Subcommittee on Trade of the House Ways and Means Committee - Trade with Sub-Saharan Africa and HR 4103, AGOA Acceleration Act of 2004

Federal News Service April 29, 2004 Thursday

April 29, 2004 Thursday

HEADLINE:

HEARING OF THE ON SUBCOMMITTEE TRADE OF THE HOUSE COMMITTEE ON WAYS AND MEANS

SUBJECT: TRADE WITH SUB-SAHARAN AFRICA AND H.R. 4103, THE AGOA ACCELERATION ACT OF 2004

CHAIRED BY: REPRESENTATIVE PHIL CRANE (R-IL)

WITNESSES PANEL III: LUCY SOARES-DEMELO, SENIOR MARKETING MANAGER, MAST INDUSTRIES, INC., COLUMBUS, OHIO; JEFF STREADER, VICE PRESIDENT OF GLOBAL SOURCING, VF CORPORATION, NASHVILLE, TENNESSEE;

JILL KILEY, IMPORT COMPLIANCE MANAGER, GAP, INC., SAN FRANCISCO, CALIFORNIA;

STEPHEN HAYES, PRESIDENT, CORPORATE COUNCIL ON AFRICA;

REVEREND DAVID BECKMANN, PRESIDENT, BREAD FOR THE WORLD; ROBERT KIRK, VICE PRESIDENT, THE SERVICES GROUP, ARLINGTON, VIRGINIA;

MARK LEVINSON, CHIEF ECONOMIST, UNITE! LOCATION: 1100 LONGWORTH HOUSE OFFICE BUILDING, WASHINGTON, D.C.

TIME: 1:30 P.M.

BODY:

REP. PHIL CRANE (R-IL): Now I would like to call our next panel. Lucy Soares-Demelo, Jeff Streader, Jill Kiley, Stephen Hayes, Reverend David Beckmann, Robert Kirk and Mark Levinson. And if our witnesses will please come forward and take their seats.

And if you will proceed in the order that you took your seats, and in your prepared statements if you will try and keep them to five minutes, we would appreciate that. But any more remarks you have in printed form will be made a part of the permanent record.

And with that then, we start out with Ms. Soares-Demelo.

MS. LUCY SOARES-DEMELO: Chairman Crane, Mr. Rangel, Mr. Jefferson, I am honored to be in the presence of you, the three founding fathers of AGOA. My name is Lucy Soares-Demelo and I'm senior marketing director for Mast Industries. I am here to testify in strong support of H.R. 4103 on behalf of Limited Brands and our trade association, the National Retail Federation.

As an African-born naturalized American citizen, I am proud that Limited Brands, Mast Industries and the NRF played a leading role in the effort to pass the first African Growth and Opportunity Act. We had the opportunity to host Chairman Thomas, Mr. McDermott and his delegation last year in southern Africa, and we showed them a few of the hundreds of new factories built from the ground up, in some cases where fiber grown by local farmers went in one end and came out as high quality finished garments for the U.S. market on the other end. So literally we went from ground to a garment.

As we showed you, this particular factory would literally never have existed without AGOA, without the efforts of all of you. AGOA opportunities in garment manufacturing have literally put food on the table for hundreds of thousands of poor Africans. But as you know, with all of the success we have seen, AGOA is in big trouble. Many African producers will not survive without this bill, it is that simple. Many U.S. retailers are canceling orders right now because the incentives that drove U.S. customers to Africa may soon vanish.

AGOA has met billions of dollars in new orders, thousands of new jobs and far reaching investment and training. America has created what I would argue is the most effective, efficient assistant program ever extended by the United States to Africa. As a working mother, I see that one of the most compelling lessons learned from the AGOA experience is that the development of the garment industry in Africa has disproportionately benefited women, and the children that depend on their wages for their very survival.

I want to say something on what I think is the biggest disappointment related to AGOA. Unfortunately, unelected officials in customs office of regulations and rulings took away many of the benefits Congress intended to grant Africa. Here's one example. This men's jacket made in South Africa in a factory in downtown Johannesburg, where almost all the workers were hard-working Zulu women, we developed sophisticated African fabric to compete with Asian producers. In other words, moving business from a rich country, in this case Korea, to a black South African neighborhood devastated by AIDS, where the unemployment rates approached 50 percent.

This program required a certain type, of lining not available in Africa at the time. But we found an American supplier in Fall River, Massachusetts called Doro (ph). Africa wins and America wins, right? Wrong. Customs decided both should lose, but isn't a win-win what the Ways and Means committee wanted? Well, not according to OR&R, they said, "no." This wasn't an AGOA qualifying garment because they read the bill to restrict the use of African and U.S. fabrics together in a garment.

That order, this order went back to Asia, what a shame. Does this make sense to any member here? Another reason why we need this Bill now. My plea to this committee is that as you fine tune this legislation, you remove any ambiguity in the language of the bill that would allow the situation like this to happen again. In other words, specifying explicitly that all apparel, products would be eligible for trade preferences except those products specifically excluded by the legislation.

Finally, we think that it is vital that H.R. 4103 restore retroactively and refund any duties in cases where benefits were taken away by customs interpretations or a time lapse. If this Bill isn't passed soon, companies that lost millions because they believed the Ways and Means committee's interpretation of the bill when they placed orders in Africa shouldn't suffer because unelected officials decided to change Congress's intent. Now this committee has the opportunity to continue that work, to do good by being good, to right a historic wrong, to make a difference in the poorest African countries.

This is a rare chance to make an immediate and positive difference sitting here in Washington. Let's not this moment pass, American retailers and our company pledge to work tirelessly with you to enact this bill as soon as possible, thank you. The poorest African-countries in Africa are counting on us, let us not disappoint them.

REP. CRANE: Thank you.

Mr. Streader?

