While C&H exports to different countries, the US constitutes its biggest market.
C&H, the Chinese garment maker based in the Kigali Special Economic zone, which has heavily depended on the US as its export market destination is beginning to feel the pinch as the US moves to enforce restrictions on products from Rwanda under the Africa Growth and Opportunity Act (AGOA).
In March, the Office of the United States Trade Representative (USTR) warned that Rwanda would lose some benefits under AGOA in 60 days after it increased tariffs on second-hand clothes. The grace period expired on May 28.
However, C&H says it is already feeling the pinch as some of its key US customers have put on hold all orders until the stalemate between the two countries is resolved.
“It is true we have been affected, we have lost market in the US because of the AGOA situation, the company has raised the issues with government through RDB and we are waiting to hear from them” said Emmy Iraguha, the C&H production controller and manager.
The duty free access to the US market under AGOA that Rwanda has been enjoying along with other Sub-Saharan African countries, was one of the key motivations for C&H starting a clothes manufacturing factory in Rwanda, and close sources say the suspension AGOA seem to be dampening its prospects in the country.
While C&H exports to different countries including Europe, the US constitutes its biggest market.
In a move to respond to the huge demand left behind by the sharp decline in importation of second-hand clothes since the government imposed heavy import duties on them, the Chinese garment maker plans to start production for the local market.
Although production for the local market has delayed as it was scheduled for January 2018, C&H has already registered a brand for the local product, named (And).
Hard time
However the Rwandan market is still largely dominated by cheaper Chinese imports and according to market analysts.
C&H will have a hard time competing favourably with these imports, which are already eating up the market segment previously controlled by second hand clothes.
However, local retailers have raised concern over the quality of clothing manufactured by C&H.
“The clothes we have seen their quality and fashion is still lacking,” said Froduard Ndahimana, a cloth retailer, adding that Chinese imports are of better quality.
Their price will also be a big factor that is likely to affect their market entry as they target the mass-market demand, which has for years been served by cheaper Chinese clothes and second hand clothes, which comes in different types and price ranges suitable for all economic clusters.
While C&H’s capacity is 70,000 pieces of clothing per month, it is currently operating below capacity.
The company imports all its raw materials and fabrics from China and despite enjoying a government import duty waiver on all raw materials used, the transport costs they incur end up making the final products expensive for the local market.
Raising tariffs on second-hand clothing imports was made as a collective decision by all East African member countries, but while other member countries like Kenya, Uganda and Tanzania have succumbed to the US threat to suspend AGOA, Rwanda maintained its stance, forcing the US to take away AGOA duty waivers.
The AGOA trade program provides eligible sub-Saharan countries duty-free access to the United States on condition they meet certain statutory eligibility requirements, including eliminating barriers to U.S. trade and investment, among others.
Compliance
In a statement the government of Rwanda said the AGOA suspension is at the discretion of the US government, but it will stand by its decision.
“AGOA is a commendable unilateral gesture to African countries, including Rwanda, meant to promote trade and development through exports. The withdrawal of AGOA benefits is at the discretion of the United States,” said the statement from the government.
AGOA was enacted in the US in 2000 to run to 2015 but it was renewed to run up to 2025.
The US government had said the suspension of the benefits, instead of termination of Rwanda’s status as an AGOA beneficiary, would allow for continued engagement with the aim of restoring market access and thereby bringing Rwanda into compliance with the AGOA eligibility requirements, but the negotiations are yet to bear any tangible outcomes.