Agoa: Rwanda pays ul­ti­mate price for re­ject­ing mi­tumba

AMER­ICA’S WRATH: Washington sus­pends Ki­gali as Kenya, Uganda and Tan­za­nia re­nege on 2016 pact to phase out im­ports of sec­ond-hand clothes and shoes

The East African - - FRONT PAGE - By ALLAN OLINGO The Eastafrican

Rwanda has been sus­pended from ac­cess­ing the Amer­i­can mar­ket un­der the African Growth and Op­por­tu­nity Act (Agoa), fol­low­ing Ki­gali’s re­fusal to re­scind a de­ci­sion to lock out sec­ond­hand clothes and shoes.

This de­ci­sion leaves Ki­gali as the fall guy over a de­ci­sion that was penned by all the re­gional Heads of States in Arusha in 2016, agree­ing to im­pose a ban on im­ports of used cloth­ing and leather prod­ucts over a three-year pe­riod be­gin­ning 2019. Kenya, Tan­za­nia and Uganda have aban­doned the joint po­si­tion, choos­ing in­stead, to save the eco­nomic ben­e­fits that ac­crue un­der Agoa.

Agoa is a trade deal that al­lows ben­e­fi­ciary coun­tries in sub­sa­ha­ran Africa to ex­port their prod­ucts to the US duty-free. It was en­acted in the US in 2000 to run to 2015 and re­newed to 2025.

Rwanda’s sus­pen­sion, if ap­proved by the US Congress, will in the next two months apply to Ki­gali’s Agoa-el­i­gi­ble ap­parel prod­ucts, the US Trade Rep­re­sen­ta­tive’s of­fice said.

The ver­dict was reached after a re­view of el­i­gi­bil­ity for Agoa for Rwanda, Uganda and Tan­za­nia. The Amer­i­can used cloth­ing in­dus­try had in March last year ap­plied for the re­view after the three coun­tries an­nounced they would in phases ban im­ports of used cloth­ing and shoes.

Ben­e­fi­ciary cri­te­ria

“The re­view found that this im­port ban harms the US used cloth­ing in­dus­try and is in­con­sis­tent with Agoa ben­e­fi­ciary cri­te­ria for coun­tries to elim­i­nate bar­ri­ers to US trade and in­vest­ment. Based on the re­sults of the re­view, Pres­i­dent Don­ald Trump de­ter­mined that Rwanda is not mak­ing suf­fi­cient progress to­ward the elim­i­na­tion of bar­ri­ers to US trade and in­vest­ment, and there­fore is out of com­pli­ance with el­i­gi­bil­ity re­quire­ments of Agoa. Con­se­quently, the pres­i­dent no­ti­fied Congress and the govern­ment of Rwanda of his in­tent to sus­pend duty-free treat­ment for all Agoa-el­i­gi­ble ap­parel prod­ucts from Rwanda in 60 days,” the USUS Trade Rep­re­sen­ta­tive said in a state­ment.

Washington said the sus­pen­sion of the ben­e­fits, in­stead of ter­mi­na­tion of Rwanda’s sta­tus as an Agoa ben­e­fi­ciary, would al­low for con­tin­ued en­gage­ment with the aim of restor­ing mar­ket ac­cess and thereby bring­ing Rwanda into com­pli­ance with the Agoa el­i­gi­bil­ity re­quire­ments.

Last month, Rwanda said it will not bow to pres­sure by the US to re­duce taxes and lift the ban on used clothes.

“The de­ci­sion we took as the East African Com­mu­nity (EAC) still stands. We want to im­ple­ment the rules of ori­gin, after find­ing out that items are made in China, used in the US and dumped in East Africa,” said Olivier Nduhun­girehe, the State Min­is­ter at Rwanda’s Min­istry of For­eign Af­fairs, Re­gional Co-op­er­a­tion and East African Com­mu­nity, adding that they were still open to di­a­logue with the US to mit­i­gate any ad­verse ef­fects that could ham­per the ease of busi­ness be­tween the two coun­tries.

In its sub­mis­sion dur­ing the out of cy­cle re­view, Rwanda had ar­gued that its 2016 in­crease of tar­iffs from $0.20 to $2.50 per kilo would be in ef­fect for only one year. It also ar­gued that the de­ci­sion was in­formed by a mar­ket anal­y­sis study of gar­ment in­dus­try in Rwanda and the im­pact of sec­ond­hand clothes and footwear on the in­fant gar­ment in­dus­try.

“While we agree that the in- crease in duty ap­plied to the sec­ond­hand clothes and footwear many re­sult in re­duc­tion of im­ports of th­ese prod­ucts to Rwanda, the im­pact on the US sec­ond­hand clothes in­dus­try is neg­li­gi­ble. In fact, the im­ports of sec­ond­hand clothes from USA reached only $2 mil­lion in 2015, the year be­fore the in­crease in duty. This amount rep­re­sents only 0.2 per cent of the $1 bil­lion sec­ond­hand clothes in­dus­try in USA,” Rwanda’s Min­istry of Trade sub­mit­ted.

