Testimony of

William M. Daley

Secretary of Commerce

before the House

Trade Subcommittee

February 3, 1999

Mr. Chairman, I appreciate the opportunity to appear before the Trade Subcommittee to testify on the Administration's plans to develop and expand trade with Africa. This is a subject of great importance to U.S. business and workers. The Administration strongly supports the African Growth and Opportunity Act (H.R. 434), and we are gratified that the Ways and Means Committee is focusing on Africa early in the 106th Congress.

The trade and investment provisions of the Clinton Administration's Africa Initiative, The Partnership for Economic Growth and Opportunity in Africa, have two related objectives: to integrate Africa more fully into the global economy, and to build a viable commercial partnership between Africa and the United States for the mutual benefit of Africans and Americans. The African Growth and Opportunity Act is a vital tool to help transform our relationship with Africa from one rooted in the rivalry of the Cold War to one based on shared prosperity through increased trade and investment. We will work closely with both the House and the Senate to build bipartisan support for this legislation and achieve passage in the 106th Congress as expeditiously as possible.

President Clinton's historic visit to Africa in March 1998 stimulated a process of continuing partnership between the United States and Africa on several fronts, including regional security, civil aviation, education, health care, nutrition, and the environment, as well as trade and investment. The Administration is working now to implement the Partnership in all of those areas. We intend to use the upcoming first anniversary of the President's March 1998 trip to better highlight the many accomplishments in each of these areas, as well as to advance our ongoing initiatives and objectives. The Administration is planning the first ever ministerial-level meeting with African countries next month to discuss our cooperative partnership with Africa on issues including economic reform, trade and investment, governance, and conflict resolution.

I was fortunate to have the opportunity to accompany the President on his visit last year to Ghana, Uganda, and South Africa. I have returned to Africa twice since then, most recently in December 1998 when I led a 15-company Presidential Business Development Mission to South Africa, Kenya, Cote d'Ivoire, and Nigeria. In fact, I have visited Africa four times in my two years as Secretary of Commerce, and I look forward to returning a fifth time later this month for meetings of the Binational Commission with South Africa, chaired by Vice President Gore and Deputy President Mbeki. I can assure you that we view Africa as a vibrant and growing commercial market in the 21st Century, and our commitment to Africa is a lasting one.

Africa is important to the United States on several levels. It is the ancestral land of some 33 million Americans and the home of more than ten percent of the world's population. It is a continent whose wealth of human and natural resources remains largely underdeveloped.

The American experience holds a particular relevance for Africa, because our peoples share many common goals and aspirations: democratic, responsive governments; basic human rights and personal security; freer movement of people, goods, and ideas; and prosperity based on free markets. These natural linkages place Americans in an enviable competitive position in Africa, yet that is a position that both our government and our businesses traditionally have not pursued aggressively.

Much of the past reluctance of U.S. business to commit to Africa has been due to the region's unfavorable public image. For too long we have tended to focus only on the bad news--war, famine, disease, civil unrest, refugees, and economic stagnation. Certainly Africa faces enormous challenges, which cannot and must not be ignored. But the region also presents a wealth of opportunities. The majority of African governments are striving to implement democracy and energize their private sectors. As more and more Africans enjoy the benefits of democracy, they are also rededicating themselves to building prosperity on the basis of free markets. The Administration is determined that the United States should work closely with them in that effort, which is in our fundamental national interest.

Many African countries have undertaken major economic reforms to boost their competitiveness, expand trade, and attract foreign investment. For example, the 14-member Southern African Development Community (SADC) is building greater regional integration, and in April will engage in far-reaching discussions with the United States on cooperation with both economic and political issues. South Africa and the United States have concluded a bilateral tax treaty and are working toward a Trade and Investment Framework Agreement. Mozambique has liberalized its trade and foreign exchange regimes, privatized its banking sector, and signed a bilateral investment treaty with the United States. Kenya, Uganda, and Tanzania have revived their lapsed regional economic association, and plan to formalize their union with a treaty in the near future. Meanwhile, they have made their currencies convertible, and ended import licensing requirements. The Common Market of Eastern and Southern Africa (COMESA) has harmonized documentation for invoices and vehicle registrations in an effort to ease the transit of goods from port to customs. In West Africa, Nigeria has made impressive strides toward economic reform at the same time as it moves toward restoring democracy. Nigeria has deregulated fuel prices, unified its exchange rate, and ended pre-shipment inspections for imports and exports. Cote d'Ivoire has eliminated most price controls and trade restrictions, and liberalized marketing of coffee and cocoa. These and other African countries have adopted more realistic exchange rates, tightened fiscal management, implemented privatization programs, and removed artificial barriers to trade and investment.