MR. JEFF STREADER: Mr. Chairman, Mr. Rangel, Mr. Jefferson. My name is Jeffrey Streader, I'm the vice president of global sourcing with VF Imageware, we're a subsidiary of VF Corporation. I'm pleased to be here today to discuss the AGOA acceleration Act representing VF Corporation. We are the world's largest apparel company, we are a Fortune 300 company, we were founded in 1899 in Redding, Pennsylvania, and today our headquarters are in Greensboro, North Carolina.

We have 52,000 employees worldwide, and 17,500 associates here in the United States. Our U.S. locations are 39 administrative and sales offices, 23 distribution centers, 18 factories and 214 retail outlets. Our brand portfolio includes Nautica, the North Face, Lee-Wrangler, Vanity Fair, Lily of France, Jansport, and many others in every channel of distribution. Our goal is to be the world's most responsive apparel company.

Our ambition is to produce apparel with a blended strategy using factories in both the Western hemisphere and the Eastern hemisphere. We produce 46 percent of our apparel today in our owned factories and 54 percent we source. Production in the VF factories uses predominantly American fabric and will continue to do so. For sourcing we have developed a comprehensive analytical framework which we use to assess the competitive landscape for the apparel and textile industry.

Our strategies, although they are structured are certain to change after the elimination of quote in '05 which is less than five years after AGOA. Prior to the passage of AGOA in 2000, we did not source any product in Africa. Our decision to enter the Sub-Saharan market was made after thoroughly assessing the cost benefit for the corporation, but also after truly understanding the risk reward of entering this market.

We emerged the very principles of AGOA including the establishment of a market economy while focusing on stable transparent governments that demonstrated efforts to combat corruption with overall stability. Our continuous due diligence has identified over 20 viable companies to engage. Currently we import branded products for the United States market from Mauritius, Madagascar, Kenya, Lesotho, Swaziland, Mozambique and South Africa.

The factories have met our international compliance standards which are the most rigorous standards in the industry and the overseas factories must meet the same standards of our internal factories. In our opinion since AGOA's initial passage, seven to eight of the AGOA nations have progressed quickly from the embryonic stage to the early export stage. This is when low wage laborers used for labor intensive operations with acceptable but unrefined execution.

Uncertainty in the region's long term viability has led to under investment and an undeveloped textile industry to augment the region's growth. The development of large and sophisticated textile industry will only begin if the rules of origin under the AGOA legislation are extended, otherwise a vast majority of Sub-Saharan companies that depend on low cost, high quality yarns and fabrics from Asia will quickly be forced to go out of business.

As the largest apparel company in the world, we embrace free trade. We are capable of providing significant steady production opportunities, we prefer to establish and maintain long term partnerships, this in turn translates to consistent employment opportunities and regional security. VF Corporation is committed to sustaining and even growing our activities in Sub-Saharan Africa providing the supply chain model continues to make economic sense for us.

Unless H.R. 4103 is passed before the expiration of the current program, we will have no choice but to move out of our African locations. It would be extremely difficult to return, if this would occur. Succinctly, Sub-Saharan Africa unconditionally needs the extension of AGOA and the LDCs' access to third party fabric to even begin to compete in an environment that would change dramatically in seven months. Furthermore, we believe this gives the region additional time to attract investment for the textile industry. Thank you.

REP. CRANE: Thank you, Mr. Streader.

Ms. Kiley.

MS. JILL KILEY: Good afternoon, Chairman Crane, Ranking Member Rangel and other members of the Ways and Means Committee. My name is Jill Kiley and I am the import complaints manager for Duty Preference Programs for Gap, Inc. Gap, Inc., is a leading international specialty retailer offering clothing, accessories and personal care for men, women, children and infants under the Gap, Banana Republic and Old Navy brand names. Fiscal 2003 sales were $15.9 billion and as of April 3, 2004, we operated 3,022 stores in the United States, the United Kingdom, Canada, France, Japan and Germany.

I appreciate the opportunity to testify before you on this very important matter. Gap has been pleased to support the African Growth and Opportunity Act and contribute to the economic development in Sub- Saharan Africa. This is an incredibly important region for us in our sourcing efforts, and we are thrilled to have been one of the first retailers in this region. We've been there since 1996, prior to AGOA's inception in October 2000.

Unfortunately, restrictive interpretation of AGOA rules and potential expiration of benefits has hampered our and our other retailers' ability to fully source from Sub-Saharan Africa. Further business growth will also continue to be threatened in this fragile region if action is not taken. First and foremost, the third country fabric benefit for least developed countries must be extended immediately. Without that, further investment in the region will be extremely difficult. Gap has already begun forecasting for our holiday and back to school seasons. These are the bread and butter seasons for the industry and uncertainty regarding duty and profit margins due to the delay in action on AGOA III extension, coupled with long transit times from the region, will force orders to Asia or other non-African sourcing regions.

In the time since AGOA became effective, the raw materials infrastructure in the region has not developed sufficiently enough to support maximum AGOA-eligible garment production. In other words, we would gladly leverage more duty free opportunities if the capacity and quality of local textiles warranted it. While we understand the argument for phasing out third country fabric benefits to more fully encourage investment in the fabric and yarn industries. We need much more time at this point. The regional textile capacity has not proven to be adequate yet. It would be a shame for all the investment that has gone into the region thus far be for naught if the textile industry does not have enough time to get off the ground.

Secondly, interpretation of the flat knit collars and cuffs components or other flat knit components has been incredibly burdensome and rather unfortunate. It was never envisioned by apparel manufacturers, retailers, even the origin governments, that these types of materials would be considered as components by U.S. customs and not as materials for eligibility purposes. Production in the LDC for garments made with these components, these flat knit materials, was done in good faith as AGOA-eligible garments, and we would ask that you also make this provision retroactive to the effective date, again based on our original understanding and the spirit of the agreement in terms of trade liberalizing production.

