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U.S.-Africa Trade Policy: In Whose Interest?

by Tetteh HormekuAfrican Agenda (Third World Network Africa Secretariat)
September 11th, 1997

The new trade policy announced by the US has less to do with enhancing Africa's economic capacity and more to do with helping out American companies battling against European competitors, warns Third World Network's
--- Tetteh Hormeku

To outward appearances, Africa's big moment at the Denver Summit of the Eight in June was President Clinton's trade and investment initiative, offering expanded trade concessions to African countries to support further market oriented economic reforms. For many the initiative rep resented a welcome departure from America's past policy of subversive intervention in Africa. The US seemed ready at last to help Africa build its economic capacities.

Nothing could be more deceptive.

What Clinton announced in Denver is not really about Africans, but about American business and competition with Europe. Ron Brown, the late US Secretary for Commerce, said as much when he visited Ghana in early 1996 on his five country African tour as part of the processes leading to the formulation of Clinton's initiative. He declared to a meeting of Ghanaian business people that the US would no longer cede the African market to her European friends or any one else. "What I expect in Ghana", he added, "is the continued move toward more reforms and privatization and an aggressive pursuit by American companies of business opportunities in Ghana." Africa, as the 1996 US policy document Comprehensive Trade and Development Policy for the Countries of Africa put it, is the "last frontier for American businesses."

This, then, is an initiative very much in the mold of America's old militaristic intervention in Africa, seeking primarily to promote American interests. As in the old times, the content of policy is very much shaped by competition against an adversary from outside the African continent: Europe now steps in the place of the old Soviet adversary. These may be the real factors be hind the European "rumblings (led by France) which greeted the Clinton initiative, at the summit.

Judging from the summit fine communique which affirmed deeper IMF/World Bank type market reforms an strengthened WTO disciplines in Africa Clinton's interventions in Denver must have had one overriding effect. That is to bind his partners turned primary competitors, to a framework for competition over Africa which is consistent with the drive to promote American business interests. The summit, then, may have served to secure the international front for the policy initiatives being developed for Africa inside America, including the bi-partisan Africa Growth and Opportunity Bill now in the US Congress. Africans, in their turn, may come to find all this every bit as subversive of their independent economic and political options as America's "old ways."


Not accidental

The hard nosed US drive in Africa yet aimed at Europe is not accidental. It derives partly from the fact that existing US investment is narrow and shallow compared to Europe. It is also because the sectors of African economies that US businesses see as opportunity for profit demand even tougher stance against potential competitors, and at the same time require sweeping changes to Africa's economic policy works and priorities.

Up till 1993, US direct investment Africa has been slight compared to European investment, less diverse and the growth less rapid. According to the UNCTAD 1996 World Investment Directory (Volume V), foreign direct investment (FDI) flows to Africa fell from a third of all developed country FDI in the 1970s to 15 per cent in the early 1990s. In absolute figures, FDI from the US stood at $308 million between the period of 1975 - 1980, fell to a negative $19 million in 1981 1985, and rose gradually, again to $200million from 1991 1993. Over the same period, Europe's FDI stood at $ 472 million in 1975 1980, dipped to $478 million in 1981 1985, and stood at $1,134million at the end of 1991 1993. Furthermore, while American investment only rose from $173 million in 1986/1990 to $200 million in 1991/93, European investment rose from $441 million to $1,134 million.

With regard to diversity of investment. Among the 50 largest affiliates of foreign based transnationals operating in the indus trial and tertiary sectors in Africa in 1993, the six from the US, are in distributive trade, transport and petrochemicals, and metals. By contrast, the 38 from the UK, France, Netherlands are into everything from food, beverages, tobacco, rubber, petrochemicals, non metallic minerals, coal and petroleum. Furthermore, among the 25 affiliates in finance and insurance, only two are from the US. The rest are predominantly from Western Europe. The story is much the same in the primary sector, particularly mining and other natural resource extraction. This is dominated by South African, Western European, Canadian, and Australian concerns.

US officials attribute this situation to European (mis)use of colonial ties. A Commerce Department policy paper which trailed Ron Brown to Ghana complained that "foreign governments continue to use their ties with these (i.e., African) countries to maintain influence and win business." A way to redress this is the US's overbearing insistence, aggressively reaffirmed in Denver, that every aspect of international economic policy be derived from the indiscriminate market principles contained in WTO rules. The aim is to ensure "that US investors (i.e., in other countries) are assured of being treated as fairly and favorably as domestic and other foreign competitors."


WTO as 'referee'

Adherence to WTO rules becomes even more important for another reason. Corporate America does not only seek to enter into the areas now dominated by Europe. It has its sights on new areas opening up in African economies in the light of the new waves the dismantling of the state sector in Africa. Key in this area is infrastructure. At one of the briefings held by the State Department at the Denver summit, Larry Summers, Deputy US Treasury Secretary enthused about the opportunities opened up by "private investment in utilities, private toll roads, in many cases, private water supply systems, and in a large number of cases privatization of telecommunications infrastructures." Telecommunications privatization in particular are, in the words of Jeff Lang, Deputy US Trade Representative, "very attractive opportunities for American and other large telecommunications companies." To promote this, the US seeks to promote in African countries particular commitment to the General Agreement in Trade in Services, one of the cardinal regimes of the WTO.

