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BusinessDay 09 Apr 2018

14 BUSINESS DAY

14 BUSINESS DAY C002D5556 Monday 09 April 2018 In Association With Protectionism in Africa Donald Trump’s other trade war—with Rwanda—over used clothes East Africans seek to defend their garment-makers from American cast-offs THE second-hand clothes trade often starts with a gift: an old dress or unwanted shirt, passed on for another to use. Along the way it becomes a multi-billion-dollar industry spanning several continents. It ends at a market stall, usually in Africa. And now it is the cause of President Donald Trump’s unlikeliest trade war. Private companies in America and Europe buy up surplus donations from charities and export them to the developing world. In 2016 east African countries resolved to phase out the trade, complaining that cheap cast-offs hurt their own nascent garment industries. America responded by threatening to impose tariffs on east African goods. Kenya, Uganda and Tanzania backed down. But Rwanda has stood fast. So on March 29th Mr Trump said he would suspend duty-free access for Rwandan apparel in 60 days. Technically, Rwanda has no grounds for complaint. Like 39 other African countries, it enjoys access to American mar- kets under the African Growth and Opportunity Act (AGOA), enacted in 2000. One of the eligibility criteria is that countries progressively eliminate barriers to American goods. Rwanda has done the opposite, hiking duties on second-hand clothes 12-fold. “That is almost a de facto ban on these products,” complains an American official. East Africa accounts for over a fifth of the used-clothes market. Rwanda is only a small part of that. Its stand-off with America is not very costly for either side. In 2016, according to official statistics, Rwanda’s total usedclothes imports were only $18m (against $274m for east Africa as a whole). Its exports under AGOA were just $2m. But the case has wider resonance. African countries once nurtured their industries behind protective barriers. From the early 1980s they reluctantly opened their markets as a condition of foreign loans. Ghana lost four-fifths of its textile and clothing jobs. In Kenya, the number of big garment manufacturers fell by half. Garth Frazer of the University of Toronto estimates that second-hand imports account for 40% of the collapse in African apparel production from 1981 to 2000 (though the underlying data are fuzzy). Slapping tariffs on used clothes is unlikely to help. Sev- eral countries have already tried import bans; smugglers just carry clothes across the border in a suitcase, passing them off as their own. Most local manufacturers, burdened with patchy power and costly credit, cannot produce clothes cheaply enough for domestic consumers. Rwanda’s biggest textiles firm churns out uniforms, but not the trendy T-shirts worn by young men in Kigali. The gap in the Rwandan market will probably be filled by imports from China, already worth $12m in 2016. The immediate losers will be consumers, who will pay more. A survey by the American government finds that 95% of used-clothing imports in east Africa are bought by the poorest 40% of the population. Still, Rwanda seems determined to push on. A special economic zone in Kigali hopes to attract garment-makers. Reducing imports is part of a broader industrial strategy. In economic policy, too, Rwanda is pursuing its own style. Will Gaza boil over? The Palestinians in Gaza are once more bidding to burst out More mass protests are planned in the cramped strip THE skies above the eastern suburbs of Gaza City buzzed with drones on March 30th. The Israeli army was using them to monitor the tens of thousands of Palestinians marching to the border, and to drop tear-gas grenades on those getting too close. When some of the marchers began running closer, the troops opened fire, killing 17 and wounding hundreds. Three and a half years after the last Gaza war, when 2,300 Palestinians and 74 Israelis were killed, the beleaguered coastal strip was erupting again. There were no casualties on the Israeli side, but the mass protests pose a new challenge. The Palestinians are calling it the “Great Return March”, a salute to the homes their grandparents lived in, across the border, before they fled or were pushed out by the newborn Israel. They promise to keep marching for another six weeks, at least. From Israel’s perspective, these are “acts of terror”, aimed at sabotaging the border fence and orchestrated by Hamas, the militant Islamist group that wrested control of Gaza from the Palestinian Authority (PA) in 2007 after winning an election the year before. Since then Gaza’s neighbours, Israel and Egypt, have imposed a near-total blockade on the cramped strip’s 1.8m people. But the march’s organisers insist that they do not represent any one movement, and are simply protesting against their perpetual refugee status and the siege. After seven years of upheaval throughout the Arab world, the Palestinian issue has slipped down the international agenda. The administration of President Donald Trump is firmly behind Israel. International condemnation after the deaths on the border was relatively muted. Even Arab capitals issued no more than bland statements. Saudi Arabia’s crown prince, who is touring America, Continues on page 15