Thirdly, the application of the foreign findings and trimmings limit to LDC garments using-which are permitted to use foreign fabrics, has been another issue for Gap. With the current limit of 25 percent of the total cost of components, a number of items are being excluded from AGOA eligibility. Unfortunately, customs has interpreted certain language in the original AGOA to restrict benefits by applying this trim limit to apparel that otherwise is permitted to use foreign fabric. It has cost us duty free benefits on numerous styles, particularly infant and toddler styles that have a disproportionate cost of foreign heat transfers and screen prints to body fabric. We would suggest that the bill move to a provision that is a term that's known as "major parts," as opposed to even going through the suggestion of short supply findings and trimmings. We would rather see the concept of major parts adopted, which would be much more trade liberalizing.

Fourth and most latest issue has been composite goods. This would be garments that are otherwise AGOA eligible, but have a foreign textile component such as a belt. These are very complex situations and it's almost enough to just move those styles out of the region, rather than go through the time and trouble to determine case by case eligibility. And lastly I'd like to just say that we're also in the greater developed countries, so the extension of overall benefits to 2015 is also important to sustained economic development throughout the continent. We do not just rely-Gap does not just rely on production in the lesser developed countries, and we do encourage extension of benefits for the entire SSA.

And finally I'd just like to say again that I appreciate the opportunity to testify before you and I'm happy to take any questions.

REP. CRANE: Thank you, Ms. Kiley.

Mr. Hayes.

MR. STEPHEN HAYES: Thank you, Chairman Crane, Congressman Rangel, Congressman Jefferson. It's an honor to be here and represent the Corporate Council on Africa. We represent 205 corporations which collectively represent about 85 percent of all U.S. direct-private direct investment in Africa.

AGOA presently serves as a cornerstone of U.S.-Africa trade policy and is a major part of our overall policy towards Africa. For us, AGOA is not simply about trade or even export led growth in Africa. Its goals are more profound, which affect most of our investors. AGOA is an investment in the future of Africa's markets and, by extension, the U.S. economy. Today the population of Sub- Saharan Africa is 635 million, twice that of the United States, yet economic activity is equal to the state of Michigan in any given year. Africans can't buy if they cannot sell. AGOA also encourages countries to uphold the rule of law, govern properly and thereby create the necessary conditions for economic growth.

For us, AGOA serves as a prime incentive to countries by offering trade privileges to those exhibit improving governance, transparency, rule of law and respect for rights. These conditions help all of our companies. In that respect, participation in AGOA encourages countries to establish the conditions for real economic growth and as they do, provide an avenue for the economic growth through access to the U.S. marketplace. Cohesive policy is essential and I applaud Congress and the administration for the work it's done in tandem with AGOA to expand some of our aid budgets and demonstrate its faith in private sector led development.

The birth of the Millennium Challenge Corporation is especially welcome with the pro-growth mandate and further incentives to countries to govern prudently. Encouraging African countries to implement sound macroeconomic policies, including good governance and rule of law, significantly benefits the U.S. As African income grows, the purchase of more U.S. goods and services will lead to jobs in our own market as well.

Despite the success and the promise, three years is not enough, however, to judge AGOA's full worth and the benefit to countries of Africa. In so little time, I do not believe that it's prudent to judge any trade policy that involves more than three dozen countries, that are home to hundreds of millions of people speaking thousands of languages and possessing such diverse levels of economic development. AGOA still has impacted too few sectors and it needs more time. Steps must be taken to ensure that AGOA's promise is realized by reaching into those sectors that already employ so many Africans.

Here I call your attention specifically to agriculture. We continue to keep our markets shut to agricultural goods or undercut African farmers with our own large subsidies. Africa's comparative advantage is in agriculture, a sector that employs 70 percent of Africa's entire population. Africans already buy large quantities of our best goods, software, entertainment, services and, yes, our agriculture to name a few. It's time that we start buying their best. We need to allow Africans to trade what they most-they already produce in abundance. Full economic benefits must reach all the population and not simply the elites. Well, bringing our markets to agriculture reinforces stability.

Most discourse about AGOA focuses on textiles and the results are encouraging. However, global consumers are increasingly ready to experience Africa's harvest of flowers, unique fruits and vegetables, seafood, exotic spices and much more. If AGOA fails to make a real difference by ignoring the full sectors, such as agriculture, then our stated goal to help extricate Africans from poverty through this legislation will not be met. And as long as Africans remained mired in poverty, they cannot afford American goods and services. When this happens, not only will AGOA have failed Africa, it will have failed the United States.

We all recognize that building an economic foundation takes time. U.S. policy must be enacted with long term vision, wisdom and hope. Short term economic policies do not reflect confidence in our vision, nor do they give hope to Africa. We should, therefore, continue this program and couple it with other incentives with viable opportunities for Africa. We support the least developed-expansion of the least developed country two-third country apparel benefit. Secondly, we also recognize that AGOA is underutilized, at least partially, because exporting to the U.S. is an arduous process. We advocate greater technical assistance.

To sum up, AGOA helps to sow the seeds of a new market for American goods. It benefits Africans by creating jobs and stability. It encourages governments to move from opacity to transparency, from lackluster legal systems to states that uphold the rule of law. Thank you, Mr. Chairman.

REP. CRANE: Thank you, Mr. Hayes.

And now Reverend Beckmann.

REP. DAVID BECKMANN: Thank you, Mr. Chairman, Ranking Member Rangel, Mr. Jefferson. I'm David Beckmann. I'm the president of Bread for the World. Bread for the World is a national Christian citizens' movement against hunger. We organize mainly in churches. We mobilize about a quarter of a million letters to Congress a year on issues that affect poor and hungry people in the U.S. and around the world. I'm also testifying on behalf of the Partnership to Cut Hunger and Poverty in Africa, which is a broad association of organizations in the U.S. and Africa that care about agriculture and rural development.

