Thursday, March 28, 2024

No room for complacency

Zillul Hye Razi
The Generalised System of Preferences (GSP) of the European Union (EU) is a preferential trade arrangement that allows reduced or zero import duties for imports from developing countries. It is a unilateral arrangement and includes the Everything But Arms (EBA) arrangement, which grants duty and quota-free access to all goods, except arms originating in the least-developed countries (LDCs).
The EBA arrangement is applicable for an indefinite period, while regular the GSP and GSP Plus are reviewed and could be changed after a specific period.
A LONG TIME BENEFICIARY
Many people think that Bangladesh received duty free access to the EU only after the EBA was introduced in 2001. In reality, Bangladesh enjoyed the duty free access to the European Community (now EU) for all its exportable products since 1981 with some restrictions on the export of readymade garments (RMG).
Later, the European Commission (EC)-Bangladesh Textile Agreement of 1986 removed the quantitative restrictions on RMG. Some people think the phenomenal growth of RMG exports to the EU in the last two decades has been the result of duty free access through GSP. But that is not the whole truth.
During the textile quota regime under the Multifibre Arrangements (MFA), Bangladesh enjoyed a quota free access to the EU as an LDC. On the other hand, competitors of Bangladesh were constrained by quota. The result, for example, all the T-shirts exported by China, India and Pakistan in 1993 together had been less than that of Bangladesh.
The originating rule for GSP had been difficult to comply with for a long time. For knitted products (T-shirts and sweaters), yarn had to be locally produced and for woven products (shirts and trousers), the fabric needed to be locally manufactured to qualify for GSP. As a result, the GSP utilisation rate remained less than 30 percent for RMG for a long time, before the growth of the backward linkage industries.
The situation changed dramatically from 1999 when the EC relaxed the rules for knitted products — the use of imported yarn for knitted products was allowed for the GSP benefit. It may be mentioned that the standard import duty for RMG in the EU is 12 percent. Under the GSP, assuming RMG items adhere to the rules of origin, importers of Bangladeshi products will not pay duties. But imports from China will have to pay full duties (no GSP for China in textiles and clothing items), while Indian products will pay a reduced duty of 9.6 percent. Because of the relaxed rules, knit exports boomed and more than 70 percent of total knit exports from Bangladesh now go to the EU. However, T-shirts and sweaters dominate the scenario with more than 1 billion euros worth of export a year for each in recent times.
REVISED RULES OF ORIGIN: A NEW HORIZON?
Bangladesh holds the third position, after China and Turkey, as a supplier of clothing to the EU for the last few years. This is obviously for the quota free entry and the duty free access under GSP. Since 1999, there were no major changes in the rules of origin for GSP. After protracted deliberation with different stakeholders within and outside the EU, a revision of the rules of origin is being finalised, with an objective to simplify the rules.
The proposed revision: (http://ec.europa.eu/taxation_customs/customs/customs_duties/rules_origin/preferential/article_777_en.htm) allows the duty free export of woven/knit RMG even with imported fabric — but for LDCs only.
For other industrial products, the rule mentions value addition of 30 percent — again for LDCs only. It is expected the new rules will be applied from 2011, if the legislative process in the EU is not delayed.
It is quite clear that within the RMG sector, the exporters of woven items are likely to be the beneficiaries of the change. It may also provide opportunities for the local exporters to go for the higher end of the EU market as Bangladesh could not avail GSP under the existing rules, as high quality fabric is not sufficiently manufactured locally.
The relaxed rules for woven items for LDCs, as envisaged, would also put a balance between the export of knit and woven items to the EU. Presently, the GSP utilisation rate for textile items is 78 percent, which means about 22 percent of the goods enter the EU by paying full duty. It is clear that the goods that do not get free access are mostly the woven goods, mainly shirts. About half the total export of trousers (denim and other cotton-made) receives duty free access, but only about 27 percent of cotton shirts receive the GSP benefit.
NEW CHALLENGES
There are some other dimensions to RMG exports to the EU as well. A successful conclusion of the Doha round negotiations under the World Trade Organisation is expected to reduce the duty on industrial products, like textile items. The so-called preferential erosion would than become a hard fact for Bangladeshi exporters enjoying a price edge over competitors owing to a high tariff structure of the clothing items.
In another scenario, the EU is finalising its Free Trade Agreement (FTA) with India and the individual Asean countries. Accordingly, in a few years (FTA comes in stages); Bangladesh will be levelled with its immediate competitors, except for China, in RMG exports to the EU. As a short term gain, the nation is likely to get some export orders from the European buyers who are willing to shift business from Sri Lanka, as the country recently lost its duty free status under GSP Plus.
Bangladesh has so far been unsuccessful in receiving the duty free access for RMG exports to the US. Therefore, limited space will be available to expand RMG exports if the EU market shrinks for Bangladesh. The recent international campaign by rights groups on the core labour standards and living wages for RMG workers in Asia, including Bangladesh, shows that the cost of labour may not remain a strong point for Bangladeshi products in the long run. The key word, therefore, is competitiveness, for marketing in the EU in future. The country has already shown its capability to export RMG items without any preferential advantages in the USA.
BUYERS’ MARKET
The growth of RMG exports to the EU from Bangladesh in 2009 remained positive, even when others suffered the negative impacts of global recession. Overall exports from Bangladesh to the EU in the first 6 months of this year, of which about 90 percent is RMG, showed a consistent upward trend, although the first quarter experienced a negative trend than the same time last year.
The country has firmly established its global position as a major source of clothing. In the last two decades, sourcing sweaters, T-shirts, shirts and trousers, all basic and less expensive items from Bangladesh, has been a practical and profitable option for the buyers.
This position is unlikely to change suddenly by any economic factor, as buyers would find it difficult to replace Bangladesh with another large-scale, reliable, quality-controlled, cheap and English-speaking suppliers in a short notice.
Nevertheless, frequent labour unrest, vandalism in factories, bad port management and political instability disrupting shipment may slowly compel buyers to look for alternative sources, at least, for a part of their business done so long in this country.
Buyers have already shown their adaptability to the dawn of the post-MFA trade regime by slowly getting out of many countries and there are also countries, including Bangladesh, which will not hesitate to fill the vacuum, if buyers decide to move.

