Commentary

 
 

ECONOMIC POLICY DIALOGUE (EPD)

COMMENTARY

Second-hand Clothes Trade Conflict Shows That Emperor Has No Clothes

By Pushpa Kumari

June 5, 2018

Trade conflicts are normal because nations may have their own national
interests which at times are conflicting. But the trade conflict under
discussion here is fairly abnormal. This is a trade conflict not between
two normal trading partners, but America is at trade conflict with Rwanda.
One nation having GDP 2224 times bigger (the US $19 trillion) than the
other (Rwanda $8 billion). More important than the size of economy is the
item of conflict – second hand clothes. These are dumped hand-me-down
clothes sold for-profit by America to the poor African nation Rwanda.
Basically, this conflict between two economically asymmetrical nations and
that too over a trivial item signifies the bigger political economy of
dominance and dependence.

Neither America is the only exporter of these worn clothes nor Rwanda is
the only importer. Worn clothing is about $4 billion export industry
globally. In 2016, the US had about 15% share ($639 million) of it. Some
other countries were UK (11%), Germany (10%), Rep. of Korea (6%), China
(5%), followed by Netherlands, Poland, Italy, Belgium and Canada (each
having share of 3 to 4%). And on the import side, Pakistan had the highest
share of it (6%), followed by India (5%), Malaysia (4%), Russia and Kenya
(3% each) among many others. Though, exports and imports taken together to
account the trade deficit in this worn clothing category: the largest trade
deficits were recorded by Sub-Saharan Africa ($908.4 million), Latin
America and the Caribbean ($369.1 million) and Southern Asia ($262.2
million) during 2016. Coming back to Rwanda, it is an eastern African
nation with mere 0.47% share ($17.7 million) in the total used clothing
imports in 2016, and also a part of Sub-Saharan Africa that holds the
highest trade deficit in this product category. (Note: all the data used in
this paragraph is taken from UN Comtrade and UN International Trade
Statistics Yearbook 2016.)

Root cause of this conflict lies in a Joint Communiqué, the East African
Community (EAC) issued in March 2016, expressing their intent to
progressively phase out importation of used clothing as a means to support
the region’s textile and apparel industry. In reaction to it, a US trade
association – Secondary Materials and Recycled Textiles Association (SMART)
– made a request for an out-of-cycle review (OCR) of the eligibility of the
EAC states for the African Growth and Opportunity Act (AGOA) privileges
citing loss of American jobs, and trade barriers as a breach of the AGOA
provisions. The AGOA is a part of Trade and Development Act of 2000,
enacted during Clinton presidency. It extends duty-free and quota-free
access to over 6,400 products from the Sub-Saharan Africa (SSA) into the US
market. The purpose of AGOA is to foster economic and political development
in SSA by expanding access to U.S. trade and investment markets. However,
after the AGOA review request, other EAC members – Kenya, Uganda and
Tanzania – backed off at later stages, but Rwanda remained stuck to its
original intention. That is why, it has become a contentious issue between
the US and Rwanda.

How this conflict demonstrates that the emperor (US) has no clothes:

1. Unhumanitarian and Unethical: actually, historically, East Africa had
thriving clothing industrial sector during 1960s and until early 1980s.
Cheap imports of second-hand clothes under the trade liberalization (as a
part of economic reforms after the 1980s debt problems) have killed this
industry. Not letting a chance to a poor nation to revitalize its lost
industry, local economy, income and employment would be an utter
unhumanitarian and unethical act on the part of a so-called champion of aid
and development activities under the type of USAID and AGOA institutions.

2. Double standard: it becomes a matter of pride if the richest nation on
the earth says America first, American manufacturing jobs, America Great
Again. But what if one of the poorest nation says it wants basic level of
development and dignity…it becomes a subject to sort of sanctions.