I want to say three things. First, just that Bread for the World and the Partnership to Cut Hunger and Poverty in Africa support the passage of AGOA III. We do so because we think it's important to reducing poverty and hunger in Africa. I think the testimony that you're going to hear from UNITE is important testimony. I appreciate the field work that they've done and I appreciate the committee's oversight and attention to the issue of workers' rights. It also seems to me that that could be a more significant part of the annual meetings between U.S. and African officials about AGOA. But that said, it's our judgment that AGOA has helped to reduce poverty and hunger in Africa without any significant adverse effect on poor people in this country, and that it ought to be extended.

The second point is just I'd like to add my voice to that of others that just makes the point about the urgency of this action. I just came back from Uganda, Mr. Chairman, and I was just struck that Uganda is an example of exactly what this committee tried to do when you started AGOA. There has been a big surge in Ugandan exports to the U.S. There are several factories in Uganda that have come into existence specifically to create textiles, to respond to the opportunity of AGOA. I visited one rural area about an hour to the east of Kampala. Not very many jobs except for agriculture in the whole district, and there are 1,200 people working in a textile factory there that's run by an Indian family that's come in from outside to take advantage of AGOA.

The president of Uganda, President Museveni, is fanatical about AGOA. He said it's the best thing the United States has done for Africa in the whole history of relationships between the United States and Africa, and he's talking a lot to other African leaders and to the people of Uganda about doing business with the rest of the world as the only way that Uganda and other African countries can really transform their economies and dramatically reduce poverty over the long term. And from my perspective it's important that the Ugandan government sees trade not as an end in itself, but as a means to the end of poverty reduction. And this is a country that has problems, but they have reduced poverty, they have reduced HIV infection, they have dramatically increased enrollment in primary school.

And as I see it, if AGOA III doesn't pass before AGOA II runs out, those factories-those textile factories will close, I think President Museveni's pro-trade policy will be embarrassed, and I think Uganda's development prospects will be adversely affected. So it is urgent. I know you know that already, and I really appreciate the fact that you're planning to move this through Congress just as fast as you can.

The third point I want to make is the point about capacity building. AGOA III could have a lot more impact than AGOA has had so far if there were some money available for capacity building. Really, AGOA is benefiting a relatively small number of African countries.

It could have a much broader, much deeper impact in Africa if there were funding available to help countries, help individuals, help businesses take advantages of the opportunities of AGOA. Thank you.

REP. CRANE: Thank you. And our next witness is Mr. Kirk.

MR. ROBERT KIRK: Thank you, Chairman Crane, Ranking Member Rangel and Congressman Jefferson. My name is Robert Kirk. I am vice president with The Services Group, which is an economic consulting company. I specialize in international trade work and I'm speaking in a personal capacity. My focus, the intervention, is on the special rules of origin for the lesser developed countries.

The liberal rule of origin which allows the use of third party cloth is in many ways what made AGOA unique. When AGOA was implemented in 2000, this was a breakthrough to not only include apparel but to allow the use of third party cloth, in contrast to other preferential schemes which have been on the books for many other OECD countries. And when we look at the achievements over the past four years, we look at the trend in trade, when we remove the oil and related products, we look at the textiles and apparel, we see major expansion in the lesser developed countries which have access to the special rule. It increased their exports of apparel by over 176 percent in the period 1999, just before AGOA, to 2002, and that increase has continued.

When we look at what has happened with those countries' trade under the Cotonou Agreement with Europe, or we look at the other qualifying AGOA countries that do not qualify for the special rule, we find that there's been very little difference in trade. Very little increase in apparel trade. That to me points out the importance of the liberal rule of origin in expanding exports and promoting investment.

Now, we often hear arguments that this is a very narrow and shallow investment that's taking place. These are low paid jobs. It is true they are low paid jobs, but in the history of economic development many of the countries that are today more developed started out with these low paying jobs. Mauritius 30 years ago, many of the Far East Asian countries. It's a foothold and it also allows countries to engage in the international economy, and that is what is so positive. The investment that is taking place is sourcing from the most efficient suppliers in the world. It is allowing the countries to fit in to the increasing international division of labor. It's not trying to superimpose with special incentives a certain sort of industrial development to take place.

So I would argue that caution against moving towards adopting stricter rules of origin, since this would initially lead to undoubtedly a loss of jobs in the labor intensive manufacturing, the upstream industry-the textiles industry is much more capital intensive, creates very few jobs. It is true that much remains to be done in African economies to enable them to take a fuller role in the world economy. But by bringing in investment, this is creating incentives for positive policy change and difficult regulatory reforms through actually creating an incentive through seeing benefits flow through. So I would urge that the success that AGOA has had comes from largely the more liberal rules of origin and urge that it's very important that the special rule is extended. Thank you, Chair.

REP. CRANE: Thank you, Mr. Kirk. And I'd like now to yield to our ranking member Mr. Rangel to introduce our last guest.

REP. RANGEL: Yes, thank you, Mr. Chairman.

I asked permission, Mr. Levinson, to introduce you because my only question to the panel is to ask them to respond to your testimony. Like Africa, so many newcomers to America, and certainly minorities and low income people, have gained entry into the marketplace through our textile and apparel industry, and UNITE is the parent organization of the International League of Garments Union workers that I was once a member. My mother retired after 25 years. And, of course, the initiation of trade agreements with developing countries have had a severe economic impact on their membership and on jobs. But more importantly, his concern is one that is felt throughout the Congress and that is that there be some international standard for labor, that there be some laws that the countries have that are not only on the books but they are enforced.

And just as most industrialized nations started this way, most countries that enjoy having a middle class started this way as well. It's been the labor unions and not the entrepreneurs in America that have set the standards. No one dreams or hopes that we start off with newer standards, but we do intend to make certain that there are some standards and so I hope you listen carefully to Mr. Levinson's testimony, because I will be asking you just one question and that is to respond to it.

Thank you, Mr. Chairman.

Mr. Levinson, thank you for being here.

