budget;

(g) the United States Trade Representative;

(h) the Assistant to the President for Economic Policy;

(i) the National Security Advisor;

(j) the Chair of the Council of Economic Advisers;

(k) the President of the Export-Import Bank of the United States;

(l) the Administrator of the Small Business Administration;

(m) the President of the Overseas Private Investment Corporation;

(n) the Director of the United States Trade and Development Agency; and

(o) the heads of other executive branch departments, agencies, and offices as the President may, from time to time, designate.

The Export Promotion Cabinet shall meet periodically and report to the President on the progress of the NEI. A member of the Export Promotion Cabinet may designate, to perform the NEI-related functions of that member, a senior official from the member's department or agency who is a full-time officer or employee. The Export Promotion Cabinet may also establish subgroups consisting of its members or their designees, and, as appropriate, representatives of other departments and agencies. The Export Promotion Cabinet shall coordinate with the Trade Promotion Coordinating Committee (TPCC), established by Executive Order 12870 of September 30, 1993.

Sec. 3. National Export Initiative. The NEI shall address the following:

(a) Exports by Small and Medium-Sized Enterprises (SMEs). Members of the Export Promotion Cabinet shall develop programs, in consultation with the TPCC, designed to enhance export assistance to SMEs, including programs that improve information and other technical assistance to first-time exporters and assist current exporters in identifying new export opportunities in international markets.

(b) Federal Export Assistance. Members of the Export Promotion Cabinet, in consultation with the TPCC, shall promote Federal resources currently available to assist exports by U.S. companies.

(c) Trade Missions. The Secretary of Commerce, in consultation with the TPCC and, to the extent possible, with State and local government officials and the private sector, shall ensure that U.S. Government-led trade missions effectively promote exports by U.S. companies.

(d) Commercial Advocacy. Members of the Export Promotion Cabinet, in consultation with other departments and agencies and in coordination with the Advocacy Center at the Department of Commerce, shall take steps to ensure that the Federal Government's commercial advocacy effectively promotes exports by U.S. companies.

(e) Increasing Export Credit. The President of the Export-Import Bank, in consultation with other members of the Export Promotion Cabinet, shall take steps to increase the availability of credit to SMEs.

(f) Macroeconomic Rebalancing. The Secretary of the Treasury, in consultation with other members of the Export Promotion Cabinet, shall promote balanced and strong growth in the global economy through the G20 Financial Ministers' process or other appropriate mechanisms.

(g) Reducing Barriers to Trade. The United States Trade Representative, in consultation with other members of the Export Promotion Cabinet, shall take steps to improve market access overseas for our manufacturers, farmers, and service providers by actively opening new markets, reducing significant trade barriers, and robustly enforcing our trade agreements.

(h) Export Promotion of Services. Members of the Export Promotion Cabinet shall develop a framework for promoting services trade, including the necessary policy and export promotion tools.

Sec. 4. Report to the President. Not later than 180 days after the date of this order, the Export Promotion Cabinet, through the TPCC, shall provide the President a comprehensive plan to carry out the goals of the NEI. The Chairman of the TPCC shall set forth the steps taken to implement this plan in the annual report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Foreign Affairs of the House of Representatives required by the Export Enhancement Act of 1992, Public Law 102-249, 106 Stat. 2186, and Executive Order 12870, as amended.

Sec. 5. General Provisions. (a) Nothing in this order shall be construed to impair or otherwise affect:

(i) authority granted by law to an executive department, agency, or the head thereof, or the status of that department or agency within the Federal Government; or

(ii) functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

BARACK OBAMA

THE WHITE HOUSE,

March 11, 2010.

Africa's Main Trading Partners

Africa’s Exports

Sub-Saharan Africa’s total merchandise exports were $244.6 billion in 2007, a 17.2 percent increase, approximately the same increase as in 2006. However these exports are highly concentrated since in 2007, South Africa and Nigeria accounted for 50.2 percent of Sub-Saharan Africa’s total exports.

