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Duty-free Chinese fabrics get converted into RMG in Bangladesh, enter India

Duty free Chinese fabrics get converted into RMG in Bangladesh enter India 002Increasing apparel imports particularly from Bangladesh is silently disrupting India’s domestic textile value chain from fibre to apparel, suggest some reports. The industry has asked for immediate government intervention to impose sourcing restrictions in order to cut the damage. A team lead by Prabhu Dhamodharan, Convenor, Indian Texpreneurs Federation (ITF), met Suresh Prabhu, Union Minister for Commerce and Industry to show their concern.

Statistics reveal, apparel imports into India rose from $10.94 million in 2009 to cross $100 million-mark in 2015 before soaring to $136.43 million in FY2016. As per a 2006 treaty with Bangladesh, India allows duty-free import of readymade garments from Bangladesh under SAFTA. Initially this facility was limited to 8 million pieces but in 2010, this quantitative restriction was lifted. Made-in-Bangladesh garments import surged thereafter. From a CAGR of 67 per cent between 2006 and 2010, it rose to 98 per cent between 2011 and 2014.

The real picture

As a matter of fact, Bangladesh does not produce enough fabrics domestically. The duty-free, quota-free facility extended to Bangladesh benefits China’sBangladesh 008 export of textiles. Bangladesh imports fabrics from China, converts them into garments and exports the stuff to India. Since import of Made in China fabrics is meant for export, Bangladesh does not impose any import duty on the fabric import and this facilitates backdoor entry of Chinese textiles into India. India, on the other hand, has not imposed any sourcing restrictions. To top it all, the duty-free quota facility has now been extended to all 49 LDCs on a non-reciprocal basis and without any sourcing restrictions. Not only this, the entire scenario would be detrimental to some LDCs like Ethiopia, Cambodia and Myanmar, which have duty-free access to the EU, Japan and US markets.

As Sanjay K Jain, Chairman, Confederation of Indian Textile Industry (CITI India) points out the duty-free facility given to Bangladesh on grounds of it being a Least Developed Countries (LDC) was actually benefiting China's textile exports. In pre-GST scenario, import of garments from Bangladesh and other countries were attracting a CVD (Countervailing Duty) of 12.5 per cent and education cess of 3 per cent. However, post-GST, this has been removed, hence there is no cost for garment import from Bangladesh and other countries.

Revising SAFTA rules

To make things in favourable for of Indian companies, ITF and CITI have suggested a revision of SAFTA (South Asian Free Trade Area) rules of origin to make use of yarn and fabric of Indian origin mandatory for allowing duty-free quota-free market access. As Dhamodharan says, this would boost the country’s yarn and fabric export to Bangladesh and other LDCs. India has accepted sourcing restrictions imposed by Japan. This has hurt our apparel exports to Japan under India-Japan CEPA (Comprehensive Economic Partnership Agreement). Giving example of global practices of imposing sourcing restrictions, Jain says the US imposed sourcing restriction under NAFTA for accepting duty free import of garments from Mexico and other NAFTA members. On similar lines, the government can make amendments to help the domestic industry without really denying duty free market access to Bangladesh and other LDCs. Such a move will prevent China from taking undue advantage of a facility that is meant for LDCs. This measure is also expected to give a fillip to India’s export of yarn and fabrics to Bangladesh and other LDCs, which at present, are being supplied by China.

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