GHANA; RESPONSE TO UPDATE ON AGOA III

C O N F I D E N T I A L SECTION 01 OF 02 ACCRA 001234

SIPDIS

STATE PASS USTR -- PATRICK COLEMAN

E.O. 12958: DECL: 07/09/2009
TAGS: ETRD PREL ECON GH WTO AGOA
SUBJECT: GHANA; RESPONSE TO UPDATE ON AGOA III

REF: A. SECSTATE 120038


B. 2003 ACCRA 2287

C. ACCRA 440

D. ACCRA 771

Classified By: EconChief Chris Landberg for Reasons 1.5 (B and D)

Summary
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1. (C) Post expects that the economic impact of ending the
AGOA third country fabric provision (Ref A) would be limited,
given Ghana's (and the region's) minor apparel exports under
AGOA, However, the textile and apparel sector in Ghana (and
the region) would be devastated, so individual companies and
workers would suffer. It would also have a political impact,
with the U.S. losing some leverage on bilateral and
multilateral trade issues. End Summary.


2. (C) Econ, Commercial, USAID-Ghana and USAID-West Africa
Regional Program (WARP) officers consulted internally and
with the GoG and private sector to gauge the economic and
political impact that failure to extend the AGOA third
country fabric provision could have on Ghana and the region.
The consensus is that in both Ghana and other countries in
the region AGOA is as much a political phenomenon as it is an
economic program. Therefore, while there would not be a
significant economic impact, there would be negative
political repercussions.

Economic Impact in Ghana
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3. (C) The Trade Ministry argues that failure to extend the
third country textile provision would destroy the GoG's
efforts to encourage investment in the sector. Existing
companies are also worried. An Indian firm in Ghana told
USAID that without access to third country fabric it would
shut down and lay off 300 workers. This would probably
repeat throughout the sector, and the GoG would not welcome
such job losses so close to the December election.


4. (C) GoG officials' public comments have led the Ghanaian
public to believe that AGOA itself, not the third country
textile provisions, will end September 30. Post has
clarified this point to the GoG and press. Apparel make up
about ten percent of total exports under AGOA/GSP, but the
GoG sees it the area with the most possibilities for export
growth. Therefore, eliminating opportunities in the sector
would create the perception in both government and the
general public that the main benefits under AGOA had ceased.

Bilateral and Multilateral Impact -- Ghana
--------------

5. (C) The GoG has enacted a Presidential Special Initiative
(PSI) on textiles and apparel. Post has previously reported
on the lack of focus of PSIs and our concerns about the GoG's
ability to "pick winners" (Refs B and C). By not extending
the third country textile provision, the GoG would be able to
blame the U.S. for both the failure of the Textile/Apparel
PSI and its inability to deliver on promises of over 100,000
jobs and increased investment.


6. (C) Reducing Ghana's benefits under AGOA would also
undermine the USG's efforts to influence the GoG to maintain
open-market oriented policies. The GoG is developing a
"National Trade Policy," with USAID and other donor help, and
GoG officials are facing increasing pressure to protect local
industry. For example, the Trade Ministry acquiesced to
demands from Ghanaian poultry companies and limited licenses
for large scale poultry imports from the U.S. (Ref D). The
GoG will be even less disposed to resist protectionist
demands and ensure the National Trade Policy has a free
market focus if it loses preferential access into the U.S.
market.


7. (C) As USTR has highlighted, Ghana was one of the few
developing countries to play a positive role during the
Cancun meetings. Reducing or even eliminating Ghana's
limited gains on increased investment and exports to the U.S.
would make the GoG less inclined to cooperate on WTO issues
and would leave it more focused on agriculture as the main
sector with export growth potential.

Regional Impact
--------------

8. (C) USAID-WARP officers note that approximately 75 percent
of sub-Saharan African apparel exports under AGOA use third
country fabric. There are few viable alternatives: U.S.
fabric is 20 to 40 percent more expensive, primary textiles
produced in sub-Saharan Africa are generally low quality and
produced in insufficient quantities. Even textiles from the
predominant African producer, South Africa, are cost
prohibitive because of the strong Rand. Without a prolonged
phase-out period, apparel firms in West Africa would not have
the opportunity to build linkages with other AGOA countries
and invest in local textile production to lower dependence on
mostly Asian fabric. Again, while Post believes the regional
economic impact would be limited because total sales are
relatively low, the change would effectively cut regional
apparel firms out of the U.S. market. Whatever limited
success AGOA has had in West Africa -- mainly in the apparel
sector -- will end.

Comment
--------------

9. (C) The U.S. uses AGOA to prove to African governments
that we are interested in their economic development. The
GoG and other governments in the region have two central
areas of interest with regards to trade: apparel and
agriculture. Aside from the GoG and other countries'
negative reaction to eliminating the third country fabric
provision, it would encourage them to focus even more on
agricultural issues in bilateral and multilateral discussions.


10. (C) This sector may disappear anyway, with or without
AGOA III. The fierce global competition that will ensue
following the expiration of the Multi-Fiber Agreement will
likely put an end to most of the inefficient, local textile
and apparel producers, with the possible exception of turnkey
operations (using U.S. cloth). In this case, however,
company failures and job losses would not be blamed on a
change in U.S. Government policies. End Comment
Yates