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How the ending of GSP for India impacts Bangladesh apparel export

The impact of the ending of GSP for India will not be long-lasting

US President Donald Trump announced to cut off India’s $5.6 billion trade concessions under the Generalized Scheme of Preferences program with effect from June 5.

“I have determined that India has not assured the United States that India will provide equitable and reasonable access to its markets,” he said in a proclamation.

India, which came under the GSP program in 1975, is its largest beneficiary in the US. India’s GSP exports of $5.6 billion were only a part of the total exports worth $76.7 billion in 2017, according to the US Trade Representative (USTR). Total India-US trade was $126.2 billion in 2017, with a $27.3 billion shortfall for the US.

 

US-INDIA GSP
Figure: Showing bilateral trade between India and the US. (Source: The Economics Times)

Trump is on a mission to end the massive US trade deficits and has imposed or proposed higher tariffs on imports from several countries.

How will it influence Bangladesh’s apparel export?

In 2017, Bangladesh RMG exports to the US market saw a 4.51% negative growth to $5.03 billion, which was $5.30 billion in 2016. However, Bangladesh recently registered double-digit growth in the US market due to the US-China trade war, which opened up opportunities for Bangladeshi exporters.

According to Otexa data, Bangladesh exports to the US registered a 6.42% rise to $5.60 billion in 2018, riding mainly on apparel items to the single largest export destination. Apparel products alone fetched $5.40 billion of total merchandise export. Non-apparel products managed to earn only $206.25 million during the period.

India is the third largest exporters of textile apparel goods to the US marker after Indonesia with the export of $7.67 billion as of 2018, while Bangladesh is the fourth largest exporter of apparel and textile goods worth $5.60 billion.

There were about 2,000 products including textile goods from India, which enjoyed duty-free market access to the USA under the Generalized System of Preference (GSP). Since the preferential trade facilities are gone, the Bangladesh apparel sector may gain.

Trade analysts and economists think that the impact of the scrapped preferential trade facilities will be temporary and long-lasting.

“In any trade tariff conflicts, there remains uncertainty among the business people. As a result, in placing work orders they shift a portion of orders to remain safe through the item is not included in the tariff list,” Centre for Policy Dialogue (CPD) Khondaker Golam Moazzem opined.

“So, there will be a positive impact on Bangladesh exports to US market but it may be temporary,” said Moazzem, adding that the US is cutting trade facilities to renegotiate the trade benefits bilaterally.

Bangladesh has to think of diversifying its goods and concentrating on connecting the buyers who are currently sourcing from the Indian manufacturers to reap the full benefits.

He also notes that Bangladeshi importers from India can benefit from the cut of trade facilities as there will be scope for price negotiation.

Beyond the apparel sector, there is an opportunity to grow in the leather and footwear exports, which have already seen a sharp rise due to US-China tariff war. The American Apparel and Footwear Association said in written testimony to the USTR that if GSP benefits are withdrawn for India as well as Indonesia and Thailand, US companies will have no choice but to return to sourcing from China.

As India is a close competitor of Bangladesh in leather goods and footwear, it will bring benefits for Bangladesh.

Bangladesh has increased capacity and trade diplomacy is doing better in branding the country, these positive indicators may help Bangladesh in grabbing more market share in the US market.

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

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