Where Trade and Industrial Policy Converge: How Developing Countries Can Utilize Trade Preferences to Generate Sustainable, Local Growth in the Garment Sector
Trade preferences have long been central to international development policy, particularly in the textile and apparel sector. By reducing or eliminating tariffs on exports from developing countries, preference schemes such as the African Growth and Opportunity Act (AGOA), the EU’s Everything But Arms initiative, and the Generalized System of Preferences have opened export markets that would otherwise remain inaccessible to low-income countries. Yet the results have been uneven. Some countries have translated preferential market access into genuine, lasting industrial development. Others have seen export volumes rise and fall with little lasting benefit to local economies. The question this academic article sets out to answer is: why?
Published in The International Lawyer (Vol. 49, No. 1, 2015), this academic article argues that trade preferences and rules of origin — the conditions goods must meet to qualify for preferential treatment — do not, by themselves, determine whether a developing country will build a sustainable apparel industry. The decisive variable, the article contends, is domestic industrial policy: specifically, whether a government adopts a strategy that goes beyond attracting foreign investment for export purposes, and actively incentivizes local entrepreneurship, skill development, and backward linkages into the textile sector.
To make this case, the academic article conducts a qualitative comparative analysis of six developing countries that all experienced significant growth in apparel exports — Lesotho, Kenya, Madagascar, Sri Lanka, Bangladesh, and Cambodia — examining why some have been relatively successful in generating sustainable local industrial development while others have remained locked in low-value-added, export-dependent growth.
The analysis reveals a consistent pattern. Countries like Kenya, Lesotho, and Cambodia adopted industrial policies that were exclusively export-oriented, channeling incentives almost entirely to foreign investors in export processing zones while providing little support to domestic firms, failing to invest in workforce training, and in some cases actively discouraging linkages between foreign enterprises and the local economy. When trade preferences were reduced or external conditions changed, these countries were left highly vulnerable. Bangladesh and Sri Lanka, by contrast, implemented balanced industrial strategies that encouraged foreign investment while simultaneously lowering barriers for local entrepreneurs, subsidizing backward linkages into textile production, and investing in skills training — generating industries with greater resilience and local ownership.
Based on these findings, the academic article sets out detailed policy options at three levels. Nationally, governments are encouraged to equalize incentives for foreign and domestic investors, reduce entry barriers for local producers, incentivize backward linkages, and pursue product upgrading strategies targeting niche markets. Regionally, it calls for lower intraregional tariff barriers and more flexible rules of origin to foster the kind of embedded investment that generates sustainable growth. Internationally, it urges the development community to move beyond a narrow focus on expanding preference coverage and to engage developing country governments in a broader dialogue linking market access to credible industrial strategy.
