Value addition, notwithstanding being a somewhat touchy subject, is nonetheless a widely discussed topic in the Bangladesh garment manufacturing industry.
If one may remember, it was not too long ago apparel exporters demanded that the Government relax the condition of at least 30 per cent value addition for woven items to stay eligible for a 4 per cent cash incentive as well as all subsidies even as in a letter addressed to the Commerce Minister Tipu Munshi, BGMEA President Faruque Hasan, reportedly proposed cutting the value addition rate to 20 per cent and, which came at a time when the whole world is preparing for adding more value locally while manufacturing products on the eve of the fourth industrial revolution.
But Bangladesh’s apparel entrepreneurs demanded that the Government relax value addition conditions to stay eligible for all subsidies, including cash incentives against exports even if the BGMEA also sought a 4 per cent cash incentive on export-oriented apparel items made from imported raw materials while the Government has been providing such a reward on exports of apparel items manufactured with locally sourced yarns or fabrics.
As per reports, the BGMEA Chair in his letter to the Commerce Minister reportedly maintained relaxation is very essential for the apparel exporters who are trying hard to survive and sustain amidst the pandemic fallouts even as he underlined this facility will also draw in more investment and create job opportunities.
“Many of us will not be able to meet this condition as for woven garments, we need to import 70 per cent-80 per cent of fabrics and accessories,” reportedly maintained Md Shahidullah Azim, the BGMEA Vice-President, interacting with the media while explaining why they still cannot add 30 per cent local value to woven clothing — cash incentive was previously available subject to adding 20 per cent value, which was subsequently increased to 30 per cent — underlining what they do locally are cutting, making and washing and went on to add the situation is more or less similar for all the woven garment exporters.
For the uninitiated, the BGMEA President had on 8th October, sent two separate letters to the Commerce Minister, in one of which, he reportedly sought nine benefits, including a rise in cash incentives while also requesting the Commerce Ministry to not cancel the back-to-back LC facility for non-bond exporters.
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And prior to the BGMEA’s letter, another garment makers’ body, the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) also opposed the Government’s move which made at least 30 per cent local value addition mandatory for export products to get cash incentive and demanded incentive against their repatriation of export proceeds.
The BKMEA also sent a letter to Finance Minister AHM Mustafa Kamal in this direction earlier while demanding that paragraph 7 of FE circular number 29 issued by the Bangladesh Bank on 20 September — the central bank in the circular declared 42 products or sectors eligible for receiving Government incentive or cash assistance against export earnings in the fiscal year of 2021-2022 even as the circular added that local value addition of at least 30 per cent was mandatory for all products to enjoy the incentive — should be omitted.
The BKMEA letter reportedly stated the condition for 30 per cent value addition should not be applicable for the apparel and textile sector as the cash incentive was being calculated on 80 per cent of their repatriated export proceeds as per the import policy order even as the knitwear manufacturers and exporters get 4 per cent cash incentive against value addition to their products produced in the country using local yarn.
The BKMEA said that all other export sectors in the country were getting cash incentives against their repatriation of export proceeds while the incentive for the knitwear sector was calculated on value addition (80 per cent of proceeds repatriation) and went to further add there was no need to determine the percentage of local value addition for the knitwear sector as the sector did not enjoy cash incentive on the repatriation of export proceeds.
The otherwise apparent innocuous issue of value addition, which had the garment makers and the Government differing on this issue, took a much serious turn in view of Bangladesh’s imminent LDC graduation. And all this revolving the issue of GSP as there is a big contradiction as far as the demands of the garment makers are concerned — apparel makers are pleading for lowering the threshold for local value addition set for the Government’s cash incentives — more so at a time when garment exporters are required to add more local value to get duty-free access to the European Union (EU) — the bloc is one of Bangladesh’s apparel export strongholds — after three years.
It may be mentioned here that to be eligible for the EU’s proposed new GSP (generalised scheme of preferences) framework, Bangladeshi garment makers will need a ‘double transformation’, which, as industry leaders assess, will amount to 40 per cent of local value addition.
Even though this level has been achieved by the knitwear manufacturers already, with a much lower local value addition, woven dressmakers will find it harder to get duty-free access to the EU market after Bangladesh’s graduation from the least developed country status by 2026.
And this alarm is sounded by none other than the economists and many from within the industry, who felt lowering the threshold further to 20 per cent, as demanded by the BGMEA, will discourage local industrialisation and efforts to add more local value to export apparels, they think.
Industry people and analysts say cash incentives should not be an across-the-board offer; it will be rational to strip the firms of the incentives if they fail to add enough local value to their products.
Meanwhile, speaking to the media, an apparel industry leader, on the condition of anonymity, reportedly maintained the Government may offer cash support only for new products with a 20 per cent value addition, which will be helpful to diversify apparel items, while explaining further, he said 20 per cent value addition should be allowed for new man-made fabric-based items except for five major ones, which account for about 70 per cent of Bangladesh apparel export earnings.
“The new items could be sportswear, wedding wear and tech-wears; those may require imported fabrics and accessories. Once we can start producing those items, local industry will gradually develop based on them,” reportedly underlined the apparel exporter even as Chairman of the Research and Policy Integration for Development (RAPID) Dr Mohammad Abdur Razzaque, reportedly maintained, “The 20 per cent value addition will not be logical as the country is going to graduate from LDC status, while the new GSP proposal suggested a double transformation.”
Given the contradictions in the demands of the garment makers and what the EU requires to continue giving the trade facility, one is given to understand, such a scenario may prove detrimental for the industry in longer run.
