26th October, 2015

There has been much talk about the impact of the TPP on exports from Bangladesh with Vietnam being a major threat… But are the fears real or are they just hype? 

So what is the TPP for those who are not initiated… TPP or Trans-Pacific Partnership is a trade agreement signed on the 5th of October among 12 Pacific Rim countries to lower trade barriers and establish an investor state dispute mechanism among the member countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, USA and Vietnam.

The major concern for the garment industry is that TPP members, of which only Vietnam is a real threat, will get preferential access (duty-free) to the US market. Though the textiles and apparel chapter of the agreement is programmed with a strict yarn-forward rule of origin (ROO), it is certain that the TPP countries will have the privilege of lower or zero tariff for exporting goods to member countries which will, according to many experts, greatly impact the garment and textile sectors in Bangladesh. 

Until implementation of the TPP, which is not expected to happen before mid-2016, the status quo will remain the same; and since every country within the TPP arrangement has the option to form their own alliances and trade pacts, many things can change in the next one year. Bangladesh already has a GSP arrangement with Europe, which makes it a preferred supplier in the EU and the Government is in talks for similar arrangements with the US. There are even talks that Bangladesh may join the TPP in another few years…

It cannot be denied that Bangladesh is the second largest RMG exporting country in the world and the participants in TPP have very little share of Bangladesh’s exports, except the USA, which also denies duty-free access until the participating countries make a wide range of improvements to bring its labour regime into compliance with TPP requirements… Till then, Bangladesh has nothing to fear.

Also upon implementation, the duties will be eliminated immediately only on non-sensitive products. In apparel, the most import-sensitive item, only an immediate duty reduction of minimum 35% is expected after which countries will have to show compliances to certain labour reforms which is not that easy.

As of today, Vietnam already enjoys 12.66% of the market share in the US on value, while Bangladesh has a share of just 6.87%. Also in its core categories like jackets and suits it is far ahead, whereas Bangladesh is still finding its space. Trousers are however one category where the competition is tough where Bangladesh has 14.17% share as against 13.14% of Vietnam. 

But in reality it is more likely that Vietnam will take away business from China rather than Bangladesh, as China has a huge share of 32.26% in the US market and many buyers from the United States are already looking for alternate manufacturing bases as China becomes expensive.

I agree with Commerce Minister Tofail Ahmed when he says that the fear is unfounded while highlighting the urgency of strengthening country’s institutional capacity, both economic and political, alongside good governance for sustainable economic growth amidst latest developments on the external front.