Effects of the Asian Financial Crisis

As African countries implement far-reaching economic reforms, their economies are growing. According to the International Monetary Fund, Sub-Saharan Africa achieved 3.3% GDP growth in 1998. While that falls short of some earlier estimates, it is a vast improvement over the depressed growth rates of the early 1990's, and it comes in spite of the harsh effects of the Asian financial crisis on Africa's export earnings. The Asian crisis has taken its toll on Africa as world prices plummeted for the region's leading exports--including oil, gold, copper, and diamonds. But the IMF estimates that African growth will rebound to 4.7% in 1999, as the worst of the financial crisis subsides.

Depreciating Asian currencies have caused a decline in the U.S. market share in Africa, as well as those of most leading industrialized country suppliers. The U.S. export share in Africa fell to 6.1% in 1997 from 7.3% in 1996. France suffered a larger drop, and exporters in the United Kingdom, Germany, and Japan also experienced declines. Meanwhile, Asian suppliers (excluding Japan) enjoyed a doubling of their African market share. Despite this, it appears that U.S. exports to Africa in 1998 will have grown about 5% from 1997, which exceeds the growth in our sales to Latin America and the Newly Independent States. This contrasts with a decline in U.S. global exports, as well as those to Asia and Eastern Europe.

The good news is that the U.S. business community is responding aggressively to Africa's growing commercial opportunities. My business development mission to Africa attracted applications from more than 100 U.S. firms when it was originally scheduled for September 1998. Some firms were unable to join us when we had to reschedule the mission for December due to the terrorist bombings of our embassies in East Africa. However, we selected 15 companies from a broad range of sectors of critical importance to Africa--information technologies, petroleum, agribusiness, consumer products, health care, and basic infrastructure. The companies expressed unbridled enthusiasm over the prospects for increasing their commercial presence in Africa, and several representatives have returned since the mission to develop their contacts and explore new commercial opportunities.

The mission demonstrated the readiness of U.S. business to participate fully in building Africa's prosperity, provided they encounter a level playing field, transparency and commitment to the rule of law, and a genuine interest in regional economic integration. In addition, we co-sponsored with the African Development Bank the first Joint U.S.-West African Legal Conference, a regional forum to highlight and examine the path to more effective legal foundations for trade and investment. We signed a number of agreements and memoranda on commercial cooperation and technical exchange. We engaged in frank discussions with senior government officials and private sector representatives, and we advocated for U.S. companies competing for several upcoming projects. Several companies announced plans to launch or expand projects to help develop Africa's great human potential by "doing well by doing good," in the words of my predecessor, the late Ron Brown. These projects include: donations of laboratory equipment by Pfizer Corporation to schools in South Africa; an agreement by Monsanto Corporation to cooperate in developing a disease-resistant sweet potato in Kenya; a contract for Princeton Medical Enterprises to provide medical equipment and training to a private hospital in Cote d'Ivoire; and an agreement between Georgia State University and the Government of Cote d'Ivoire to establish an international business administration and human resource development university in Abidjan.

The interest on the part of U.S. business in participating far exceeded our mission capacity, and the limited time available did not allow us to visit all the countries that they requested be included. Therefore, I have asked Deputy Secretary of Commerce Robert Mallett to lead another mission to Africa later this year. Deputy Secretary Mallett is my full partner in developing and implementing our Africa program. He has conducted business outreach conferences on Africa throughout the Nation. He plans to participate in the African/African-American Summit in Accra, Ghana in May, and will again participate in the World Economic Forum Summit on Southern Africa in Durban, South Africa in June.

Critical Role of the Africa Bill

Most of what we need to do to strengthen our commercial ties with Africa can best be accomplished by the resourcefulness and ingenuity of our private sector. But we in government, both in the Executive and Legislative Branches, are in a position to assist and stimulate their efforts by addressing some of the remaining barriers to trade and investment in Africa. H.R. 434 is a critical element of what we need to do to accomplish that objective.

As members of the Subcommittee know, having worked so hard to develop this legislation on a bipartisan basis, the African Growth and Opportunity Act would implement the trade provisions of the President's Partnership. It would authorize the President to grant broader access to the U.S. market for African countries that implement reforms to open their own markets and become more competitive. Specifically, it would allow the President to grant duty-free treatment for certain products presently excluded from the Generalized System of Preferences (GSP) program, and eliminate quotas, or maintain our no-quota policy, on imports of textiles and apparel from Sub-Saharan Africa. It would also extend the GSP program for ten years in Africa, ensuring greater certainty for prospective traders and investors.

I am aware of the concerns that certain industries and unions have raised about some of the bill's provisions. Most of these concerns were highlighted when I testified in support of the legislation before the Senate Finance Committee last June. However, these provisions need to be considered in the context of the legislation and the President's Partnership as a whole. They constitute one important part of a coordinated approach to work with those African countries that are undertaking the reforms needed to strengthen their economies, attract new investment, improve intellectual property protection, and increase access to their markets for our exporters. As this process moves forward, it will lead to a more stable, peaceful, and prosperous Africa, and the United States will share in the benefits of that growth.

