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Retailers, EAC say out-of-cycle review should not eliminate AGOA benefits

July 5, 2017

A group of retail industry trade associations -- as well as the East African Community, Uganda, and the African Cotton & Textile Industry Federation -- are charging that USTR's out-of-cycle review of Tanzania, Rwanda and Uganda’s compliance with obligations under the African Growth and Opportunity Act is either unwarranted or should not result in those countries losing their AGOA benefits.

The opponents of the review claim that questions of compliance should be resolved without Uganda, Tanzania and Rwanda losing their AGOA benefits, and that eliminating them would run counter to U.S. economic interests and reverse progress in line with AGOA objectives that those countries have been making.

They made their case in separate comments submitted ahead of a July 13 Office of the U.S. Trade Representative hearing to examine if an announced ban and tariff hikes on used-clothing imports by those countries comports with requirements AGOA beneficiaries must meet to receive duty-free access to the U.S.

Uganda, in individual comments submitted by its Cabinet Minister of Trade, Industry and Cooperation Amelia Kyambadde, argued that the out-of-cycle review is unwarranted because there is no ban on used-clothing imports to East African Community member states.

The petitioner for the review, the Secondary Materials and Recycled Textile Association (SMART), claims that EAC heads of state in 2016 agreed to implement such a ban and in the meantime the three countries under review have significantly raised tariffs on used-clothing to the detriment of U.S. exporters. The tariffs and intention to outright ban used-clothing imports created exceptional circumstances for an out-of-cycle review to occur, SMART argues. The group also claims that the tariffs and intention to ban used clothing imports contradicts Section 104 of the 2015 AGOA renewal law, which states that to receive and maintain benefits, countries must, among other requirements, establish or make continual progress toward establishing “a market-based economy,” as well as pursue “the elimination of barriers to U.S. trade and investment” and “economic policies to reduce poverty."

The opponents of the review broadly argue that the three countries being examined have established market-based economies, worked to eliminate barriers to U.S. trade and investment, and have pushed economic policies aimed at reducing poverty, in line with AGOA requirements.

Uganda, in its individual comments, argued that the review itself should not take place because “there is no ban on importation of used clothes to Uganda and, indeed, to the EAC region. The decision of March 2016 by the Summit is based on the desire to industrialize and to add value to our raw materials on the basis of the EAC Industrialization Policy and other National Planning Framework.”

Imports of used-clothing also carry “sanitary concerns that have been raised by different stakeholders,” and therefore a reduction in imports is necessary to protect public health in Uganda and East Africa, Kyambadde claimed. This argument was also made by the Director General of the East African Community Kenneth Bagamuhunda.

Used-clothing imports have also been minuscule and declining in Uganda and the EAC since 2014, before the announcement of the ban and subsequent tariff hikes, Uganda argued, citing data from the joint World Trade Organization and United Nations International Trade Centre. According to that data, Uganda imported roughly $12 million worth of used-clothing from the U.S. in 2013, while in 2015 it imported about $7.2 million. Further, used-clothing imports in 2015 amounted to 0.72 percent of used items sales from the U.S., which totaled roughly $1 billion that year, according to Uganda.

Kyambadde also claimed that the tariff increase is not discriminatory, is not targeted at the U.S. and is in line with the EAC Customs Union Protocol as well as WTO commitments. This line was echoed by Bagamuhunda and the executive director Belinda Edmonds of the African Cotton & Textiles Industries Federation (ACTIF), which represents the full cotton-textile-apparel value chain in 24 countries in Africa, including the three under view, in separate comments.

Used-clothing imports also discourage competition between new clothing and “greatly undermine the efforts to develop and promote new items including those that may originate from the USA,” Uganda added. ACTIF added that used-clothing is not subject to tracing practices that brand name clothing, including those from U.S. companies, are.

Finally, Uganda argued that U.S. investment there “is not hindered by any undue policy,” and noted that the U.S. has had a positive trade balance with Uganda “over the last few decades,” adding that the U.S. in 2016 had a $35.36 million trade surplus.

ACTIF similarly pointed to trade data in making the case that the out-of-cycle review should not result in Tanzania, Rwanda and Uganda losing AGOA preferences because trade with those three countries benefits the U.S.

ACTIF claimed that exports covered by AGOA from Tanzania, Rwanda and Uganda totaled $43 million in 2016 while U.S. exports were valued at $281 million that year, creating a surplus of $238 million.

The African federation also argued that a “significant proportion” of used clothing imports received by the three countries under review do not meet the harmonized tariff schedule 6309.00.00 description criteria that the articles “must show signs of appreciable wear.”

“Rather, a significant proportion of such Used Clothing imports are in fact overruns, unsold overstocked inventory, etc. that has never been previously worn or used,” ACTIF said.

The retail industry, in a joint submission from the American Apparel & Footwear Association, National Retail Federation, Retail Industry Leaders Association, and U.S. Fashion Industry Association, argued that revoking AGOA benefits would stymie growth in the three countries under review,

“The AGOA program was recently renewed for a ten‐year period. These countries are now at the beginning stage of undertaking the necessary steps to maximize utilization of the AGOA and to foster sustainable economic growth,” the organizations noted. Congress renewed AGOA for ten years in 2015.

“Withdrawing benefits now would undermine those initiatives, including those fostering market based economies or leading to the elimination of barriers to U.S. trade and investment. Even the threat of withdrawal induces uncertainty that puts progress toward those reforms in jeopardy,” the U.S. retail industry added.

AAFA executive vice president Steve Lamar told Inside U.S. Trade in an interview that the bottom line for AAFA's member companies is that “the trade relationship continues uninterrupted."

Lamar added that member companies generally support AGOA and also have investments and trade relationships in Rwanda, Tanzania and Uganda. He said that companies are looking to build on investments, and AGOA is at a “critical point” in its ten-year cycle.

Uganda, in its individual comments, listed eight initiatives sparked by AGOA’s duty-free export benefits and pursued under the assumption that duty-free preferences would continue to be provided. Those initiatives include plans for export-driven coffee production supported by USAID, the resuscitation of Uganda Airlines which will require imports of aircraft and parts, and the reinvigoration of the textile industry and expansion of cotton production.

“It is indeed disconcerting when countries -- either AGOA beneficiary countries or others -- are contemplating policies that would restrict trade through high tariffs or bans. It is our strong hope that the United States and the three countries that are subject to this Out of Cycle review can work together so that this issue can be quickly resolved,” the retail organizations said. -- Jack Caporal (jcaporal@iwpnews.com)

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