By Martin Munu
KAMPALA. In the 1980s, the East African textile industry was more developed along the entire value chain from cotton production and marketing, ginning and production of yarn to fabric and garments manufacturing. The state was quite instrumental in supporting this value chain through Cooperative Societies/unions running the mills and textile industries.
However the liberalization wave in the starting in the late 1990s resulted in a significant decline in cotton production while the import of second hand clothes increased. Since the signing of the East African Community (EAC) treaty in 1999, the EAC integration agenda has had much success in market integration as witnessed with the implementation of the EAC Customs Union from 2005, EAC Common Market Protocol from 2010 an the agreement on Monetary Union.
In terms of industrial development however, the EAC has been less successful as evidenced by the poor performance of the textile industry, which is considered as one of the cornerstones for industrial development.
Protecting the EAC textile industry
The EAC came up with a plan to revitalize the textile industry through a directive from the 17th Ordinary Head of States Summit in 2016. The Summit sought to promote vertical integration in the textile and leather sector and phase out importation of second hand textiles as well as footwear by 2019. This is a protectionist trade policy meant to nurture the infant textile industry, which is instrumental in supporting the entire textile sub-sector value chain actors.
The move is supported by the EAC Treaty and the EAC industrialization policy which provides for Partner States to take the necessary steps in industrial development. In addition, the policy is supported by the Common Market for Eastern and Southern African (COMESA) regional strategy for cotton to clothing value chain which seeks to promote trade and increase market access for the cotton, textile and apparel industries in Africa.
Similarly, Articles 18 and 19 of the global General Agreement on Tariffs and Trade (GATT) allow developing countries to impose restrictions on imports to promote development of particular industries especially if said imports are causing serious injury to domestic producers. The EAC Partner States would therefore not contravene their commitments to other WTO members by taking this measure. Comparing the current performance of the textile industry with performance from the 1960s to early 1980s, it is evident that imports of second hand clothes and cheap textile products have injured the domestic textile industry.
Second hand clothes are already part of the protected commodities as the EAC Common External Tariff (CET) levies 35 percent import duty or USD 0.20 per kg, whichever is higher. This level of protection together with inadequate investment in the sector has not been sufficient to revitalize the textile industry.
Even though cheap imports pose a significant challenge to the development of the EAC textile industries, there are other enormous challenges which range from inefficiencies along the value chains to limited government support for the sector (termed as supply side constraints). Key among these are high electricity tariffs and the absence of effective tax incentives which undermine any role the import ban would play in boosting industrialization. Moreover the region is a big consumer of second hand clothes and any ban would create a shortage which would need to be filled.
What is the latest development?
The EAC decision attracted a lot of debate amongst stakeholders both within the region and internationally. Much of the debate regionally has been centered on whether such a move would indeed revitalize the textile industrial which save for Kenya has crumbled over the last 20 years yet little has been done to address the underlying challenges.
More so it’s short term effect on the many who are currently employed in the second hand clothes trade was seen as worrying while many in support of industrialization were of the view that this is what is required if the region is to build regional value chains and industrialize. From the international scene, USA being the top exporter of second hand clothes to the EAC immediately condemned the trade policy move. The USA exporters lobbied with the Trump administration leading to pressure exerted on the EAC to either stay the implementation of this plan or risk losing African Growth and Opportunities Act (AGOA) market preference.
The 19th Head of States Summit held in Uganda in early 2018 was expected to pronounce the region’s position on whether the EAC would implement the policy to ban the importation of second hand clothes or not. However, the Summit did not make any pronouncement. It instead directed the council to put in place a mechanism that supports textile and leather manufacturing in EAC and report to the 20th summit. This is a “best endeavor” language which demonstrates that the US threat forced the region to rethink its industrial development policy.
At the individual Partner State level, Kenya backtracked on the ban as is the main beneficiary of AGOA in the region while Uganda remained coy but in essence backtracked to avoid a confrontation with the USA. Only Rwanda persisted with the ban and was subsequently suspended from AGOA market preference.
As a way forward, since trade liberalization has led to deindustrialization, protectionism is a key trade policy to revitalize the textile industry but direct state support is needed if the sector is to address the challenges along the value chain (supply side constraints). Intra EAC trade, which has increased over the years could be further boosted with the development of regional value chains. The EAC and Africa should therefore focus on regional markets before being competitive in international trade.
The Writer is a Research Analyst, Trade & Regional Integration,
Economic Policy Research Centre (EPRC)