Ready-made Garments
Good News for Bangladesh in the New Year
On November 18th last year, the European Commission approved the new rules of origin regulation. This particular regulation is not a law, but a provision. For this reason, it did not require approval by the European Parliament. However, it is not easy to find this provision on the European Commission’s information database. The Commission’s website is like a vast ocean; without knowing the correct address, finding specific laws, regulations or orders there is very difficult.
Last November, Alissa Ayres, the newly appointed US Deputy Assistant Secretary for South and Central Asian Affairs, visited Bangladesh. At a discussion meeting, the speakers bombarded her with various political questions, making her uncomfortable. At the time, the President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) had not yet arrived at the venue. In that situation, the President of the Metropolitan Chamber, Nasim Manzur, took on the responsibility of representing the exporters. He said, “We are not asking the United States for help; we want market access.” Echoing him, The Daily Star editor Mahfuz Anam reiterated the demand for duty-free access for Bangladeshi garments in the US market. This issue has been unresolved for a long time, and despite much lobbying, no promising outcome can be seen.
The issue with the European Union had also been pending for a long time. The quota system was abolished in 2005. Long before that, in 2001, when Pascal Lamy was the European Commissioner for Trade, the “Everything But Arms” (EBA) tariff exemption benefit was established under the Generalised System of Preferences (GSP) for least developed countries (LDCs). As a result, 49 LDCs, including Bangladesh, gained zero import duties for “all products except arms” exported to Europe. Only value added tax continued to be collected. All LDCs, including Bangladesh, welcomed this thoughtful gesture from Europe. The export of Bangladeshi garments began to increase rapidly. It became clear again that tariffs are a major obstacle to the expansion of international trade.
However, it was soon realized that despite the EBA’s total tariff relief provision, many consignments of Bangladeshi garments still had to enter Europe with proper import duties due to the rules of origin. In particular, woven apparel like shirts, pants, blouses, skirts, etc., often failed to avail EBA benefits. Sweaters didn’t generally face this issue. Knitwear such as T-shirts, thanks to backward linkage, were relatively better positioned.
According to the European Commission’s rules of origin, to get the zero-tariff benefit the locally added value in products made in Bangladeshi factories had to be at least 70%. This condition was impossible to meet for many products. The alternative rule was that, irrespective of the value addition rate, the export product had to be processed at least at two stages. That is, simply making garments from fabric would not qualify; the fabric would have to be made from yarn, and then garments made from that fabric—in other words, double processing. Only then would import duties be fully waived under EBA.
Since 2003, Bangladesh has brought this issue to the attention of the European Commission. The Ministry of Commerce took special initiatives in this regard. Commerce Secretary Sohel Ahmed Chowdhury visited Brussels twice in 2003 to present the demand for relaxation of the tough rules of origin. The Minister-Commercial of the Brussels Mission took assertive steps on this matter.
Bangladesh’s proposal was twofold: either the minimum local value-addition requirement should be reduced from 70% to 50%, or instead of the two-stage processing rule, a one-stage processing rule should be adopted. Alongside government efforts, BGMEA also began active lobbying on this issue. Under the leadership of President Anisul Huq (twice) and President Parvez (once), BGMEA delegations visited Brussels and met with the Trade Commissioner to request the implementation of Bangladesh’s proposals. In this regard, the knitwear exporters’ association BKMEA was not cooperative. The Textiles Manufacturers Association directly opposed it.
In such a situation, in March 2005, the European Commission announced a draft of new rules of origin and promised to implement it from June 1. Member countries became worried about the new rules. Then sectoral studies began. Research was conducted on which economic sectors would be affected by the implementation of the proposed rules of origin. Meanwhile, the European Union expanded. Another 10 European countries joined the 15-member EU. Thus, the implementation of the new rules faced challenges. Time passed, and the European Commission could not reach a decision.
Finally, after more than five and a half years since the proposal, at the commissioners’ meeting on November 18, 2010, the new rules of origin were adopted. This is a regulation of the European Commission. If you need to look it up on the internet in the Commission’s database, the number will be helpful: ‘European Regulation (EU) No. 1063/2010’. By this, the previous regulation ‘EEC 2459/93’, in force since 1993, was amended. The essence of the new regulation is that, regardless of where the fabric is produced, if the garment is made in Bangladesh, it will get full duty-free access to the European market under EBA.
That’s why the country’s textile manufacturers are concerned. They fear that exporters may now use only imported fabric to make garments, sidelining local fabric. In reality, it’s hard to say what will happen. There are many benefits to using local fabric. If the quality is right, procuring it domestically is hassle-free. In my opinion, exports of Bangladeshi garments to Europe will double in two years, and this will, in fact, increase local fabric demand.