From an individual country perspective, the United States is Africa’s largest single country market, purchasing 28.4 percent of the region’s exports in 2007. China came in second at 13.4 percent, and the United Kingdom was third at 5.6 percent.  From a regional perspective however, the EU is the largest export market and the region purchased 31.4 percent of Sub-Saharan Africa’s exports, down from 32.1 percent in 2006. 

Africa’s Imports

Sub-Saharan Africa’s total merchandise imports continued to increase in 2007, growing 25.6 percent to $269.2 billion, compared to slightly lower growth of 24.1 percent in 2006. Imports are growing faster than exports and once again, South Africa and Nigeria accounted for almost half of Sub-Saharan Africa’s total imports with a 46.4 percent share. In 2007, South Africa’s imports increased by 25.9 percent to $85.6 billion, about the same growth as in 2006.  Meanwhile, Nigeria’s imports increased by 33.7 percent to $39.4 billion, which was higher than the 20.3 percent growth in 2006.

Based on a review of some of the major suppliers to Sub- Saharan Africa, no single sector appears to account for the majority of the growth in Sub- Saharan African imports. Instead, the imports appear to be spread over a range of sectors, including a variety of electrical and other machinery, refined oil, telecommunications equipment, vehicles, aircraft, iron and steel products, pharmaceutical products, medical equipment, apparel, footwear, ocean vessels, and wheat

In 2007, China continued to be the largest individual country exporter to Sub-Saharan Africa with a growing market share of 9.8 percent and $26.5 billion in exports to the region. China’s exports to the region continued to grow rapidly by 39.4 percent from 2006. Increased shipments of electrical and other machinery, vehicles (mainly motorcycles and trucks), woven fabrics, iron and steel products, woven and knit apparel, and low-end footwear comprised the largest share of China’s growth in shipments to Sub-Saharan Africa. China, however, increased its share of African exports by almost one percentage point to a 13.4 percent share.

With the exception of the Netherlands which posted an increase in market share in Sub-Saharan Africa in 2007, the market share of Africa’s other major trading partners declined from 2006 to 2007.  For instance, the market share in Sub-Saharan Africa of the EU as a whole also decreased to 27.8 percent. The U.S. market share in Sub-Saharan Africa fell slightly in 2007 to 5.3 percent, with $14.4 billion in exports to the region.

South Africa’s share of the African market declined slightly to a 3.3 percent share from a 3.4 percent share in 2006. South Africa exported more than Japan, Netherlands, Italy, and Spain to Sub-Saharan Africa, with exports to the region of $9.0 billion in 2007, growing by 23.2 percent from 2006. 

Of Africa’s trading partners represented in the chart above, South Africa imports the least from African countries.

US Africa Trade Profile

The United States is Africa’s largest single country market, purchasing 28.4 percent of the continents exports in 2007.  Sub-Saharan Africa accounts for slightly more than one percent of U.S. merchandise exports, and slightly more than three percent of U.S. merchandise imports, of which about 81 percent are petroleum products.

However, the U.S. has a merchandise trade deficit with Sub-Saharan Africa and the deficit continued to widen in 2008 to $67.5 billion, from $53.0 billion in 2007.  Nigeria, Angola, the Republic of Congo, South Africa, Chad, and Equatorial Guinea accounted for 97.2 percent of the U.S. trade deficit with Sub-Saharan Africa in 2008.  Other leading AGOA (see AGOA Extension Act 2015) beneficiaries include Gabon, Cameroon, Lesotho, Madagascar, Kenya, Swaziland, and Mauritius.

Predictably, petroleum products continued to account for the largest portion of AGOA imports by the US with a 92.3 percent share of overall AGOA imports. With fuel products excluded, AGOA imports were $5.1 billion, increasing by 51.2 percent. Much of this non-energy product increase was due to a 224.8 percent increase in imports of AGOA transportation equipment, virtually all from South Africa.

AGOA minerals and metals imports by the US also increased by 58.8 percent and AGOA chemical and related products by 38.7 percent.  Meanwhile, AGOA textiles and apparel imports declined by 10.4 percent and AGOA agricultural products by 7.9 percent.

