A recent Indian government’s move to introduce rules of origin in the name of protecting its local garment manufacturers might severely hurt Bangladesh’s export growth to its neighbour. India has started discussions with stakeholders on a proposed ‘Fabric Forward Policy’ with the aim of introducing the rules of origin for duty-free garment imports.
Although India doubled the import tax on more than 300 textile products to 20 per cent on August 7 to reduce its cheap imports from China, Indian textile industry people claimed that their efforts were being hindered due to duty-free facility offered by India to Bangladesh as China was exporting textiles to India through Bangladesh.
International news agency Reuters reported that the Confederation of Indian Textile Industry had requested the government to introduce the rules of origin for duty-free imports.
Competition from China is forcing some Indian businesses, such as polyester production facilities, to run idle, leading to job losses, the trade body said.
Kavita Gupta, India’s textile commissioner, told Reuters that the textile ministry had proposed a Fabric Forward Policy, where duty-free access to garments would be provided if the fabric was sourced from India.
The policy is in discussion stage, she said.
Bangladeshi experts and exporters said that if India introduced such condition, Bangladesh’s export to the market would be hurt. They, however, said that it would not be easy for India to impose any condition on duty-free facility as Bangladesh enjoys the trade benefit in India under the South Asian Free Trade Agreement.
‘If India imposes such trade barrier in the name of introducing rule of origin, it would harm Bangladesh’s exports,’ said Anwar-Ul Alam Chowdhury Parvez, former president of the Bangladesh Garment Manufacturers and Exporters Association.
He, however, said that it would not easy for India to impose such restriction as Bangladesh enjoys duty-free market access in India under the SAFTA pact.
If India imposes condition on duty-free market access on Bangladeshi products, Indian products would also have to face same restriction in Bangladesh, Parvez said.
Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, said that there was no scope for India for imposing such restriction on Bangladeshi products as the export products of both the countries enjoy duty-free market access under the SAFTA agreement not under any bilateral agreement.
‘Now we have to see what India is going to do,’ he said.
Reuters reported that India doubled the import tax on more than 300 textile products to 20 per cent, marking the second tax increase on textiles in as many months.
This is aimed at providing relief to the country’s domestic textile industry, which has been hit by cheaper imports, the Reuters’ report said.
India’s total textile imports jumped by 16 per cent to a record $7 billion in the fiscal year to March, 2018. Of the amount, about $3 billion were from China.
India’s industry officials said textile raw materials from China were coming into India via Bangladesh, which has a free-trade agreement with India giving it access to the country’s $100 billion textile market, Reuters reported.
‘Duty-free fabric from China is coming to Bangladesh, getting converted and landing into India at zero duty,’ Sanjay Jain, president of the Confederation of Indian Textile Industry, told Reuters.
Industry bodies argue that India’s latest action is not enough to protect domestic garment manufacturers who are facing fierce competition from China and Bangladesh.
Imports of clothing accessories and apparel from Bangladesh — the world’s second largest exporter of readymade garments — rose over 43 per cent to $200.9 million during the year ended March, 2018, according to Indian government data.
‘Under the SAFTA agreement and trade agreement with Bangladesh, only those goods should be exempted from customs duty, whose raw material is also manufactured by one of the SAFTA countries,’ Dilip Chenoy, head of The Federation of Indian Chambers of Commerce and Industry, said in a letter dated July 25 to a senior official in the Indian government’s textile ministry.
Rising imports sent India’s trade deficit with China in textile products (finished garments) to a record high $1.54 billion in 2017-18, alarming industry officials as India had been until recently a net exporter of textile products to China, Reuters reported. There is a 10-per cent price difference on average between textile products made in India and those made in China, according to the FICCI. The unit value of some Chinese products such as stockings, blouses and baby garments cost far less than produced in India. ‘Import trend suggests 40 to 50 per cent of the garments were made with Chinese fibre,’ said an Indian analyst who did not want to be named.
It is difficult to estimate exactly how many garments imported in India were produced with fibre sourced from China, he told Reuters.