MR. MARK LEVINSON: Chairman Crane, Mr. Rangel, Mr. Jefferson, I appreciate the opportunity to appear before the committee today and I appreciate that special introduction.

Four years after AGOA was signed into law, it does not appear to us to have lived up to its name. While exports from Africa have grown sharply under AGOA, this increased trade has failed to translate into robust growth and sustainable development for the region, and we believe that is the standard by which it should be measured. While exports under AGOA have grown by more than 45 percent from 2001 to 2003, real annual GDP growth in Sub-Saharan Africa actually fell from 3.7 percent to 3.5 percent. Even in some of the countries that have seen their AGOA exports rise the fastest, annual growth last year was lower than it was in 2001. I've attached some charts to my testimony with more figures along these lines.

In addition, widespread unemployment, high poverty rates, low wages and violations of worker rights continue to plague the region. Why hasn't AGOA delivered on its promise? I believe there are three basic reasons. First, AGOA failed to address the underlying impediments to development in the region, particularly countries' unsustainable debt burdens. Two, AGOA's conditionality creates strong new investor rights, but only provides minimal protections for worker rights, exacerbating unequal bargaining power and speeding up the race to the bottom. Three, AGOA cannot compensate for the threat posed to African producers by the phase out of global textile and apparel quotas next year. When quotas are eliminated, AGOA countries stand to lose major market share and many exports to China.

I want to concentrate my remarks on worker rights and the phase out of apparel and textile quotas. While AGOA contains conditions on worker rights, these have not been strong enough to ensure that workers' fundamental human rights are actually respected in the region. Lesotho, for example, is the third largest AGOA exporter and its shipments under AGOA have shot up more than 188 percent since 2001. But according to an investigation by UNITE researchers, workers in Lesotho make only about 30 cents an hour, less than half the basic wage needed to support a family of four. Many workers, who we interviewed, were so desperate to make ends meet they were forced to borrow money at usurious rates, sometimes from their own supervisors. Management refuses to recognize legitimate union representation and the government does little to hold employers accountable. In addition, the U.S. State Department reports that blacklists are commonly used by employers in the textile and apparel sector.

Violations of worker rights are not isolated to Lesotho. In Nigeria all unions must affiliate with the one legally mandated labor federation, sanctioned by the government. In Kenya free trade zone employers are specifically exempted from health and safety laws. In Cameroon there were reports of trade union leader harassment and failure by the government to enforce existing laws. In my submitted testimony I have a longer example about Namibia and a huge factory in Namibia where a Namibian based research institute has done extensive research on violations at that factory, which I don't have time to go into here.

But perhaps the most striking example of AGOA's failure to protect worker rights is in Swaziland. The AFL-CIO submitted worker rights petitions on Swaziland in 1999 and 2002. Though the administration accepted the 2002 petition in September 2003, there has still not been any effective action taken to redress the violations detailed in the petition. The government of Swaziland is a monarchy that systematically suppresses trade union rights.

Union leaders that helped organize a peaceful demonstration in 2001 were charged with contempt of court, had their passports withdrawn and were barred from addressing public audiences. Trade unionists that seek to enforce their rights confront a judiciary whose autonomy and authority has been undermined by the king of Swaziland and which is incapable of establishing rule of law.

Decrees from the king have banned free speech and political dissent, further curtailing trade union activities. According to the U.S. State Department, the government continues to turn a blind eye to abuses of worker rights by multinational employers. Despite these flagrant violations of worker rights, Swaziland still enjoys its full AGOA benefits and has seen its exports to the U.S. under AGOA jump 143 percent since 2001. The current GSP petition on Swaziland has been under review for more than seven months, with no effective action to ensure that AGOA conditions are being met.

Let me say a few words about the expiration of apparel and textile quotas. In 246 days from today, 246 days, apparel and textile quotas expire. AGOA cannot save the textile and apparel industry in Sub-Saharan Africa if quotas are allowed to expire. If quotas expire, it's not just Africa. Almost all apparel and textile producing countries around the world will be devastated. Workers in Latin America, the Caribbean, Asia and Africa will be thrown into direct, unregulated competition with China, and millions will lose their job as a result. And it will further decimate the industry in the U.S., which has already suffered huge job losses. More than 337,000 American apparel and textile workers have lost their jobs just since this administration took office in January 2001. A third of the industry has been decimated. According to industry analysts, if quotas expire within two to three years, up to 600,000 workers in the U.S. we expect to lose their jobs.

Categories where import quotas have already been phased out offer a small window into the future. So, for example, in the last two years for the products that were removed from quota in 2002 -- and there were products that were removed in 2002 -- China increased its exports to the U.S. by $4.1 billion while the rest of the world's declined by $1.3 billion. In the apparel categories where quotas disappeared in 2002, China's share of U.S. imports went from 9 percent, before the quotas expired, to 60 percent last year, and they're expected to go to 70 percent this year. At the same time, Sub-Saharan Africa's share of imports in those categories dropped. Some AGOA countries saw large declines in those categories. Mauritius saw its exports drop by nearly 50 percent. Kenya's exports suffered a loss of nearly 75 percent. Madagascar's declined by almost 40 percent in those categories. And this is entirely expected. The U.S. International Trade Commission in its recent study said that production would undoubtedly shift from Africa to China once quotas were eliminated.

If China captures 70 percent of the entire U.S. apparel and textile market when quotas expire, which is entirely possible and which they've done in the goods that have already expired from quota, $42 billion of trade will go from other exporting countries to China, the largest shift in production in world history. The projected export losses for countries are-and these are just assuming that they lose-what they would lose in the U.S. market is proportionate to what they have now. CBI region would lose over $6 billion. Mexico, $5.4 billion. Bangladesh, a billion dollars. Lesotho, almost $300 million. Mauritius, almost $200 million.