The good news however is that  U.S. imports under AGOA are becoming increasingly diversified. Some of the more significant products include: jewelry and jewelry parts; fruit and nut products; fruit juices; leather products; plastic products; and cocoa paste.

Developing Countries, Special & Differential Treatment in the WTO

Developing countries account for over two thirds of the 153 Members of the World Trade Organization (WTO), with over 32 of them classified as Least Developed Countries (LDCs), as designated on the UN list of 50.  Despite this, there is still no official definition of a “developing country” within the WTO framework which complicates the discussion on “development”.  Nonetheless, WTO Members have agreed on an extensive set of provisions addressing the flexible rights and obligations of LDCs, given this category is already defined by the UN.  

Given the lack of a definition of "developing countries", these countries use this designation " on the basis of “self selection” and as a consequence, Singapore with a per capita income of US$34,761, United Arab Emirates with a per capita income of US$54,606 and Kenya with a per capita income of US$766 (World Bank, 2009) are all expected to benefit from the same Special and Differential (S&D) treatment and development provisions and S&D negotiation.  

There is a crucial need to redefine criteria to access S&D treatment.  Suggestions has been put forward for a “needs based”, more customized approach to S&D whereby countries are given the opportunity on an ongoing basis to explain in developmental terms why they need access to S&D provisions.  Measuring economic need against legal provisions can be accomplished using a threshold such as $ 1000 GDP per capita, which is already used in determining subsidies under Article 27.2(a) and Annex VII of the Agreement on Subsidies and Countervailing Measures.  Members could also use staggered time frames, thresholds, benchmarks, multi-tiered phase-in periods, economic criteria at disaggregated and/or provision-specific levels. 

Additionally, current country groupings need to be renegotiated.  Specifically, this would mean that developing countries would cease to self-select their developing country status and would be categorized into a larger number of sub-groups than is presently the case.  It is contended that a LDC plus group of small and poor developing countries determined by size and per capita criteria as defined by international institutions, would by and large capture those countries in real need of S&D across all WTO agreements.  

However, a common critique of all of the above approaches is the emphasis on the creation of new developing country categories.  Among the reasons why WTO Members resist such an exercise, even if assured of its limitation to S&D provisions, is the fear of spill-over effects in the overall negotiations, where the impression of belonging to a sufficiently advanced sub-group receiving comparatively less S&D treatment is likely to lead to extensive demands by negotiating partners.  

As a compromise, Members could however consider the providing S&D benefits to all developing countries, based on a monitoring mechanism which would systematically evaluate the basis for requesting the S&D treatment.  Analysis of credibility would be based on a set of indicators or aggregate data, the basis of which an appropriate solution would be provided. Without a new approach to S&D treatment among developing countries, it is difficult to see how African developing countries could benefit from development measures and flexibilities when  other developing countries oppose any differentiation.

EU launches FTA negotiations with Singapore and Vietnam

The EU has launched and concluded FTA negotiations with Singapore (see legal texts here) and with Vietnam (see legal texts here) with the objective to create new opportunities for businesses from both sides including the building of economic foundations for further strengthening of trade ties. 

Currently the European Union is Singapore's largest trading partner and foreign investor and bilateral trade in goods and services exceeded €55 billion in 2008. Meanwhile, Singapore is the EU's foremost trading partner among the Southeast Asian countries and about one third of EU-ASEAN trade is with Singapore.

According to the new EU Trade Commissioner, Karel De Gucht besides trade, bilateral investment ties are robust and the investment relationship is two-way with Singaporeans working in the pharma business, maintaining aircraft or selling financial services benefit from the presence of European investors in Singapore, where some 3400 EU companies have set up subsidiaries. The EU Commissioner is also keen to further promote the EU to investorstof Singapore, including Sovereign Wealth Funds. For the EU, Singapore represents a growing market for exports and investments, as well as a crucial link to the wider ASEAN region.

