Rwanda, US eye trade war over $1 billion used clothing market

Since her husband was murdered in Rwanda’s 1994 genocide, Devotha Mukankusi has relied heavily on the UTEXRWA garment factory in the capital Kigali.

“I survived the genocide together with my kids. But it’s thanks to this job that they have grown up,” she said, her voiced raised above the drone of sewing machines as she supervised a group of women assembling police uniforms.

Some 800,000 people — 10 percent of Rwanda’s population — were killed in the genocide. The economy was crushed.

Rwanda has bounced back in the past decade or so. As part of a drive to become a middle-income country by 2020, it is nurturing a garment sector it hopes can create 25,000 jobs. It’s a strategy that has flourished elsewhere in Africa.

But domestic demand for locally produced clothes has been stifled, east African governments say, by the ubiquity of cheap, second-hand garments imported from Europe and the United States.

The manager of the factory where Mukankusi works says the facility is only running at 40 percent capacity and second-hand garments, which can sell at well below his production costs, are at least partly to blame.

In response, East African Community (EAC) members Kenya, Tanzania, Rwanda and Uganda increased tariffs on used clothing in July 2016. Rwanda hiked import duties from 20 cents to $2.50 per kilogram.

Those tariffs are now the center of a dispute between the US and Rwanda. If Rwanda continues to tax imported second-hand clothes, Trump Administration officials say, the country could lose some of its access to US markets for its exports. Rwanda has until May 28 to comply.

“The president’s determinations underscore his commitment to enforcing our trade laws and ensuring fairness in our trade relationships,” Deputy US Trade Representative C.J. Mahoney said, announcing the decision.

No matter the outcome, the row is further straining Washington’s relations with Africa at a time when it is being aggressively courted by America’s global competitors, not least China.

Made in Rwanda

Under the US African Growth and Opportunity Act (AGOA), qualifying African countries are granted duty-free access to the US market for 6,500 exported products. The law was, which passed in 2000, is credited for increasing Africa’s export sector, with duty-free exports from the continent to the US market almost quadrupling to over $1 billion since the law was enacted.

In March, the US warned Rwanda it would lose some benefits under the the act, after Rwanda increased tariffs on second-hand clothes to support its local garment industry. Trade officials acted after receiving a complaint in March last year from the Secondary Materials and Recycled Textiles Association (SMART), a US-based organization which represents companies that collect and resell Americans’ used clothing.

Selling America’s used clothing — much of it donated to charities and the bulk of it originally made outside the United States — is a nearly $1 billion industry. Exports typically end up in poor nations. Africa is a key destination. SMART said the EAC duty increase violated AGOA.

“It basically was a shutdown in the market for my members,” SMART Executive Director Jackie King told Reuters. “When Rwanda particularly wanted the duties increased by 1,100 percent, it just wasn’t possible to do business there.”

The fees also affected Rwandans.

“Before, even with a little money, you could buy enough second-hand clothes for a child. But some children in my neighborhood are now naked,” Fillette Umugwaneza, 24, a mother of two told Reuters. “It is a disgrace to our country.”

Rwanda’s government argues such hardships will be short-lived. Opening new factories will create more, better paid jobs, while expanding domestic consumption will cut its external trade deficit, it says.

“Just in the last two or three years … we’ve seen almost three times growth in production of garments and textiles for the economy,” said Clare Akamanzi, CEO of the Rwanda Development Board.

Self-reliant

The current dispute, which also initially involved Kenya, Tanzania and Uganda, has received none of the attention of Trump’s trade war with China or his haggling with North American neighbors. Yet critics — including former US trade officials — see in it a worrying indication of how Washington will approach trade relations with Africa.

“It delegitimizes so much of what we’ve worked for for so many years,” said Gail Strickler, who served as the top US trade official on textiles until 2015. “I think it’s horrible. I think it’s sad. I think it’s pathetic and I think it’s obscene.”

“AGOA clearly has a criterion that the beneficiary countries must be eliminating barriers to US trade,” said Florie Liser, former Assistant US Trade Representative for Africa under Presidents George W. Bush and Barack Obama.”That’s kind of always been there, but no one was looking to go after the AGOA countries.”

Data compiled by agoa.info, an online information portal about AGOA run by the South Africa-based Trade Law Center, indicates that US used clothing exports to Rwanda in particular actually increased slightly in 2016. After a July 2017 hearing, Uganda and Tanzania followed Kenya’s example and capitulated, agreeing to roll back tariffs to pre-2016 levels.

Rwanda has held out. If it does not concede by the end of this month it faces losing duty-free access for its garment exports.

“The United States has been explicit about what Rwanda must do to adhere to the AGOA eligibility criteria,” a US official told Reuters. “It is up to Rwanda to make a decision.”

The dispute has provoked dismay in Washington and Africa.

“(Africans) are watching. They’re shocked and they’re livid,” said Rosa Whitaker, who was appointed by President Bill Clinton as the United States’ first Assistant Trade Representative for Africa and helped draft the original AGOA legislation.

She called the Trump administration’s actions bullying and predicted they would backfire. “African countries, from what they’re telling me, are feeling abandoned. We’ve just ceded it to China.”

Devotha Mukankusi is more matter of fact about the trade tiff. She’s survived genocide and the Trump administration doesn’t worry her, she said.

“My message for Trump is that it won’t affect us. We are determined to be self-reliant. We’ll make our own clothes.”