Social and Economic Impacts of Clothing Trade—Debate on the Used Clothing Import Ban: Discussion Questions from FASH455

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#1 Why or why not do you think the used clothing import ban truly can help East African countries better develop their local textile and apparel industry? (please provide detailed examples, if possible)

#2 If U.S. citizens donate clothing to local charity organizations and second-hand clothing stores, in hopes to better the community, why are these organizations exporting the clothes overseas?

#3 Used clothing imports were seen as a threat to the EAC but were also viewed as having a positive environmental impact because the clothes were being up-cycled and recycled. Do you think if there was more emphasis put on the benefits of importing used clothes, due to its positive environmental effect, that the EAC would put more thought into their decisions to ban all used apparel imports?

#4 Notably, almost none of the used clothing exported from the United States to EAC countries are actually “Made in the USA”—they were originally imported from Asian countries such as China, Vietnam, and Bangladesh. Also, most U.S. used clothing exports to EAC were “free giveaways” by U.S. consumers. Is it ethical for SMART to oppose the used clothing import ban so that its own can make a profit? What is your evaluation?

#5 Why or why not do you agree with U.S. government’s response to the EAC import ban on used clothing? What could be done differently and why?

#6 Given the debate on used clothing trade and its impact on East African nations, will you continue to donate used clothing? Why or why not?

[For FASH455: 1) Please mention the question number in your comments; 2) Please address at least TWO questions in your comments]

Challenges facing Sub-Saharan Africa (SSA) as an Apparel Sourcing Base

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Sub-Saharan Africa (SSA) is widely regarded as a growing apparel-souring destination. Particularly, U.S. Congress established the African Growth and Opportunity Act (AGOA), a non-reciprocal trade preference program, in 2000, to help developing SSA countries grow their economy through expanded exports to the United States. Because apparel production plays a dominant role in many SSA countries’ economic development, apparel has become one of the top exports for many SSA countries under AGOA. Notably, the “third-country fabric provision” under AGOA allows US apparel imports from certain SSA countries to be qualified for duty-free treatment even if the apparel items use yarns and fabrics produced by non-AGOA members, such as China, South Korea, and Taiwan. This special rule is deemed as critical as most SSA countries still have no capacity in producing capital and technology-intensive textile products.

That being said, to play a bigger role as an apparel sourcing base, SSA is not without significant challenges:

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Challenge 1: limited industry upgrading and local textile production capacity

Theoretically, as a country’s economy advances, it should gradually be producing and exporting more capital and technology-intensive textiles versus labor-intensive apparel products. This is the notable trends in many Asian countries (such as China and Vietnam), where the textile/apparel export ratio has been rising steadily between 2005 and 2017. However, as a reflection of the stagnant industry upgrading, the textile/apparel export ratio remains fairly low in SSA, including in Lesotho, Kenya, and Mauritius, the top three largest apparel exporters in the SSA region.

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Challenge 2: Slow and no progress in export diversification

Ideally, as the economy becomes more sophisticated, textiles and apparel (T&A) should account for a declining share in a country’s total merchandise exports. Countries such as China, Vietnam, and ASEAN demonstrate perfect examples. However, in some SSA countries (e.g., Lesotho), T&A has stably accounted for over 80% of their total merchandise exports over the past 17 years, a sign of slow or no progress in export diversification. In other SSA countries, T&A accounted for less than 10% of their total merchandise exports, suggesting the sector is not a priority to the local economy.

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Challenge 3: Intense competition both in key export markets and domestic market

As of 2017, over 96% of SSA countries’ T&A exports went to three markets: the United States, the EU, and other SSA members. However, because of the intense competition, except for the regional SSA market, SSA countries account for merely 1.4% and 0.2% of total U.S. and EU textile and apparel imports in 2017 respectively.

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Even more concerning, the T&A industry in SSA countries is facing growing competition in the domestic market with cheap imports, mostly from Asia. Notably, SSA countries import MORE apparel than they export, a phenomenon rarely seen among developing countries in a similar stage of economic development.

