SPEAKERS CONTENTS INSERTS
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41–855 CC
1997
OBSTACLES TO U.S.-AFRICAN TRADE AND INVESTMENT
JOINT HEARING
BEFORE THE
SUBCOMMITTEES ON
AFRICA
AND
INTERNATIONAL ECONOMIC POLICY AND TRADE
OF THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
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MAY 20, 1997
Printed for the use of the Committee on International Relations
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
WILLIAM GOODLING, Pennsylvania
JAMES A. LEACH, Iowa
HENRY J. HYDE, Illinois
DOUG BEREUTER, Nebraska
CHRISTOPHER SMITH, New Jersey
DAN BURTON, Indiana
ELTON GALLEGLY, California
ILEANA ROS-LEHTINEN, Florida
CASS BALLENGER, North Carolina
DANA ROHRABACHER, California
DONALD A. MANZULLO, Illinois
EDWARD R. ROYCE, California
PETER T. KING, New York
JAY KIM, California
STEVEN J. CHABOT, Ohio
MARSHALL ''MARK'' SANFORD, South Carolina
MATT SALMON, Arizona
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AMO HOUGHTON, New York
TOM CAMPBELL, California
JON FOX, Pennsylvania
LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri
JERRY MORAN, Kansas
KEVIN BRADY, Texas
LEE HAMILTON, Indiana
SAM GEJDENSON, Connecticut
TOM LANTOS, California
HOWARD BERMAN, California
GARY ACKERMAN, New York
ENI F.H. FALEOMAVAEGA, American Samoa
MATTHEW G. MARTINEZ, California
DONALD M. PAYNE, New Jersey
ROBERT ANDREWS, New Jersey
ROBERT MENENDEZ, New Jersey
SHERROD BROWN, Ohio
CYNTHIA A. McKINNEY, Georgia
ALCEE L. HASTINGS, Florida
PAT DANNER, Missouri
EARL HILLIARD, Alabama
WALTER CAPPS, California
BRAD SHERMAN, California
ROBERT WEXLER, Florida
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STEVE ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff
Subcommittee on Africa
EDWARD R. ROYCE, California, Chairman
AMO HOUGHTON, New York
STEVEN J. CHABOT, Ohio
MARSHALL ''MARK'' SANFORD, South Carolina
TOM CAMPBELL, California
JOHN M. McHUGH, New York
ROBERT MENENDEZ, New Jersey
DONALD M. PAYNE, New Jersey
ALCEE L. HASTINGS, Florida
JIM DAVIS, Florida
TOM SHEEHY, Staff Director
GREG SIMPKINS, Professional Staff Member
JODI CHRISTIANSEN, Democratic Professional Staff Member
SHANNON GAWRONSKI, Staff Associate
Subcommittee on International Economic Policy and Trade
ILEANA ROS-LEHTINEN, Florida, Chairperson
DONALD A. MANZULLO, Illinois
STEVEN J. CHABOT, Ohio
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TOM CAMPBELL, California
LINDSEY O. GRAHAM, South Carolina
ROY BLUNT, Missouri
JERRY MORAN, Kansas
KEVIN BRADY, Texas
DOUG BEREUTER, Nebraska
DANA ROHRABACHER, California
SAM GEJDENSON, Connecticut
PAT DANNER, Missouri
EARL F. HILLIARD, Alabama
BRAD SHERMAN, California
STEVEN R. ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
TOM LANTOS, California
BILL LUTHER, Minnesota
MAURICIO TAMARGO, Chief of Staff
YLEEM POBLETE, Professional Staff Member
AMOS HOCHSTEIN, Democratic Professional Staff Member
JOSE FUENTES, Staff Associate
C O N T E N T S
WITNESSES
Ambassador Jeffrey M. Lang, Deputy United States Trade Representative
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Mr. David Gordon, Director, U.S. Program, Overseas Development Council
Mr. Anthony Carroll, Attorney-at-Law
Mr. Roger Jantio, Managing Director, Sterling International Group, Inc.
APPENDIX
Prepared statements of:
Hon. Donald M. Payne, a Representative in Congress from New Jersey
Ambassador Jeffrey M. Lang
Mr. David F. Gordon
Mr. Anthony J. Carroll
Mr. Roger B. Jantio
Additional material:
Responses to questions posed by Representative Campbell to Mr. Lang
OBSTACLES TO U.S.-AFRICAN TRADE AND INVESTMENT
WEDNESDAY, MAY 20, 1997,
House of Representatives,
Committee on International Relations,
Subcommittee on Africa, and Subcommittee on International Economic Policy and Trade,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:13 p.m. in room 2172, Rayburn House Office Building, Hon. Ed Royce (chairman of the subcommittee) presiding.
Mr. ROYCE. This joint hearing of the Africa Subcommittee and the Subcommittee on International Economic Policy and Trade will now come to order.
In addition to human rights in Africa and humanitarian and security interests, America has an abiding interest in trade with Africa. This is nothing new. The facts show that Americans have long traded with Africans. At the end of World War I, African and U.S. Trade was $150 million; after World War II, it exceeded $1 billion.
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According to the latest estimates, our trade is $10 billion today with Africa, which is more than the U.S. trade with either Eastern Europe or with the former Soviet Union. And while U.S. investment is relatively low, U.S. investment also has increased rapidly in recent years.
There is a strong sense among the U.S. business community that this trend will continue. Yet, there are still too many obstacles to U.S.-African trade and investment. There are notoriously poor roads and ports, inconsistent electric power, and inadequate telecommunications. Such problems have limited trade among Africans, too. As a matter of fact, less than 7 percent of all the trade occurs within Africa itself. Corruption, including convoluted licensing procedures that encourage bribery, inhibit African trade; and it discourages investment, both foreign and domestic.
The lack of strong property rights in many African nations is another deterrent to trade and investment. And while some countries have made significant headway in reforming trade-related policies, others maintain high taxes and they maintain high tariffs and overvalued exchange rates that discourage trade and investment.
Our hearing today will examine some of the problems faced by businesses involved in U.S.-African trade and U.S. investment in Africa. The House is currently considering H.R. 1432, the African Growth and Opportunity Act. The Africa Subcommittee and the International Relations Committee will be marking up this legislation over the next few weeks.
Clearly, there is a sense of excitement about Africa's trade and investment potential; ultimately, though, whether or not this potential is reached won't depend on or be determined by Washington or by the boardrooms in America; the responsibility lies with Africans themselves.
Again, we are pleased to share today's hearing with the Subcommittee on International Economic Policy and Trade, and I invite the panel's chair, Mrs. Ileana Ros-Lehtinen of Florida, who was chair of the Africa Subcommittee in the last Congress, to make any opening statement at this time.
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Ms. ROS-LEHTINEN. Thank you so much, Chairman Royce, for agreeing to hold your hearing as a joint venture with our Subcommittee on International Economic Policy and Trade. It is a pleasure to be with you and Congressman Menendez this afternoon.
This is an issue, as you pointed out, that has been of great concern to me and of particular interest, both as the former chair of your subcommittee, Mr. Royce, and also as someone who sees trade and investment as pivotal to Africa's economic growth and overall stability.
The challenges facing the African countries may have seemed insurmountable just years ago. However, given the dramatic changes and the global and political and socioeconomic scenario, the obstacles can be overcome through a concrete, proactive strategy which focuses on maximizing Africa's vast resources and raw potential.
In this era of budgetary restraint and government streamlining, we must look beyond our role as providers of aid, and focus instead on our ability to bring about fundamental change through our trade policy. Trade and investment can become the instruments of choice in bringing about economic reform, trade liberalization and promotion, investment liberalization, private sector development, and infrastructure enhancement throughout the continent. It serves as the perfect complement to the wave of democratization that is sweeping through numerous countries in Africa.
Indeed, economic self-reliance is a much more powerful and enduring goal than is the idea of continued dependence on foreign aid. Trade and investment gives countries the opportunity to directly participate in their future economic well being. It is an empowering policy and one that needs to transcend from the drawing board into reality and implementation.
This is the focus of current legislation introduced by some of our colleagues in the House, including Mr. Houghton of New York, which will be marked up by your subcommittee tomorrow. The central idea is that the United States must assume its leadership role and formulate trade policies which help to open U.S. markets, technology, management expertise and capital to Africa's potential.
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There is a sense of urgency that seems to be fueling the debate over this measure and which has led to the proposed linkage of the African Growth and Opportunity Act with fast-track considerations. And while there are wide differences of opinion on the viability and ramifications of such a proposal, it certainly underscores the frustration felt by many over the lack of concrete action toward a proactive U.S. trade policy toward sub-Saharan Africa.
The turning point on this matter could perhaps be traced back to 1994 when Congress attached an amendment to the Uruguay Round Agreements Act, calling on the President to develop and implement a comprehensive trade and development policy for the countries of Africa. It further established reporting requirements on the progress made toward this goal.
