Textile in BANGLADESH

Textile and Clothing Industry in BANGLADESH:

Textiles and clothing industry together account for more than 76 per cent of the country’s total export earnings as can be seen from figure 3.

Figure 3. Export Sector Performance of BANGLADESH (2001-02)

Source: Ali Md Hossain, BANGLADESH Country Paper on RMG Industry of BANGLADESH, 10.

The exports are destined mostly for the United States of America (USA) and European Union markets, to which up to recent time BANGLADESH had privileged access by the Multi Fibered Agreement (MFA) and Generalized System of Preferences (GSP). This private sector of BANGLADESH is now facing challenges that need to overcome to maintain growth. The Textile and Clothing industry is encountering challenges from mainly two areas as described subsequently.

MFA is in the process of phasing out since 2004. After it is completely phased out, BANGLADESH is likely to face greater competition in the world market from other garment exporting countries. Now, raw cotton producing and self-sufficient backward linkage countries will compel BANGLADESH to compete on a more level playing field. For BANGLADESH, the abolition of MFA has far reaching implications in terms of loss of jobs and reduction in foreign exchange earnings in the Ready Made Garments (RMG) sector. The jobs and working conditions of the RMG and textile workers are most likely to worsen due to competitive pressures arising from other countries participating in globalization. This pressure may force the entrepreneurs to cut costs in the form of either lower wages or retrenchment of workers. Thus, not only worker’s employment will be at stake but also the working conditions are not expected to improve38. Weak market strategy, absence of backward linkage industries, lack of FDI and incoherent infrastructural facilities have further contributed concern over the future of the RMG industry. The cost of business is also increasing primarily due to port problems, bureaucratic tangles in custom department and no improvement in lead-time. In contrast, an increasing number of countries are offering low-cost products. Competing countries like Vietnam, China, and Thailand are entering the global market with products that BANGLADESH is exporting and as a result intensifying competition and dipping prices.

United States Trade Development Act (USTDA) 2000

Enactments of USTDA 2000 will also challenge the RMG sector. The USTDA 2000 provides duty and quota-free access to 48 countries of Africa and 24 countries of the Caribbean Basin for exporting textile and apparel products to the USA market. The Caribbean Basin countries are BANGLADESH’s direct competitors in the USA apparel market. USTDA 2000 is expected to cause trade diversion from BANGLADESH in favour of Caribbean Basin Initiative (CBI) countries. The value per Square Meter Equivalent (SME) of apparel exports to the USA from BANGLADESH already have the lowest value compared to three other major exporter as can be seen from figure 4. It has been estimated that BANGLADESHi manufacturers will need to reduce production costs by some 15-20 per cent in order to overcome their tariff disadvantage relative to CBI countries. Further lowering of prices is likely to have a telling effect on the RMG industry. Thus, although the garment industry does lead BANGLADESH to steady economic growth but it requires being flexible and adaptive to continue to do so.

Figure 4. Value per SME for Selected CBI Countries and BANGLADESH to United States

Source: Azim M Tahlin and Nasir Uddin, “Challenges for Garments Sector in BANGLADESH After 2004: Avenues for Survival and Growth,” BANGLADESH Institute of International and Strategic Studies Journal 24, no. l (January 2003): 64.