3. Invisible Conditionality: if Rwanda wants to be eligible for AGOA
privilege, it has to meet the conditions of the US; even if Rwanda’s
actions actually are as per the intention of the AGOA, i.e., the long-term
development of a poor country. Here, the conditionality is not related with
the establishment of the democratic institutions etc. in that country.
Instead, this is about the market access to the US exports. If Rwanda wants
AGOA privilege, it has to give its market access for American products, no
matter if it is at the cost of Rwanda’s economic and social development.
Similar conditionality was being tried on South Africa in 2015 when it
attempted to ban US chicken imports because it was killing its poultry
industry; as this time around on the East African Community nations for the
US second-hand clothing imports. But when the nations reluctantly give in
to the US threats they immediately become eligible to the AGOA benefits. In
trade diplomacy AGOA may be a negotiation tool for trade deals, or in
alternative to the mainstream philosophy AGOA may be a strategy to realise
hegemony; but in simple economics terms, it will be AGOA conditionality
(just like aid conditionality by IMF and World Bank, human rights
conditionality for OECD humanitarian Aid).

4. Imbalance of power: this is an imbalance of power that the US is trying
to exploit because Rwanda is a poor and weak nation. Here Rwanda wants to
develop its landlocked resource-lacking economy through low-skilled
labor-intensive clothing industry. But the powerful partner says you will
be punished if you do not accept my second-hand exports of the same
products which you intend to develop. Moreover, this is nothing new in
Rwanda wanting protection to its nascent industry from the imports as this
is what the western and rich world had done in early phases of its
development too. As famous economist Nicholas Kaldor noted “… policies of
fostering domestic industries by judiciously chosen methods of import
substitution – the replacement of imports of manufactures by domestic
production – which were so successfully pursued by the countries of Western
Europe, North America, Japan and other “developed” countries in the late
nineteenth century and the present century….”

5. Economics vs. Power Economics: trade theory put forward by Ricardo does
not apply where power economics rules are applied. Ricardian theory of
comparative advantage might have rightly predicted US importing textile and
clothes because of its comparative advantage in producing high-tech
products. But he might not have predicted US exports of second-hand clothes
to the poor nations against their wish because this is what only power
economics can predict. How poor African nations can challenge the hegemony
of a superpower by denying its imports. The superpower certainly would not
allow Rwanda like country to set such an example for other countries.

6. Might is Right: who is right, obviously the mighty one. How this is true
in the case of second-hand clothing (mighty) exporter. a) It has less to do
with American industry and manufacturing jobs, because first, these clothes
are anyway manufactured already and used/worn by the Americans, second,
majority of these clothes are imported from the third country like, China,
Malaysia, Philippines, Pakistan etc.; b) Americans would not wear these
clothes; they have anyway discarded these clothes; c) these clothes are
mostly collected from the drop offs at charities or donation bins in the
parking lots. If these clothes are not exported, these will end up in the
landfills as other discarded curbside stuff, like furniture, appliances,
books, mattresses etc.; and d) charities which work for good cause earn
profits by exporting these to the countries including third world with
widespread poverty. To note, many of these charities might be involved in
the noble work of these countries’ development. How a nation can be wrong
and punished for wanting its dignity back by not wearing the thrown away
second-hand clothes — because might is right!

This uncovers the truth about the development diplomacy of the rich and
powerful world. They might sell the fancy institutions like USAID
(American), DFID (British) ODA (OECD), CIDA (Canadian), and recently
National Development and Cooperation Agency (Chinese). But their first
priority has been their business interest instead of the development of the
poor countries. Maybe this interest clash is one of the major factors that
despite ‘so advertised’ decades’ efforts by myriads of (multilateral,
regional, and national level) development organisations, development of
numerous nations is yet a distant dream. Words might cover the truth but
actions and results uncover the truth of development efforts. Superpowers
may change – for instance, first Europeans and the UK, later the USA and
now China too – with their own contemporary mighty ways and means; but
legacy remains the same. Capitalism or communism are the same extensions of
the old mercantilism, colonialism, imperialism. Nothing changes because
this is a game of power.

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