Certainly, this was a good first step, an idea meant to fuel the evolution of a concrete trade policy. However, it is argued that the reality has not met the expectations and that much remains to be done.
Current assessments of the situation facing African countries underscore failed economic policies, large foreign debt and inefficient public enterprises as impediments to economic successes. They further highlight the poor business climate, inadequate infrastructure development, constraints on the private sector, and insufficient investment flows as obstacles to good performance. Debt overhang has also contributed to political and economic instability and has negatively impacted the growth of the private sector.
I reiterate my appreciation to Mr. Royce for scheduling this hearing and Mr. Menendez, the ranking member, and I look forward to the testimony of the distinguished panelists this afternoon.
Thank you, again, for the opportunity.
Mr. ROYCE. At this point, I would like to recognize our ranking minority member, Mr. Robert Menendez from New Jersey for an opening statement.
Mr. MENENDEZ. Thank you, Mr. Chairman.
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Mr. Chairman, given our forthcoming trip to Africa, I think this hearing is very timely, and while there are obstacles to trade and investment in Africa, there are also opportunities.
When the late Commerce Secretary, Ron Brown, traveled to Africa, he pointed out, while investment in Africa was sometimes more difficult than your average foreign investment, it also yields a greater than average return on direct investments, about 25 percent, compared with 8.5 percent for direct investment worldwide.
In 1995, the World Bank estimated that sub-Saharan Africa's GDP grew by 4 percent; 30 countries reported growth over 3 percent. Four countries, Uganda, Angola, Malawi and Lesotho, grew by more than 10 percent. Many countries have embraced political and economic reforms which are encouraging foreign investors to look anew at investment in the continent.
In 1995, U.S. trade between Africa and the United States reached more than $21 billion, and exports from my home State of New Jersey to sub-Saharan Africa were over $200 million. In particular, the South African development community has begun to make its mark on the world scene. In Angola, mining sectors are growing by leaps and bounds; in Zimbabwe the stock exchange is on the up and up; and in South Africa, there has been an explosion of U.S. investment of all types.
I think we can be optimistic about our trade relationship with sub-Saharan Africa. However, we must also be aware of the obstacles, the reasons why growth remains tenuous. With this understanding, we can begin to direct our bilateral aid dollars to the places they are most needed to create the pillars of political and economic stability needed for trade, investment, and growth.
The internal obstacles to trade and investment in Africa include poor infrastructure, unpredictable legal and regulatory systems, weak financial structures, minimal intra-Africa trade and a relatively unskilled labor force. However, there are also external obstacles including high tariffs and lack of investor knowledge about the region, and while much of the developing world saw dramatic increases in foreign investment through the 1980's, Africa saw an actual decrease in investment. The investment that did take place was primarily in the oil sector, limiting benefits to only a few countries, such as Angola and Nigeria.
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The Crane-McDermott legislation, which this subcommittee will mark up tomorrow is, I believe, a first step in addressing both U.S. and African obstacles to trade and investment. Africa no longer remains in the domain of its former colonial powers. The United States has a historic opportunity both to assist African nations in the pursuit of policies which endear foreign investment and promote the growth of beneficial trade between the United States and the continent.
Last, I want to note, as I have in the past, that U.S. bilateral aid continues to be an important and integral part of U.S. policy toward sub-Saharan Africa in an era of declining budgets, particularly for foreign assistance, our ultimate goal is to move countries off aid and into trade; but in the interim, both aid and trade are crucial to the sustainable development of the sub-Saharan to lay the foundation that is necessary for the trade that we seek to have and enjoy, and for the African people to enjoy as well.
We look forward to the testimony of our witnesses, Mr. Chairman, and congratulate you on having the hearing on the verge of our trip.
Mr. ROYCE. Thank you, Mr. Menendez.
To join us also are Mr. Alcee Hastings of Florida, and I will ask Mr. Hastings if he has an opening remark that he would like to make at this time.
Mr. HASTINGS. Mr. Chairman, thank you for holding the hearing. In the interest of time, I am just delighted that you are holding the hearing. There, quite frankly, is too much talk and too little action on Africa; and I hold that you are about the business of trying to get us some action, so I will shut up.
Mr. ROYCE. All right.
We also have from California, Mr. Tom Campbell.
Mr. CAMPBELL. I will also waive an opening statement.
Mr. ROYCE. And Mr. Bill Luther.
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Mr. LUTHER. I won't make an opening statement.
Mr. ROYCE. At this time, I am going to instruct our witnesses that we would appreciate it if they summarize their testimony and hold their presentations to no more than 5 minutes. And I will mention that the members of the committee were in session until after 4 a.m. last night, and so in the interest of allowing us more time for members' questions, we invite witnesses to submit the full text of their testimony for the record, but we would appreciate your ability to keep your comments to 5 minutes.
It is a pleasure, at this time, to introduce the first member of one of our distinguished panels. He is Ambassador Jeffrey Lang, Deputy U.S. Trade Representative. Ambassador Lang is no stranger to the Hill. He was Deputy General Counsel to the Senate Finance Committee and, later, Chief International Trade Counsel to that committee. Following his service on the committee, Ambassador Lang went into private legal practice. And at this time, I will ask Ambassador Lang to address us.
STATEMENT OF JEFFREY M. LANG, DEPUTY UNITED STATES TRADE REPRESENTATIVE
Mr. LANG. Thank you, Mr. Chairman. I will be very brief because I know you have the administration's statement. Obviously, we welcome the opportunity to be here.
The enormous amount of attention you and the other members of the committee have devoted this subject is welcome. For our part, we have been working in parallel with you and other interested Members of Congress on this subject. We have consulted extensively and repeatedly with our counterparts in Africa to learn what their interests were in increasing their standard of living and improving trade, and we hope that what we can do is work with you to lock in the advances that at least some of them have been able to make.
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I should also add here that this has been an interagency effort in the executive branch, and some of my colleagues from other agencies are here, backing me up on subjects I don't know that much about, trade—I am sorry, the Treasury Department—the Treasury Department, the State Department, the Commerce Department, the Agriculture Department, USAID, OPIC; many others have participated in the effort to develop these policies. I will try to concentrate on trade and investment because obviously that is our expertise, and I will try to be helpful on other questions if I can.
Now, in terms of the substance, we have 48 countries in this region, a population of about 600 million; the countries are very diverse, but some of them have demonstrated, as most of your statements suggested, their ability to move ahead by opening their economies to trade and investment. And so the plan that we developed together here, I think, has to highlight the success stories.
We have more than 30 of those 48 countries instituting various kinds of economic reform programs, so there is reason to believe that we can move together in partnership with them. Those reform efforts have had an effect and African growth has moved from about 1.4 percent in the region in 1991 to 1994 to about 3.4 in 1995 and 5.6 in 1996. Now, those are still not the rates at which advanced countries in Southeast Asia, for example, are growing, but on the other hand, we can't afford to ignore the region.
Africa's share of global trade over the last 40 years has fallen quite dramatically, around 3.1 percent at the beginning of that period, now about 1.2 percent. One of the major problems we have in this area is trade barriers in the region itself. The World Bank has concluded that tariffs in sub-Saharan Africa averaged 26.8 percent—that is a very high rate of duty—8.7 in the fastest growing, developing countries in the world, and more than that, about a third of all African imports meet nontariff barriers, quotas and that kind of thing. That is nine times higher than the average of developing countries around the world and 13 times higher than the highest growth countries in the world. Thus we need to develop a plan that is based on the core premise that we will work with those able to pursue the most aggressive growth-oriented strategies, principally by opening their economies to the world marketplace, so they become the most likely engines of growth on the continent.
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Of course, the plan has to provide that all countries in the region are in a position to join this advanced group. We attach particular importance to the extent to which countries have made progress toward reducing tariff and other trade barriers. And there are actually some countries in the region that are not yet members of the World Trade Organization; that is the organization in which countries lock in their tariff reduction so that they become dependable for traders, so we think for those countries that haven't even joined yet, they need to join.
An interesting fact is, during the Uruguay Round, when so many countries made commitments worldwide to reduce their tariff barriers, there were virtually no such commitments in this region, so they have a lot of catching up to do.
Let me say briefly the specific elements of what we think is necessary here. The details are in the written testimony you mentioned. At first, we have to recognize that not all the countries in the region are ready to move ahead and, therefore, for all the countries that are least developed—and the greatest concentration of least-developed countries in the world is in sub-Saharan Africa—we would enhance the existing generalized system of preferences, which I would be glad to discuss in detail during questions and answers.
But, essentially, we would be adding about 1,800 new lines, maybe a little less, maybe a little more than that. That will give them some additional access. There are a number of other things we can do for countries at that level.
