Made in Madagascar - The Impact of Rules of Origin on the Textile and Clothing Industry

Abstract: This study investigates the impact of rules of origin (ROO) on the Malagasy textile and clothing industry. The ROO of two different preferential trading arrangements for developing countries, the African Growth and Opportunity Act (AGOA) of the US and the Lomé/Cotonou agreement of the EU, are compared and related to Malagasy clothing exports and textile imports. The AGOA ROO are found to be more liberal than the ones in Lomé/Cotonou, especially when it comes to input sourcing. This study shows that strict ROO have a negative impact on Malagasy clothing exports. Clothing exports to the EU tend to grow slower, be less diversified and use less diversified inputs than exports to the US. Further, strict ROO are not found to increase vertical integration in the Malagasy textile and clothing industry. It can therefore be questioned whether using strict ROO as a tool for development policy in highly fragmentized sectors is effective. Lastly, the utilization rates for AGOA apparel are higher than the ones for Lomé/Cotonou apparel, reflecting the higher costs of exporting to the EU due to strict ROO. In conclusion, the limited input sourcing possibilities in the Lomé/Cotonou ROO can be said to have limited the expansion and diversification possibilities of the Malagasy textile and clothing industry.