Fabric makers feel pinch of EU’s relaxed rules

Monday, April 11, 2011

Fabrics makers feel pinch of EU’s relaxed rules

Experts suggest improved productivity, efficiency

Refayet Ullah Mirdha

Local fabrics makers should increase productivity, improve the quality of products and enhance efficiency in production to offset the bad impact of the European Union’s relaxed rules of origin on the local textile sector, experts suggest.

The suggestions came when the local textile sector is affected by the relaxed rules of origin (RoO) for the least developed countries (LDCs), including Bangladesh, effective from January 1.

RMG exports to the European Union (EU) increased substantially in the first three months of the year, but the sales of local fabrics, especially woven, have been affected by the move.

The garment manufacturers import fabrics from other countries, such as China, paying less than what they would pay for locally produced fabrics.

MA Taslim, a trade analyst, said the opportunity of producing and selling fabrics locally to the garment makers increased tremendously following the EU’s relaxation of the RoO under the generalised system of preferences (GSP).

But many are not purchasing the fabrics from local suppliers, but importing from other countries for lower prices. As a result, the local fabrics sector is not seeing any boom, he said.

The previous RoO acted as a protective shield for the local textile sector for decades, because the garment makers had to buy the majority of the fabrics from Bangladeshi textile factories at the time to get zero-tariff benefits from the EU.

Taslim said the garment manufacturers will purchase the fabrics from local manufacturers when they will be able to sell their products at competitive prices.

If the domestic investors cannot supply the fabrics at competitive prices, the foreign investors like Arvind will weigh in. Arvind, the largest denim company in India, is coming here because the company could realise that there is a market in Bangladesh.

“So, the domestic fabrics manufacturers should increase productivity, enhance efficiency and improve the quality of products to avail of the opportunity,” said Taslim, who teaches economics at the Dhaka University.

Dr Zaid Bakht, research director of Bangladesh Institute of Development Studies (BIDS), said Bangladesh has no choice but to agree with the policy changes of EU, because it is their decision.

He said no industry can be protected for an unlimited period. Bangladesh’s backward linkage industry has been protected for years since the early 1990s. “Now it’s time for us to be competitive,” Bakht said.

If the garment manufacturers can purchase quality fabrics at competitive prices from the local market, they will not import, he added. He also suggested the local manufacturers enhance their efficiency in production for supplying the fabrics at competitive prices.

He, however, said the capital costs of the fabrics manufacturers should be reduced. The government can supply electricity to them at a subsidised rate to help them or the government can help them in other ways to reduce their cost of capital, he elaborated.

Fahmida Khatun, head of research of the Centre for Policy Dialogue, said maintaining quality and supplying the fabrics at competitive prices are important for the local fabrics makers.

Moreover, they should also persuade the international buyers to specify particular types of fabrics for garment manufacturing which might favour them, she added.

“Since the exporters can avail the zero-duty facility even from the imported fabrics, in many cases the garment manufacturers do not want to purchase fabrics from the local makers. They import the fabrics at lower prices. As a result, the home textile sector is affected,” said Jahangir Alamin, president of Bangladesh Textile Mills Association.

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