Second-Hand-Clothing Imports in Least-Developed-Countries: The Collapse of Local Clothing Manufacturing and Remedial Measures

Abstract

Considering the overwhelming global trend of second-hand clothing trade, domestic clothing manufacturing industries in many least developed countries (LDCs) have collapsed. Governments of many LDCs, therefore, have imposed tariff policies on the imports of second-hand clothing. Motivated by the real-world practices, we develop a two-stage Stackelberg supply chain gaming model to study the competition between the locally manufactured new clothing product and the imported second-hand clothing product. We first explore whether import tariff protection can help boost domestic clothing manufacturing industries in LDCs in the light of risk considerations and what the optimal import tariff structure is. We find that in the uncertain LDC market, imposing a high import tariff or a high value-added tax (VAT) on the imported second-hand product may not help local manufacturing. Instead, implementing a carrot-and-sticks (CaS) scheme, which includes an import tariff, a VAT, and an extra incentive, can help. The LDC governments are suggested to adjust the CaS scheme's structure based on factors like risk attitudes of supply chain members, the unit product supply costs, social health risk, and consumer acceptance level of the second-hand product. Finally, we extend our analyses to study the social welfare and the extended importer responsibility (EIR) legislation. We find that if the sterilization cost of the second-hand product is sufficiently low, imposing the EIR legislation in the uncertain LDC market is not beneficial to the domestic clothing manufacturing industry. Specific conditions under which imposing a higher import tariff is beneficial or harmful to the LDC society are identified.