AFRICA BECKONS TO U.S. INDUSTRY
Byline: Scott Malone
NEW YORK — In the fanfare surrounding former President Clinton’s signing of the package of trade laws that extended trade parity for certain apparel to the Caribbean Basin, less attention was paid to the African Growth and Opportunity Act.
However, the effects of the law, which extends similar duty-free and quota-free benefits to garments manufactured in 34 Sub-Saharan African countries, are starting to be felt.
While the benefits were officially extended to these countries when AGOA passed last year, to prevent other nations from illegally transshipping apparel through the region into the U.S., the U.S. government required that the region’s nations convince the U.S. Customs Service that they have in place adequate visa procedures.
That’s essentially a system of paperwork intended to track textiles and garments through every step of the manufacturing process to insure that they were made where the seller claims they were.
It’s taken a little more time for those nations to qualify because few of them had the extensive trading relationships with the U.S. that the Caribbean Basin Initiative nations had after years of 807 and 807a preferential trading programs. In addition, since AGOA allows garments made of African fabric to enter the U.S. duty- and quota-free, there’s more to track than in the CBI region, where U.S. fabric is required for many items to qualify.
So far, the island nation of Mauritius, already a significant supplier of apparel to the U.S., and Kenya have received approval to start shipping goods duty- and quota-free. But now that the ball has started rolling, trade officials and observers said they expect to see a handful of other countries get the nod within the coming months.
Most sources interviewed said they expect Madagascar and South Africa to be the next countries approved.
A U.S. trade official, who asked not to be identified, said: “We’re pretty confident that a number of countries will qualify soon.” Asked if she believed that six to 10 more countries would be approved by yearend, as sources have said, she said she “would hope so.”
However, she was reluctant to offer a specific time frame of when she expected more countries’ visa systems to be approved, pointing out that it is dependent on when the nations submit a plan that satisfies Customs.
“It takes us a little while to review them, but not that long,” she said. “We’ve been working with a number of countries, including Botswana, Ethiopia, Madagascar, Malawi, Mozambique, Uganda, Zambia, South Africa and Nigeria. Others are always
Julie Hughes, Washington vice president for the U.S. Association of Importers of Textiles and Apparel, said: “We’re pretty optimistic, now that we’ve gotten past the first ones, that we should have a couple more pretty quickly.
“My understanding is that Madagascar is very close and South Africa is right behind that. It’s important for South Africa because that’s the major supplier in the region. They have their own domestic industry and have been supplying the European market for some time.”
In terms of dollars, South Africa was the region’s second-largest supplier of textiles and apparel to the U.S. for the year ended June 30, importing goods with a Customs value of $132.6 million. It lagged behind Mauritius, which shipped $236.9 million worth of goods. The region’s third-largest supplier to the U.S. was Lesotho, a landlocked nation entirely surrounded by South Africa, which shipped $121.2 million of goods during that period.
The bulk of the region’s production is in woven cotton bottoms and knit cotton tops.
As a whole, the sub-Saharan region shipped $671.1 million of apparel and textiles to the U.S. for the year ended June 30, up 13.6 percent from the previous year. That gave about a 1 percent market share for apparel and textile imports to this country.
For comparison, the CBI nations shipped a combined $9.34 billion of apparel to the U.S. in that period, representing 13.7 percent of all U.S. apparel and textile imports.
While the region is still a small supplier of apparel to the U.S., officials from sub-Saharan governments have high hopes on the ability of apparel manufacturing to pump up their economies.
At the South African embassy in Washington, acting economic minister Sudhir Sooklal said his country is hoping to see its visa systems approved over the next few weeks. He said he thinks the extension of trade parity will be a major boost for the region.
“We are looking at the AGOA as being the biggest catalyst the industry has had in its entire history,” he said. “We see benefits not just for South Africa, but for the region as a whole.”
He said his nation’s manufacturers have already seen an uptick in interest, even prior to the visa system being approved.