For the next level, for those countries willing to undertake, for example, significant commitments in the WTO to bind their tariff schedules at reasonable rates of duty, we believe we can increase the trade component of this and also provide them with other components that are set out in my testimony that have to do with debt and other economic benefits that we think can and should be extended.
So we support your efforts to mark up the legislation quickly. We are willing to work with you on the details of this. There may be some minor differences between us, but I believe this is a very worthwhile effort in the national interest and we want to move forward.
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Let me just say in closing quickly that this will also be a subject of discussion at the G–7 summit in Denver late next month where we hope to convince our industrialized trading partners, the richest countries of the world, that they too can move forward on this subject with us.
So thank you very much, Mr. Chairman.
[The prepared statement of Mr. Lang appears in the appendix.]
Mr. ROYCE. Thank you, Ambassador Lang.
In your testimony, you say 30 African countries have instituted economic reform programs, but over the last 20 years, we have seen that there has been little staying power with these reforms. What is different in Africa today?
Mr. LANG. Well, I think there are several things that are different today. Some are the global context. In the global context today, we frequently find that the countries are increasingly aware of the need to compete for capital, the capital demands of developing countries—and I think this will be evident on your trip to the region—are just stupendous; and to attract that capital, countries need to not only be open to the investment, but to have open barriers on trade, because otherwise no one will invest there. They will find a better risk reward relationship somewhere else. I think that is an important motivator.
I think there is probably something of a corollary between the growth of democracy in the region and the growth of these economic reforms, but there are some things that are not changed. To the extent these reforms are domestic initiatives, but have not been locked in in international agreements such as the World Trade Organization agreement, or agreements with the World Bank and the IMF, they remain subject to change as far as the investment community is concerned; and therefore an important component of reform now has to be the commitment to lock these changes in.
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Mr. ROYCE. You used the words ''desired level of participation'' for African countries in describing their participation in the administration's Africa program. Why would African countries not want to participate in the programs you have described?
Mr. LANG. Well, this is, as I said in my testimony, a diverse region, 48 different countries, some huge, some very small, all kinds of different resource allocations, different politics. I think those who want to participate realize—and they have made that clear to us in their consultations with us—that their growth and the better standard of living for their people depends on being open to trade and investment. But that is not a universally accepted proposition in the region. Also, some of the countries have very different infrastructure inheritances than others and they may believe that they need to emphasize those infrastructural problems. They may inherit a debt burden which we think we can help them with, but there are going to be differences between the countries. Some of them are political in nature and some are based on their enhancement and inheritances.
Mr. ROYCE. Thank you again, Ambassador Lang.
I am going to take the opportunity to introduce at this time the vice chairman of the Africa Subcommittee, Mr. Amo Houghton, who has joined us; and we have also been joined by Mr. Bob Clement as well.
At this time, I am going to ask Ms. Ros-Lehtinen if she would like to continue with the questioning.
All right. Mr. Houghton.
Mr. HOUGHTON. I will do what you want, Mr. Chairman. Thank you very much.
Mr. Ambassador, glad to have you here; and thank you for your testimony.
It seems to me there are two issues, at least in my mind. The first is removing the roadblocks to trade, and that is a governmental function. And here is where we are trying to take a step forward in terms of the free trade areas, forums, equity, structure of funds, things like that.
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Now if we do this, do you see a corresponding opening or changing of the structure of the change pattern with the major African trading nations?
Mr. LANG. Yes, I think so, if we set up the incentives correctly.
It is obviously in our interest to develop a closer trade relationship with such a huge region, where there is tremendous potential for our people to develop markets. But Africans have decisions to make themselves about where they want to go, and we can do only so much. They have to, in a sense, meet us halfway in the economic area, basically by opening their markets.
I think, as the Chairman's question suggested, we may have a range of decisions because we have such a variegated region. But I would assume that, if we set up the incentives correctly, some of them will respond. They will begin to grow faster, and others will follow because they also want a higher standard of living for their people.
Mr. HOUGHTON. Let me just follow up on this a moment, that it seems to me that that is part of it.
But, really, I think if we say, in general, we are very interested in realigning ourselves and having a whole different mind-set as far as trade; and here is what we are doing; and this is what we expect you to do—it is not just the incentives from our part, but this is the sort of the quid pro quo, and I don't know that we do enough of that. You may want to comment on that.
But the second point is this: Let's assume that is all done. The critical thing is to get people to intersect.
Mr. LANG. Oh, I see.
Mr. HOUGHTON. And it all involves individuals. You can have the greatest framework that you can possibly outline, but if you do not have forces within the countries taking advantage of the opportunity which we would like to extend, then nothing happens, and I am not sure we really grapple with that.
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Mr. LANG. I think, in fact, in our consultations with the African countries, they have several times pointed out the need for education, for example, of their people so that they are able to respond to business opportunities; and there is, within the limited resources that USAID has available—and I am not expert in this area—an effort to try and focus those resources on increasing those kinds of seminal capabilities.
I also think there is another thing that is very important here and that is, because of the huge restructuring that has gone on in the American business community over the last 10 or 15 years, our businesspeople are regarded as the best in the world. If their perception of Africa now begins to change, from a region that is unlikely to develop to a region which has the kind of potential suggested in the opening statements by members today, I think that makes an enormous difference in dealing with the problem you are describing. Because those are the people who will actually teach Africans how to find the advantages that are available from the global economy.
Mr. HOUGHTON. But in the final analysis, if increased trade is desired, you have got to have two people talking trade—one buying and the other selling. And I have always felt that we never put our best foot forward in terms of what we really were interested in.
If we are going to trade, these are the things which we need. If you are going to sell, these are the things that you have got to tell us. I don't think the USTR can do it, but somehow there has to be a grouping of people to help. And it is not just on a continental basis. It really has to be specific countries.
Mr. LANG. Well, I am open to suggestions. I think we have some ideas in here that will be helpful in that, but we have to do something. This is obviously in our national interest.
And we start somewhere. Maybe we start small. Maybe we start with those who are ready to move and bring about the others later on, and we are open to suggestions about how we do it. I think it is a very real problem, but we have to do something.
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Mr. HOUGHTON. Thank you.
Thank you, Mr. Chairman.
Mr. ROYCE. Thank you.
Our ranking member, Mr. Menendez.
Mr. MENENDEZ. Thank you, Mr. Chairman.
Mr. Lang, thank you for your testimony.
Let me ask you, in view of your statement on page 3 where you say, in the era of trade and investment, we attach particular importance to the extent to which countries have made substantial progress toward reducing tariff levels, binding their tariffs, and you move on from there.
And considering Zimbabwe's President Mugabe's statement in a recent speech where he called upon the leaders of South Africa to eliminate tariffs by the year 2004 and spoke about a united South African development strategy, rather than single country initiatives, what do you think about that proposal? Here is an African leader making a statement that I think is rather bold. What do you think about the goal of 2004? How realistic is it? What are the impediments to that goal? Are we a part of promoting any type of regional development strategy in South Africa?
Mr. LANG. Thank you. Let me start with the end of the question because I think it is important as a foundation in terms of U.S. policy.
Regional open trade arrangements, whether they are free trade areas or customs unions, we believe are good things for developing countries to develop, as long as they adhere to the basic rules of the WTO, which means that all the regional trade goes to a duty free situation in a reasonable period of time—usually 10 years.
That means they are not selectively opening their markets to each other and denying us MFN in areas where they think they are stronger. It means they are obeying the international rules. That is very important, because what happens is they will begin to grow faster and become a bigger market for us.
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As far as SADC itself goes, I don't know that I know enough about the region, although we have met extensively with them, to know whether the 2004 goal is too ambitious or not ambitious enough. I think that the way to think about this is that rates of duty stop earning revenue for a country and begin being only protection at a fairly low rate, around 17 or 18 percent ad valorem. Above that, duties are basically only providing protection and not gaining any revenue.
So the amount of duty reduction countries have to do is not from their current rates, which are only often 40 and 50 percent in the region. They really have to bring them down to reasonable rates where they are producing some revenue and a little bit of protection and then lower from there. In that context, a period of time of 6 or 7 years is not unreasonable, but they will have to cope with some major adjustment pressures.
I would suggest that if they do it, though, what will happen is a much more efficient regional economy that will become a participant fairly quickly in the global economy; and that is good for them and good for us.
Mr. MENENDEZ. In his speech, President Mugabe also spoke about the importance of simultaneous social development alongside economic development.
I am wondering, is it important for our policy, through a vehicle like the McDermott bill, to have a component in it that speaks to governments having a recognizable commitment to reducing poverty or providing basic health or some other factor in that regard?
And since my time is going to expire, let me ask you another question coterminously with that so you can give me an answer; and that is, what is the impact of the textile provisions of the McDermott bill on the U.S. textile industry?
