The apprehension comes from an IMF evaluation based on the erosion, over the past two years, of Bangladesh's market share in Canada, which is Bangladesh's only major market where there are no safeguard restrictions on China.

Despite rapid growth in exports to Canada and its rise to the number two position in the Canadian garment market in 2006, Bangladesh's share of the overall Canadian market has declined from 7.4 to 6.9 percent over the past two years.

The evaluation received here yesterday said Bangladesh has demonstrated that it is highly competitive in the world's major garment markets since the expiration of the Agreement on Textiles and Clothing (ATC) due to the transitional safeguards on exports from China.

It said Bangladesh's strong performance to date is attributable to significant competitive advantages emanating from its abundant low-cost labour, the flexible exchange rate, and increasingly close ties with major international buyers that are allowing the industry to benefit from the transfer of knowledge and technology.

"Vietnam's accession to the WTO in January 2007 poses a challenge for Bangladesh since Vietnam now has quota-free access to the large markets in which these two countries compete head-to-head," said the evaluation report prepared by IMF Staff team based on information at the time it was completed on April 18.

It said the recent labour unrest in Bangladesh's garment sector is a potential risk to the industry and highlights the need for continued efforts to raise safety standards, improve general working conditions and implement wage agreements.

To maximise the likelihood that Bangladesh's garment industry will continue to thrive, the industry and government would need to address a number of issues.

"The foremost among these is the development of vocational and other educational programmes that will support the industry's need for more highly-skilled domestic labour, including line and production managers."

The report said that given the clear constraints imposed on the RMG and other industries by the poor condition of the country's infrastructure, it is critical that the government moves to improve the roads, railways and ports, and to streamline further the customs procedures applied at all points of entry.

It added that a general change for the better in the business climate--from better infrastructure and to having improved governance -- may attract more FDI into the garment sector, including outside the EPZs (export processing zones).

"This could be particularly important since there is strong evidence that productivity (and employment) is higher in FDI firms and more FDI in the sector would create additional competition, thereby helping to improve the competitiveness of all RMG firms."

Aside from addressing these constraints to growth, the report said Bangladesh's garment industry should more actively explore new markets.

Even though firms report that they are constantly running at maximum capacity and prefer to deal with known buyers and customers, efforts should be made to develop new business, at least in large Asian countries such as Japan, China and India.

"This may help Bangladesh sustain its growth in the increasingly competitive global market, particularly since it is well placed to absorb business in the low-end and medium garment market as other major producers move up the value-added chain."