Agoa beneficiaries are in a no-win situation: Damned if you ban, damned if you do not.
Was the Africa Growth and Opportunity Act a poisoned chalice from the United States of America? It appeared so after the US allowed a petition that could see Tanzania, Uganda and Rwanda lose their unlimited opening to its market.
This follows the US Trade Representative assenting last week to an appeal by Secondary Materials and Recycled Textiles Association, a used clothes lobby, for a review of the three countries’ duty-free, quota-free access to the country for their resolve to ban importation of used clothes.
The US just happens to be the biggest source of used clothes sold in the world. Some of the clothes are recycled in countries like Canada and Thailand before being shipped to markets mostly in the developing world.
In East Africa, up to $125 million is spent on used clothes annually, a fifth of them imported directly from the US and the bulk from trans-shippers including Canada, India, the UAE, Pakistan, Honduras and Mexico.
The East Africa imports account for 22 per cent of used clothes sold in Africa. Suspending the three countries from the 2000 trade affirmation would leave them short of $230 million in foreign exchange that they earn from exports to the US.
That would worsen the trade balance, which is already $80 million in favour of the US. In trade disputes, numbers do not tell the whole story. Agoa now appears to have been caught up in the nationalism sweeping across the developed world and Trumponomics.
US lobbies have been pushing for tough conditions to be imposed since it was enacted, including the third country rule of origin which would require that apparel exports be made from local fabric.
The rule, targeted at curbing China’s indirect benefits from Agoa through fabric sales, comes up for a legislative review in 2025, making it prudent for African countries to prepare for the worst. Whether that comes through a ban or phasing out of secondhand clothing (the wording that saved Kenya from being listed for a review) is immaterial.
What is imperative is that African countries have to be resolute in promoting domestic industries. In textiles and leather, for instance, that effort should include on-farm incentives for increasing cotton, hides and skins output, concessions for investments in value-adding plants like ginneries and tanneries and market outlets for local textile and shoe companies.
The world over, domestic markets provide the initial motivation for production before investors venture farther afield. Import bans come in handy when faced with such low costs of production in other countries that heavy taxation still leaves those products cheaper than those of competitors in the receiving countries.
The US has also been opposed to heavy taxation of used clothes, which buyers say are of better quality and more durable. For Kenya to be kept out of the review, it had to agree to reduce taxes on used apparel.
These factors have left Agoa beneficiaries in a no-win situation: Damned if you ban, damned if you do not. With their backs to the wall, beneficiaries like Tanzania, Uganda and Rwanda have to think long term in choosing their industrial policies and calling the US bluff.
Beneficiaries must speak with one voice to effectively guard against trade conditions that over time hamper domestic industrial growth.