Midnight of December 31, could spell doom for Kenyan textile exporters to the United States as the World Trade Organisation ends Multi-Fibre Agreement, consequently allowing China to export textiles to the US quota-free.

The MFA was established in the 1970s to give some protection to the textile industries of industrialised countries facing competition from countries with lower manufacturing costs.

Since 1995, the WTO has been gradually phasing out quotas to bring trading agreements governing textiles in line with global free trade regulations.

Many countries originally supported the WTO policy but are now fearful that China, which became a WTO member in 2001, will overwhelm the market.

European producers believe a fully liberalised market could benefit them but only if China and other countries scrap current trade barriers.

"Kenyan textile firms will be competing with Chinese companies and given the efficiency and low cost of production enjoyed by the Chinese, our companies will face very stiff competition," said Mr Julius Kipng'etich, managing director, Investment Promotion Centre.

Despite us exporting duty-free to the US, China will be able to export to the US, pay tariff and still its products will be cheaper, he added.

There was celebration in the first half of this year after Kenya's textile exporting firms secured 11 years extention under the Sh 1,120 billion African Growth and Opportunity Act Programme (AGOA).

Agoa allows African states to sell textile products duty-free to the US. In total there are 37 elegible countries in the Act which is also replicated in the Carribean.

The Agoa Accelaration Act of 2004 extended the concessionary treatment to 2015 for 23 sub-Saharan countries.

There are 2,000 items listed under Agoa, but textile is most famous because of its high demand. Last year, Export Processing Zones attracted Sh 16 billion in investment, according to the Economic Survey 2004. About 40 factories valued at Sh 13 billion have created an estimated 30,000 jobs.

China is reportedly contemplating imposing tariffs on textile exports following criticism from other producers that it may distort world markets after a quota system is ended.

The move is aimed at reassuring major trading partners, including the United States, that China will not flood the market after quotas end, analysts say. China, which made 17 per cent of the world's textiles in 2003, said the move was designed to spur higher-quality goods.

The abolition of the quota system is causing panic in the US and the Government is considering import tariffs to protect domestic textile producers. China's move may mollify US producers and reduce the prospect of a potentially damaging trade dispute, state media reported last week.

China's share of the market could increase to more than 50 per cent within the next three years as a result of the reforms, the WTO believes. China's decision to impose tariffs was one of eight measures announced to help the industry adjust more smoothly to freer trade.

"We hope that by adopting this measure, we can encourage the export of high-value products and further optimise the structure of China's textile industry," the Chinese commerce ministry told reporters. The ministry did not disclose which products would be affected or when the duties would be instituted.

The US and the European Union have expressed concern that the abolition of worldwide quotas will lead to a glut of Chinese goods entering the market.

US textile producers have argued for quotas to be placed on Chinese imports but importers and retailers have fiercely opposed this.

Last year, Kenya exported more apparels and textiles than Mauritius, making Kenya the third largest exporter after Lesotho and South Africa. Kenya, according to records, accounted for slightly over 13 per cent of the total square metres equivalent of the products accessing the US market.

The EU recently urged China to moderate its export policies to avoid disrupting the economies of smaller developing nations which rely heavily on the textile trade.

Come 2007 Kenya will have another hurdle requiring countries under Agoa to be self-sufficient if fabric production. Kenya's capacity to produce fabric for local use by exporting firms by 2007 does not seem feasible. Kenya's cotton production collapsed in 1980s. The Government is planning to form the Cotton Development Authority to replace the failed Cotton Lint and Seed Marketing Board to deal with cotton growing, ginneries, yarning and apparel.

The Government has, in the recent past tried to revive the cotton sector with no tangible results. Players in sector say that, though many farmers have taken up cotton farming, ginners are complainig about the poor quality of the cotton. Full potential production is yet to be realised. Only 30,000 bales of cotton is being churned annually which is well below the local demand of 90,000 bales.

Almost all the 37 apparel factories in Kenya, currently import yarn and fabric from China, India, South Korea and Taiwan among other producing countries.

The Government has been accused of not doing enough to revive the cotton sector other than supplying farmers with seeds. It no longer offers extention services.

Latest AGOA Trade Data currently available on AGOA.info


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