Challenge 4: U.S. companies remain low interest in investing in the region directly

According to several recent studies, leading U.S. fashion brands and retailers remain low interest in investing in the SSA region directly, even though companies admit more investments in areas such as infrastructure are critical to the success of SSA countries serving as competitive apparel sourcing bases. Some argue that the “temporary” nature of AGOA make companies hesitant to build factories in SSA. However, should AGOA become a permanent free trade agreement, which follows the principle of reciprocity, SSA countries would have to lower their trade barriers to U.S. products, including eliminating the tariffs and non-tariff barriers, in exchange for the reciprocal market access benefits from the United States. It doesn’t seem most AGOA members are ready for that stage yet.

by Sheng Lu

Further reading: USITC Report: AGOA and the Third-country Fabric Provisions Critical for U.S. Apparel Sourcing from sub-Saharan Africa

Why is the used clothing trade such a hot-button issue?

Shannon Brady and Sheng Lu (2018). Why is the used clothing trade such a hot-button issueJust-Style

Key Findings:

First, the world used clothing trade has grown significantly over the past ten years. Statistics from the United Nations show that the value of world used clothing trade (HS code 630900) has quickly increased from $1.8bn in 2006 to $3.7bn in 2016, an increase of 106 percent. Between 2006 and 2016, the value of world used clothing trade enjoyed a 7.6 percent compound annual growth rate (CAGR), which was almost double the pace of 3.4 percent CAGR for new clothing trade (HS chapters 61 and 62) over the same period.

Second, the world used clothing trade flow is highly unbalanced. On the one hand, the developed economies are the dominant suppliers of used clothing to the world. In 2016, nearly 40 percent of the world’s used clothing exports came from three countries alone: the United States (15 percent), the United Kingdom (13 percent) and Germany (11 percent). Data also shows that the European Union and the United States together stably accounted for as much as 65 percent of the value of world clothing exports between 2006 and 2016. The other country worth mentioning is China, which is quickly becoming another leading used clothing exporter in the world. In 2016, China’s used clothing exports totaled US$218m from only US$0.32m in 2006, an increase of more than 684 percent!

On the other hand, most of the world used clothing exports end up sold in the developing countries, especially the least developed ones. For example, in 2016, Sub-Saharan Africa (SSA) as a whole imported approximately 20 percent of the world’s used clothing, far more than any other regions in the world. By value, the top three individual importers of used clothing in 2016 are all developing countries as well, namely Pakistan (6.0 percent), Malaysia (5.8 percent) and Ukraine (4.9 percent).

Third, trade policies regulating used clothing trade often raise controversies. While trade barriers on new clothing attract much of the public attention, the used clothing trade is facing even heavier and trickier restrictions of various kinds. The World Trade Organization (WTO) data shows that in 2016 the average applied tariff rate for used clothing imports was 19.3 percent, higher than 15.4 percent of new clothing (HS Chapters 61 and 62). Of the total 180 countries covered by the WTO tariff database, 115 (or 64 percent) set an equal or higher tariff rate for used clothing than the new one. Further, it is not rare to see extremely high import tariff rates and other quantitative restrictions applied to used clothing trade. For example, in 2016 the applied most-favored-nation (MFN) ad valorem equivalent tariff rate for used clothing was as high as 356.9 percent in Uzbekistan, 167.3 percent in Zimbabwe, 149.2 percent in South Africa, 116.8 percent in Rwanda and 100 percent in Vietnam.

After all, because of the complicated social, economic and political factors involved, how to regulate and manage used clothing trade remains a key challenge facing the world community.

USITC Report: AGOA and the Third-country Fabric Provisions Critical for U.S. Apparel Sourcing from sub-Saharan Africa

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A newly released report by the U.S. International Trade Commission (USITC) suggests that the African Growth Opportunity Act (AGOA) and the third-country fabric provision are critical for U.S. Apparel Sourcing from sub-Saharan Africa (SSA). Specifically:

U.S. apparel imports from SSA grew faster than the world average. During 2010–16, U.S. apparel imports from SSA enjoyed a compound annual growth rate (CAGR) of 4.5 percent (compared with 2.1 percent CAGR of all countries), from $795.2 million in 2010 to over $1.0 billion in 2016. However, SSA overall remained a small apparel supplier to the U.S. market, accounting for only 1.2 percent of the market shares in 2016 (lower than 2.7 percent in 2004, but higher than 1.1 percent in 2010).

