Protecting and improving US market access for the poorest countries

15 November 2013

How could the United States provide duty- free, quota-free market access to Asian LDCs while protecting current preference beneficiaries? Support from the Obama administration for a compromise along these lines would help to ensure a positive outcome at the upcoming WTO  ministerial meeting in Bali.

Opening their markets to the exports of poor countries was part of the global partnership that is at the core of the eighth Millennium Development goal. Countries recognised that development is about more than aid and that the

Poorest countries needed to be more integrated with the global economy to help them create jobs and opportunities for growth.  In 2005, the World trade Organization embraced this goal, and developing country members agreed that those of them "in a position to do so" should also open their markets to the least developed countries (LDCs). Since then, most developed countries have removed barriers on at least 98 percent of all goods for LDC exporters, while China and India have adopted less expansive programs to improve market access for these countries.

With the 2015 deadline for the Millennium Development goals looming just over the horizon, the United States is the only developed country that is well short of the goal of duty-free, quota-free market access for all LDCs. Over the past decade, the United States increased its efforts to promote trade as a tool of development and lowered barriers to imports from developing countries in Africa and the Caribbean, including 35 LDCs in those regions. Under the African growth and Opportunity Act (AGOA) and various special programs for Haiti, trade in the liberalised sectors increased sharply. In Asia, however, there are 14 LDCs that fall outside these regional preference programs. These countries still face high trade barriers because the US generalized system of Preferences (GSP) omits key products.

A positive outcome at the upcoming World trade Organization (WTO) ministerial meeting in Bali would provide key support for the multilateral trade system at a time when so much attention is on the regional negotiations across the Pacific and Atlantic oceans.

The challenge of extending trade preferences to all LDCs

Clothing is an important sector for many poor countries because it is labor-intensive and most of them have an abundance of labor. Moreover, trade preferences are particularly important for clothing exports because tariffs in this sector remain stubbornly high. In the United States, the average tariff on apparel is 15 percent, which is more than 10 times higher than the average for all imports. The AGOA program and special preferences for Haiti under the Caribbean trade Partnership Act include duty-free access for apparel exports from eligible "lesser developed" countries. GSP does not. Lesotho and Kenya were big beneficiaries of AGOA, realising three-fold increases in exports to the United States from 2000 to 2012.  Haitian apparel exports in 2012 were 60 percent higher than in 2000 as a result of expanded preference programs.

Bangladesh and Cambodia are also LDCs that are important apparel exporters to the American market, despite having to face a 15 percent import tax. the major apparel exporters  under  AGOA -Lesotho,  Kenya,  and  Mauritius-as  well as  Haiti,  fear  that expansion of duty-free, quota-free market access to all LDCs, including Bangladesh and Cambodia, would negatively affect their exports. The US textile industry is concerned that increased imports from Asia would reduce demand for US fabrics and yarn among Western hemisphere trading partners. That is because US trade agreements with Mexico, the Central American countries, and others in the region grant duty-free access for many apparel imports only if producers use US inputs. But Bangladesh and Cambodia remain very poor and reducing or eliminating high US tariffs on exports from these countries would create many more jobs for poor people.

This proposal aims to increase trade opportunities for Asian LDCs while addressing the concerns over preference erosion. The proposal is rooted in the fact that exports from AGOA   and Haiti are relatively concentrated in a few clothing  categories.  Excluding just those categories from the duty-free, quota-free initiative would protect existing preference beneficiaries while opening important opportunities for other LDCs.

Details of the proposal

The first step towards a compromise is to establish clear criteria to identify competitive LDC exporters that would remain subject to some restrictions under the LDC market access initiative. There are two main apparel sectors under the harmonized tariff system- apparel that is knitted or crocheted (HTS 61), and woven apparel, such as denim jeans or men's tailored shirts (HTS 62). China is by far the largest foreign supplier of these goods, accounting for roughly 40 percent of us apparel imports overall. The market shares of other suppliers are dramatically smaller, and only two LDCs, Bangladesh and Cambodia, account for as much as 2 percent of us imports in these two apparel categories. Therefore, 2 percent offers a feasible threshold for defining competitive exporters that would not receive full duty-free, quota-free market access under the initiative.

The second step is to identify particular apparel items that are important for AGOA  countries and  Haiti that might be  excluded  for competitive exporters-in this case, Bangladesh and Cambodia. There are 38 detailed (10-digit) tariff lines that account for at least 85 percent of Lesotho and Haitian clothing exports to the United States, 70 percent of Kenyan exports, and 88 percent of those from Mauritius. The analysis focuses on these three because they account for 87 percent of all AGOA apparel exports. These "safeguard" items are dominated by t-shirts, sweatshirts, jeans, and certain other shorts and trousers. In us dollar terms, these tariff lines account for all items with exports greater than $10 million for Haiti and $5 million for Kenya, Lesotho, and Mauritius. A lower threshold is used for AGOA exporters because each has apparel exports that are less than half the value of Haiti's.

US producers do not compete directly with any of these countries, as more than 97 percent of apparel in the US market is imported. Rather, US textile producers want to protect the captive markets for their fabric, yarn and other inputs that US negotiators created through complex rules of origin in regional free trade agreements. The 38 safeguard categories also shield more than half of US imports from Mexico and the Dominican republic-Central America Free trade Agreement.

The items not on the safeguards list are in most cases very different from the items liberalized. That means it would be difficult for Bangladesh or Cambodia to make slight adjustments to excluded products with the aim of displacing the exports of current beneficiaries.  For example, the protected t-shirt categories are mostly crew-neck and other short-sleeve shirts, while those open to competition from Asian LDCs would be tank tops, singlets, and thermal shirts. In the woven garments sector, denim trousers (jeans) are protected while some corduroy pants not produced in Africa and overalls would be open to other LDCs.  Bangladesh and Cambodia export a range of products that are not exported at all from Haiti or Africa. Moreover, Haiti and the Western hemisphere trade agreement partners would retain the benefits of proximity.

Excluding these selected tariff lines for competitive LDC exporters would still allow roughly half of clothing exports from Bangladesh and almost 60 percent from Cambodia to receive duty-free access in the US market. To ensure its eligibility, however, Bangladesh would also have to take credible and sustainable steps to improve working conditions in the garment sector. The other Asian LDCs, including Afghanistan, Laos, Nepal, and Yemen, could also see new opportunities open up. if concerns about close substitutes persist, the excluded categories could be covered at the broader  8-digit level; that safeguard expansion would raise the share of AGOA  exports covered to 96 percent for Lesotho and

86 percent and 94 percent, respectively, for Kenya and Mauritius. However, the expanded coverage would come at substantial cost to Bangladesh and Cambodia, lowering the share of exports with duty-free access to a third for the former and 40 percent for the latter.

Conclusion

The WTO ministerial meeting in December is the last chance to salvage something meaningful from the long, frustrating Doha round experience. The WTO would survive a failure in Bali, but it would be significantly weaker as a result. us willingness to open its market to the poorest countries in the world could contribute importantly to a positive outcome, which in turn would contribute to strengthening the rules-based trade system for everyone. And, of course, it would also create opportunities for increased growth and job creation in some very poor countries. A bit of compromise would be a win-win all around.

Author: Kimberly Elliot is Senior Fellow at the Center for Global Development(CGD), Washington, USA.

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