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Effect of Canadian GPT alteration on Bangladeshi RMG

Bangladesh, as an LDC and a potential hub of the world’s garments industry enjoys preferential trade facilities from the developed part of the world. Any change in the nature and structure of these facilities is believed to have an effect on the export value and volume to a quite extent. Bangladesh garments industry enjoys GSP from the EU, Canada, Australia and Japan. Additionally, negotiations are going on to build preferential relationship with the USA, Turkey, Russia and other potential big markets of apparel. Of late, FTA with India had a positive effect on the volume of garments export to India. For now, the most important trade issue for the industry is the USA-GSP; the whole scenario was illustrated in the previous issue of BTT. To make the scene a bit more complex, Canada now has undergone some modification in the existing GPT (General Preferential Tariff) that have connections with Bangladesh.  In this issue Market Today is reviewing the most recent alterations in the nature of the trade facilities enjoyed by Bangladesh garments industry.

The reason for Bangladesh garments industry growing fast is a comprehensive combination of three agents – cheap labor, consistent quality and local & international market or trade facilities. The robust growth in export value has been helping the country’s economy to survive and the ultimate goal of which is to upgrade the fate of our poor population. As the industry is moving along smoothly, it’s obvious that the preferential trade facilities will be gradually withdrawn. Though it’s still too far to be in a position like that, but the country should take necessary steps to be ready for that day. Because, it is believed that the process has already started, as we can see alterations are taking place frequently of-late.

The Canada GPT issue is not only directly related to Bangladesh but also with globalized village.  The trade beneficiary countries are so inter-related/dependent that the proposed amendment has something to think about for Bangladesh.

Canada: Proposed Amendments to the General Preferential Tariff

Canada implemented GTP in 1974, with the policy intent of encouraging imports from developing countries to increase their export earnings and promote their economic growth. The GPT is legislated in the Customs Tariff on a 10-year cycle and is set to expire on June 30, 2014.  Therefore, the Canadian Government is proposing certain changes to its GPT Scheme.

Among others, the Canadian Government intends to modify the list of beneficiaries by withdrawing GPT treatment from countries that are classified for two consecutive years as high income or upper-middle income economies (in the latest WB Income list) or have a share of world exports that is equal to or greater than 1% for two consecutive years (in the latest WTO statistics). Based on the above criteria, the Canadian Government intends to withdraw GPT eligibility from a number of economies including Hong Kong, China, India, Korea and Singapore with effect from 1 July 2014. Other elements for proposed changes to the Scheme include product coverage, rules of origin, safeguards as well as expiry date and future reviews.

How does the amendment affect BangladeshCanada used to provide preferential tariff facilities to 175 countries under its GPT scheme but now they have shortlisted it removing 72 of them. Bangladesh is still in the list of the beneficiaries as it still doesn’t meet the above-mentioned criteria but the removal of China and India is a matter of concern. Because, the rules of origin under the Canadian GPT scheme says that the products would not get the tariff benefit if the raw materials are sourced from countries which are not the beneficiaries under GPT. That means, as India and China are no longer the beneficiaries, products made by materials sourced from India and China will no longer be availed for the tariff benefit. However, Pakistan would remain GPT beneficiaries after June 30, 2014.

Still Bangladesh have to source it’s 50% of yarn and fabrics from abroad to meet the garments industry requirements as the inland primary textiles are not yet capable enough to provide 100% support. Power and energy shortage, lack of technology and government legislations are hindering the primary textile sector’s growth. As a result there is no way but to import raw materials especially grey fabrics and most of them are sourced from India and China. 60% of the total requirements of woven fabrics are imported from China through irrevocable back-to-back L/C.

Bangladesh has exported goods worth 1 billion dollar to Canada last year and 951 million of them were garments products. Among the garments products 55% were woven products and the rest were knit items. With the proposed amendment the woven part of the export may have a negative effect. BGMEA president says, Bangladesh can lose up to 40 to 60% of its market share in Canada.

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On the other hand, as China and India would drop from the GPT beneficiaries, there will be no competitor for Bangladesh in this region for Canadian apparel market. Bangladeshi products are typically more price competitive than India and China and now with the new GPT scheme, it would be a big boost for the garment export to overflow in Canada with better product price. But even there is a twist as countries like India, China, Taiwan has been paying a duty of 17-18 percent (as LDC) and Bangladesh has been paying zero tariffs as LCDT (Least developed country tariff). Therefore, especially for the woven items that may lose the GPT, if the woven fabric supplying countries increase tariff from zero to 17-18 percent.

The government of Bangladesh has taken the deal seriously as the secretary of commerce is trying to negotiate with the Canadian authority for granting single stage rules of origin (RoO) (fabric to clothing) like the EU so that their export are not affected to Canada.
Canada is an important export destination for Bangladesh, as export rose 11 times in the last 10 years providing substantial growth for the country’s apparel industry. At any case we will have to increase the capacity of our backward linkage industries and that will help us avoiding such situations and grow further having greater ability in short lead time and quality goods.

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

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