U.S. apparel imports from SSA remain uneven across countries. Kenya, Lesotho, Mauritius, and Madagascar accounted for over 90 percent of all apparel imports from SSA in 2016. Ethiopia and Tanzania experienced the fastest growth rates during the period—63.8 percent and 33.3 percent, respectively

The duty-free preferences awarded under AGOA and the liberal rules of origin available for apparel under the “third-country fabric provision”* are the key competitive advantages of SSA serving as apparel sourcing destination for U.S. companies. Due to limited yarn and fabric production in SSA, the third-country fabric provision remained critical for SSA exports of apparel to receive duty-free entrance to the United States. Notably, nearly all (97.3 percent) U.S. imports of apparel from SSA countries entered under AGOA, and of these imports, virtually all (96 percent) used the third-country fabric provision in 2016.

Further, the USITC report used Madagascar as an example to illustrate the significance of AGOA and the third-country fabric provision in particular to SSA countries’ apparel exports to the United States. As noted by USITC:

  • Madagascar were evidenced by the sharp decline in its apparel exports to the U.S. after the country lost its AGOA eligibility in 2009. Without duty-free access to the United States, the average duty rate for U.S. imports of apparel from Madagascar rose to 19.6 percent, and apparel exports to the United States from Madagascar fell from over $211 million in 2009 to only $40 million in 2011.
  • Madagascar’s AGOA benefits were reinstated in 2014, and in 2016, U.S. apparel imports from Madagascar bounced back to one-half of the 2009 level.

The USITC report also argues that the long-term renewal of AGOA and the third-country fabric provision was critical to instilling confidence in U.S. firms deciding to invest in or source from SSA countries. The report says that “because apparel production lead times are generally 6 to 9 months, U.S. apparel companies that source from the region import basic cut-and-sew garments that can be ordered months in advance and have steady U.S. demand, such as five-pocket denim jeans, uniform tops and bottoms, and T-shirts. This long lead time on orders makes long-term AGOA renewal particularly important to the apparel industry.”

Additionally, the USITC report believes that China’s declining competitiveness as an apparel producer (caused by its increasing labor cost) benefited the second- and third-largest suppliers to the United States, Vietnam and Bangladesh, but also helped smaller suppliers in SSA.

Last but not the least, the USITC report suggests that Kenya, Madagascar, and Ethiopia may have the most potential for apparel export growth in the future. However, the report doesn’t think apparel exports from South Africa will grow much because the country does not qualify for third-country fabric provisions under AGOA. Similarly, USITC believes that should SSA countries like Tanzania lose their AGOA benefits, due largely to its recent import ban on used clothing, the United States will likely see significant decreases in apparel imports from these countries too.

*About the African Growth and Opportunity Act (AGOA)

The African Growth and Opportunity Act (AGOA) is a non-reciprocal trade agreement enacted in 2000 that provides duty-free treatment to US imports of certain products from eligible sub-Saharan African (SSA) countries. AGOA intends to promote market-led economic growth and development in SSA and deepen US trade and investment ties with the region.

Because apparel production plays a dominant role in many SSA countries’ economic development, apparel has become one of the top exports for many SSA countries under AGOA. Particularly, the “third country fabric provision” under AGOA allows US apparel imports from certain SSA countries to be qualified for duty free treatment even if the apparel use yarns and fabrics produced by non-AGOA countries/regions (such as China, South Korea and Taiwan). This special rule is deemed as critical because most SSA countries still have no capacity in producing capital and technology intensive textile products.

On 29 June 2015, the Obama Administration signed a new bill to extend the AGOA (including the third country fabric provision) for another ten years (until 30 September 2025). The new law simplifies the AGOA rules of origin; gives the president the ability to withdraw, suspend or limit benefits (rather than just terminate eligibility) if designated AGOA countries do not comply with the eligibility criteria; adds notification and reporting requirements; and improves transparency and participation in the AGOA review process.