Mr. LANG. On the social question, I haven't read the speech. So I don't know whether he is talking about things like core labor rights, which we think are related to the development of a truly open trading system, or things like education and rights for women and those kinds of issues, which are also important but may not be as closely related to trade, although there are going to be differences of opinion about these things. In either case, we have been told by the Africans that, to the extent we make conditions, go beyond the trade area, it becomes to them less and less attractive as a program.
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On the other hand, we have for years, in programs like the generalized system of preferences, the Andean Pact, the Caribbean Basin initiative, put conditions on the benefit that related to at least some of these kinds of areas.
I think we need to work very closely together on exactly what the language is, but it seems to me that what you ought to be reaching for is some minimum that the President must consider in deciding whether to extend a benefit to a country and then some additional subjects which you want him to consider but are not absolutely essential.
I am not sure we can go into all the details of this here, but I have a feeling that some of the social ideas that the Zimbabwean President was talking about, are probably in the second category.
If I can just say a word about textiles. We do have some difficulties with the textile provisions of the bill as it is currently arranged for two reasons: One is that our international legal obligations, with respect to textiles and apparel trade, may be impaired by the provision; and we are concerned, therefore, to develop some kind of textile and apparel provision that would not do so.
The total imports from Africa of textiles and apparel today are very low. I am sure I have the statistics in here, and I can find them for you now or after the hearing. But the countries that are successful at exporting are doing quite well in that environment, and they have fairly large growth factors in the very few instances—it is only one or two—where we have been required by our domestic law to impose restraints. We have negotiated restraint agreements that are well above the levels at which the imposed restraints were required under American law; and they have large growth factors in them, something like 7 percent a year.
So I think we can deal with the textile problem in the context of our current agreements and law and give the African countries that would be beneficiaries of this a benefit that will prove to be quite attractive to them, and I will be glad to go into more detail any time you want.
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Mr. ROYCE. Chairwoman Ros-Lehtinen.
Ms. ROS-LEHTINEN. Thank you very much, Chairman Royce.
It is a pleasure to see you again, Ambassador Lang. We look forward in our trade subcommittee to hearing from you next month, June 11, on Latin American trade.
Mr. LANG. I look forward to it.
Ms. ROS-LEHTINEN. Thank you for agreeing to be with us that day.
I want to ask you about the G–7 summit coming up in July. You talked about that in your testimony this afternoon; and the President's trade policy toward African countries also discussed the possibility of coming up with some specific proposals, working with organizations such as the USN, IMF, the World Bank, WTO in getting some specific proposals to be considered by the countries joining us in July of this year. If you could elaborate a little bit on what those proposals might be and what kind of a response our country would expect to receive from our fellow G–7 members on African trade policy.
Mr. LANG. Yes, ma'am. Thank you very much.
As you may know, at the last G–7 summit, which occurred in France, the leaders decided that this was a subject they wanted to pursue further. And this year, with the United States as the Chair, we have made an aggressive effort to do that, principally through my colleague, Larry Summers, at the Treasury Department, and through the White House Sherpa, who is Dan Turillo. Those meetings are continuing, I might say, this week at the Sherpa level; and we will probably know more in the coming days.
With respect to the interest of the major industrial economies in this subject, there does seem to be broad interest in moving forward.
I would say that, on the subject of the bilateral benefits the individual countries extend to Africa, we basically have three groups of countries because of the fact that a number of G–7 participants are also members of the European Union. The trade policies of the European Union are made on a whole for the bloc, so we have those policies counter to the United States and Japan.
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In all cases, these bilateral policies will probably be worked out individually between the country and their African counterparts; and the agreement will be to move forward in the best way we all possibly can. I think you all moving forward so quickly on this legislation put the United States clearly in the lead; and that is important, because we obviously occupy a leadership position in the world.
The more focused discussion and, frankly, the discussion I am a little less expert in, is the role of the multilateral financing institutions. However, Dr. Summers has been working very closely with both the bank and the fund and with other international bodies that might direct resources at the region.
The key issue here will be whether these institutions are prepared at some level to undertake the kind of emphasis that this legislation suggests, that is to focus efforts, not entirely but to a significant extent, on those countries that are willing to help themselves.
It seems to me, from the communications that have gone back and forth between the representatives of these governments, that there is a good chance to move forward on that; and I think we will have the support of the multilateral funding institutions. So I think there is a good chance for some significant progress.
Ms. ROS-LEHTINEN. That would be great. Thank you, Ambassador.
My other question has to do with regional integration. We have seen what appears to be a pattern by some member countries that, for example, belong to the Southern African Development Community and the West African Economic and Monetary Union, a pattern toward regional integration. Do you see this as a prevalent trend in the continent in order to promote trade and remove barriers, stimulate investment? And if that is the trend, what kind of implications would that have for U.S. policymakers in trying to promote and further strengthen the integration of the African continent?
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Mr. LANG. Well, as I said to Mr. Menendez, these regional developments can be beneficial, both from our perspective and from the perspective of the countries that are parties to them, as long as they adhere to the WTO rules that they cover substantially all the trade.
The implications for us in terms of where we need to be going is that we need to be present in the region with the American model. You all have seen this because you travel and you are involved in international affairs, but I think most Americans don't realize the leadership position of the United States and the importance other governments attach to that.
If we are in the region with the American model of what works economically, we will be persuasive; and I think that is just terribly important. That is why this legislation is important and other things we are doing internationally.
I think, in effect, we can influence the term of those regional arrangements, although, obviously, those countries will do what they see as being in their interest. They will also want to do things that are in our mutual interest, so I think we have an enormous role to play in this process.
Mr. ROYCE. Mr. Alcee Hastings of Florida.
Mr. HASTINGS. Thank you, Mr. Chairman; and thank you, Mr. Lang.
Mr. Lang, what are the two most significant undertakings that you can cite today that the United States is putting forth in an effort to help African countries achieve sustainable growth?
Mr. LANG. I would say the first and most important, both from their point of view and just from an objective economic point of view, is probably the trade component of what you are working on and what I presented earlier today. It is hard to see the importance of this from the statistical data because the trade is so low, and it appears that the margins of preferences between a zero rate of duty and the applicable rates of duty is very small because the trade is so small in those products.
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But I would make several points about this before I mention the second most important one, because I think this raises a very important point. You have to remember that, by the end of the Uruguay Round cuts in tariffs in the United States being phased in, 50 percent of our tariff schedule, 10,000 line items, will be at zero, so we can't cut more than zero. The remaining amount of our schedule would almost entirely be covered by this initiative.
Now I can't tell you what the margin of preference is you will get as a result of making those duties available at a zero rate of duty for the qualifying countries because it depends on the trade waiting—in other words, how much trade occurs. What I can tell you is the current data doesn't reflect enough trade to take account of the dynamic effect of offering to African countries even a 2 or 3 percent reduction in the tariff.
If they are efficient and they have long-enough production runs, our experience in other regions of the world such as Asia and Latin America teaches that those margins are enough to make a difference in development; and there is no reason African economies can't perform like those others.
So I would say that is the most important.
I would say the second most important thing is actually a package of efforts by our government. The most important thing to do is one of the most difficult things for us to do and that is to coordinate American programs. We have to coordinate debt relief, aid, agricultural programs, all these other things so that they represent a consistent policy direction for the region.
One of the most common complaints we hear from our counterparts in the region is that we give them different policy directions in different programs, and I think that to the extent we can bring these things together then we can leverage what are very small available benefits. For example, in the AID program, the amounts of money are relatively small. We can leverage those into greater benefit for our trading partners in the region because we are giving them the same policy signal.
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Mr. HASTINGS. I note with great interest the extraordinary curriculum vita that you present and the magnificent work you have done on behalf of this country in trade negotiations. I am of the mind that a barrier that exists allows the same kind of commitment that the United States made in Europe and in Asia and elsewhere simply has not been made in Africa, and there is no clear evidence that that is happening in this administration and in all previous administrations.
And I don't know all of the reasons, but I do know this: For example, you spent 15 years in Asia and in North America in trade negotiations; and during that period of time your counterparts have spent very little time in any kind of trade negotiations in Africa.
This isn't meant as a criticism of you. You did your job and are doing it extraordinarily well, and I compliment you highly. But I learned in a law school from a dean who told me you get out of something exactly what you put in it. In other words, if you go to your office 3 hours, you will get 3 hours back. And that is, in essence, what he was saying; and that is what we have done with Africa.
I am curious, is there any mechanism or is this trade measure we are offering going to offer any incentive for investment? And I know, for example, the Speaker of the House has great interest in incentivizing American investors. Can you tell me anything along those lines?
That would be my final question; and I thank you again, Mr. Chairman.
