TRALAC - Trade Law Centre

End of Export Quotas Spell Doom for African Textiles

Monday, 25 April 2005

Source: The East African (Nairobi)

Textile production often plays a major role in the initial stages of an industrial development process in low-income countries. The usual attractions of textiles for developing countries are that wage costs are low, skill levels required are not too high and, being a labour-intensive industry, it helps to reduce high levels of unemployment.

The outstanding success stories in textiles in Africa are Mauritius and, most recently, Lesotho. Mauritius started early and cashed in on the desire of Hong Kong investors to move elsewhere during the run-up to the handover of Hong Kong to China in 1997. An attractive investment incentive regime, low wages and generous access to key markets were additional factors, which encouraged investors to set up textile firms in Mauritius.

Mauritius can no longer be considered an ideal location for an industry that tends to seek out low-cost production, especially low wages. Today the country has a per capita income of about $4,000 and wage levels are no longer low. Some textile producers have been moving out of the country. In the past decade, Lesotho and Madagascar have benefited from this exodus. The only way for Mauritius to be competitive in textiles is to concentrate on niche markets and to specialise in high quality high-value brands.

Another factor, which contributed significantly to the development of textiles in African countries was the GATT Multi-Fibre Agreement which came into effect in 1974. This Agreement, which was later substituted by the Agreement on Textiles and Clothing (ATC), fixed export quotas for individual counties.

The intention of these quotas was to limit the damage to textile industries in the developed world. They restrained the exports of major low-cost producers in Asia, especially China. However, this quota system had the effect of creating opportunities for African countries to supply world textile markets.

Preferential tariff access to the lucrative markets of the developed world have also helped Africa's textile industries grow. The US, which is the world's main market, has provided these tariff privileges under its Growth and Opportunities Act (Agoa). The European Union also allows tariff preferences under various schemes targeting the ACP countries.

And so over the past decade or so, many African countries, including Kenya and Uganda, have developed export markets in the developed world for textile products. This industry has now become an important provider of employment and export earnings for Africa.

However, with the expiry of the ATC in December 2004, there is a totally new scenario for the world textiles industry, especially for Africa. Now that export quotas no longer apply, importers are freer to choose where to buy and producers are freer to decide where to locate their production facilities.

The fear now is that production will tend to move to low-cost locations and the Asian countries, especially China, are likely to be the main beneficiaries of this restructuring process. Even the tariff privileges allowed by Agoa and the EU may not be enough to save many African textile firms from going out of business.

However, there are renewed pressures in the US and the EU for quotas to be maintained on Asian textile exports. US and EU textile producers are leading the charge for these restraints. Within the next few months, we will know whether a new quota system will be put in place to restrain the surge of Asian exports to the developed world.

For the US market, the Agoa scheme will run until 2015 but Agoa's generous rules of origin for low income countries (LICs), those with per capita income less than $1,500 in 1998 are scheduled to terminate in September 2007. For the LICs, Agoa allows tariff benefits for imported textiles, even when the raw materials used for their manufacture have been sourced from outside the exporting country.

The ending of the Agoa privilege in 2007 will have devastating effects for Africa. This is because so many of our countries have developed substantial textile industries, built up under the ATC and the Agoa tariff preferences. Already, many textile operations have closed down in Africa, following the end of the quota system and uncertainty about the short lifespan of tariff preferences schemes.

In the post-ATC world, Ag- oa is providing a window of opportunity until September 2007 for African textile suppliers. However, to be able to stay in business in the long run, there is no escape from the need to become cost-competitive. Textile producers may have to adjust to life without tariff preferences. The problem is that this breathing space to improve productivity levels and competitiveness may not be enough for most African countries.

One solution is to negotiate for more open-ended benefits for developing countries that are supplying the US and EU markets with textile goods.

A key issue in these negotiations should be to have more user-friendly rules of origin. Our producers should still be able to get tariff preferences even when they import raw materials.

If a simple and low "value-added" threshold, say not more than 20 per cent, were to be used to decide eligibility for tariff preferences, there would be a better basis for sustaining a textile industry in Africa. An extended period must be allowed to developing countries to gear up for fully open competition.

It would seem prudent for most African countries not to count on textiles as a long term solution to industrial development. To become more internationally competitive in textiles, a host of actions must be taken but, sadly, the time for taking these actions may be very limited.