2009-08-25 tralac Newsletter
2009-08-25 tralac
Hotseat Comment
Sean Woolfrey, a tralac Researcher, comments on the debate over the Duty Credit Certificate Scheme for clothing and textiles in SACU.
Last week officials of the South African Customs Union (SACU) met to determine the fate of the region’s Textiles and Clothing Industrial Development Programme, commonly referred to as the Duty Credit Certificate Scheme (DCCS). It was widely believed that the outcome of this meeting would be the scrapping of the DCCS, which in turn would represent a further blow to clothing and textiles exporters in the region, many of whom are already struggling to cope with intense competition from Asian producers. To date, no clear indication has been given of the outcome of this meeting, although suggestions are that the purpose of the meeting was to determine the extent of the incentives offered by the scheme, and that no clear resolution has been achieved due to divisions between member countries on this issue.
The DCCS is a SACU-wide export incentive scheme first introduced in 1993. Under the scheme, clothing and textile manufacturers in SACU member countries can earn duty rebates on imported clothing and textiles based on the value of their exports to non-SACU destinations. The purpose of the scheme is to enhance the international competitiveness of local exporters by providing access to cheaper imported inputs and the opportunity to supplement their export production with imported clothing and textile products for their domestic ranges.
In addition, the duty credit certificates are tradable, although the extent of this tradability was curtailed in 2008 following concerns over the abuse of this system. The tradability of credit certificates allows qualifying exporters to sell their certificates to importers who then become the beneficiaries of the duty rebates. This aspect of the DCCS has become a source of much consternation, especially in South Africa.
South Africa’s Department of Trade and Industry (the dti) and labour representatives in the country are adamant that the DCCS in its current format is having a negative effect on the clothing and textile industry in the country. They point to the fact that the vast majority of certificates issued in SACU are not used by exporters, but are instead sold to South African importers who use them to avoid paying high tariffs on clothing and textiles imports into the country. These tariffs are supposedly in place to provide local manufacturers with protection from cheap imports, but the use of duty rebates by importers dilutes this protection, further adding to the local industry’s problems. The South African government and labour representatives are thus pushing for an overhaul of the DCCS which would see the number of product lines available for import under the scheme reduced drastically. Exporters maintain that this would render the scheme useless.
Local exporters have also suggested that limiting or scrapping the scheme could lead to many SACU exporters switching their focus to the local market, thereby increasing competition for manufacturers selling on the local market. This concern seems somewhat overstated however, as exports account for only about 6% of South Africa’s clothing production. In addition, the vast majority of clothing manufactured in Lesotho – the biggest clothing exporter in SACU – is produced for export to the United States under the African Growth and Opportunity Act (AGOA). The Lesotho clothing industry’s reliance on the duty-free market access granted under AGOA is illustrated by the fact that in 2007 over 90% of the country’s clothing exports were exported to the US under AGOA. If AGOA is indeed the lifeblood of the Lesotho clothing industry, then it seems unlikely that any loss of incentives provided by the DCCS will result in a reorientation of exports towards South Africa and other SACU members.
In emphasizing the fact that such a small percentage of South Africa’s clothing production is produced for export, the dti neglects to address why this is the case. In 2003 SA’s clothing exports were valued at over $300 million, but in 2008 the country exported only $107 million worth of clothing products. Undoubtedly, much of this decline can be attributed to increased international competition arising from the ending of the Multi-fibre Agreement and the increased capability of many Asian producers. Nevertheless these figures make quite clear the fact that the DCCS has failed in its aim of boosting exports.
While this might be due to a design fault, indications from firms who have attempted to make use of the scheme are that it has not been effectively administered. Indeed, the fact that the long-term future of the scheme has been unclear for a few years now means that manufacturers have not been provided with the clarity and predictability that they would surely require in order to grow and maintain successful export operations. Furthermore, it is surely the ineffectiveness of this administration that has resulted in the abuse of the scheme, which in turn is being used as a reason for its scrapping. Should exporters really be the ones punished for this failure?
The South African government’s position seems to be that the costs for supporting and developing a regionally integrated clothing and textile industry should not fall disproportionately on South Africa, and in particular on South African manufacturers serving the local market. But if the incentive scheme is important for exporters in the region, and a reduction in duties on inputs for clothing manufacture is infeasible, then perhaps South Africa should cover the costs of developing and maintaining a regional clothing and textile industry. Given the importance of the clothing industry to the economy of Lesotho in particular, any measures by South Africa that undermined this industry, could potentially lead to undesirable consequences for SA in the long run.
The Textiles and Clothing Industrial Development Programme is set to expire in March next year, and if no compromise can be reached before then over the extent of the tradability of the duty credit certificates, then the likelihood of the scheme being renewed seems bleak. What is not so clear however is whether this would represent a devastating blow to an already embattled segment of the region’s manufacturing capacity or if it would simply prevent a small group of importers dodging import duties?
Special Features
tralac Media Library
- View an interview by Mr Chiedu Osakwe, Accessions Division WTO. He comments on the special and differential treatment LDCs receive when acceding to the WTO.
- View an interview by Dr Dickson Yeboah (Institute for Training and Technical Cooperation WTO). He comments on the importance of services liberalisation for African countries.
- View all previous interviews here...
Weekly Customs, Excise, Tariff and Trade Remedy Summary Notification
- Download the notification here.