Mr. LANG. Thank you very much. I think this is a terribly important question, because I basically agree with the premise of the question.
Let me say this: I think that the legislation will be helpful, and I think we can convince our partners in the region to take advantage of it. But I also think there is a political component to both sides of this development. The perception of Africa is lagging behind the reality; and, in addition, our conception of what is in our own interest is lagging a bit behind the reality.
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We have global interests, and we have an enormous potential of improving standards of living in this country by increasing standards of living elsewhere, including in Africa, because those become markets for us. So just from the point of self-interest, putting aside any ethical or moral values, we have a clear national interest in the region.
I think all of us in public life have a responsibility, in addition to the legislation, which is to convince our businessmen, our capital markets, our investors, our mutual funds, to recognize that the risk-reward relationship in this region is getting into the zone where this is worth taking a close look at. I think that is an educational process, both here and in sub-Saharan Africa; and it is a critical component of what you are doing today.
Mr. HASTINGS. Thank you, Ambassador. Thank you, Mr. Lang.
Mr. ROYCE. Mr. Tom Campbell of California.
Mr. CAMPBELL. Thank you, Mr. Chairman. Thank you for holding the hearings. You have been a very diligent chairman, and I appreciate you doing all that you have.
Ambassador Lang, I have three questions; and I will put all three of them up front so you can allocate your time.
The first is, can you give me your judgment of the effectiveness of the Africa Development Foundation?
The second is, do you believe that IMF in its strictures imposed in African situations has been excessive, about right, too lenient? You can give me a ball park.
And, last, I am specifically interested in the role of France and whether tied aid by France continues to be a problem as we try to establish trade in Africa.
Those are my three inquiries.
Mr. LANG. I appreciate that.
You have asked some questions in areas I am not too familiar with, but let me take IMF first. Because IMF for years has been a principal way in which we signal to developing countries, including in sub-Saharan Africa, what we want them to do; and I think a significant part of the G–7 meeting that Chairperson Ros-Lehtinen asked about will be trying to assure that the signals we get from the IMF, as well as the World Bank, are the same as the kind of signals you are talking about in this legislation. In the past, there has been some concern about that in the region.
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For example, encouraging more protection to get revenue, rather than less. If we encourage less protection, of course we are going to have to deal with the debt problem; but Secretary Summers has contributed to this effort in that regard; and it is reflected in the legislation.
With respect to tied aid in France, I am simply not familiar with the current situation; and if I could——
Mr. CAMPBELL. I think a subsequent witness may have specific expertise. That is perfectly OK. Thanks for telling me.
Mr. LANG. I would be glad to get back to you with something.
Specifically, with the African Development Foundation, I am familiar with this; but I don't feel comfortable answering the question on the record. If I can get back to you in writing, I would appreciate it.
Mr. CAMPBELL. I would be grateful if you could.
Mr. Chairman, I yield back the balance of my time. Thank you.
Mr. ROYCE. Thank you.
We will hear from Mr. Bill Luther from Minnesota.
Mr. LUTHER. Thank you, Mr. Chairman; and thank you for your testimony.
I am interested in this concept of free trade zones, the development of those; and I just wondered if you could comment further than what you have as of now on how that would play out, how that would develop in this region.
Mr. LANG. Well, a lot of what will happen will depend on what Africans decide to do among themselves, of course. There are several of these regional arrangements now in various stages of development in the region. I would say the SADC is probably the most advanced, but that may reflect my lack of knowledge.
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From our perspective, we would like to do two basic things. One is to assure that these arrangements are consistent with the international trade rules—which I know I keep coming back to, but it is terribly important. Because if they are not, the effect is to distort trade both in the region and with us, for that matter, the rest of the world. And that is not good for Africans, and it is certainly not good for us because it denies us the benefit of our trade agreements. And at least for those countries that have members of the WTO, they ought to obey the WTO rules in making these arrangements. That is the first thing.
The second thing concerns our relationship with these arrangements. Now there are several things we can think about there.
First, there may be circumstances in which we can extend a benefit to the regional arrangement that takes advantage of their development of an internal marketplace. For example, in some circumstances under our law, we allow developing countries to accumulate value from one developing country to another in order to meet local value requirements for various purposes of American import law. We might be able to study that problem in this area and come up with ideas that would be helpful in these regional arrangements, assuming we abided by the international rules.
The longer-term issue, for which no country in the region is yet ready, at least according to them, including even South Africa, is the question of whether their trade relationship with us ought to be on a so-called free trade basis. That depends, first, for us, on whether we have the authority to enter into such agreements, which is now a question that is under discussion in other forums; but it also depends on their readiness to undertake those obligations.
A free trade relationship with us means that many countries would have to have very significant cuts in their rate of duty with the most competitive economy in the world. We are the largest exporting and importing country in the world. No country in the region, to my knowledge, today is ready to undertake such a project; but I think it is advisable from a policy perspective for you to hold that opportunity out there in the future because it does represent a sort of a supercharging of a development effort. And when countries are ready to take it on, I think the most important economic power in the world ought to be in a position to offer it to them.
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Mr. LUTHER. Thank you, Mr. Chairman.
Mr. ROYCE. Mr. Clement.
Mr. CLEMENT. Thank you, Mr. Chairman.
Mr. Ambassador, good to have you here today.
Mr. LANG. Thank you, sir.
Mr. CLEMENT. Following up on what Congressman Hastings said a while ago about maybe the United States needs to do more and make more of a commitment and try harder in terms of trade opportunities with Africa, I am sure it varies greatly from country to country about those possibilities.
I know in the Soviet Union, once upon a time during the cold war, it was very difficult to have trade, too. But in Africa would some of the reasons be because of isolationist policies or because they are fearful if they have a vast amount of trade that they will lose control? And what are some of the reasons that there are so many problems on obstacles and barriers?
Mr. LANG. It sometimes seems kind of daunting because there can be enormous infrastructure problems in particular countries. There can be problems of education and social development and so on. And your question suggests a political problem, a concern about sovereignty, basically.
That concern is particularly important in some of the basic infrastructures of a modern economy. We just negotiated an agreement on telecommunication services last winter, and we are now working on one on financial services.
It is very difficult to conceive of these countries growing beyond a certain level without open, competitive markets in telecommunication services and financial services. But in order to do that, they need to allow foreign providers of these very sophisticated services the opportunity to make investments locally, because you can't build a telecommunications network unless you put down the wire and stuff, and the bank needs a brick and mortar establishment and so on, and that raises the very concerns you are talking about.
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I think part of the response here is in this legislation, but another component is our active participation in multilateral organizations, not just the IMF and the bank and regional financial institutions but also in the WTO. Because the advantage of the WTO is that everybody is moving forward together, so no politician in a sub-Saharan African state needs to feel politically exposed in doing something that everybody else in the developing world is doing in order to improve the standards of living of people in its economy.
So I think our leadership in that kind of forum dovetails with what you are trying to do here today.
Mr. CLEMENT. Well, I was going to ask you about AT&T and Motorola, how those initiatives in telecommunications—and being a former chairman of the Tennessee Public Service Commission—and the importance and the significance of technology and communications today, how is that proceeding?
Mr. LANG. Well, the perception is still, I think, lagging in the region.
We had quite a significant meeting with the African trade ministers on the margins of the Singapore Ministerial. I think we were the only industrialized country to invite those ministers to a meeting as a group, and it was obvious that so much of this global economy is, if you will, culled. It is electrons, it is something you can't see and feel, and yet people realize that it is terribly important.
I think that realization is moving at different paces in different countries, but we have a lot of educational work to do.
One of the things we can do, with things like technical assistance, for example, is send out experts on these international trade agreements and, for that matter, on economic developments generally, like telecommunications, to teach people how to regulate in such a way as to have these things serve their national interests and also attract the investment they need in order to develop these infrastructures. But this is going to take a little time and patience. We can do it, and it is in our interest, but we are going to need to stick with it.
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Mr. CLEMENT. Thank you, Mr. Chairman.
Mr. ROYCE. Mr. Don Payne of New Jersey.
Mr. PAYNE. Thank you very much, Mr. Chairman, and to you, Mr. Ambassador. I am very pleased that the whole question of economic development in Africa has finally started to resonate and start to come together and move on a track. I would not necessarily say it is a fast track, but at least it is on the track; and we want to now start the engine moving.
But there, as you know, has been interest in this area. As you know, there has been a strong move toward democracy in parts of Africa. Maybe 10 years ago, there might have been three or four countries that might have been moving democratically. Now maybe two-thirds are in some democracy or transition.
We have had elections where long-time leaders have lost and left office in Malawi and Zambia without any problems. We have seen transitions in Mozambique and Namibia and so many successful places where, especially in the southern region, there is pretty profound stability, by and large.
