AGOA and Apparel: Who Captures the Tariff Rent in the Presence of Preferential Market Access?

The United States grants preferential (tariff and quota free) market access to a list of products from eligible countries in sub-Saharan Africa through the African Growth and Opportunity Act (AGOA). We analyze the increase in prices received by apparel exporters who benefited from AGOA preferences. In the presence of competitive markets, export prices should increase as much as the tariff which was previously collected by the US government. We refer to this price increase as the “tariff preference rent” since exporters receive this income as the rent for their preferential status. The results show that exporters receive only 1/3rd of this rent and smaller exporters receive less than larger and established ones. We then provide evidence that suggests this may be due to the degree of market power enjoyed by US importers when facing African exporters.