Challenges before Bangladesh

According to the above report, Bangladesh’s T&C sector generates export earnings that amount to more than 11 per cent of the GDP, and provides direct employment to over five million workers, more than 60 per cent of whom are women. Most of the country’s exports are cotton-based items, such as T-shirts, trousers, sweaters, shirts, and jackets, falling within low- and mid-market price segments, for which competitiveness is largely based on low wage cost. Bangladesh’s key markets are also highly concentrated, with more than twothirds of its T&C exports going to the European Union (52.7 per cent) and the United States (14.2 per cent). The economy is very much dependent on the export of labourintensive apparel. Such heavy reliance on garments is a source of significant concern for Bangladesh’s growth prospects.

In 2003, Bangladesh had an identical clothing market share in Canada and the United States, of 2.4 per cent. Over the next two decades, its share in Canada, which provides duty-free market access, rose to about 9.3 per cent, in contrast to only around 5.1 per cent in the United States, where apparel and clothing items are mostly excluded from its GSP scheme. Similarly, thanks to trade preference, Bangladesh’s export market share in the European Union rose from just above four per cent to 14 per cent during the same period. The same share in Australia and Japan – again, taking advantage of duty-free access – rose from virtually nothing to more than 10 per cent and 4 per cent, respectively.

Tariff preferences granted through GSP schemes, where available, are significantly lower than those granted through Ldc-specific schemes (which mostly offer dutyfree market access). As none of the Asian graduating LDCS, including Bangladesh, have trade agreements with Canada, meaning that once they graduate, all their exports will be subject to the general GSP or most-favoured-nation (MFN) rates. Canada has higher tariffs for clothing products, where the average post-graduation tariff would be between 14 and 16.5 per cent.

In the case of the European Union, graduating countries have the option to apply to the European Union’s Special Incentive Arrangement for Sustainable Development and Good Governance — Generalised Scheme of Preferences Plus (GSP+) — upon graduation. Attaining GSP+, subject to fulfilling certain conditions, would provide them with duty-free market access to T&C products. Failure to do so would result in clothing exports being levied with tariffs of between 8 and 9.3 per cent through the Standard GSP scheme, or even with higher MFN rates. As per the proposed European Union GSP 2024-34, Bangladesh is found to be the only Asian graduating LDC whose T&C exports could potentially be subject to the European Union’s safeguard measures, resulting in its removal from GSP+ preferences

Bangladesh will be subject to the GSP or MFN rate in their exports to Japan, as they are not part of ASEAN and therefore do not benefit from the ASEAN-JAPAN Comprehensive Economic Partnership Agreement (CEPA). In this context, Bangladesh will face tariffs on its clothing exports ranging from 8.5 to 9 per cent.

Following its LDC graduation, Bangladesh will have to forgo both India’s and China’s LDC schemes, which currently cover more than 97 per cent of tariff lines, including those of textile and clothing items. It may be entitled to Asiapacific Trade Agreement (APTA) tariff concessions which, however, are not necessarily comprehensive. Although Bangladesh and India are both members of the South Asian Free Trade Area (SAFTA), most clothing items are not covered by India’s tariff liberalisation schedule for non-ldc SAFTA members.

Bangladesh’s overwhelming dependence on T&C exports, bound for markets with high preferential tariff margins, means the potential impact of its LDC graduation is likely to be much greater than that of other graduating LDCS. As tariff hikes reduce its competitiveness, an ex-ante analysis using a partial equilibrium model, employed in a WTO-EIF study, suggests graduating Asian LDCS could experience a loss of exports ranging from as much as 14.3 per cent for Bangladesh to just 1.45 per cent for Lao PDR. Given Bangladesh’s export structure, it is almost certain that any potential loss of export earnings will be driven by T&C products.

Vietnam – already a top apparel exporter with strong backward linkages in the textile segment – has had an FTA with the European Union since August 2020. Vietnam will see tariffs on its clothing exports to the European Union gradually decline from an average nine per cent currently to around zero, at the same time, Bangladesh, following its official graduation, will complete its additional three-year transition period (in 2029) with the European Union’s Everything but Arms scheme. If Bangladesh is eventually subject to the European Union’s safeguard measures, average tariffs on its apparel exports to the European Union will rise from zero currently to around 11 per cent.

A survey on the major global apparel brands and retailers on the average rating (in a scale of 5) of four major supplying countries reveals that vis a vis Vietnam and China, Bangladesh is uncompetitive in many important areas. The table documents the details. Except in price, China and Vietnam are in a much better place in all major criteria like quality, vertical integration, innovation, efficiency, and tariff advantage. On the criterion of compliance and sustainability, both Bangladesh and China are at a low end.

Many Bangladeshi exporters are investing in product upgrades and automation, with the objective of enhancing productivity and becoming more competitive. They are adopting new technologies and are training workers on upgraded machines and processes. Firms also reported adopting energy-saving and greenhouse gas (GHG) emission-reduction technologies, implementing software-based production tracing and digitalising administration activities, including employee tracking and payment processing.

It is reported that Bangladesh is discussing a free trade agreement (FTA) with China in an effort to boost exports to its massive market. The table reveals that Bangladesh is price competitive vis a vis China. FTA with China will open a huge Chinese market for Bangladesh’s low-end products.

Owing to its overwhelming dependence on T&C exports, Bangladesh will bear great impact of its LDC graduation

Initiatives taken by Bangladesh

Advantage for West Bengal?

This transition phase of the LDC graduation process for major T&C exporters of South-east Asia may offer an opportunity to West Bengal which shares a glorious history of textile industry with Bangladesh. The state can emerge as a major textile hub, the Union Textiles Minister has claimed.[2] The state’s finance minister has also said that the potential for export from West Bengal is far more than what had been tapped. Textile export from the state is around 2.7 per cent of the total export from the country, he said. In the next three to five years, it should go up to 10 per cent, he hoped. The readymade garments sector in Kolkata’s Metiabruz itself is worth Rs 15,000 crores and has the potential of growing up to Rs 25,000 crores in the next few years. The minister has emphasised hosiery export to Europe, South East Asia, and the United States.

India’s domestic apparel & textile industry contributes five per cent to the country’s GDP, seven per cent of industry output in value terms, and 12 per cent of the country’s export earnings. India is the 6th largest exporter of textiles and apparel in the world. The textile and garments industry is expected to reach USD 190 bn by 2025-26 from USD 103.4 bn in 2020-21. Cotton production supports 5.8 million farmers and 40-50 million people in allied sectors. A total of 1, 77,825 weavers and artisans are registered on Government-e-marketplace [3]

The textiles and apparel industry of India has strength across the entire value chain from fibre, yarn, and fabric to apparel. The industry is highly diversified with segments ranging from products of traditional handloom, handicrafts, wool, and silk products to the organised textile industry in India. The organised textile industry is characterised by the use of capital-intensive technology for mass production of textile products and includes spinning, weaving, processing, and apparel manufacturing.

Conclusion

Prior to the industrial revolution in England, the Bengal region (consisting of present-day Bangladesh and West Bengal) was the world hub of the apparel industry. Though Bangladesh has regained its global status, West Bengal has lagged behind due to various socio-political reasons. But it has the potential to emerge as a major player in the textile, clothing, and jute sector. For this, elaborate strategic planning is required. To begin with, a free trade agreement (FTA) with Bangladesh, specifically to harness the untapped potential of cotton, jute, and readymade clothing sectors of this part of the subcontinent is urgently needed for the benefit of both the countries.

Views expressed are personal