Ac­tion plan

Rwanda also said it had de­vel­oped the 2017-2019 ac­tion plan for the trans­for­ma­tion of tex­tiles, ap­parel and leather in­dus­trial sec­tors in or­der to in­crease the qual­ity and quan­tity of tex­tile, ap­parel and leather prod­ucts for both lo­cal and for­eign mar­kets.

“It is es­ti­mated that, if ev­ery­thing is im­ple­mented, this could cre­ate 25,655 jobs, in­crease the ex­ports to $43 mil­lion and de­crease the im­ports of th­ese prod­ucts to $33 mil­lion by 2019 from $124 mil­lion in 2015. The im­pact on the trade bal­ance will re­sult in sav­ing of $76 mil­lion over the three-year’s pe­riod. So far, the im­ple­men­ta­tion of the ac­tion plan since July 2016 has led to a sec­tor growth of 18 per cent over the first three quar­ters of 2016-2017, sub­stan­tially above the 6 per cent in­dus­trial sec­tor av­er­age growth rate,” Ki­gali ar­gued.

The lat­est de­ter­mi­na­tion by the Don­ald Trump ad­min­is­tra­tion spared Uganda and Tan­za­nia after they un­der­took steps to­wards elim­i­nat­ing pro­hib­i­tive tar­iff rates on im­ports of used Rwanda to re­solve this sit­u­a­tion,” Deputy U.S. Trade Rep­re­sen­ta­tive C.J. Ma­honey said.

Last year, the Sec­ondary Ma­te­ri­als and Re­cy­cled Tex­tiles As­so­ci­a­tion (Smart), said EAC’S 2016 de­ci­sion to phase in a ban on im­ports of used cloth­ing and footwear im­poses sig­nif­i­cant eco­nomic hard­ship on the US used cloth­ing in­dus­try, and was in­con­sis­tent with Agoa ben­e­fi­ciary cri­te­ria for coun­tries to es­tab­lish a mar­ket-based econ­omy and elim­i­nate bar­ri­ers to US trade and in­vest­ment.

The Smart pe­ti­tion had re­quested an out-of-cy­cle re­view to de­ter­mine whether Kenya, Rwanda, Tan­za­nia, and Uganda, mem­bers of the EAC, are meet­ing Agoa el­i­gi­bil­ity cri­te­ria. The US Trade Rep­re­sen­ta­tive ac­cepted the pe­ti­tion filed by Smart and ini­ti­ated an out-of-cy­cle re­view of Rwanda, Tan­za­nia, and Uganda’s Agoa el­i­gi­bil­ity on June last year. A pub­lic hear­ing was held in July in Washington, at which of­fi­cials from the gov­ern­ments of Rwanda, Tan­za­nia, Uganda and EAC Sec­re­tariat made their sub­mis­sions.

The US Trade Rep­re­sen­ta­tive de­ter­mined that an out-of-cy­cle re­view of Kenya’s Agoa el­i­gi­bil­ity was not war­ranted due to the govern­ment’s com­mit­ment to re­verse the tar­iff to pre-2016 lev­els, ef­fec­tive July 1, 2017, and a com­mit­ment not to ban im­ports of used cloth­ing through other pol­icy mea­sures. Tan­za­nia and Uganda also made sim­i­lar com­mit­ments dur­ing the course of the out-of-cy­cle re­view.

Watch list

How­ever, Dar es Salaam and Kam­pala will still be on the US watch list with the lat­ter say­ing it will mon­i­tor whether the two coun­tries im­ple­ment the com­mit­ments and demon­strate com­pli­ance with all of Agoa’s el­i­gi­bil­ity re­quire­ments.

Uganda’s Fi­nance Min­is­ter Ma­tia Ka­saija in 2016 had in­creased the rate of the en­vi­ron­men­tal levy im­posed on used clothes from 15 per cent to 20 per cent of the cost, in­surance freight (CFI) value in a cock­tail of taxes in the post-elec­tion bud­get. This was done after the al­ter­ing of the Ex­cise Duty Act 2014 to in­crease taxes in the Fi­nance (Amend­ments) Bill, 2016. In their sub­mis­sions at the re­view, Tan­za­nia and Uganda ar­gued that the dou­bling of levies on used cloth­ing im­ports, from $0.20 to $0.40 per kilo­gramme was in­stead re­align­ments with the cur­rent value rather than pro­hib­i­tive tar­iff in­creases.

For­mer per­ma­nent sec­re­tary in the Min­istry of Trade in Tan­za­nia Adolf Mk­enda in his sub­mis­sion said that ques­tion of an in­crease or a de­crease in tax, du­ties, fees is a fis­cal de­ci­sion, which has been im­ple­mented as part of an­nual fis­cal mea­sure dur­ing bud­get sub­mis­sion and it is a sov­er­eign le­git­i­mate bud­get de­ci­sion.

Tan­za­nia also ar­gued that the EAC de­ci­sion is yet to be im­ple­mented thereby Smart’s loss of jobs claim can­not be jus­ti­fied.

The de­ci­sion we took as the East African Com­mu­nity (EAC) still stands...” Olivier Nduhun­girehe, Rwanda’s State Min­is­ter

Pic­ture: File

Traders sell sec­ond­hand clothes. EAC heads of state had re­solved to ban im­por­ta­tion of used clothes in the re­gion from next year.

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