Monday 09 April 2018 C002D5556 BUSINESS DAY 15 In Association With The dragons fly Chinese aviation takes off The West should not pull up the drawbridge against a new wave of disrupters OVER the past few decades, established airlines in Europe and America have been hit by one thing after another. First came low-cost carriers, chipping away at their shorthaul routes. Lately, a new crop of super-connecting airlines in the Gulf, Emirates, Etihad and Qatar Airways, has lured away their long-haul passengers with superior service and lower fares. Now looms the biggest threat of all—the rise of several promising Chinese airlines (see article). Unfortunately, the response of the incumbents risks depriving passengers of the benefits from this latest wave of competition. China’s airlines are rising up the world rankings at a breathtaking pace. In 2007 passengers in China made 184m journeys by air; last year around 550m did. The International Air Transport Association, a trade group, predicts that China will leapfrog America as the world’s biggest market in the coming five years. During the next two decades Airbus and Boeing, the world’s two big manufacturers of passenger aircraft, forecast that Chinese carriers will buy more jets than American ones. Passengers who had a choice used to avoid Chinese airlines. Delays were common, accidents frequent and the food inedible. However, after a concerted effort to improve standards, they are winning flyers over. OAG, a data firm, reckons that in 2011-17 the proportion of passenger seats between China and America on Chinese airlines rose from 37% to 61%. Losing the battle to fly people in and out of China is one thing. But the menace to the world’s established carriers goes deeper. Just as the Gulf airlines expanded by offering connecting flights to international passengers through their Middle Eastern hubs so, too, are Chinese airlines turning themselves into connectors. The cheapest way to get from London to Australia, for instance, is no longer via Dubai or Abu Dhabi but through Guangzhou, Shanghai or Wuhan. The Chinese authorities have loosened visa requirements to encourage this kind of transfer traffic. China’s arrival as an aviation superpower has prompted two responses from big Western carriers— both predictable, neither good. The Europeans are crying foul about government aid, just as they did when the Gulf airlines became a threat. The bosses of Air France-KLM and Lufthansa wail that they are the victims of “unfair trade”. They are lobbying for rules that would let the European Union place unilateral sanctions on subsidised foreign rivals, Chinese carriers among them, even before any investigation has been concluded. The fact that Chinese airlines benefit from support from the state is not in question. But the outrage of rivals is shamelessly confected. Around the world, the aviation industry has been built on government support. CE Delft, a research firm, reckons that French airlines get €1bn ($1.2bn) in energy subsidies alone each year. Unilateral sanctions might benefit incumbents, but would restrict choice and harm passengers. A tit-fortat battle over flying rights would hit Europe harder than China, which is fast becoming a sizeable net exporter of tourists. The big three American carriers have taken a different tack. They are also happy to play the protectionist card when it suits them. American, Delta and United have all been lobbying hard against the Gulf carriers, for instance. But with China they sniff an opportunity as well as a threat. They want an open-skies treaty, which would allow airlines to fly between any airport in the two countries. Fare trade In theory, passengers have much to gain from a deal of this sort. In practice, open-skies deals open the door to joint ventures (JVs), which are granted immunity from antitrust rules and so can potentially lead to higher prices. In 2006-16 the share of long-haul passenger traffic controlled by such JVs leapt from 5% to 25%. Three JVs account for almost 80% of the transatlantic market. The established American airlines would love to team up with Chinese rivals in order to dominate the Pacific, too. Neither shutout nor carve-up is good for passengers. In an ideal world, Europe and America would seek open-skies deals with China but design them to nurture competition rather than mute it. Airline JVs would be barred from gaining antitrust immunity. Airport slots would be allocated more fairly, so that the best landing and take-off times were not hoarded. State handouts would be transparent. Alas, the chances of reaching such a sensible accommodation with China’s airlines are low. Rising trade tensions between America and China are only part of the explanation (see article). The real problem is that big Western carriers would not much like such policies either. This article appeared in the Leaders section of the print edition under the headline “Dragons fly” You’ve seen the news, now discover the story Get incisive analysis on the issues that matter. Whether you read each issue cover to cover, listen to the audio edition, or scan the headlines on your phone, time with The Economist is always well spent. The Palestinians in Gaza are once more bidding... Continued from page 14 preferred to talk about a potential partnership with Israel. But the Palestinians are determined to draw the world’s attention. The marches have been scheduled for symbolic dates. The first coincided with their Land Day, marking a deadly protest in 1976, and with Passover. More are scheduled to take place in coming weeks, as Israel celebrates its 70th anniversary; they will culminate on May 15th, when the Palestinians commemorate the naqba (catastrophe), the term they use for Israel’s birth and their dispossession. Israel’s defence minister, Avigdor Lieberman, warns that “anyone who goes close to the fence is risking their lives”. Isam Hammad, one of the march’s organisers, admits it will succeed “only if we can mobilise Palestinians in other areas and raise the issue of Palestinian refugees in the international media.” He knows the world is not that interested. But Gaza is Hamas’s only asset, so it is using it to bid for the leadership of the Palestinian cause, as well as to challenge Israel. Israeli intelligence analysts think Hamas has changed its tactics, if not its ideology. After a decade of building up its military muscle, in the shape of thousands of rockets and a network of cross-border tunnels from which to attack Israel, its leaders now know its weapons are ineffective. The rockets fired at Israel are intercepted by the Iron Dome missile-defence system. The tunnels are routinely destroyed by Israel. Rather than provoke another round of war and be blamed by Gazans for yet more suffering, Hamas has been looking for ways to break out of its isolation. But two years of negotiations with Egypt and the PA, which is still dominated by its Fatah rivals, have failed to yield a breakthrough that would open Gaza’s gates. Hamas is now returning to the “popular struggle” of the first intifada (uprising) which broke out in 1987. The hope is that the sight of young people throwing stones at armed Israeli soldiers will refocus the world’s attention on the Palestinian cause. Hamas’s new chief in Gaza, Yahya Sinwar, also thinks a popular struggle will boost his chances in the battle to become the Palestinians’ next leader, once the ailing, unpopular Mahmoud Abbas leaves the stage.

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