Lesotho Case Essay Example for Free

Lesotho Case Essay Lesotho Case Study BY byrne280 The Market and the Mountain Kingdom: Change in Lesothos Textile Industry Apartheid and the resulting sanctions against South Africa are what ultimately created the textile industry in Lesotho. Aside from the workers that have historically worked across the border in South African mines, the arrival of the textile industry gave Lesotho its first real participation in the global economy. Otherwise the Lesotho economy consists mostly of subsistence farming. The textile industry gives Lesotho an opportunity to participate in trade with the rest of the world and ideally benefit rom globalization. Geographically, Lesotho is uniquely landlocked and in a complete enclave of the country of South Africa. It is the abundance of affordable labor that has attracted clothing manufacturing firms, mostly from Asia that then bring the finished products to the world markets, primarily the United States and Europe. Lesotho has been an appealing location for textile manufacturing in part because of world trade agreements such as the Multi-Fiber Arrangement (MFA), the Lom © Convention and the African Growth and Opportunity act (AGOA). All of these trade greements have expired or are set to expire in some capacity as of the writing of the subject case study, The Market and the Mountain Kingdom: Change in Lesothos Textile Industry written in November of 2006. I will be examining these trade agreements and other factors to determine the costs and benefits of each. Lesotho is at a crucial stage of economic development and the decisions that the government makes will affect the quality of life for the people of Lesotho for years to come. Through this examination of the past there are many lessons to be learned from these previous trade policies. In some ways, these policies benefit other countries more than Lesotho. Hopefully these lessons can be applied to a plan of action for the government of Lesotho. It is my recommendation that the government of Lesotho evaluate the causes and effects of these policies as well as the costs and benefits. Going forward Lesotho should do more to empower and educate its own people rather than rely on preferential trade policies. It is not my point that Lesotho should not take advantage of trade policies while they are in place but it has repeatedly set itself up for failure when trade policies expire. Analysis of Previous Policies Affecting the Lesotho Textile Industry The Lom © Convention: The Lom © Convention was the first experiment in development and co-operation between Europe and Africa after colonial rule. It was established in 1975 and during the 1980s greatly benefited Lesotho by providing a developmental spark to the textile industry. It also provided for a smoother separation from British colonization and was a good stepping stone for development. As result, Lesotho along with other former colonies benefited from preferential trade with Europe. However the agreement went through five major evisions as needs changed and finally expired completely in 2007. The Lom © convention can be credited for providing a short-cut to development for developing former colonies but the preferential treatment was not sustainable long term. It was changed to require that the raw materials originate from a former colony as well. Since Lesotho does not produce its own raw materials and imports most of raw materials from China rather than other former colonies, the policy was already outdated before it expired. This left a 17% tariff in place for Lesothos access to European markets. This virtually eliminated trade with Europe by 1998. The Multi- Fiber Arrangement (MFA) and, the Agreement on Textiles and Clothing (ATC) The MFA was a multi-nation agreement that created quotas from individual countries on imports to the Unites States. The MFA was active from 1974 to 1994 and was then replaced when the World Trade Organization (WTO) implemented a similar policy called the Agreement on Textiles and Clothing (ATC). The policy expired in 2005 and there are currently no country quotas on textiles. Much like the Lom © Convention, the ATC helped to start the Lesotho textile industry and carried it through 2005. The cost is that arguably quotas can hinder free trade in the world arket. It gives inefficient countries and unfair advantage over efficient countries. The aggregate world output of textiles is fundamentally lower with the quotas in place. The MFA and ATC provided a great way for Lesotho to participate in world trade but unless the policies are permanent, it is not a sustainable solution. Because quotas facilitate inefficient production of goods, they cannot be in place indefinitely. Eventually, truly fair trade must be allowed among all countries and Lesotho must be able to manufacture textiles as efficient as countries like China if it would like to have its textile industry survive.