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Trade preferences vital for vulnerable countries

by Lesotho Times
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AN article written by Rosa Whitaker which appeared in the South African newspaper, Business Day, was headlined: US must resist pressure to neglect Africa.

Whitaker is the Lesotho National Development Corporation (LNDC) trade and investment consultant based in Washington DC in the United States.

In the article Rosa argued that the Obama administration should “resist the pressure from some members of the US Congress to support legislation that extends the duty-free access to the US market enjoyed by African nations under the African Growth and Opportunity Act (Agoa) to all least developed countries (LDCs)”. 

In 2005 when the Multifiber agreement (MFA) expired, the US and other major industrialised countries lifted quotas on textiles and garment products.

This development exposed countries whose garment industries had been protected from competition through trade concessions, such as those under Agoa, to extreme competition from some Asian countries.

Lesotho was one such victim as over 10 000 workers lost their jobs.

What is in contention now is that tariff exemptions that are currently enjoyed by Agoa eligible countries also be extended to other LDCs including countries such as Bangladesh and Cambodia.

The latter have well established garment manufacturing industries. 

Their productivity and competitiveness are nowhere near those of Agoa countries.

Putting them on par with Agoa countries would simply mean the end of the latter’s hard-earned industries.

The article by Rosa makes a lot of good sense because should the US government change the rules, a lot of damage would be caused to the Agoa eligible countries that mostly rely on the US market for their garment exports.

Their fledgling industries would simply melt away; unemployment would shoot to new proportions, political instability, civil strife and runaway poverty would become the order of the day.

Most of these countries would curse the day Agoa was promulgated back in 2000 as they would be pondering on other options they would have otherwise taken had they had a crystal ball.

Indeed this would also cause a lot of embarrassment to the US government which had very good and lofty intentions about Agoa.

Agoa has been and still is a quintessential factor behind the development of the textile and garment manufacturing industry in Lesotho.

Until the organic and critical competitiveness elements such as productivity, cost and logistics have been firmly acquired, Agoa shall remain the main driving force behind the industry’s survival.

Although the world economy has been going through a tough and prolonged turbulence, the industry has still managed to keep over 40 000 workers employed down from 58 000 at its peak in 2004.

It still remains the largest employer in the country.

It is also important to note the fact that Lesotho continues to be the largest exporter of garments in Sub-Saharan Africa accounting for around 25 percent of the region’s total garment exports to the US.

One cannot imagine what would happen to the industry and Lesotho as a whole if the Agoa concessions were to be made accessible to all LDCs, including those that already have well established apparel industries.

The cut throat competition that characterises the apparel industry today has led to a phenomenon commonly known as a ‘race to the bottom’. 

What this concept actually means is that as competition heats up wages are reduced to a bare minimum to the extent that they may reach a level close to zero!

Those who can’t compete simply fall by the way side. This is what would happen if the US Congress would take the narrow view and hope that the invisible hand of the market will produce optimal and efficient solutions without taking cognisance of the common market failure problems.

Indeed such a decision would be seriously flawed in the sense that it would turn out to be what in economic parlance is called a “corner solution” — one characteristic of market failure.

A corner solution is often observed in linear programming models. It occurs when a variable is given a zero value because it lies at the corner of the set of all possible solution values. 

A simple interpretation of a ‘corner solution’ in the case of Lesotho and other Agoa eligible countries is that because of their low productivity and poor competitiveness their workers deserve a zero wage (because they are corner producers!).

A direct implication of this is to close down the garment manufacturing industries altogether and  relegate these countries to perpetual poverty and oblivion.

I would like to conclude by reiterating the point made by Rosa that trade preferences are clearly not for the hypercompetitive countries but for the most vulnerable and fragile.

The Obama administration must seriously heed this call. The present discriminatory character of Agoa on market access is a perfect solution for marginal or corner producers and must be maintained.

Marginal or corner producers should by definition be transitory if given a shot in the arm and Agoa is such a shot.

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