I have a question that has not really been brought up, but there is the question of human rights as it relates to business, and there—with the move in the democratic direction is positive, but we still have some very large stumbling blocks where human rights abuses create an unstable situation for investors. Could you just tell me what you think the current mind-set of investments are as it relates to some of the large countries—Nigeria, Sudan—which are probably the last two big stumbling blocks at the current time?
We hope that the democratic Republic of Congo will move forward on the right track. One thing is for sure: Thirty-two years of the Mobutu regime—I would expect things can only get better, hopefully—but how does that whole area fit in and what do you see as the prospect in the future?
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Mr. LANG. Yes. There will also, I should say at the very beginning, be lots of people in the administration who will know more about this subject than I.
But looking at it just from the economic perspective of your question, and particularly the private sector people we have talked about on this matter, it is clear that the human rights situation in some of these countries is impairing their development, aside from the fact that, with respect to some of the countries, we are unable to have a complete economic relationship because of the restrictions and other laws. It is obviously destabilizing.
The thing that is going to attract investment to the region is some kind of predictability about what is going to happen here and that what is going to happen is basically going to be attractive in terms of growth rates and security of an investment.
So there is clearly a relationship here; and I am not sure that the economic reality won't be more important than anything that the legislation says about it, frankly, because I think business has a lot of investment choices in today's world; and what we need to do is make some of these markets in sub-Saharan Africa part of that choice pattern when they are not today.
If we can do that and then demonstrate that those economies grow faster and their standard of living improves and everything else improves, including democracy and the human rights situation, I think others will follow because they will be unable to have any other way of making a better standard of living for their people.
Mr. PAYNE. Thank you. I appreciate that.
Mr. ROYCE. Well, again, on behalf of all the members of both committees, Ambassador Lang, we thank you very much for your testimony here today; and we will now commence the second panel.
Mr. LANG. Thank you very much, Mr. Chairman.
Mr. ROYCE. As the second panel is being seated, I will tell you that we will be hearing from businesspeople who have experienced some of the obstacles to U.S.-African trade and investment, as well as a scholar who has studied these problems very closely.
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Mr. David Gordon, Director of U.S. Policies Programs at the Overseas Development Council. He previously served as senior professional staff member for the House Africa Subcommittee. Mr. Gordon is the author of several books and numerous articles on economic development issues, especially in Africa, and has served as a consultant to USAID, the World Bank and private corporations and financial institutions.
We have Mr. Anthony Carroll, an attorney and entrepreneur specializing in trade and investment issues in Africa. Mr. Carroll has represented small and large U.S., European and African firms. He also is a direct investor in Africa, principally in the fields of telecommunications and transport.
Mr. Roger Jantio is managing director of Sterling International Group, Incorporated. He is an acknowledged expert in mobilizing financing on international capital markets for sound projects in developing countries, particularly in Africa.
Among the projects Mr. Jantio has been involved in was the privatization of the Libreville, Gabon airport. He currently is involved in the privatization of the international airport at Abidjan, Ivory Coast.
Mr. ROYCE. Mr. Gordon.
STATEMENT OF DAVID GORDON, DIRECTOR, U.S. PROGRAM, OVERSEAS DEVELOPMENT COUNCIL
Mr. GORDON. Thank you very much, Chairman Royce. I want to thank you and Representative Ros-Lehtinen for inviting me to testify today.
The views that I express this afternoon are my own and do not necessarily reflect those of my colleagues at the Overseas Development Council or its Board of Directors. They do grow out of a project I have recently completed on the subject with Professor Ernest Wilson of the University of Maryland.
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I want to commend the committee for holding this hearing today at a time when the prospects for putting U.S. relations with Africa on a firmer and more balanced footing have never been greater.
Without wanting to sound over-optimistic, I believe a chance for real change in Africa is upon us. For the first time in almost a generation, most African countries are participating in a marked economic upturn. African entrepreneurs are working to convince the governments to reduce state regulations. New popular forces are creating hard-to-resist pressures for democracy and openness, and a new generation of African leaders is responding by allowing markets to function, creating opportunities for mutually beneficial international trade and investment.
This is one of those moments when U.S. policy can make a dramatic difference. The United States is Africa's leading market, as well as a beacon for Africa's new market-oriented businessmen and political leaders.
Today I want to address three issues. The first is the rationale for taking trade and investment issues in Africa more seriously. The second is the obstacles to increasing trade investments. The third is why I strongly support the African Growth and Opportunity Act.
For the past four decades, it was America's strategic rivalry with the Soviet Union that shaped our engagement with the continent. We are now only at the very early stages of shifting U.S. policy to a coherent post-cold war framework.
To date, post-cold war U.S.-African policy has stood on two pillars. The first is humanitarian concern. The second is support for sustainable development.
But with the exception of the late Secretary Ron Brown's trade missions, Africa has largely been excluded from what many would consider the most dynamic component of recent U.S. foreign policy, the promotion of U.S. trade and investment in an ever-expanding and effectively integrated international economy.
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To the two pillars of U.S.-African policy that already exist, we need to add a third pillar: enhanced trade and investment.
In proposing more market-focused economic ties in our relations with Africa, we must not go so far as to deny the relevance of the other legs of the stool, especially development aid. Otherwise, the imbalance that existed in the past will be continued.
While it is important to reduce Africa's level of dependency on aid through trade and investment, it is equally important to sustain and improve existing foreign assistance programs.
Obstacles to trade and investment in Africa. Despite the signs of a turnaround in the past few years, Africa remains only marginally and ineffectively linked to the global economy. Africa has essentially been on the sidelines in the dramatic increase in the foreign investments in developing countries, capturing less than 2 percent of new investment in recent years.
There are a number of reasons for Africa's weak trade and investment performance. Historically, the most important are Africa's own policies. While these policies have begun to change, policy reform efforts need to be deepened and strengthened if Africa is going to be able to effectively compete.
In our discussions with African entrepreneurs, a constant theme we heard was the need for a more hospitable and predictable economic climate. Said one in an interview in West Africa, if you really want to help us, go back and tell your government to pressure our government to reform the whole business environment.
I am going to leave much of the discussion of economic policy reform to my colleagues, because I know they are eager to address that issue. I want to go on and talk about some of the other barriers to expanded trade, and I think the other barriers are becoming increasingly important as Africa's policy environment begins to improve.
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In general, barriers to trade with developed country markets are minimal, but there are significant exceptions. The two most important ones are restrictions on food and agriculture, particularly in Europe, and the uncertainty attached to exporting textile and apparel, which has been an initial sector for dynamic economic growth and industrialization in most developing countries.
An additional burden that African countries bear is what we might call the ''bad neighborhood'' effect, a kind of unfair stigma that springs from a combination of the legacy of bad policy and an overreporting of the continent's trouble spots. The bad neighborhood effects preclude many potential investors from taking a serious look at the possibilities for investment in Africa.
To give one example, consider the turnaround recently under way in Uganda. Uganda, over the past several years, has been one of the world fastest-growing economies, yet international investors have been less responsive to these changes than they have been in other developing regions. If Uganda were in Asia, investors would be falling over one another to get in.
Related to the bad neighborhood effect is the ''policy neglect effect'', and that is really what Congressman Hastings was talking about earlier.
There is still a reluctance in the key government agencies to move beyond the old Africa policy framework. This contrasts with much more impressive and imaginative initiatives in other regions. For example, to redefine U.S. relations with East and Central Europe, the administration seeks an expanded NATO; in Latin America, it invited all the nations in the hemisphere, save Cuba, to attend a Summit on the Americas; and with Asia President Clinton travels to the annual meetings with APEC.
We haven't seen any such initiative to change the dynamics of our relationship with Africa as yet.
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What then will the future hold for U.S.-African policy and what are the implications for the Congress?
We need a policy agenda that is more proactive, engaged and concerned with promoting mutually beneficial relations. This approach will most advance U.S. interests as well as help contribute to a climate in which Africans can help themselves.
In this regard, I strongly endorse the African Growth and Opportunity Act.
The substantive core of a third leg, this trade and investment leg for U.S.-African policy, should embody three elements, each of which is addressed in the legislation.
The first is an investment initiative that can leverage private sector resources. The bill creates $650 million in investment funds by the Overseas Private Investment Corporation. OPIC funds directly leverage equity provided by private investors, while the funds' cost to the American taxpayer is limited.
The second element is a reciprocal trade initiative that reduces barriers to trade on both sides.
In this regard, I believe that the single most important measure in the bill is its support for a no-quota policy toward African textiles. It is inconsistent to argue that Africa must better integrate into the world economy and then impose quotas on one of the most potentially viable sectors for such integration. I was personally involved in the design of an AID-funded project in Kenya which helped to generate a vigorous textile sector, only to see the United States impose quotas in 1994 and the subsequent partial demise of that sector. To say these events undermined the credibility of the United States in Kenya is an understatement.