Not only for ready-made garments, but this condition will also apply to some other specified manufactured goods. Forty-nine least developed countries, including Bangladesh, will enjoy this facility. Our close neighbors India, Pakistan, and Sri Lanka will not get this benefit. Even though Sri Lanka is a very low income country, it will not receive this benefit because it is not on the UN’s LDC list.
On the other hand, it is a matter of concern that even though Pakistan is not eligible for this benefit, it is making efforts for similar privileges. The European Union also offers another tariff exemption known as ‘GSP Plus.’ Pakistan is lobbying to obtain this advantage. There has not been a senior commercial officer posted at Bangladesh’s Brussels Mission’s commercial section for nearly two years. Therefore, there is no information that the Brussels Mission has taken any steps regarding this matter. There is no current program for the Commerce Minister to travel to the European Commission and lobby against Pakistan’s efforts. BGMEA has also not taken any action so far. In this situation, fate is our only hope. If Pakistan obtains GSP Plus, Bangladesh will face stiff competition even with more favorable rules of origin. The consolation is, there is still time. For Pakistan’s proposal to take effect, it needs the World Trade Organization’s approval, which has not yet been obtained. Bangladesh’s proposal should be that Pakistan may be allowed duty-free access only for specific products other than garments and only for a limited time (for instance, a maximum of two years).
In 2009, Bangladesh’s exports saw the highest growth in Europe. Even China and Vietnam lagged behind Bangladesh’s export growth rate; India was obviously further behind. Compared to 2008, Bangladesh’s export growth rate in Europe in 2009 was 6.3 percent. We believe that from 2011, for at least five years, Bangladesh’s annual export growth rate to the EU may rise to 15–20 percent.
In the context of the new rules of origin, Bangladesh now has an opportunity to capture China’s share of the readymade garment exports to Europe. Europe’s import of garments and textiles is currently about 75 million euros. Of this, China accounts for 41 percent, Turkey 13.3 percent, India 8 percent, Bangladesh 7.2 percent, and Tunisia 3.3 percent. Bangladesh must work with the target of capturing at least 14 percent of the EU garment market by 2015.
Salam Hossain Chowdhury: Former President, Fair Board, BGMEA.
Last November, Alissa Ayres, the newly appointed US Deputy Assistant Secretary for South and Central Asian Affairs, visited Bangladesh. At a discussion meeting, the speakers bombarded her with various political questions, making her uncomfortable. At the time, the President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) had not yet arrived at the venue. In that situation, the President of the Metropolitan Chamber, Nasim Manzur, took on the responsibility of representing the exporters. He said, “We are not asking the United States for help; we want market access.” Echoing him, The Daily Star editor Mahfuz Anam reiterated the demand for duty-free access for Bangladeshi garments in the US market. This issue has been unresolved for a long time, and despite much lobbying, no promising outcome can be seen.
The issue with the European Union had also been pending for a long time. The quota system was abolished in 2005. Long before that, in 2001, when Pascal Lamy was the European Commissioner for Trade, the “Everything But Arms” (EBA) tariff exemption benefit was established under the Generalised System of Preferences (GSP) for least developed countries (LDCs). As a result, 49 LDCs, including Bangladesh, gained zero import duties for “all products except arms” exported to Europe. Only value added tax continued to be collected. All LDCs, including Bangladesh, welcomed this thoughtful gesture from Europe. The export of Bangladeshi garments began to increase rapidly. It became clear again that tariffs are a major obstacle to the expansion of international trade.
However, it was soon realized that despite the EBA’s total tariff relief provision, many consignments of Bangladeshi garments still had to enter Europe with proper import duties due to the rules of origin. In particular, woven apparel like shirts, pants, blouses, skirts, etc., often failed to avail EBA benefits. Sweaters didn’t generally face this issue. Knitwear such as T-shirts, thanks to backward linkage, were relatively better positioned.
According to the European Commission’s rules of origin, to get the zero-tariff benefit the locally added value in products made in Bangladeshi factories had to be at least 70%. This condition was impossible to meet for many products. The alternative rule was that, irrespective of the value addition rate, the export product had to be processed at least at two stages. That is, simply making garments from fabric would not qualify; the fabric would have to be made from yarn, and then garments made from that fabric—in other words, double processing. Only then would import duties be fully waived under EBA.
