Proving to be a silver lining in dark clouds, China granted duty-free access to all exports from Bangladesh including apparels from July 1. This could help Bangladesh offset losses caused by around 20 per cent decline in its clothing exports this year. Knitwear exporters could benefit more from this due to the condition of 40 per cent local value addition to these exports. To explore this opportunity, Bangladesh needs to develop its manufacturing industries, break away from the limitations of industrial structure, improve the quality of export and shift to higher value-added exports, says Li Jiming, Chinese Ambassador to Bangladesh.
Bangladesh exported over $ 590 million worth of textiles, clothing and accessories to China in 2019. The country has the potential to export more clothing items as its production costs are much lower than those in China.
Product diversification and quality improvement needed
Bangladesh also benefits from abundant jute production. The country is the second-largest producer of jute after India and can sell this raw jute to China and India. This can help it to boost its entrepreneurs and export. According to ATM Azizul Akil, Senior Vice-President, Bangladesh-China Chamber of Commerce and Industry, the duty-free export facility provided by China would help Bangladesh minimize its massive trade deficit. However, to benefit from this, the country first needs to emphasize on product diversification and improving the quality of products. The facility does not benefit 97 per cent of Bangladesh’s products currently.
An alternative market to India
Along with duty export facilities, China has also offered ‘Change of Tariff Heading’ (CTH) facility as an alternative to the condition of 40 per cent value addition. According to this facility, if a shirt is made with imported fabric and with less than 40 per cent value addition by Bangladesh, the duty-free facility will be available under the CTH because the HS code of imported fabric is different from that of shirts, explained Mustofa Abid Khan, Member, Bangladesh Trade and Tariff Commission
As India has imposed various non-tariff barriers including anti-dumping duties on jute imports from Bangladesh, the county has been forced to temporarily suspend its jute exports. In such a scenario, the duty-free access provided by China provides an alternative market for Bangladesh jute exports
Value addition rules cause concern
Given all its benefits, the latest duty-free market access China offers to Bangladesh comes with a condition of 40 per cent value addition by Bangladesh to the product’s price. According to experts, this is a very stringent condition as Bangladesh can add 40 per cent value to only a few items locally. Hence, experts are unsure whether the facility would actually benefit Bangladesh or prove to be a mare’s nest.