African textiles represent less than 1 percent of the total U.S. import market of over $45 billion. The vast bulk of garments produced in Africa are basic goods which are no longer produced in large volumes in the United States. The overwhelming impact of the displacement of increased imports from Africa would be on other foreign producers, mainly in Asia. This provision will not hurt American businesses or workers. It will give African textile producers a chance to get into the international trade game.
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The third element is the creation of a negotiating framework to bring together U.S. and African officials. Such a forum, I believe, will have two positive effects:
First, it will provide a focal point for Africa policy efforts, much as the APEC annual meetings do for U.S. economic policy toward Asia.
It will help deepen and sustain, in addition, the policy reform process in Africa, particularly in the trade-and-investment-related area.
To conclude, the African Growth and Opportunity Act, with its bipartisan backing across the ideological spectrum from Newt Gingrich to Charlie Rangel, supports U.S. interests in Africa. The lowering of international tariffs, expansion of trade and encouragement of free markets have been a singular contribution of American foreign policy that has generated untold billion of dollars of wealth across the globe and at home. The time has come to include Africa in this vision.
This bill is an important step in the evolution of U.S.-African policy, and I urge the committee to act positively on it in your forthcoming markups.
Mr. ROYCE. Thank you, Mr. Gordon.
[The prepared statement of Mr. Gordon appears in the appendix.]
Mr. ROYCE. Mr. Carroll, I will ask you to keep your remarks to 5 minutes. Thank you, Mr. Carroll.
STATEMENT OF ANTHONY CARROLL, ATTORNEY-AT-LAW
Mr. CARROLL. Mr. Chairman, Madam Chairperson, thank you for allowing me this opportunity.
It would appear from the numerous indicators that have been mentioned today that interest in trade and investment between Africa and the United States is burgeoning. Much of the credit of this interest in Africa is attributable to the work of the late Commerce Secretary, Ron Brown, who persisted in promoting Africa to a degree well beyond that of any concomitant political gain. It was my honor to have participated in Ron Brown's last visit to Africa, and I can say without reservation that his leadership is greatly missed not only in Washington but across the continent of Africa.
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Among other indicators mentioned today contributing to this groundswell of interest include the Africa Growth and Opportunity Act; of course, the bilateral U.S.-South Africa Binational Commission, which is headed by Al Gore and Vice President Thabo Mbeki for South Africa; and the considerable media and policymaker interest that has been generated recently through the Corporate Council on Africa's Summit on Investing in Africa.
While this attention in Africa is a welcome relief to someone who has devoted his professional life to cultivating business in a very thorny garden, there is a very real risk that it will overstate the accomplishment of nascent reforms to the African business environment and obscure some of the realities of doing business in Africa for the typical U.S. corporation. OPIC used to proclaim that U.S. firms averaged higher returns and investments in Africa than any other continent. The real story behind the statistic is U.S. firms will not venture into such risky environs without assurance that the returns are nothing short of gigantic.
No one can doubt the contributions that structural adjustment programs have made to African economic growth. Indeed, a recent statistic maintains that 35 African countries undertaking structural adjustment programs have achieved an aggregate annual GDP growth of 5 percent during 1995 and 1996. Although this statistic is comforting, why did Africa receive less than 5 percent of the $177 billion of foreign direct investment which flowed into the developing world in 1996?
This paltry share is discounted even further when petroleum investment is subtracted and, incredibly, represents a decline from the pre-structural adjustment in the anti-democratic 1980's when Africa was the destination of about 11 percent of international FDI. With some notable exceptions, the majority of Africans are, in economic and social terms, worse off now than they were at independence. President Museveni of Uganda has even suggested that the absence of economic opportunity and the failure of an emergent business class is the chief cause of human rights violations in Africa.
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I am a believer that the real reason for underperformance in the post-structural adjustment African economies is the failure of such reforms to alleviate the onerous second-tier regulatory constraints which remain. The structural adjustment programs concentrated on such areas as devaluating currencies and liberalizing foreign exchange, lowering tax and tariff rates, decontrolling process and interest rates, establishing investment and export incentives and in general creating a more stable macroeconomic climate.
While the impact of these reforms are significant, they can be vastly overstated and can divert attention from the need to address the plethora of these second-tier constraints.
While I would like to regale the committee with my nearly 20 years of anecdotal evidence of Africa's ''caveat emptor'', in the few minutes I have remaining I will summarize some of these second-tier constraints with a focus on the special problems encountered by U.S. businesses undertaking trade and investment in Africa.
First, existence and enforcement of regulations. While Marxism is on the wane, many regulations enacted in the former era remain and provide ample evidence of the mistrust that often exists between African bureaucrats and the private sector. Moreover, the vesting of wide discretionary power by government officials in a variety of areas can cause an environment ripe for corruption.
Collectively, these regulations and their inconsistent application are emblematic of the all-too-pervasive obstructionist tendencies of African bureaucrats and their inability to become user friendly to the foreign investor, especially. They also reduce the certainty of the foreign investor who wants a reasonably secure decisionmaking environment and restricts optimal business entity formation due to the need to solicit the protection of well-placed local partners. While the emergence of one-stop shops for the foreign investor have lessened the impact of some of these hurdles, the result is usually cosmetic, rather than substantive.
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Second, financial institutions. With the exception of South Africa and its neighbors, the status of banking in Africa is woeful. In such performers as Uganda, a 6-month loan is considered long-term; and collateralization ratios exceed six to one. While the liberalization of foreign exchange markets and the proliferation of investment codes guaranteeing the repatriation of dividend income to the foreign investor have helped, the absence of adequate credit markets has constrained the dynamic growth of indigenous business enterprises who could serve as essential customers of—or suppliers to—the foreign enterprise.
Third, contractual enforcement. A foreign investor wants certainty in the form of the agreements that he or she enters into with local companies of service providers. Regrettably, with the exception of South Africa and its immediate neighbors, the enforceability of contracts is very tenuous and requires the employment of legions of local accountants, lawyers and general helpers.
The availability of equitable relief is limited, and the success rates of hauling a local company or foreign government into court are tenuous. And I think that I would like to point out that, while bilateral investment treaties help, the United States had a bilateral investment treaty with the former Zaire; and I am not sure that provided much comfort to any of us.
Fourth, information and infrastructure. The absence of sophisticated infrastructure in Africa is well known. It has been talked about here today. However, as the world becomes increasingly interconnected and business transactions concomitantly facilitated through electronic means, the absence of an acceptable level of telecommunications support in Africa will constrain transactional ease and deter all but those businesses who can bring their own infrastructure with them.
Last, market size. In absolute terms, the sub-Saharan market is large, representing over one half billion consumers. African countries have historic trading patterns that have been defined by the export of primary products to industrialized countries and the import of finished consumer and industrial items from those same countries. Less than 5 percent of Africa's trade volume is intra-African trade.
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Until Africa's 52 countries identify effective mechanisms to facilitate cross-border trading, market size will continue to be a real limitation for U.S. companies. While U.S. firms also incur a disadvantage to European firms, which can call upon historical and cultural linkages as well as blatant disregard for foreign corrupt practice laws, the advent of the information age will ameliorate such bias—although Asian competitors, I might add, especially India, China and Malaysia—are becoming a greater force in Africa.
Although I am not a proponent of foreign assistance per se, I believe that the U.S. Government's support for regional economic institutions such as SADC, The East African Community, and ECOWAS may be helpful.
I would like to conclude my remarks by saying that the greatest predictors of success in the African marketplace for a U.S. company are tenacity and creativity. While the conditions for doing business in Africa are improving, there is no substitute for thoroughness, willfulness and an experienced U.S. lawyer.
Mr. Chairman, I would like to thank you once again for inviting me to appear here today; and I am, of course, available to answer any of your questions.
Mr. ROYCE. Thank you, Mr. Carroll.
[The prepared statement of Mr. Carroll appears in the appendix.]
Mr. ROYCE. We will now hear from Mr. Jantio.
STATEMENT OF ROGER JANTIO, MANAGING DIRECTOR, STERLING INTERNATIONAL GROUP, INC.
Mr. JANTIO. Mr. Chairman, thank you for inviting me to share my experience working to promote U.S.-sub-Saharan African trade and investment with you and the honorable subcommittee members. Obstacles to U.S.-African trade and investment are numerous, yet surmountable.
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The second annual report on U.S.-African Trade Flows and Effects of the Uruguay Round Agreements and U.S. Trade and Development Policy has accurately described the current situation of the U.S.-African trade and investment:
The 48 Sub-Saharan African countries covered in the report account for only about 1 percent of U.S. commodity exports and 2 percent of U.S. commodity imports. That is pretty low.
Also, from an investment point of view, only 0.6 percent of U.S. direct trade investment abroad goes to Africa.