Producers from 31 countries, including the U.S., Africa, Turkey, Mexico, have recently joined together to call for an extension of the quota system to 2008. UNITE, along with other apparel and textile worker unions from around the world, are demanding that textile and apparel quotas be extended, that the phase out not occur until there are enforceable protections for worker rights in the global trading system. If we don't extend quotas, in my view, even if we pass this extension of AGOA, we are not going to save the apparel and textile industry in Africa. Thank you very much.

REP. CRANE: Thank you, Mr. Levinson.

Let me just read a section of the bill to you, Ms. Soares-Demelo, and it's the sense of Congress on interpretation of textile and apparel provisions of AGOA. It says: "It is the sense of the Congress that the executive branch, particularly the committee for the implementation of textile agreements, the Bureau of Customs and Border Protection of the Department of Homeland Security, and the Department of Commerce, should interpret, implement and enforce provisions relating to preferential treatment of textile and apparel articles broadly in order to expand trade by maximizing opportunities for imports of such articles from eligible Sub-Saharan African countries." And I hope that that addresses the concern that you registered earlier. Right, I noticed. Thank you.

I would like to put a question up to the entire panel, for any panelist to respond, and that is: why are some countries not yet benefiting more fully from U.S. investment flows? And is it because they lack petroleum and gas sectors, or because of more fundamental issues with the structure of their economies or governments? And what provisions or incentives would help increase U.S. direct investment in Sub-Saharan Africa in sectors other than petroleum and gas? And anyone wish to respond?

MR. HAYES: (Off mike.)

REP. CRANE: Mr. Hayes, turn on your mike.

MR. HAYES: Yes, sir. Certainly, thank you. The fact is that U.S. investment flows beyond the energy sector, there has not been a significant upgrade in U.S. investment in Africa. The incentives to invest simply aren't there. Financing is very, very difficult to get. The restrictions on the EXIM and OPEC limited to certain industries. Private banking in the United States does not feel secure in investing-supporting investment in Africa, and I think that's one of the areas that we've got to work on. The African banking sector does not have a history of supporting private sector investment, U.S. or their own private sector investment. And, again, until there's greater transparency and rule of law, companies are, very frankly, reluctant to invest.

Yet, I do think that there are great investment opportunities in many countries. Why it's not uniform is very simple too. I think that the rule of law, the issues with transparency, the various disparities on resources and so forth all contribute to very uneven development. But I think this country really needs to look at financing issues especially and look at how we increase the capital flows to Africa from our own investment portfolio. The two strongest investors right now are China and South Africa throughout Africa. There are reasons for that, varying reasons. The United States is not beyond the energy sector yet a significant investor.

REP. CRANE: Anyone else have a comment? Yes, Mr. Streader.

MR. STREADER: For VF, continuity of product and integrity of our brands, it takes a while for us to move from one production location to another. When AGOA was enacted we immediately began to look at the economic benefits that came with AGOA in Africa, but it still takes a while for due diligence, us first to identify not only the governments that we felt were stable but also looking at the infrastructure, the development of roads, the ports, the ability to leave-get raw materials in and to leave quickly, and then subsequently looking at what existed from a production standpoint. The move to Africa for us over the three year period, basically it's a startup from zero. So we believe that there is greater opportunities here as the infrastructure and their abilities mature, but it's going to take time.

REP. CRANE: We have someone with us now who was one of the original workers in the vineyards to create our first AGOA bill, and that's Congressman McDermott and he'll be recognized after we go through the chain of command here. But let me first yield to Mr. Rangel.

REP. RANGEL: Thank you. I'll be brief. I would hope that all of you would send to me any information that you have as relates to laborers' rights and conditions at the workplace.

It would help me.

And also, Reverend Beckmann, if you could send me some information on the organization that you represent. And do they have-involved with things besides hunger and poverty? Your organization?

REV. BECKMANN: Well, it's hunger and-but people are hungry and poor because of a lot of other things, so we --

REP. RANGEL: Now, have they taken a position on the war?

REV. BECKMANN: Sure. Sure, we work on-to the extent that it affects hungry people, right.

REP. RANGEL: What position is that?

REV. BECKMANN: You mean on the Iraq war?

REP. RANGEL: Yes.

REV. BECKMANN: We argued before the war that we were-that the United States should slow down. We reflected-we're a religious organization and partly we reflected the judgment of the Catholic Bishops and other religious authorities that moving when we did was not a just war because there were-the doctrine of just war means you have to wait till you've exhausted all other remedies. And then our focus is on what's good for poor people, so the emphasis in our thinking was on the tremendous diversion of attention and resources that the war would entail away from the things that make for better livelihoods for people at the bottom.

REP. RANGEL: And economic class that fights the war?

REV. BECKMANN: Absolutely, sir.

REP. RANGEL: Well, I hope some of you will briefly-would take care of my concerns about labor conditions by writing and sending me information, but I do hope you take advantage of this opportunity and comment on some of Mr. Levinson's remarks. Not that dealing with quotas, because I think we all agree that we have to do something there, but as it relates to wages and working conditions it would help me with my thinking.

REV. BECKMANN: I'd like to speak to it, if I may, Mr. Rangel. I found the written testimony really helpful, especially the middle part about the fieldwork that they've done. I thought the first argument is a bogus argument, that just because you have-just because some of the same countries that have had rapid exports have also had declining gross national product during this period of global recession doesn't mean that the exports didn't make things better than they would have been otherwise. So that I didn't find convincing at all.

It is, of course, true that AGOA is-you know, it's a significant thing but it's a small thing and there are lots of other reasons why Africans are still poor, and a lot of other things that they need to do and that America and the other industrialized countries can do to help reduce poverty, promote healthy development in Africa. So that's very much true, but that also is not a reason not to do AGOA. It's just that this is only one piece.