The writer works for the Delegation of the European Union in Bangladesh. Opinions expressed are personal and do not necessarily reflect the views of the EU. He can be reached at razi.hye@ec.europa.eu

 

Original article on The Daily Star

Related News

Social media pressure changing news making

Opinion Afsan Chowdhury THE relentless reality of social media has begun to influence news making at several levels. Three social media elements are making these pressures so strong. (a) It reaches consumers almost instantly and in no way can professional media compete with that. (b) Content creators can mix and offer audio-visuals that cost little ... Read more

Securing water for sustainable urban future

Opinion By AKM Mahmudul Haque WATER, the essence of life, is a precious resource that sustains our planet and its inhabitants. Yet, despite the vastness of our oceans, only a small portion of the water is potable. Recent studies have revealed alarming statistics that approximately 80 per cent of the water supplied in cities and ... Read more

We need to transform social norms for gender equality

World Population Day Views Md Nuruzzaman Khan World Population Day, which has been observed on July 11 every year since 1989, holds significant importance in addressing critical population-related issues. This year, the focus is on gender equality, symbolised by the theme of “Unleashing the power of gender equality: Uplifting the voices of women and girls ... Read more

Quality education for all, but quality schools for few?

Views Mohammad Ehsanul Islam Khan Education empowers and shapes nations. Increased enrollment and reading levels in Bangladesh have also enhanced education access. But the focus on quantity has overtaken the drive for quality education, leaving only a handful with access to top-notch universities. According to Dr John Dewey, “Education is not preparation for life; education ... Read more

Equal education leads to a better society

Opinion Mehreen Chowdhury EDUCATION is known to be strongest when voices and diverse perspectives are heard and shared around the community. It is vital that young people are given the space and safety to express them without feeling ashamed. The idea of special education is governed by the concept that education is for all. It ... Read more

Alarming increase in child marriage

Opinion Zillur Rahaman CHILD marriage is one of the social ills in Bangladesh. It was once an epidemic in Bangladesh. It, however, came under control because of various measures and the supervision of the government in the past decade or so, but has been increasing at an alarming rate since the Covid pandemic, which increased ... Read more

Time to prioritise social justice

Views We have the chance to reshape the world we live in – economically, socially, and environmentally. Gilbert F Houngbo May 1 is widely known as International Labour Day, a day when we celebrate the contribution of workers worldwide. It is a moment for pride, celebration, and hope. After three years of the Covid-19 crisis, ... Read more

More heatwaves are coming our way. Are we prepared?

