DHAKA, 2 January 2005 — Bangladesh yesterday welcomed New Year with uncertainty as the country’s garment exports, which earn over 85 percent of foreign exchange earnings annually, lost its quota.
Bangladesh will no longer enjoy the protection of US quota system to ward off fierce competition from countries like China and India. From now on, competitiveness and performance will be the key to the survival of Bangladesh’s otherwise booming garment industries.
Bangladesh is not the only one to face this situation. All World Trade Organization (WTO) member countries are bracing themselves for the same shift in trade of textiles and apparels in a more open trade regime with the phase-out of the Multi-Fiber Agreement (MFA).
The MFA, reached in 1974 as part of the General Agreement on Tariffs and Trade (GATT) and its successor, the Agreement on Textiles and Clothing, that expired yesterday, have governed trade in textiles and clothing through a system of import quotas set on a country-by-country basis.
Even though the quota umbrella is gone, Bangladesh garment exporters are not apprehensive of a big impact, at least in the first year, though many fear a massive closedown of factories and a huge loss of jobs.
One reason for that is the fact that Bangladesh has been able to position itself in the global apparel market as a reliable source of cheap garments.
Its labor force is ‘skilled’ for the low-end products that it depends so much on for the bulk of its exports.
Another reason is that China cannot immediately cash in on the open market system because of the special safeguard clause that the US has imposed on its exports.
The US interagency Committee for the Implementation of Textile Agreements (Cita) has agreed to consider the US textiles industry’s request for a re-application of quotas imposed in December 2003 on some categories of fabric and clothing imported from China.
Producers from 51 developing countries have backed a petition filed in October by the US textiles industry to limit US imports of Chinese textiles and apparels in nine categories including socks, cotton and synthetic trousers, woolen trousers, cotton and synthetic knit shirts, and underwear.
This at least will give Bangladesh a one-year breathing space. “This one year is vital,” said Anisul Huq, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA). “We have to perform during this time so that importers have full trust in us.”
Although the garment industry has not been able to establish an adequate backward linkage vital for cutting short the lead time — the time between order and supply — the government has given a number of incentives that will reduce export and import processing time and thus make products competitive.
In the last 10 years, around 160 billion taka has been invested in the backward linkage industries.
Growth in the garment exports has been possible because of the investments in hi-tech spinning, weaving, dyeing-printing-finishing and knitting machinery.
While 90 percent demand for fabrics for knit industries and 40 percent for cotton-based woven fabrics are met locally, synthetic fabrics are not being produced here as per the export demand.
Against 3,618 garment factories, there are 149 spinning, 302 weaving, 55 dyeing-finishing and 600 knit and knit-dyeing mills in the country.
But whatever be the past scenario, the future will depend on whether Bangladesh can stay competitive, and here the scenario is not that bleak as many are wont to think.