The US has been pursuing its aims through different African fora. One of these has been the African Development Bank where a long-standing American complaint has been about the domination of Europe, particularly France, in the procurement stakes in spite of superior American shares. Over the past two years, the US has been promoting reforms aiming to make "the voting influence of the Bank's non-regional share holders in its decision making more commensurate with their financial contribution." Parallel to this are efforts to get the Africa Development Fund, the concessionary wing of the Bank, to "expand lending to the private sector for infrastructure projects.

Another forum has been African governments themselves, the main target of Ron Brown's visit to Ghana, Uganda, Cote d'Ivoire, Kenya and Botswana in the early part of 1996. Taking with him planeloads of US business people to talk directly to his counterparts in government, the visit resulted in contracts and agreements for American companies totaling $500 million, with the potential for future sales that eventually could total more than $3 billion in US exports. In Cote d'Ivoire, there were reported to be 40 US companies doing business at the time of the visit. Two years later, the number had risen to 80.

The other fora are what is classified in the Policy document as "reverse trade missions." Here, groups of African government officials, policy makers, trade union leaders are emplaned to America for seminar and economic management. (The Ghanaians had their turn recently by a visit to North Carolina). The Africans then return from these forums fully convinced of the nitty gritty of macro economics and management, all tailored to ensure the confidence of company shareholders. Even trade unionists become concerned with making sure that their demands are such that they do not drive away the foreign investor.

Clinton's Denver initiative, like the "new" US economic policy approach to Africa of which it is part, is designed to feed into all of the above processes. The substance of this approach, both as outlined by administration officials and as taken up in bi-partisan Africa Growth and Opportunity Act being promoted in the US Congress, hinges on three broad elements. These are: expanded access to US markets of African commodities; promotion of US private investment in Africa; and possible establishment of US Africa free trade areas. Proposed interventions in each area are tied to processes to ensure that the African market is open to American businesses.


Expanding US markets

Expanded US market access has two components. First, extension of America's Generalized System of Preferences (GSP), aiming to raise the number of African products entering US markets duty free from 4,000 to about 5,800. While this is welcome, African experience with Europe under the Lome Convention shows that duty free access is one thing; the capacity to produce to meet the market is another. Building this capacity in Africa stands to be undermined by the conditions attached to the second component of the expanded US market access. This component, which is about eliminating US quotas for Sub Saharan textile and leather products, is conditioned upon the readiness of the countries "to embark on bold trade reforms."

Basically, this is a requirement that countries should open their economies to American produce and investment. For in stance, the Growth and Opportunity bill includes agricultural market liberalization among its "bold reforms." A key aspect of this is the removal of subsidies to agricultural in inputs. African countries which have been compelled to pursue similar policies under IMP World Bank SAPs have found that these have undermined their own local production and have ended up with subsidized US grains being dumped on them. Thus, "bold trade reforms" may involve undermining those very sectors which would allow African economies to develop the capacity to supply to the US market.

The second main plank of the "new" US policy approach is the direct promotion of American private investment in Africa. What is striking here are the sectors of the African economy primarily targeted for such investment. One of these is commercial and natural resource development projects, to be leveraged by US$150 million of Overseas Private Investment Corporation (OPIC) funds. Predominant here is mineral extraction, an area where American capital con fronts its biggest competition in the form of European and Canadian transnationals. In 1995, the US Eximbank approved over $23 million in transaction in the gold mining sec tor Ghana, and additional $316 million for the hydrocarbon sector in the same country.

The other main sector is "infrastructure", that is the privatization of utilities and telecommunication already mentioned above. This is to be leveraged by US$500 million OPIC funds. Again, in order to en sure the participation of US private sector, the OPIC funds would be directed mainly at the countries "pursuing the deepest market reforms."


Free Trade Area

Now, to the third plank of the new US economic approach, that is the proposal for US Africa Free Trade Area(s). This is how Larry Summers, US Deputy Treasury Secretary presented it: "in the future, as appropriate, the United States will be open to pursue free trade agreements with the strongest performing, most growth oriented Sub-Saharan African countries." In a similar fashion, the bi partisan Growth and Opportunity bill in the US Congress aims for "one or more trade agreements" with eligible African countries. This refers to countries that have made substantial progress in thorough going market oriented reforms and high protection of foreign investment.

In effect, the free trade area project seeks a privileged relationship between the US and enclaves of successful African economies, constructing corridors of profitable investment across Africa for American business. This idea is not restricted to the US At the moment. Europe is contemplating replacing the Lome convention with a series of agreements which would deal with Africa's economies in groupings according to economic strength. Indeed, South African transnationals are already blazing a trail here. Here again, the motivation of American policy is shaped by competition with Europe and other trading blocs. The cost is likely to be Africa's own efforts at continent wide regional economic integration.


Short term benefits

How will these affect Africa? To be sure, America's heightened interest in Africa may bring certain short term and other benefits to African economies. The real issue, however, is how the series of interventions and the reforms they call for affect Africa's ability in the long term to build integrated national and regional economic capacity.

