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China Square: Local retailers at risk of being driven out of business?

 China Square store at the Unicity mall near Kenyatta University. [File, Standard]

China Square has taken the country by storm.

On the one hand, consumers are appealing for the stay of the mall as it is alleged the goods being sold there are of a higher quality and are priced at almost a third of the prices of other local retailers. On the other hand, local retailers want China Square invalidated and the Chinese traders disallowed to participate in retail business.

There are still many unanswered questions but clearly something is amiss. Is it that local traders sell their products at higher prices because the importers sell to them at exorbitant prices? Or is it possible that the Chinese traders are selling products at a cheaper price than the local traders to cause trade dumping? Dumping is when a foreign producer sells a product at a price lower than its normal value or below the producers' sale price in the country of origin.

While dumping enables consumers to obtain goods at an affordable price, the purpose of the foreign retailer is to drive the local producers and retailers out of the local market thus creating a monopoly in that economy. In turn, this enables the foreign producer to unilaterally dictate the prices and even quality of those goods.

In international trade, dumping falls under the rules of unfair trade. The World Trade Organisation (WTO) does not prohibit dumping, but it can condemn it if it threatens an established local industry. However, in order to sanction dumping, a country has to undertake a complex and expensive process at the WTO's Dispute Settlement.

In Kenya, anti-dumping laws are provided for under the Kenya Trade Remedies Act. Section 23 (2) states that "where a product is being imported in Kenya in such increased quantities as to cause or threaten a serious injury to a domestic industry or a direct competitive product, the Cabinet Secretary may request ... to impose a safeguard measure."

For this process to be undertaken, an investigation needs to be carried out to establish if indeed there is dumping and that the producers are at risk of a material injury. However, this law may not be applicable in this case as the local traders are not producers but importers. All the same, the local retailers are risk of being driven out of business due to the cheaper prices being applied by the Chinese retailers.

One of the fundamental rules in International trade is that it prohibits discrimination and requires that all similar products be treated equally irrespective of their origin. Given that global trade is increasing, there is need for all trade related agencies in Kenya to have well skilled employees so as to accurately recognise trade infringements and place appropriate measures that do not antagonise international traders but also protect local manufacturers and traders.

Kenya cannot compete with China due to many factors. China's manufacturing dominance has developed through subsidies applied in Special Economic Zones including lower energy costs, infrastructure development, rapid customs clearance, concessionary tax rates, research funding, and favourable policies that attract skilled labour and export promotion.

-Ms Gachire, a trainer specialising in Development and Trade Law

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