Since 2003, Bangladesh has brought this issue to the attention of the European Commission. The Ministry of Commerce took special initiatives in this regard. Commerce Secretary Sohel Ahmed Chowdhury visited Brussels twice in 2003 to present the demand for relaxation of the tough rules of origin. The Minister-Commercial of the Brussels Mission took assertive steps on this matter.
Bangladesh’s proposal was twofold: either the minimum local value-addition requirement should be reduced from 70% to 50%, or instead of the two-stage processing rule, a one-stage processing rule should be adopted. Alongside government efforts, BGMEA also began active lobbying on this issue. Under the leadership of President Anisul Huq (twice) and President Parvez (once), BGMEA delegations visited Brussels and met with the Trade Commissioner to request the implementation of Bangladesh’s proposals. In this regard, the knitwear exporters’ association BKMEA was not cooperative. The Textiles Manufacturers Association directly opposed it.
In such a situation, in March 2005, the European Commission announced a draft of new rules of origin and promised to implement it from June 1. Member countries became worried about the new rules. Then sectoral studies began. Research was conducted on which economic sectors would be affected by the implementation of the proposed rules of origin. Meanwhile, the European Union expanded. Another 10 European countries joined the 15-member EU. Thus, the implementation of the new rules faced challenges. Time passed, and the European Commission could not reach a decision.
Finally, after more than five and a half years since the proposal, at the commissioners’ meeting on November 18, 2010, the new rules of origin were adopted. This is a regulation of the European Commission. If you need to look it up on the internet in the Commission’s database, the number will be helpful: ‘European Regulation (EU) No. 1063/2010’. By this, the previous regulation ‘EEC 2459/93’, in force since 1993, was amended. The essence of the new regulation is that, regardless of where the fabric is produced, if the garment is made in Bangladesh, it will get full duty-free access to the European market under EBA.
That’s why the country’s textile manufacturers are concerned. They fear that exporters may now use only imported fabric to make garments, sidelining local fabric. In reality, it’s hard to say what will happen. There are many benefits to using local fabric. If the quality is right, procuring it domestically is hassle-free. In my opinion, exports of Bangladeshi garments to Europe will double in two years, and this will, in fact, increase local fabric demand.
Not only for ready-made garments, but this condition will also apply to some other specified manufactured goods. Forty-nine least developed countries, including Bangladesh, will enjoy this facility. Our close neighbors India, Pakistan, and Sri Lanka will not get this benefit. Even though Sri Lanka is a very low income country, it will not receive this benefit because it is not on the UN’s LDC list.
On the other hand, it is a matter of concern that even though Pakistan is not eligible for this benefit, it is making efforts for similar privileges. The European Union also offers another tariff exemption known as ‘GSP Plus.’ Pakistan is lobbying to obtain this advantage. There has not been a senior commercial officer posted at Bangladesh’s Brussels Mission’s commercial section for nearly two years. Therefore, there is no information that the Brussels Mission has taken any steps regarding this matter. There is no current program for the Commerce Minister to travel to the European Commission and lobby against Pakistan’s efforts. BGMEA has also not taken any action so far. In this situation, fate is our only hope. If Pakistan obtains GSP Plus, Bangladesh will face stiff competition even with more favorable rules of origin. The consolation is, there is still time. For Pakistan’s proposal to take effect, it needs the World Trade Organization’s approval, which has not yet been obtained. Bangladesh’s proposal should be that Pakistan may be allowed duty-free access only for specific products other than garments and only for a limited time (for instance, a maximum of two years).
In 2009, Bangladesh’s exports saw the highest growth in Europe. Even China and Vietnam lagged behind Bangladesh’s export growth rate; India was obviously further behind. Compared to 2008, Bangladesh’s export growth rate in Europe in 2009 was 6.3 percent. We believe that from 2011, for at least five years, Bangladesh’s annual export growth rate to the EU may rise to 15–20 percent.
In the context of the new rules of origin, Bangladesh now has an opportunity to capture China’s share of the readymade garment exports to Europe. Europe’s import of garments and textiles is currently about 75 million euros. Of this, China accounts for 41 percent, Turkey 13.3 percent, India 8 percent, Bangladesh 7.2 percent, and Tunisia 3.3 percent. Bangladesh must work with the target of capturing at least 14 percent of the EU garment market by 2015.
Salam Hossain Chowdhury: Former President, Fair Board, BGMEA.
Collected from Prothom Alo
Source: prothom-alo : http://www.prothom-alo.com/detail/date/2011-01-03/news/120410
2011 January 03. Added from Canada, 2011 January 02.
Shafiul Islam
Email: [email protected] :: Website: textek.weebly.com :: Canada :: www.linkedin.com/in/shafiul2009
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