When you put these two figures in equation with the European exports, the differences are sharp. The European community accounts for 43 percent of the region's imports and 37 percent of its exports. This really highlights the need to look into the obstacles to the U.S.-African trade and investment.
Mr. Chairman, looking at these obstacles does not necessarily mean that Africa is doomed and that prospects for U.S.-African trade and investment are limited. On the contrary, I think there are a lot of prospects, especially where now the fruit of the first and second generations of structural adjustment programs are about to be ripe.
One can already see the number of business travelers coming from Asia and Europe who are actually traveling in Africa today. Making a booking in Africa to go to some countries can be tough, and hotel bookings are actually very, very high.
Africa is a large continent, so there is clearly a lot to be done. There is clearly a lot of investment potential, a lot of works and products that are needed, provided they can be paid for.
Undoubtedly, in the near term there are opportunities for trade and investment for African partners. There will certainly be more opportunities, as you can see more and more. But for those opportunities to materialize, there are certainly a lot of uncertainties that have to be lifted.
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Let me just tell you about the obstacles from my point of view as a businessperson. I do not believe that the obstacles are that enormous. I think the risk factor of doing business in Africa is not higher than the risk factor of doing business in China, if you take the risk on its own without actually looking at other things, but just the risk factor in itself.
The major obstacles concerned with Africa and trade in Africa is the size of the deals. If transactions were of higher amounts, most people would be prepared to actually take the risks that exist. The current risk factors are just much higher for the type of return that could be expected from a deal.
To give you an example, I have run some figures and find out that most credit transactions in Africa are of an amount of less than $100,000. What does that mean? The profit margin for such a deal could, at best, be $15,000. This could present exactly the expenses that one has to spend when you go to Africa for a business trip. Roughly for a 2-week business trip in Africa, you have to spend about $10,000 to $15,000. So on this size of deals it is very hard to give people incentive to go to Africa and promote deals and make an investment.
What is the way around it? It is not to talk about the risk, but it is, from my point of view, to try to find ways to increase the size of deals. And the best way as a businessperson, it seems to me, is to increase the potential number of people who have deals in Africa. That comes from regional integration, definitely, because with a regional integration the market is probably bigger and, therefore, importers have more incentive to order much more merchandise, whether it is a small size in a small country.
I give you an example of a business person in Ghana who would like to cover the neighboring country of Togo. It is impossible for that person to import goods for both Ghana and Togo. If they were able to do so, they would be able to order more; and, therefore, the size of the deal would justify having potential businesspeople look more closely into that country.
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I do not think the risk factor in itself is really the issue, but clearly the size of the deal is the issue. How do we do that? The regional integration is part of it; and I urge you, in your traveling in Africa, to encourage African countries to look into these kinds of mechanisms, especially as we know that institutions that can make this type of integration materialize are there. In many of these African countries you have regional institutions. They are there, they are weak, and they need to be supported somehow.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Jantio appears in the appendix.]
Mr. ROYCE. Let me just follow up with one question, and maybe I will ask each of the members to ask one question of the panel, because we are about to have a vote on the House floor.
I know you have considerable experience in Franco-African business. In light of the figures you gave us, 43 percent of the market is European. I imagine most of that is French. Do U.S. companies have a shot at these markets?
Mr. JANTIO. Thank you, Mr. Chairman.
I think the U.S. companies today—Africans actually are tired of many European countries. As an African myself, I tend to feel that way.
But this is not the point. The point is really the nature of the goods and the price and the facility of doing it. Clearly, most European countries actually, because the opportunity in each of the European countries in itself are relatively smaller, they tend to go elsewhere. As the European mechanism is being put in place, more and more European businesspeople are actually going to be in business in Europe because the opportunities are bigger. This means that the competition that European businesses offer to the United States are certainly going to be less strong. This means that as the product, the U.S. products are clearly competitive in many sectors, there is no reason why U.S. businesses will not have a shot, provided deals are good enough for them to be worth their while of leaving the backyard to go to Africa.
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Mr. ROYCE. Thank you.
I am going to ask the ranking member, Mr. Menendez, if he has a question at this time.
Mr. MENENDEZ. Thank you, Mr. Chairman. I want to follow up where my colleague, Mr. Payne, left off with the Ambassador before.
I know none of you addressed this in your main comments, but I would like to hear it from you, and that is the question of whether or not it is wise to continue to include provisions on human rights in the context of either the eligibility requirements or other considerations to be considered in the bill.
And if the answer is no, I would like to hear from you what are the consequences in terms of both perception and participation for those countries that, in fact, do not observe human rights.
I listened to the Ambassador's answer, and I often hear these answers. There is a quantum leap that the nature of trade will automatically bring democracy and human rights. I can rattle off a few countries that, after 25 years of engagement, have neither democracy nor human rights. I hope that is not the standard. So I would like to hear from the panel as to their views on that.
Mr. GORDON. Thank you, Mr. Menendez.
I think that human rights should be an issue that is taken into consideration, particularly at the egregious end of the spectrum, that you would want to exclude egregious human rights offenders from participation. I think as you move away from the egregious end of the spectrum, to my mind we have other instruments that are probably more effective instruments for utilizing directly to affect human rights, in particular our traditional foreign assistance programs.
So I think it should be a factor and, in particular, should be a significant factor on the egregious end of the spectrum; but that, for others, we should look at other instruments.
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Mr. ROYCE. We have a vote in progress. I am going to have to ask you to be very succinct.
Mr. CARROLL. I will concur with that. We might disagree on where the line of egregiousness ends and begins.
But I think Congressman Payne, whom I have great admiration for his work on the committee and his staff in years past, I know has had a great interest in the evolving situation in Zaire.
I am involved with a large company looking to reinvest in Zaire. They have been dormant for a number of years because of the business environment. They want to come in. They want to create 1,000 jobs within the next 2 or 3 months and manufacture textiles. They would like to do it in the Zairean market but possibly for export. They want to know that these benefits that may be available under this legislation will not be subject to whether or not in 6 months' time President Kabila is or is not in vogue with our State Department.
We want to go in and create jobs. We want to come in and create new investment. We want to get involved in the new Zairean economy, new Congolese economy. But, at the same time, as a foreign investor, we want some certainty that we are going to be able to benefit from these in the immediate- to long-term. That is sort of my objective.
And whether it is Sudan or Nigeria or Zaire, I think the businessman sort of votes with his or her feet; and they will go to those environments where the yields are good; and they can make the business climate and the engagement much better and more sophisticated and I think much less prone to human rights investment.
Mr. MENENDEZ. So it is the bottom line, if I understand what you are saying. Is that a fair statement? Did I just understand everything you said to be it is the bottom line?
Mr. CARROLL. It is the bottom line. Whether or not the bottom line should be determinant as to where investment should flow, I think there should be provisions that you are maybe in the egregious indications able to take action, but I think even direct investment should flow to its perception of highest yield environment.
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I think by improving the domestic business economies in those countries you will create a greater exchange of ideas and greater dialog with governments which are impeding those investigated business interests in being able to get things done.
Mr. ROYCE. Chairwoman Ros-Lehtinen.
Ms. ROS-LEHTINEN. Thank you. I know we are limited in time, so just a quick answer.
Is the United States losing more ground every year to our European counterparts in the continent of Africa? The French talk about the American conquest, yet the U.S. companies are really unable to compete evenly in many African countries. Are we losing ground to Europe?
Mr. GORDON. I think it is a mixed picture. I think we are losing ground. I would say we are losing more ground to Asian competitors than we are to European competitors. Malaysia is now the fourth largest investor in southern Africa and may become the second largest foreign investor in South Africa.
Mr. ROYCE. Thank you.
Mr. Payne.
Mr. PAYNE. Just quickly, a question that becomes sensitive. American businessmen are held to a different standard than European businessmen, and at some point in time the whole question of legitimate business and illegal practices has to be put on the table. Perhaps this is not the forum, but if we are going to move seriously into real investment——
And I think the continent is ready for it. I think the infrastructure can be improved. I can see the new millennium being the explosion of sub-Saharan Africa. But decisions are going to have to be made whether it is going to be the old way, where it is going to be the fact where there is corruption on the table, where you have 419 and no one pays attention to it.
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These are things that I think will determine how successful this legislation goes, coupled with human rights that must be observed. I disagree that we should go with the old trickle-down theory, where we put the money in and, hopefully, they will change.
We said rising tides lift all boats. They don't. They lift some. They leave others down. We have to have a way to insist that human rights also become a factor.
Mr. ROYCE. With that said and on that note, I think we are going to have to adjourn this committee meeting.
Again, Mr. Jantio, we thank you. Mr. Carroll. Mr. Gordon.
[Whereupon, at 2:52 p.m., the joint subcommittee was adjourned.]