A 30 billion dollar worth apparel market that surrounds Bangladesh, India the 2nd largest apparel exporter worldwide that has never been able to export even a hundred million dollar worth apparel to that region. It clearly reveals the trade-relationship between the two neighboring countries when apparel exports are in concern. After the USA GSP debate and the Canada GPT alteration, now the garment exporters and authorities are kept apprehensive with India’s decision to impose nearly 16 percent duty on RMG imports from Bangladesh. Market Today in this issue informs you about the latest Indo-Bangla RMG trade amendments.
USA and the EU are the major export destinations for the Bangladeshi apparel products for long time. In spite of being so close, India never has been a suitable place to export apparel products due to different trade tariffs and parra-tariff barriers. The population of India is higher than the total population of USA & EU and the country has a demand of 30 billion dollar worth apparel product every year. But it was thought to be a new era for Bangladesh’s garments in the Indian markets in September 2011 with the declaration of a duty waiver by the neighboring giant for 46 items. But analysts say, though the export volume to India rose considerably, it never met the expectation due to different unanticipated and unlawful tariff that were not on paper but goods were charged duty to enter different states of the country. However, Bangladesh was getting benefit and its export to India rose at least by 35 % in that time. In parallel, the Indian clothing manufacturers claimed that the competitiveness of the Indian garments was being hampered due to this move and so the Indian government though waived a 10 percent basic duty on import of garments from Bangladesh, but kept the countervailing duty (CVD) and some other additional taxes, arguing that its domestic manufacturers pay a similar amount of taxes in the name of excise duty.
The latest amendment
Every thing was good until February 28 this year when India announced its union budget for fiscal 2013-14. India has withdrawn the excise duty that is being paid by Indian garment manufacturers, but the country kept the 12 percent CVD plus 3 percent education cess (tax) on this CVD, bringing the total duty to 12.36 percent on Bangladeshi garments. The export of garments to India is no more duty-free when compared with the local producers now. Annisul Huq, a former president of both the BGMEA and the Federation of Bangladesh Chambers of Commerce and Industry said, “India has made the market uneven by withdrawing the excise duty on its garment manufacturing units, while it has kept the CVD on Bangladeshi garments.” PK Mohanty, joint secretary of the finance ministry of India, issued a letter to the authorities concerned about the Finance Bill, 2013 that brought changes in customs and central excise law and rates of duty. The letter said zero excise duty routes, as existed prior to Budget 2011-12, is being restored on readymade garments and made-ups.
The insider’s thought
In response to media reports on imposing countervailing duty by India on imports of Bangladeshi garments, the High Commission of India in Dhaka has given a clarification. India has not imposed any new duty on garments no new countervailing duty (CVD) has been imposed in the Indian Union Budget 2013-14 on readymade garment imports into India. The CVD of 12.36 percent, which existed on readymade garment imports in 2012-13, continues without any change.
The only alteration is that a same kind of duty was availed for the Indian local manufacturers which are waived with this notification now only in order to provide ‘national treatment’ to exports from Bangladesh to India. , The countervailing duty is a duty which is charged in lieu of excise duty which is payable by Indian manufacturers. Levy of CVD provides a level playing field to imported goods on par with locally manufactured products. The CVD that is already in existence is non-discriminatory and non-country specific. It is further clarified that in respect of Indian manufacturers of readymade garments, the Indian Union Budget 2013-14 has not withdrawn the excise duty on branded garments but permitted the Indian garment manufacturers to avail of either the ‘optional’ or ‘mandatory’ routes for reckoning of excise duty on branded garments that was available to them since 2004 and prior to Union Budget 2011-2012.
According to definition as it was termed as CVD by the Indian Government, with the waiver of such duty from the local manufacturers, it actually doesn’t comply with the definition of CVD. That means the 12.73% duty that is availed upon import from Bangladesh cannot more be termed as CVD. Whatever it is, it is clear that with this notification, Bangladesh’s competitiveness will loosen up in comparison with the local manufacturers, but it’s also normal that the government is free to take any measures if it thinks their local industry is hampered. And this notification came along only due to the continued protest from the Indian Clothing Manufacturers Association to their government after it provided duty free entrance of Bangladeshi garments product to their territory. Only time can tell now what the real affect is upon Bangladesh’s export to India. In fiscal 2011-12, Bangladesh exported RMG products worth $55.02 million to India, up 53 percent year-on-year, according to Export Promotion Bureau. BGMEA has insisted Bangladesh government to undertake necessary dialogue between the two parties and request them to eliminate such duty upon import from Bangladesh.
What is countervailing duty (CVD)?
Countervailing duty is an additional import duty imposed to compensate the effect of concessions and subsidies granted by an exporting country to its exporters. Imposition of countervailing duty is an attempt to bring imported prices to its true market price, and thus provides a level-playing field to importing country’s producers.
Last November 2012, in an international conference named ICTA 2012 held in Dhaka, Dr. Anil Gupta, Vice President of Indian Textile Association depicted that price of apparel merchandises in India is increasing by around 35% every year. Current duty free access provision for Bangladeshi apparels to India was giving Indian consumers a hope that prices of those goods will go down as cost of Bangladeshi apparels are less. But now with the expulsion of CVD for local manufactures has made things almost equal for all as now price of apparel products manufactured in India is also to be reduced. Hence it is purely good news for Indian consumers but a bad news for Bangladeshi manufacturers targeting Indian market as now they have to fight to reduce manufacturing cost to achieve a competitive advantage over Indian goods. Under the new rule it is even harder for them as cost difference was at least 10% at pre duty free era and now in post duty free era it is at least 12.36% between Bangladeshi apparels and locally produced apparel in India.