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China’s new duty-free products line, a great opportunity for Bangladesh RMG sector

While Bangladesh is trying heart and soul in diversifying export destinations and expanding its foothold in the Asian region, China’s duty-free offer for the country’s apparel manufacturers emerged as a great tool.

Amid the pandemic, which disrupted the supply chain and adversely impacted exports, the Chinese government has offered zero tariff facility to 97% of products imported from Bangladesh.

Figure 1: China’s duty-free offer for the country’s apparel manufacturers emerged as a great tool.

This duty-free offered by the Chinese government means a lot as almost 100% of clothing products Bangladesh exports is covered under the duty-free market access.

Under the declared duty-free export facilities, a total of 8,256 Bangladeshi products will enjoy zero tariffs in accessing Chinese markets.

According to World Trade Statistical Review, 2020 by the World Trade Organization (WTO) China imported clothing products worth $9 billion in the last year, while it also imported textile goods of $16 billion.

The country’s apparel and textile manufacturers and exporters as well as the economist opined that if Bangladesh can grab one percent of clothing products, it will be able to export about $1 billion to the country.

As of the fiscal year 2019-20, Bangladesh apparel exports to China stood at $330 million, which was $506.51 million in the fiscal year 201`8-19.

“Before the new offering, Bangladeshi apparel exporters were used to enjoy duty-free access for 60% items of all the tariff lines under its LDC scheme through WTO rules. Now the product lists have enlarged to 98% since,” Bangladesh Garment Manufacturers and Owners Association President Rubana Huq told Textile Today.

As per the previous duty-free market access facilities, most of the apparel items we used to enjoy duty-free and quota-free access to the Chinese markets. Now the items that were left will be included,” she added.

It is an opportunity for us to grow in the Chinese markets as the range of products increased from the previous time, said the business leader.

Bangladesh had two options to access duty-free access in the China market – one is Asia Pacific Trade Agreement (APTA) and the other one is LDC through WTO.

APTA has less product coverage, while the LDC scheme grants access for 100% RMG items. But APTA requires a 35% value addition while the LDC scheme requires a 40% value addition.

Figure 2: Bangladesh has to be competitive in grabbing the market share and needs a wide range of products to utilize the duty-free market access.

So this was a call from Bangladesh to decide whether it wanted APTA or LDC, and lately, the government decided to go for LDC because of wider product coverage.

However, there is confusion about the terms of condition about the value addition of products.

“I am not much clear about the accumulation of origin issue under the LDC scheme, that means whether raw materials imported from China still requires to maintain 40% value addition, if not then woven should not face a huge problem since most of the inputs are sourced from China,” Rubana Huq.

Anyway, perhaps the difference between 35% and 40% value addition is not as significant as to ignore the access of many other products which didn’t have access through APTA, said Rubana.

Woven depends almost 40% on imported fabric out of which 50% is from china anyway, she added.

Meanwhile, woven products may face challenges in value addition as the segment has to add 40% value which is a little bit difficult to some extent.

“For the knitwear manufacturers it would be easier to grab the opportunity as value addition is higher and it is up 85%,” Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) first Vice President Mohammad Hatem told Textile Today.

On the other hand, value addition in woven products is around 40%. That is why we have to look into the matter, whether imports of raw materials from China would help in this regard or not, he added.

How to tap the opportunity

Like Bangladesh, other Least Developed Countries (LDCs) such as Vietnam, Cambodia, Laos, and the Philippines also have been enjoying zero tariffs to access Chinese markets.

So, Bangladesh has to be competitive in grabbing the market share and needs a wide range of products to utilize the duty-free market access.

“China is gradually moving away from low-end products and concentrating on the hi-tech industry. So there is an opportunity for Bangladesh especially in the apparel sector as the population size is very big,” Centre for Policy Dialogue (CPD) research director Khondaker Golam Moazzem told Textile Today.

For taking the duty-free market advantage, Bangladeshi manufacturers have to produce diversified goods and these should be price competitive, said the economist.

On the other hand, attracting Chinese investment in Bangladesh will help to export more as they have the experience and know-how to take the benefits from the duty-free market access, said Moazzem.

Defining the duty-free privilege as a tactical approach of Chinese government Anis Ansari, Vice President at SUST IPE Alumni Association and Former Sr. General Manager, Operations, Ha-Meem Group, said, “While western countries are trying to find alternate manufacturing hub other than China, the country’s government announced the privilege.”

“Bangladesh will be able to explore the huge market in China for readymade garments and textiles- this is the good side. On the other hand, still, the country has to depend on Chinese raw materials and investments to explore this opportunity. It means ultimately it will open a door for Chinese investors to expand their manufacturing facilities in Bangladesh textile and garment sectors.”

While Europe and the US are searching for other markets excluding China for sourcing, Bangladesh, India, Pakistan are the best options. So there is a chance to arise another conflict of interest with Western Parties and China, mentioning this Anis Ansari said, “Bangladesh can play a smart strategic game to gain export tariff facilities in EU and US market too.”

In short, the zero tariff facility to 97% of products in exporting from Bangladesh to China is promising for the textile and apparel sector, if our govt. and textile association bodies can utilize it smartly, he concluded.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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