Ex-ante assessment of the impact of extending the African Growth And Opportunity Act (AGOA) to all least developed countries: A partial equilibrium analysis of the apparel market

Through the African Growth and Opportunity Act (AGOA), the United States (U.S.) grants Duty Free and Quota Free (DFQF) market Access to imports of apparel from selected sub-Saharan African Countries (SSA). This program is credited for increasing export of apparel products from SSA to the U.S. However, as a unilateral program AGOA in general and its specific elements are subject to revision by the U.S. government. One such revision is the possibility of extending AGOA`s duty-free and quota-free access on textile and apparel to all Least Developed Countries (LDCs). This is of a major concern to policy makers in both the U.S. and SSA countries. The purpose of this study was to conduct an ex ante analysis of the possible effects of duty free market access to all LDCs on export of apparel from the current beneficiaries in SSA. We implement a partial equilibrium analysis using the Software for Market Analysis and Restrictions on Trade (SMART) model. SMART is part of the World Integrated Trade Solution (WITS) database and software packages developed by the World Bank in collaboration with the United Nations Conference on Trade and Development (UNCTAD) and other international organizations. It is found that expanding access to the apparel market to all LDCs through elimination of tariffs will lead to diversion of trade from all current members of AGOA and other non-LDC exporters of the items covered in this study. Meanwhile, LDCs in Asia - mainly Bangladesh and Cambodia - will see improvement in their export volume as a result of both trade creation and trade diversion. Furthermore, the simulation reveals that elimination of tariff will lead to a net welfare gain, which is represented by increase in consumer and producer surplus. On the other hand, government revenue will decline. These findings prove robust under assumptions of alternative values representing relevant behavioral parameters employed in the model.