I thought the most convincing part of the written testimony was the fieldwork that they've done, their concern about Swaziland. In Bread for the World's view what maybe is most important is that worker rights really be part of trade policy, trade agreements, that we do have international agreement on basic worker rights. I think the most important of those is the right to associate because if people-it's not convincing for me, for example, that people in Lesotho are getting 30 cents an hour. That's $2.50 a day. The average per capita income in Lesotho is probably a dollar a day. So if they're getting an income of $2.50 a day in that market, they may be happy campers.

What I do think is really fundamentally important is the right to associate so that the workers in Lesotho, or wherever, can make their own judgments about whether they're getting a fair deal or not. And if they're not, that they can organize unions and push to defend their own rights. So I thought that part of the analysis was really, really important and helpful and I'm struck that-I've been to two or three of the annual conferences that take place. One of the best features of AGOA has been that it brings together African leaders together with top leaders of the U.S. government, and then we've helped to develop parallel fora so that African business people are getting together with U.S. business people, African civil society is getting together with U.S. civil society. Those have been I think very productive fora.

I was struck in-for example, in 2001 it was delayed a couple of months because of September 11, but I think in November 2001 you had the president and four secretaries all spent half an hour to an hour-and-a-half apiece meeting with Africans. You know, the secretary of Commerce never meets with Africans. So I thought, you know, that's all been helpful. But within all those discussions, this kind of analytical work and this kind of criticism, this kind of concern I've never heard expressed. So I appreciate the testimony, I appreciate the committee's attention to this, and it seems to me that part of the ongoing dialogue about AGOA ought to be precise. There is labor rights language in the law, and so the administration needs to make that part of the discussion with African governments about the implementation of AGOA.

REP. RANGEL: Thank you, Reverend. People like you are going to send me back to the church. Thank you for your testimony.

(Laughter.)

REP. CRANE: Mr. Jefferson.

REP. JEFFERSON: Thank you, Mr. Chairman.

One of the reasons for extending the third country fabric provisions, apart from the reason that it's fundamental to making AGOA work now for African nations, is a hope that there will be time to permit investments in the country sufficient to create a level of regional fabric production that can sustain the apparel industry. As AGOA III was originally introduced by Mr. Rangel and Mr. McDermott, Mr. Neal and me before the chairman substituted his provision, we had a four year window of opportunity for this to happen. Now it's down to 2.5 years. The question is whether you think that that's sufficient time to generate the required investment in regional fabric production, which his of course the premise upon which this extension is based? And if so, what evidence is there you see of this-of investment moving in this area in those countries-in the African countries that we're hoping to see fabric produced in? Whomever might want to approach it.

MR. STREADER: Mr. Jefferson, what we have observed is that the initial setups were in garment factories, which were easier to do in a smaller capital investment. We believe that the third party fabric extension needs to take place because along the way to foster growth in the area in Africa, you're going to need the Asian fabrics. But it would-I believe it would bring on the investment that's needed for the community in the textile sector, which is an 18 to 36 month period to put up a textile mill and to really get it going with any efficiency and the cost is much larger. I believe you will see partnerships between American and African companies if in fact this is extended.

MS. KILEY: And I would just like to add that while the original AGOA was effective October 2000, you know, each country had approvals that they had to go through. So, in effect, not every country has been eligible for benefits, including if the fabric was produced there, that it would qualify as regional until they met their approval, their eligibility measures. So those were phased in, you know, throughout 2001 and even as we speak, additional countries (document in ?).

REP. JEFFERSON: So the two of you think that this two-and-a-half year extension is going to be time sufficient to permit the kind of investment that's needed to produce fabric there on the continent?

MR. HAYES: If I might also, Congressman Rangel asked a question to us. I'd like to take that part on also. I'm concerned, frankly, Congressman Jefferson, that two-and-a-half years is enough time. I think given infrastructure, given the realities of change, the slowness of getting the visas for AGOA-most countries still don't have their visas for AGOA. I think two-and-a-half years is not enough time, from my perspective. Two-and-a-half years, though, is better than closure.

But I think that we're going to need a lot more time.

In terms of your points with the question on Mr. Levinson, I think that there's quite a bit in his statement that I agree with. I don't think, though, that AGOA was meant to address all the impediments. The criticism of AGOA that I've had from the very beginning is that it doesn't go far enough. I think much more needs to be done with Africa for the sake of our own economy. More partnerships need to be built, more technical assistance. If we addressing labor laws then at the same time we're going to have to address education for young people, otherwise you have a vast unemployed and disaffected youth, and we've seen evidence of where that goes in terms of discontent, rebellion and terrorism. So I think that there's a number of issues that have to be addressed comprehensively that haven't been done so yet for and with Africa, because I think they're an enormous potential trading partner.

The issues of-unfortunately, one of the weaker sectors of the Corporate Council is that we have no textile companies within our area, so I think other companies will have to answer the textile specific questions. But I think issues such as Swaziland-I was with President Museveni last night in Boston, who's doing the negotiations on behalf of the African Union behind the scenes. I think we've got to work with change there and I think that's happening.

There are other issues on China. For three years I've been saying that one of the major benefactors of AGOA has been China. At least they've been using it to create jobs, which again I don't think is entirely a negative. But I do think we have to address the issues of U.S.-China and what we've been advocating at the Corporate Council is a dialogue with China on Africa, frankly, to begin to look at are there areas of cooperation, are there areas of change? And I think that Mr. Levinson hit on some critical points.

REP. CRANE: Thank you.

Ms. Soares-Demelo?

MS. SOARES-DEMELO: Just to go back a few points. First, to Mr. Levinson I just wanted to point out being someone who has spent a lot of time in factories and working with different factory owners on different products, certainly I can tell him that this particular jacket was made in a unionized South African factory and the workers were making at least $220 a month. And I think that's a pretty good start and I'm not so sure what more he would want.

