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 second-hand 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 sub-Saharan 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.
“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 second-hand clothes and footwear on the infant garment industry.
“While we agree that the increase in duty applied to the second-hand clothes and footwear many result in reduction of imports of these products to Rwanda, the impact on the US second-hand clothes industry is negligible.
“In fact, the imports of second-hand 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 second-hand clothes industry in USA,” Rwanda’s Ministry of Trade submitted.
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 clothing and footwear and committed not to phase in a ban of these products.
“The President’s determinations underscore his commitment to enforcing our trade laws and ensuring fairness in our trade relationships. I commend Tanzania and Uganda for taking corrective steps to address the United States’ concerns. We have and will continue to work with Rwanda to resolve this situation,” Deputy US 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.
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.