EU-Vietnam annual bilateral trade in goods amounted to almost € 12 billion in 2008, and trade has increased 12% annually during 2004-2008. Within ASEAN, Vietnam is the EU’s fifth largest trading partner. Vietnam has seen rapid economic and social transformation over the past decade. Vietnam is a good example of an economy successfully opening up to trade and investment and lifting millions of people out of poverty. Vietnam is today one of the fastest growing and dynamic economies in ASEAN. GDP growth averaged almost 8% during 2003-2008. Even through the global economic downturn in 2009, Vietnam recorded a respectable growth rate of almost 5%.

EU’s total trade with Asia last year amounted to €730 billion, compared with €426 for the combined NAFTA countries. Notwithstanding Asia's growing economic success, today, Europe too has predominant role in the world economy. Out of a world GDP worth €41 trillion, the EU's €12.5 trillion economy (compared with China's €3 trillion) is the world's largest. The EU is also the largest importer and exporter, as well as the main source and destination of foreign direct investment. Over the last twenty years Europeans created a Single Market, a common currency and a border-free travelling area and integrated 12 mostly former communist economies, bringing the EU's total population to 500 million, a similar proportion to ASEAN. It is important to note that, last year, the EU initialed an ambitious free trade agreement with Korea.

The EU has also initialed EPAs with African and Caribbean countries. However the trade and investment flows between the EU and Africa, Caribbean and Pacific regions hardly matches those of the ASEAN- EU regions and importantly the investment flows are not necessarily two way. Furthermore Africa’s exports to Europe have been steadily declining over the past decades and it is not clear how the new agreements will stimulate increased exports from Africa. It is widely recognized that there have been many concerns about certain provisions in the EPAs and it remains to be seen if the full comprehensive agreements will substantially revise the areas of concern and hence reflect the severely asymmetric relationship.

Intra- SADC Trade Flows are Predominantly with South Africa

Regional Trade Agreements (RTAs) are influenced by the share of trade with partner countries as well as the composition of trade and production linkages.  Intra-regional trade in the SADC region is influenced by both the 2008 SADC Trade Protocol and bilateral trade agreements, which Member States negotiated prior to entry into force of the Trade Protocol. It should be noted that  the SADC Trade Protocol provides for the continuation of existing bilateral arrangements as long as they do not contradict the Protocol.

Despite the several bilateral agreements among SADC Members and the SADC FTA, a high proportion of intra-SADC trade is bilateral trade flows with South Africa.  South Africa is the largest importer and exporter in SADC as shown in the figure above (World Bank Data).  

Furthermore the bulk of trade flows is among the 5 Members of the Southern African Customs Union (SACU) and hence trade flows between 15 SADC Members outside of SACU is very low (less than 10% of total trade) with possible exception for Zambia.  The predominant role of South Africa is in part a reflection of its role as a logistical hub for the region’s trade with the rest of the world.  This may explain why the highest trade dependence is displayed by countries that are logistically connected to South Africa, possibly landlocked and are able to take advantage of her larger market, infrastructure and connectedness with world markets. 

Despite this high percentage of SADC trade with South Africa, overall the SADC region trades predominantly with the rest of world as shown in a previous post here.  This trend applies for both  exports and imports and implies that Africa's future trade expansion may lie in the fastest growing export market which is East Asia and in particular China.

Extra-SADC Trade are Flows Predominantly with the Rest of the World

The Members of the Southern African Development Community (SADC) formed a Free Trade Area (FTA) according to the SADC Protocol on Trade in 2008 in order to stimulate trade amongst the 15 Members. However a significant portion of the SADC Region's import/export trade is with the rest of the world and not among the 15 Members of this regional economic community. Since the coming into force of the SADC FTA, trade flows have in deed increased however these trade flows have been with trade partners in other parts of the globe and not among the SADC Members.  

As shown in the charts, even though the European Union continues to be the largest trade partner for the SADC region, East Asia has consistently been the fastest growing trade partner for the SADC region.  East Asia in 2005 was the second largest source of imports for the SADC region at 12,075US$ and with an increase of 140% from 2000. This trend is only likely to increase given that East Asia has a competitive advantage in manufactured products.

SADC export trade was also conducted largely with the EU (24,376US$) in 2005 and East Asia (6,573US$) the same year. However in 2000, SADC exports were predominantly destined for the EU (14,484US$) and NAFTA (3,746US$).  Between 2000 and 2005, SADC exports to the EU increased by over 55% while exports to the NAFTA increased by about 75% and increased by about 163% to East Asia. Data obtained from the SADC..