Legitimate concerns have been expressed about the risks of illegal transshipment of textile and apparel products by non-African manufacturers. The Administration is determined to ensure that the benefits of the textile measures in this legislation accrue to African producers and U.S. purchasers. I know the Subcommittee shares that view, and African governments have assured us they do as well. We note that the bill contains safeguard measures to deal with transshipments, and we welcome the opportunity to work with Congress and African supplier countries to ensure that illegal transshipment does not occur. We would also welcome the opportunity to work with Congress, industry, and labor to resolve other contentious issues.

Others have raised concerns over the bill's so-called "conditionalities." These observers object to what they regard as the United States dictating a new set of conditions African countries must meet in order to benefit from the bill's provisions. In truth, however, the bill and the President's Partnership merely endorse the measures many African countries have already undertaken in an effort to boost their economies, become more competitive, and ensure that the fruits of political and economic reform are shared by more of their citizens. The measures are the generally accepted rules of conduct in the modern world economy, and they are standards most African countries are anxious to adopt.

A small minority has expressed misgivings about the bill and the Partnership, alleging that they mask an effort by the United States to diminish its aid commitment to Africa while we use trade and investment as a wedge to dominate the region economically. Much to the contrary, the President has pledged to work toward increased aid levels to Africa. Aid and increased trade and investment are complementary. Healthy, literate, and well-fed people make for more stable societies, and stimulate a greater readiness to benefit from increased commercial exchange. Aid--on both a bilateral and multilateral basis --will remain an essential component of our commitment to Africa, and will reinforce the benefits gained with a sound trade and investment strategy.

It is particularly important that African countries reduce tariffs, eliminate non-tariff barriers, and assume meaningful obligations in services trade. Those that do so should enjoy further encouragement under the President's Partnership, including such benefits as bilateral debt reduction, technical assistance in meeting their WTO obligations, and greater U.S. market access in the form of GSP duty-free treatment for several sensitive products which are currently excluded from such treatment, subject to review by the International Trade Commission for potential injury to U.S. industry and jobs.

Implementation of the Africa Partnership

While passage of the African Growth and Opportunity Act is essential, many provisions of the Partnership can be implemented without new legislation, and the Administration is moving ahead with those initiatives. For example, the Overseas Private Investment Corporation has established two new investment funds for Africa and is working to establish a third fund. The U.S. Trade Representative's office now has its first Assistant USTR for Africa and has moved ahead in negotiating Trade and Investment Framework Agreements with several countries. The Export-Import Bank has appointed a new Africa coordinator, created an advisory committee on Africa, and expanded public and private sector lending with several countries.

At the Department of Commerce, we serve as the main catalyst for engaging the U.S. business community on Africa, and we work closely with other agencies to fulfill that important role. We are formulating a broad-based program to focus the Department's diverse expertise and resources on helping Africa build its commercial infrastructure. The initiative includes: programs of training and technical assistance; efforts to help Africa protect its resources and environment; and programs to promote increased trade and investment linkages. We, along with USAID, are also considering the establishment of commercial law development programs with selected African countries, to provide training and consultative services to lawmakers, regulators, judges, lawyers, and educators in the evaluation, development, and implementation of market-oriented commercial law systems.

In addition, our Trade Information Center has put together extensive information on the Internet to help U.S. companies take advantage of the opportunities to export and do business with Africa. The Trade Information Center also advises U.S. exporters on country specific information, including information on all the African nations, through a nationwide toll-free number:

1-800-USA-TRADE.

An important element of the Commerce initiative is a significant increase in our Commercial Service staffing in Africa, as reflected in the Administration's FY 2000 budget request for the Department. The President has requested $4.2 million to fund the hiring of 12 new officers in Sub-Saharan Africa, including 6 to be assigned in countries not currently staffed by the Commercial Service.

As noted, the African Growth and Opportunity Act is a critical element of the effort to forge a new kind of economic relationship between the United States and Africa. It would help increase peace and stability in Africa by spreading prosperity and strengthening the tide of economic reform. It would promote increased transparency, predictability, and the rule of law, making for an increasingly strong marketplace for U.S. exports. Throughout my travels to Africa I have met with unqualified support for the bill by African government and business leaders, who continue to urge its enactment.

We therefore urge the Congress to pass this legislation, and in so doing to help integrate Sub-Saharan Africa into the global economy and build a more lasting and durable partnership for the benefit of Africans and Americans alike. I thank Chairman Crane and members of the Trade Subcommittee for your leadership in this historic effort.