The UK is Bangladesh’s third-largest apparel export destination. In 2019 (calendar year) Bangladesh exported apparels worth US $ 3.83 billion to UK, which dropped 19.30 per cent to settle at US $ 3.09 billion in 2020. On the other hand, UK is also the third largest market for India’s apparel export with India exporting garments worth US $ 1.59 billion to UK in 2019 only to drop 29.24 per cent to settle at US $ 1.12 billion in 2020.
Given the status of the UK-India FTA talks, for which the British Government has started the process, including consultation with businesses and other stakeholders on a prospective deal that would be concluded by early or the middle of 2022, it is emerging as a concern for garment makers in Bangladesh.
And now with India and EU resuming the long-halted free trade agreement (FTA) in an effort to strengthen the economic cooperation during a virtual meeting between the Indian Prime Minister Narendra Modi and leaders of 27 member nations of the bloc, there seems another reason for Bangladesh to be worried as well.
To European Union, Bangladesh exports on an average more than US $ 21 billion worth of garments in a year — in 2019 Bangladesh exported to EU garments worth US $ 20.42 billion, but dropped 16.66 per cent to settle at US $ 17.02 billion in 2020 — which amounts to around 63 per cent of the country’s apparel shipments yearly while reports suggests that the EU typically accounts for around US $ 6 billion (on an average pre-Covid till 2019) which is about 40 per cent of India’s garment exports (in 2019, India exported garments worth US $ 6 billion to EU only to drop by 24.46 per cent to settle at US $ 4.52 billion in 2020).
But now UK on way out of the EU, the bloc’s share in India’s supplies will drop. Nevertheless, it would still remain substantial and any imbalance in trade duties due to the FTAs will majorly impact the exports.
Bangladesh under the ‘Least Development Country Framework’ scheme, currently enjoys duty-free access to the UK and EU for its apparels while India on the other hand pays duty of around 9.40 per cent to 9.60 per cent respectively on its apparel products, and any bilateral FTA between the concerned countries will virtually slash the tariff to nil, presenting an equal opportunity to India.
Once a leading supplier of apparel to Western clothing lines, India’s exports have been stagnating in recent years while Bangladesh and Vietnam are dominating the global textile market. And if Indian industry people are to be believed, FTAs with UK and EU will only provide a level playing field for the Indian garment makers, who are otherwise losing out to their competitors, thanks to the duty disadvantages.
The FTA talks with UK and EU, if materialised, will have some impact on Bangladesh for sure… It’s difficult to measure the magnitude of the same at this point, maintains Md. Fazlul Hoque, the Managing Director of Plummy Fashions Limited and ex-President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), even as he underlines that provided there is a level playing field, he is not so much concerned about Bangladesh’s prospects.
But as Bangladesh is about to make the big leap from an LDC to a developing nation now, which would shorn the country of the duty benefits that it enjoys in UK as well as the EU, if it fails to garner preferential status or cobble up trade deals, the balance will tilt in favour of Bangladesh’s competitors, and that is what concerns more the garment makers in Bangladesh it appears.
He also has a ready example to explain why.
USA, where the Bangladesh does not have any duty advantage as far as apparel export is concerned (in 2013, following concerns surrounding workers’ rights and workplace safety, the US pulled back the access to the Generalized System of Preferences or GSP), the country exports nearly US $ 6.5 billion worth of garment in a year whereas India does only US $ 3.7 billion on a level playing field for both the countries.
“Graduation from the LDC group would mean relinquishing a wide-variety of preferences and privileges currently enjoyed by Bangladesh. It has been estimated that the country may experience shortfall to the tune of 8-10 per cent of its gross export revenue due to loss of DFQF (duty-free quota-free) provision – amounting to about US $ 2.5 billion annually,” stated Debapriya Bhattacharya, a member of the United Nations Committee for Development Policy (UN CDP) and a distinguished fellow of the Centre for Policy Dialogue speaking to the media earlier.
So, post the LDC graduation, Bangladesh will either have to qualify for Enhanced Framework or the General Framework in UK where countries have to pay reduced rates of duty even as India would enjoy duty-free access because of the FTA and to neutralise the same, Bangladesh might have to push for an FTA with the latter, whereas in case of the EU, Bangladesh will have to secure the GSP Plus to continue enjoying the duty benefit.
Such a scenario will be disadvantageous for us since the UK is the third largest export destination for Bangladesh’s apparel products, stated the newly-elected President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Faruque Hassan on the prospects of an India-UK FTA.
Even though Bangladesh has inked a trade agreement with Bhutan recently and talks are on with Malaysia as well in this direction, industry people are not very upbeat as none of these two countries are amongst Bangladesh’s major apparel export destinations.
The LDC graduation, though a matter of pride and comes with its own share of advantages, but sans duty advantage/trade deal, industry insiders say it would impact Bangladesh, not only on account of India signing FTA with UK or EU but also considering the fact that its closest competitor Vietnam has already cobbled up trade agreements with both the EU and the UK.
The UK-Vietnam Free Trade Agreement (UKVFTA) will give a new impetus for the economic and trade cooperation between the two sides even as the agreement (UKVFTA) clearly states that once it comes into force and is fully implemented, the import tax on Vietnamese textiles will be reduced from the previous 12 per cent to zero, which is a good opportunity for Vietnamese export products to penetrate the potential UK market. Then there is also the EU-Vietnam Free Trade Agreement (EVFTA), which gives a leg-up to Vietnam in the all-important European market as well.
Economists and experts are thus of the opinion if Bangladesh does not take part in mega (regional) RTAs or bilateral FTAs (with key export partners) around the world right now, its exports will be at a competitive disadvantage when tariffs from competition will be low in a couple of years beneath the FTAs/RTAs, and in a sector as price-sensitive as apparel, small price differences and price shifts could have real big ramifications.
Given the existing scenario, Bangladesh would do well to embark on a multi-pronged approach focusing on fast-tracking negotiations and signing FTAs/PTAs with countries that matters the most while also capitalising on its strengths to diversify product basket and add higher value to product offerings (as per a study around 75 per cent of the country’s apparel export earnings come in basically from five items, namely T-shirts, Sweaters, Trousers, Jackets and Shirts) so as to stamp out the major drawbacks and try to be at an even keel with the competitors.