In 2016, US apparel imports from the AGOA region totaled US$260m, of which US$255m were under the agreement (or 98% utilisation rate).

About the “Third-Country Fabric” provision under AGOA

This is a “Special Rule” for lesser-developed SSA countries (LDCs) under AGOA. According to the rule, these SSA LDCs can enjoy duty-free and quota-free access to the U.S. market for apparel made from fabric originating anywhere in the world. In comparison, the regular AGOA rules of origin more restrictively require that apparel qualify for duty-free treatment must meet one of the following conditions:

  • apparel made of U.S. yarns and fabrics;
  • apparel made of SSA (regional) yarns and fabrics, subject to a cap;
  • apparel made in a designated lesser-developed country of third-country yarns and fabrics (also subject to a cap);
  • apparel made of yarns and fabrics not produced in commercial quantities in the United States;
  • textile or textile articles originating entirely in one or more lesser-developed beneficiary SSA countries;
  • certain cashmere and merino wool sweaters; and
  • hand-loomed/handmade/or folklore articles and ethnic printed fabrics

Social and Economic Impacts of Apparel Trade–Questions from FASH455

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Debate on Used clothing trade and AGOA

#1 What evidence can support the arguments that cutting off secondhand clothing imports from Africa will allow African nations to build their own textile industry? Likewise, what evidence can support the arguments that African countries overall benefit from importing used clothing from countries like the United States?

#2 Given the debate on used clothing trade on African nations, will you continue to donate used clothing? Why or why not?

#3 China holds a dominant position in textile and apparel production and exports because of their vast amounts of technology, workers, and resources. How do you think least developing countries like Africa will be able to keep up with such steep competition? Why or why not it is a wise decision for the United States to threaten to take away East African countries’ benefits under AGOA?

Social and economic impact of apparel trade

#4 Is factory employment in India a step in the right direction for the country’s gender equality? What effects, positive or negative, could such employment have in regards to gender issues?

#5 We keep arguing that globalization is negative because we are taking jobs away from U.S. workers. But by sending more work to factories in India, we’ve created jobs for these Indian women who, before working in the factories, were sheltered and only sent off into the world for arranged marriage. In this sense, is globalization still negative if we’re creating a sense of freedom and purpose for these women?

#6 As detailed in the article, the working conditions and treatment of workers is extremely unethical in some garment factories.  Can globalization help this issue or hurt it more? 

#7 How do you compare your life to the Indian girls in the article? And please just imagine: ten years later, what will the life of these Indian girls look like? How about yours?

Welcome to our online discussion! Please mention the question # in your comment.

Apparel Sourcing in U.S. Trade Preference Program Countries

Speakers:

  • Tarek Kabil – Egyptian Ministry of Trade & Industry
  • Ashraf Rabiey – QIZ Minister of Egypt
  • Gabi Bar – QIZ Minister of Israel
  • Mark D’Sa – Special Project Director for Haiti
  • Moderator: Gail Strickler – former Assistant US Trade Representative for Textiles

Discussion questions:

  1. What are the financial incentives for US brands and retailers to source apparel in preference program countries? Why do U.S. apparel imports from members of AGOA, QIZs and HELP overall remain at a fairly low level despite the trade preference programs? How to improve the situation?
  2. Overall, why or why not should the US keep the trade preference programs or any critical reforms are needed?
  3. Any other interesting points you learned from the video or questions you may have?

Turning Africa into a Global Textile and Apparel Hub

Before the 2016 Source Africa Trade event in June 2016, CNBC interviewed Tim Armstrong, Investment Promotion Director for the Textile Development Unit at the Ministry of Industry and Trade in Tanzania. Three questions were discussed during the interview:

  • Are free trade agreements/trade preference programs such as the African Growth and Opportunity Act (AGOA) translating into tangible results we can see that help African clothing exporters?
  • What has AGOA extension done to the textile and apparel industry in Africa, particularly in the context of Tanzania? What are the impacts of rules of origin on investment in the region?
  • Can apparel “Made in Africa” compete in the global marketplace when raw material such as yarns and fabrics has to be sourced from elsewhere?

What is your view on these issues?