“It’s already done wonders for the textile industry,” he said. “We’ve had our manufacturers and exporters ready to put goods in the water six months ago.”
The act has been particularly good for South Africa’s textile industry, which Sooklal said is the largest in the region, because it is a major supplier to other nations’ apparel industries.
The extension of trade parity has also encouraged Mauritius to try to develop its small textile industry, which government officials there see as a potentially higher-margin business than cut-and-sew apparel plants.
“In Mauritius, it is helping us to better organize our apparel and textile industry,” said Peter Craig, economic counselor at the Embassy of Mauritius in Washington. “So far, we have just been apparel and the amount of textiles we have produced has been minimum.”
He estimated that the country has also produced enough textiles to meet 10 percent of the demand of its apparel plants. Craig said he thought that developing a textile industry would provide Mauritius, and Africa as a whole, with much-needed development.
“There is a clear necessity that Africa has to develop some manufacturing,” he said. “How many more cattle can you herd? How many more forests can you slash and burn? You have a whole young generation coming out of the schools and not going back to the farms. It’s absolutely essential for the economic stability of the region that we develop manufacturing capacity that brings in foreign exchange and allows people to have a [living] wage.”
While the average wage of an apparel or textile worker in Mauritius only comes out to about $150 to $200 a month, Craig said that much money is significant in a country with free education, free health care and essentially no income tax for blue-collar workers.
Also, he added, “most of the jobs in the apparel industry are for women, which has brought about a huge social change in the country and liberated women socially and economically.”
While the law was intended to provide a market for African-made garments, many in the U.S. textile industry long feared that African apparel makers would be using Asian fabrics. That fear is due in part to the fact that many of the region’s cut-and-sew plants had been Asian-owned.
Hong Kong-based Novel Denim Holdings Ltd., which produces for the likes of Gap Inc. and Tommy Hilfiger, remains a sizable manufacturer in that country. However, Craig pointed out that today about 75 percent of Mauritius’s 280 apparel and textile plants are owned by Mauritian capital.
There is a provision in the AGOA allowing lesser-developed countries to import fabric from elsewhere in the world, cut and sew it into garments and ship it to the U.S. without duty or quota. However, the U.S. trade official pointed out that the only countries that will qualify for that exception are those with minimal apparel industries — Mauritius and South Africa, for instance, do not. Further, in 2004, the provision allowing third-country fabric will be phased out in its entirety.
For their part, African officials said they have no incentive to be lax on transshipment, as they need to develop their local industry. Their arguments echo strongly those made by Western Hemisphere textile makers.
Craig, of Mauritius, said that his nation’s apparel makers are investing in other countries in the region to make sure that they will have a sound base to compete with for years ahead.
“We are already well established in Madagascar, but with South Africa coming on board soon, there is clearly a lot of interest and a wish to develop more integration in the region in terms of textiles and apparel,” he said.
His country, too, is worried about how it will compete when quotas on apparel are lifted among all World Trade Organization-member nations less than four years from now.
“We are very concerned with the developments of Jan. 1, 2005, with the taking of quotas off altogether. That could have easily meant the death of our exports to the U.S.,” he said. “We weren’t sure we could compete. The fact that we will have duty-free entry for a fair amount of our goods means, at least, we will survive in 2005.”
Similarly, Sooklal, of South Africa, said his country will be closely watching its industry to insure that it protects its trade benefits. He said there is no incentive for the nation to allow its garment makers to transship merchandise.
“If they are going to allow, let’s say, somebody from Taiwan to route stuff through them and send it out to the U.S., at the end of the day, they are losing totally,” he said. “Not just in terms of the fact that these duty-free benefits are then being accorded to Taiwan, although indirectly. They are jeopardizing their accreditation within the AGOA.
“You might see some short-term gains, but in terms of the national interest, it would be very silly for any country to condone or encourage such activity.”