Discriminatory Effects of Free Trade Areas and Customs Unions

During the conclusion of the Uruguay Round in 1995, 120 countries joined the rules based WTO, whose linchpin, like the GATT is non-discrimination. Since then, the membership of the WTO has increased with the last joining country, Cape Verde bringing the membership to 153 countries and territories. Ironically the number of discriminatory RTAs has also increased dramatically since the mid-1990s, with virtually all countries being part of one or more RTAs. Since the inception of the WTO, 196 new RTAs have been notified to the WTO with an average of 11 notifications every year, compared with an annual average of three or less during the almost five decades of the GATT. For instance during the period 1948-1994, the GATT received 124 notifications of RTAs (relating to trade in goods), and since the creation of the WTO in 1995, almost 300 additional arrangements covering trade in goods or services have been notified to the WTO, with a further 65 estimated to be operational although not notified.

The real concern stems from the discriminatory effects of RTAs given the slow progress in the Doha Round. Which leads to the question, do you think the drafters of the GATT especially Article XXIV, envisioned the proliferation of cross regional FTAs rather than customs unions and how does this affect the non-discrimination objectives of the multilateral trading system?

The Doha Development Round: Africa’s Industrial Development

According to the UNIDO discussion paper “The Industrial Challenge Facing Africa in the Global Trading System” Africa’s merchandise exports are skewed towards fuels and mining products (59.1%), proceeded by manufactures (25.1%) and lowest in agricultural products (12.1%). Taking fuels, mining and agricultural commodities collectively, unprocessed goods accounted for over 70% of Africa’s merchandise exports; indicative of an asymmetry which needs to be corrected in the continent.

For as long as the WTO Non Agricultural Market Access (NAMA) negotiations disproportionately focus on the reduction of tariffs for competitive suppliers, it will be difficult for African countries to reverse this asymmetry given that, in addition to non tariff barriers (NTBs) in Africa and overseas, export capabilities are intricately linked to productive capacities both of which are very low in the continent. According to the Doha Ministerial Declaration of November 2001, 

"Market access for non-agricultural products

We agree to negotiations which shall aim, by modalities to be agreed, to reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries. Product coverage shall be comprehensive and without a priori exclusions. The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments, in accordance with the relevant provisions of Article XXVIII bis of GATT 1994 and the provisions cited in paragraph 50 below. To this end, the modalities to be agreed will include appropriate studies and capacity-building measures to assist least-developed countries to participate effectively in the negotiations."

For many African countries, new market access negotiations as above are less important than preference erosion which could weaken competitiveness for key products and reduce investment incentives. In fact, the recent study by UNECA has indicated that while an ambitious Swiss formula could increase Africa’s industrial market access opportunities, fundamentally for products Africa does not generally produce, it could also erode preferential margins for products currently exported to lucrative markets. Additionally, the application of the formula by the 8 African countries could in fact accelerate de-industrialization and lead to intensification of agro-industrial trade while diminishing the traditional industrial sectors. In light of the challenges facing the continent, it is important therefore for African countries to take stock of the development content arising from the NAMA negotiations, given that the finalization of modalities may take place shortly.

Similarly, since most African countries in the WTO (except eight), will not be applying the NAMA tariff reduction formula, the negotiations aimed at reducing or eliminating NTBs on products of export interest to African countries, such as fish, textiles and leather, should be even more importunate if development is to ensue. Additionally, to enhance Africa’s supply side capabilities, following the anticipated conclusion of the Doha Round, a comprehensive approach could require interventions in various negotiating groups including Services, Trade Facilitation, TRIPS and Aid for Trade. It is important to note that less than a handful of African countries, have made NTB notifications in the NAMA negotiations and there have been almost no negotiating proposals from African countries on NTBs. Given the open-ended nature of NTBs, including a lack of definition, it is likely that some issues could be addressed in the NAMA NTB negotiations with the appropriate technical assistance and coalitions.