News
African trade blocs agree to simplify rules of origin
Three of Africa’s leading regional trade blocs – the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC) – have simplified the rules of origin to be applied by all member states in a move to boost intra-continental trade.
New Delhi to host Doha talks next month
Informal talks between key trade ministers will be held in New Delhi, India next month to revive the Doha Round of world trade negotiations, Indian Commerce and Industry Minister Anand Sharma said yesterday.
EAC to conduct study into members’ trade laws
The East African Community (EAC) Secretariat will be conducting a study on how to harmonise member states’ commercial laws in order to increase investment and bring the region closer to full economic integration.
India, SA agree on road map to enhance trade ties
Indian Union Commerce and Industry Minister Anand Sharma on Saturday called on South African President Jacob Zuma in Pretoria, pledging to expand and diversify trade ties with the country in order to give a new dynamic dimension in the coming years.
Angolan President urges momentum in regional integration
Angolan head of State, José Eduardo dos Santos, said yesterday in Luanda that the country is open to a new joint momentum with South Africa, leading to progressive regional integration.
Farmers to benefit from trade agreements
Farmers are set to benefit from the completion of various trade agreements, including pending bilateral agreements as well as the World Trade Organisation’s (WTO) Doha Round.
Oil for expertise could trigger Angolan-South African trade deal
South African President Jacob Zuma and a number of his cabinet ministers began an official state visit to Angola yesterday.
ESA bloc to sign interim EPA with EU
The Eastern and Southern Africa (ESA) bloc will sign an interim Economic Partnership Agreement (EPA) with the European Union (EU) on 29 August 2009 at the Conference Centre of Grand-Baie in northern Mauritius, an official source said on Tuesday.
Events
tralac Annual Conference, 3-4 September 2009, Cape Town, South Africa
- Trade Policy Developments in Southern Africa
The aim of the 2009 Annual conference is to critically review key trade-related developments for Southern Africa and will provide a forum for the discussion of these and other important trade issues for Southern Africa:
- The signing of the Interim Economic Partnership Agreement (IEPA) with the European Union.
- What can the establishment of the Tripartite Free Trade Area (FTA) mean for regional integration in Southern Africa?
- The new South African trade policy document, its position on regional integration, specifically on SACU and SADC and the country’s quest for South-South partnerships.
- The multilateral level progress in the Doha Round of trade negotiations.
Publications
This week we are highlighting a book published earlier this year: The Monitoring Regional Integration in Southern Africa - Yearbook 2008. This book is available for download electronically in pdf-format.
2008 has been an eventful year for the southern Africa region. The Southern African Development Community (SADC) launched its Free Trade Area in August. In October at a Tripartite Summit, SADC, the East African Customs Union (EAC), the Common Market for East and Southern Africa (COMESA) announced their intention to create a Free Trade Area encompassing the member states of all three regional economic communities. Meanwhile the Southern African Customs Union (SACU) has experienced growing internal dissent. The 2008 collection of papers reviews the developments in the southern African region, hoping to stimulate debate about regional integration matters at a time when important decisions for the region’s longer-term future are being taken. Read more here...
AGOA.info
2009 AGOA Forum
Kenya recently hosted the 8th USA-Africa AGOA Forum, an annual event mandated by the AGOA legislation. The Forum took place over three days from 4-6 August, with the first day dedicated to private sector and civil society sessions, and the following two to the Ministerial. Sessions were open to all delegates. Read more here.
June 2009 trade data now available
New trade data for the first half of the year (to June 2009) has been updated on AGOA.info.
Updated bilateral US-Africa country trade profiles
Profiles of disaggregated bilateral US-Africa trade, by country, has been updated to reflect June 2009 data. This also includes various regional profiles - SACU, BLNS, COMESA, ECOWAS, and CEMAC. Follow this link.
Other updated AGOA data sections include disaggregated bilateral trade profiles for each AGOA country individually (as well as within various regional configurations) , aggregate bilateral trade, preferential trade under AGOA / GSP and sectoral data from AGOA-eligible countries by value and as a proportion of US imports, as well as sectoral new AGOA and GSP AGOA data. Textile data, which is categorised by rules-of-origin category (for example, it distinguishes garments made from local or third country fabric), is available both by value and by volume. Data to June 2009 shows exports of clothing are down 8% year-on-year (clothing exports made up of third country fabrics are 5% lower). Export data to June 2009 is available at this link.
The current quota period commenced in October 2008 with the latest available quota utilisation rates for the period October-July showing an overall uptake of 13.17% (11.90% to June), and 25.58% (23.13% to June) under the 3rd country sub-quota. The total allowable quota for the October 2008-September 2009 annual period has been set at 1,711,900,006 square meter equivalents (SME), which for the first time is lower than the quota allocated to a previous year (2007/8: 1,746,798,542).
Follow these links to diagrams showing clothing exports under AGOA, and quota utilisation during the current quota period.
Trade acronyms and terminology
Visit AGOA.info's alphabetically-ordered database of trade-related acronyms and terminology
Latest AGOA news
- AGOA and Africa's prosperity
- Comesa: AGOA should focus on investment
- Africa asking for long-lasting AGOA
- Africa faces WTO hurdle in bid to extend AGOA
- Did you know? You can search AGOA.info's news archive (now containing over 1,000 articles) through the built-in search functionality.
- Read these and other AGOA-related news articles in AGOA.info's news area, which is continuously updated with articles sourced from a wide range of African and foreign publications.
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