Costly Cheapness: The impact Asia has on fashion

In the developing world, China appears to be a saviour to shoppers on a tight budget.  You see them displayed in stalls all over the central business district (CBD) or comfortably promoted on your Instagram or Facebook feed; ready for delivery straight to your door. These are the goods from Asia, gradually flooding the local textile and clothing (T&C) industry.

Chinese imports have given Africans access to products and amenities that just a few years ago seemed out of reach to the masses. We’re not just talking about electronics such as cellular phones and computers, but more basic goods such as clothes and shoes that the developed world takes for granted. This access comes at a fraction of the cost, giving the average African citizen more economic power. That should be a win-win situation, yet it is quite evident that it isn’t a level playing field. China’s growing presence can be felt all over Africa, as it is currently the dominant clothing trader on the continent. In the woven commodity trade alone, the value of China’s exports to Africa were US$560 million in 2011 as compared to US$52 million value in 2000. Finding it hard to compete, textile mills and manufacturing plants have had to close or considerably downsize, eliminating employment opportunities in countries that desperately need them. But how did China gain such a huge advantage?

In the 1980s, China recognised that its T&C industry would be a key component to fuelling their economic expansion. Therefore, the government created an environment that would be viable for its success. That includes free or low-cost government financing and subsides, reliable infrastructure such as road and railways, as well as, steady water and electricity supplies. These just so happen to be all the areas African nations have an issue with. In 2001, China became a member of the World trade Organisation (WTO), which lead them into committing to lowered tariff rates, as well as opening up its domestic retail and distribution markets. With the African Growth and Opportunities Act (AGOA) having expired in 2005, and the Agreement on Textiles and Clothing (ATC) phased out at the end of 2004,  America and Europe weren’t obliged to show the world’s poorest nations preferential treatment anymore. The open playing field of globalization and market liberalisation meant disorganised African nations had to go up against fully government-backed China. China took this opportunity, created by the expiry of agreements, to accelerate its global production networks (GPNs) integration. That move led China to be one of the world’s biggest producer and exporter of textiles and clothing accounting for 58 percent and 50 percent of world’s total T&C trade and fibre production in 2009 respectively.

China also happens to be a one stop shop in almost all the activities in the T&C industry value chain. That is, it exports textile products such as raw material and fibre, right down to the fabrics and ready-to-wear finished goods. Under the current trade preferences, African nations have failed to significantly advance production along these value chains. They also fail to see that T&C isn’t an isolated industry and thus shouldn’t be treated as the problem child of their ministries of trade. Because it has such an impact on development, African governments should not only have a common approach to issues of T&C trade and investment, but also common policies that coordinate the governments on conduct towards investment attraction.

However ingeniously China has played its cards to make the most out of liberalisation, there are concerns that its actions could lead to de-industrialisation.

However ingeniously China has played its cards to make the most out of liberalisation, there are concerns that its actions could lead to de-industrialisation. And it’s not hard to understand why this could be true. Manufacturing growth in Kenya in 2014 fell to 3.4 percent from 5.6 percent in the previous year. Another allegation against China is that it is abusing its economic dominance to create anti-competitive effects in African domestic markets by dumping its goods in Africa. Conversely, the term ‘dumping’ may be incorrect here as China isn’t exporting its goods to Africa at a price lower than it would in its domestic markets, or lower than its normal value.  Hence, the anti-dumping measures under international trade law do not apply to what China actually does.

In fact, the WTO doesn’t have remedies to prevent market injury from import sales at low and competitive prices in the normal course of trading. Short term, these low fair prices appear to aid consumers but in the long run, the impact to economic development is akin to the effects of dumping practices. This includes slow output growth, decline in employment and profits, as well as, forcing a country out of the specific trade all together.

The WTO may not be able to prohibit dumping but once the act causes another market material injury, it can condemn it as being anti-competitive. Over 30 countries globally, between 1995 and 2012 have launched anti-dumping investigations of over 600 cases against Chinese products. Nineteen of the complaints have come from South Africa alone.

So the question becomes what are the country’s options if there is indeed market injury? WTO Anti-dumping Agreement, in conjunction with Article VI of the General Agreement on Tariffs and Trade (GATT) of 1994, was created to help governments to protect their countries from imports at dumping prices. If the country can prove the market injury and the dumping margin in price, then they would receive relief in the form of charging extra import duty on the products that have been dumped to bring the product back to normal value. The second option is the safeguard measures in Article XIX of the GATT also known as the GATT ‘escape clause’ for the counties that have experienced serious market injury. However the WTO hasn’t set very transparent guidelines that indicate in which situations this safeguard can be applicable. Thus making this an inefficient form of protection.

But until a country can successfully prove that China is either showing price discrimination or selling below product cost, we’re forced to view it as a country with legal business acumen that so happened to take advantage of a business opportunity. That said, it is important for African markets to develop legislative and economic reforms to curb the effects of cheap goods from China. Africa can’t change the fact that china can produce and sell very low cost but it can ensure it gets the most out of the relationship. That involves weighing the economic benefits and disadvantages of letting cheap imports in. While governments should take advantage of technology transfer agreements that would modernise industries, it should limit imports to areas of the domestic market that are actually thriving. African governments also have to invest in the promotion of their brands within Africa, as well as, in international markets. Lastly, governments also need to explore new products that they can promote as future export industries as lack of diversification poses development threats.

China may have flooded African countries’ markets but there’s a chance to learn from how they achieved their spectacular increases in manufactured exports. First lesson being Africa’s dire need for stronger economic policies, governance, and institutions. Secondly, African governments need to invest in stronger linkages between their abundant natural resource sector and their manufacturing sectors in order to achieve rapid growth. Thirdly, the governments need to become more dependable in areas of government services, macroeconomic policies, and infrastructure that can support regional trade. It’s clear to see that Asian success has had a lot to do with smooth coordination of industrial and trade policies for development promotion. They developed policies than ensured favoured industries were exposed to international competitions. Until African countries put in the solid framework to have sustainable, self-sufficient T&C industries, Africa will always be the world’s dumping ground; be it for cheap goods or second hand clothing.