Views While Bangladesh has a lot of experience in tackling cyclones and floods, we have not taken heat stress into consideration until now. Saleemul Huq The Intergovernmental Panel on Climate Change (IPCC) recently completed its sixth assessment report (AR6), with the Synthesis Report coming out in March. The Synthesis Report carries some key messages about ... Read more

Women must be at the forefront of the transition to a low-carbon economy

Opinion Veronica Mendizabal Joffre and Pinky Serafica Can we truly reimagine a path to a low-carbon transition and change the climate narrative? This is hard to envision when we witness the unprecedented damage we are inflicting on the planet. For women, the effects of climate change are already a lived experience. Where environments are damaged ... Read more

Why collaboration is in our collective interest

ViewsRMG NOTESClimate ActionWithout fashion retailers and their suppliers working together, our industry as a whole will continue to see emissions rising. Mostafiz Uddin According to the latest report of the UN Intergovernmental Panel on Climate Change (IPCC), the world is likely to fail to reach its most ambitious climate target – limiting global warming to ... Read more

Will our universities survive in 25 years?

Views Syed Saad Andaleeb Quality education is the backbone of a wholesome and prosperous society. But finding the “quality” in quality education continues to be elusive in Bangladesh. The “so called” universities (more like community colleges) are rife with social, economic, political and ideological problems that work against building learning organisations. Teachers, the kingpins, don ... Read more

Can teachers be the pivot of change in education?

Views Manzoor Ahmed “No system of education can be better than its teachers” is an aphorism that remains meaningful. The nostalgic and idealised image of the teacher as a scholar, dispensing knowledge and wisdom to the young selflessly, who lives a simple life with little concern for material rewards and who is looked upon by ... Read more

Climate loss and damage are clearly visible in southwest Bangladesh

Views Ashish Barua, Sawkat Chowdhury The Sixth Assessment Report (AR6) by Working Group I of the Intergovernmental Panel on Climate Change (IPCC) shows that the sea level, over the last 120 years, has increased by 0.20 metres, and continues rising fast, caused by thermal expansion, glacier ice loss, ice sheet loss, etc. The sea level ... Read more

How can Dhaka solve its traffic problem?

Views Debra Efroymson If I had a dollar for every time I’ve heard that “traffic was particularly bad today,” I could have retired already. Over the years, people have hazarded various suggestions as to the cause of the terrible Dhaka traffic and its potential solutions. Causes include: not enough roads for all the cars; poor ... Read more

Celebrating 50 years of global environmental movement

Opinion Saleemul Huq The global environmental movement started in 1972, with the first global environment conference held in Stockholm, Sweden, hosted by then Swedish Prime Minister Olof Palme. Among the heads of governments who also attended was the then Indian Prime Minister Indira Gandhi, who famously declared that environment and poverty were two major global issues ... Read more

Saving earth from disasters

Opinion By Md Zillur Rahaman TODAY is World Earth Day. The day is celebrated worldwide each year to show support for the protection of the environment. It was first observed in 1970 and is now held globally by the Earth Day Network. The UN-sponsored conference in Rio de Janeiro, Brazil, from June 3 to June 14, ... Read more

Women for women

Opinion Faria Rashid PATRIARCHAL societies like to deceive women into thinking that women cannot get along, work together and stand in support of one another. Given the patriarchal history of society, it has mostly worked to keep women in their places and apart from each other. This is why we hear so much about women ... Read more

CSR and a new order of business

From being seen as mere philanthropy and ‘doing good’, corporate social responsibility is now at the heart of business sustainability and ethical and accountable corporate behaviour Bitopi Das Chowdhury CSR or corporate social responsibility has been a buzz phrase for quite some time now. Not a day goes by without it being mentioned, albeit in ... Read more

Harmful impacts of cartels on consumers

Munshi Abdul Ahad A cartel is an anti-competitive arrangement between two or more competing businesses. Anticompetitive agreements, particularly cartels, harm consumers in urbanised society, as well as in the emerging countries. In adding together, cartelised industrial sectors lack competition which certainly reduces competitiveness in the long run and may have a negative impact on the ... Read more

How to troubleshoot the economy

Sadiq Ahmed Bangladesh is facing serious macroeconomic challenges and I have written a lot explaining them in a series of articles published in The Daily Star and in The Financial Express. In this new article I am going to write specifically about how Bangladesh could address those challenges while also mobilising substantial external financing in ... Read more