For example, US private investment in mining, finance, privatised infrastructure including privatised toll roads and liberalisation of agricultural markets may bring benefits like increased revenue and jobs . But they risk perpetuating the skewed and fragmented nature of African production and market structures. Mining, for instance, has long been acknowledged as one area where increased activity does not by nature generate spill over linkages with other sectors of the economy in terms of transfer of technology and secondary production. With the application of WTO rules on foreign investment which is part of the American pack age, African governments will find it even more impossible to take measures to create such linkages.

The same applies to investment in financial services, which in African economies have been related primarily to import export. With privatization, main stream investment financing has moved even further away from supporting domestic production networks, rural and urban. Privatised infrastructure highlights another dimension of the problem. Beyond the commercial centres, most African road and (where they exist) rail networks only connect primary commodity export lo cations, like mines, to the ports. Privatised toll roads are likely to re-emphasize this, since the most profitable lines will be precisely those linking primary export production. The cost will be the systematic development of networks of roads connecting even the least export generating parts of the country, but which are necessary to promote the domestic economy.

In short, the proposed sites for the in vestment of American capital are the enclaves of high profit yielding sectors, with no direct linkages to other sectors of the economies. Admittedly, it may be up to African governments themselves to adopt strategies to ensure that such linkages are derived from the increased economic activities in these sectors that are likely to come with American investment. But it is precisely in this regard that the totality of the policy prescriptions contained in the American pack age are decidedly subversive. The most outrageous of these are contained in the bi partisan Growth and Opportunity bill in the US Congress, especially, the criteria for eligibility established for the African countries to "benefit" from its programmer.


Eligibility requirements

According to the bill, an eligible country must have established, or show progress in establishing and enforcing a range of measures. These include: transforming commodities and non traditional products for ex port through joint venture projects between African and US companies; promoting free movement of goods and services and factors of production between it and the US; ensure appropriate, that is WTO based levels of, protection of intellectual property rights, and open up government procurement.

Furthermore, the country must enter into bilateral investment treaties; provide national treatment for foreign investors, that is treat foreign investors in the same way that it will treat its local investors; and remove restrictions on foreign investment, and mini mise government intervention in the market. It must also reduce import and corporate taxes, and enter into treaties to avoid double taxation. As if to make sure that it does not leave any loophole, the Bill adds further general requirements. The first is that the country be a member of the WTO, and if it is not be actively pursuing membership. Secondly, it must bind its tariffs in the WTO and assume meaningful binding obligations in other sectors of trade, in accordance with WTO rules. Finally it must be in material compliance with its programs and obligations to the International Monetary Fund and other International Financial Institutions, with the World Bank in the lead.

Each of these measures will, in a particular way, take away from African countries the very mechanisms available to them to develop strategies which ensure that foreign investment does not undermine but rather helps the development of local industrial and general economic capacity. To take a few examples.

  • Opening up government procurement to international bidding means that contracts for supply go to foreign and not local contractors;

  • National treatment for foreign investors implies that any incentives that a government may give to a local investor to pro mote a particular sector (i.e. rural banking) must go to foreign companies, thus under mining that particular strategy;

  • Removing restrictions on foreign investors mean that they can not be appropriately regulated both in terms of where and how to invest to derive maximum benefit in accordance with a national strategy of development;

  • Free movement of goods, services and factors of production from the US to Africa at low or zero tariffs mean in effect the dumping of cheap American products on the local markets to the detriment of local production; the same effect achieved in agriculture with agricultural market liberalisation;

  • Double taxation treaties routinely lead to the home country of a transnational (here the US) taking the larger share of personal and corporate taxes that should have been available to the host country;

  • Compliance with World Bank commitments is simply a means of prolonging the devastating effects of intrusion of these institutions into the policy making arena of African countries, and so on.

In fact, the list of reform measures is simply a dizzy shopping basket of the measures that the US has been seeking to impose (with varied success) in various international economic fora, like the WTO, and sub regional groupings of which it is member in Latin America and the Asian Pacific. The purpose of all these is to remove what it has described as the obstacle working against US based transnationals. In all these fora, developing countries have resisted the measures on the ground that while they may apply in the competition between the advanced capitalist countries, they are not appropriate for them.


Driven by competition

This really is the basic flaw of the so called new US policy for Africa. Designed to promote US business in Africa, where its main competitors are European transnationals, the new policy measures and their orientation do not make any attempt to be sensitive to the peculiar demands of economic development imposed on African economies by their structure and place in the international economy.

The cruel irony of it all is that key African institutions seem in a hurry to buy into this against all the evidence of their own analyses. At a recent brain storming session on trade hosted by the OAU, one of the conclusions which ran against all the other conclusions and analyses was support for the Growth and Opportunity bill. The US may thus have found new proxies to promote policies which perpetuate the overall structural problems of Africa's economies and take away from the Africans and their governments the very instruments for addressing them.

It is the age old formula for intervention to undermine Africa being replayed anew.

Tetteh Hormeku is a Program Officer with Third World Network's Africa Secretariat in Accra.