My second point was back to Mr. Crane. Unless the word "shall" is changed to "must," OR&R will create problems. We can pretty much count on that. As I do a lot of work on different products, there are so many small issues that come up that continue to be a stumbling block to doing good business in Africa. In as far as the extension of time to develop an industry in Africa, I think we have to look at the capacity on sewing, which is the ground state and grow from there. Certainly, mill investment is huge, as my other colleagues have pointed out, and the (variety ?) of-especially for the customers that I have, of the fabrics they need is great. And from the ground state we can start with certain basic products, but long term of course we want Africa to be able to do from the ground to the garment and to be able to do it all because that's what's really sustainable in a global world today. But right now the capacity in sewing is still very small and they need to grow that as step one before they can really get the investment of the mills behind that.

REP. CRANE: Thank you.

Mr. McDermott.

REP. JIM McDERMOTT (D-WA): Thank you, Mr. Chairman. I appreciate your having this hearing. I'm sorry I wasn't able to be here for the bulk of it.

Mr. Kirk, I read an article recently from a World Bank economist who suggested that third country fabric-there was no reason to put any limitation on it, really didn't make much sense. And I've been looking for any evidence to suggest that by putting these kinds of tightened rules of origin, we somehow force investment in the more basic so that we start making fabric inside the countries that are using third party fabric. Is there any evidence that that's ever worked?

MR. KIRK: Thank you, Congressman McDermott. I'm familiar with that article. When viewed that way, a rule of origin is a form of local content requirement, which is a form of protectionist policy. Now, when one is looking at extremely large markets like the U.S. market or even the European market, it can create incentives and so certain industrial development can take place as a result of the incentives to supply that market under a preference. Has it been successful? Well, if we look at the European record where there's been the Lom? Convention and the Cotonou Agreement since 1990, we go back 30 years we see very limited success.

REP. McDERMOTT: Because they did not open up to third party fabric?

MR. KIRK: I think that is one of the reasons. The other reason would have to look at domestic policies within the African, Caribbean and Pacific countries in that agreement. But certainly the restrictions on local content would be a constraining factor and increasingly this appears to be recognized. In a sense, the success of AGOA in expanding exports of apparel has been contrasted to the lack of increasing exports to Europe under their preferential scheme.

REP. McDERMOTT: So actually ours was more liberal, or at least more progressive, in terms of allowing them to get an industry up and running, is what you're suggesting?

MR. KIRK: Yes.

REP. McDERMOTT: And is there any example where the tightening of the rules discourages investment?

MR. KIRK: I think a tightening of the rules in this particular case-we're talking about the special rule-would lead to a loss of jobs in the apparel sector immediately because it is almost certainly the case that the inputs could not be sourced competitively at present.

REP. McDERMOTT: Let me switch to Mr. Streader. You're sourcing a lot of out of Africa and if they close down-or if we give another two-and-a-half years, what are you going to do in 2007? Are you going to stay till 2007 and go along inch by inch with us, always wondering if we're going to extend it for another couple of years?

MR. STREADER: Honestly, it's on the back of our mind and we are measuring and looking at all of the quizzes and FTAs that are in progress all the time as we put together the best supply chain model that makes sense for our publicly traded American company. I mean, it is-there is an economic value that we put to this, but along the way truly it's a blended strategy. We will not be 70 percent in China. We will not. Not even close. We will always have a presence here, but the blended strategy-it really wants us to look hard at Africa to continue to build what we're doing there, which is still a-it's a large number, sir, but it's small in terms of the overall VF quantity because of the magnitude of the corporation. But we continue to look at it.

REP. McDERMOTT: Give me your reasons for why you wouldn't just put it all in China? I mean, why not? You've got it all in one place. Do it all out of there, the containers are there, the ships are there. Why fiddle around with 20 percent out of Africa or somewhere else?

MR. STREADER: Well, there's-honestly speaking, it's-we're not convinced that China is the only answer. There are many other viable options in the Western Hemisphere, in Central America where there's still some great cost benefits coming out of Central America. The speed to market and the opportunity to bring product here is-there's a true benefit to that. Along the way we're looking at, for instance, India and South Asia and there's many other places, so it's truly a blended strategy. We will not be heavy in China. It will be important to us, but we would like to have the variables, which include Africa, for us. We would like that.

REP. McDERMOTT: So even the distance makes a difference, even though you're-I mean, you're ordering now for what? Let's see, this is April so you're ordering for spring next year? Is that what you're planning right now?

MR. STREADER: Spring and for September and October, so this decision is something that affects us every day. The next order, do we keep it at the present location in Mombassa or Nairobi? Or do we think about moving it because of the ramifications of 19 percent or 30 some percent duty? We're measuring that right now. We're concerned.

REP. McDERMOTT: How long can you wait before you pull the plug on it? I mean, the Congress sits here and fiddles around. You must have a drop dead date? You don't want to tell us?

MR. STREADER: My chairman asked me that question frequently, and it's not-it's not in September, I'll tell you that. It's much before.

REP. McDERMOTT: I can imagine you might give yourself a little slack.

MR. STREADER: I'm hoping we can move this along in the next 30 days or 45 days. We really are-we're very anxious for this to progress.

REP. McDERMOTT: Can you give a response to the idea that if there was unending access to third party fabric, how would that change your investment pattern? More likely to put more in, or any other factors that make your decision?

MR. STREADER: There are many factors, sir. You know, it's efficiencies, it's speed, it's the ability to sell a full package and not just buy labor. There's a lot of variables that we look at. But it's truly a-you know, we have a comprehensive framework that we use.

REP. McDERMOTT: Thank you, Mr. Chairman. I appreciate your taking the time to work this with us and for all your work over the last five or six years on this issue. You're a real hero, thank you.

REP. CRANE: Oh, thank you. Thank you.

Well, we want to express appreciation to all of you folks for your willingness to give of your time and to communicate with us in this important piece of legislation that we have under consideration. And I would ask you, if you do have the time, to please communicate with our other colleagues to any extent you can. Please try and convey messages to them because we need to continue the broad bipartisan support that we've had, but a big part of that is education. And I thank you all for your participation and with that, the committee stands adjourned.