Indian duty waiver and some shocks
A worker operates a machine at a textile factory in Gazipur. Analysts say both Bangladesh and India should initiate talks soon to settle duty-related issues to help Bangladeshi garment exporters benefit from a waiver given by the neighbour. Photo: Star
A new era had emerged for Bangladesh's garments in the Indian markets in September 2011 with the declaration of a duty waiver by the neighbouring giant for 46 items of Bangladesh.
India had said garment items -- made of imported or local fabrics -- will qualify for duty-free market access to the country, but exporters would have to ensure 30 percent value addition to get the duty benefits.
Analysts and exporters then hailed the move saying that Bangladesh will benefit from the waiver. Accordingly, India had waived a 10 percent basic duty on import of garments from Bangladesh, but kept the countervailing duty (CVD) and some other additional taxes, arguing that its domestic manufacturers pay a similar amount of taxes in the name of excise duty.
All was good until February 28 this year when India announced its union budget for fiscal 2013-14. India has withdrawn the excise duty that is being paid by Indian garment manufacturers, but the country kept the 12 percent CVD plus 3 percent education cess (tax) on this CVD, bringing the total duty to 12.36 percent on Bangladeshi garments.
According to Bangladesh Garment Manufacturers and Exporters Association (BGMEA), there are additional taxes. An Indian businessman has to pay an additional 3 percent customs education cess on 12.36 percent to make it 12.73 percent and a further 4 percent special CVD on 12.73 percent to make a grand total of 13.24 percent.
“The export of garments to India is no more duty-free,” said Annisul Huq, a former president of both the BGMEA and the Federation of Bangladesh Chambers of Commerce and Industry, the country's apex trade body.
Huq said India has made the market uneven by withdrawing the excise duty on its garment manufacturing units, while it has kept the CVD on Bangladeshi garments.
PK Mohanty, joint secretary of the finance ministry of India, issued a letter to the authorities concerned about the Finance Bill, 2013 that brought changes in customs and central excise law and rates of duty.
The letter said zero excise duty route, as existed prior to Budget 2011-12, is being restored on readymade garments and made-ups.
The zero excise duty route will now be available in addition to the CENVAT (central VAT) route under which manufacturers can pay excise duty on the final product and avail of credit of duty paid on inputs, according to the letter.
Indian businesses hailed the government move.
“The revertal to the 'optional route' not only provides zero percent duty to the clothing industry, but will also provide some form of protection to the domestic industry from cheap imports," Rahul Mehta, president of Clothing Manufacturers Association of India, told fibre2fashion, a garment news portal.
It will further encourage foreign retailers to set up shops in India to manufacture their requirements in India, rather than import from other countries, the news portal quoted Mehta as saying.
“The major welcoming feature of the budget is the zero excise duty on branded readymade garments and made-ups,” said S Dinakaran, chairman of Southern India Mills Association.
The budget also proposed the continuation of Technology Upgradation Fund Scheme in the 12th Five Year Plan, allocating Rs 2,400 crore for the power loom sector, Rs 50 crore for textile processing and Rs 50 crore for apparel park as well as Rs 1,000 crore for skills development.
Prof Mustafizur Rahman, executive director of Centre for Policy Dialogue, said the CVD is a special measure and a country can impose it against subsidies given by exporting countries to protect its local manufacturers.
CVD is levied on goods that have received government subsidies in the exporting country, he said.
Rahman was surprised to see more than 12 percent CVD on Bangladeshi garments against 5 percent subsidy given by the Bangladesh government to its backward linkage industries.
“Why will the CVD be 12 percent against a 5 percent cash subsidy?” he questioned. India also gives its manufacturers low cost loans, he said.
The CPD boss urged the government to take the issue seriously. He suggested the commerce ministry of Bangladesh talk to its Indian counterpart; or the issue could be settled with the World Trade Organisation.
He drew an example from the dry cell battery case that went to the WTO in 2004 for a dispute settlement after India imposed anti-dumping duty on battery imports from Bangladesh. Later, in 2006, both countries reached a mutual situation when India agreed to withdraw the antidumping duty.
B Shyam, counsellor (commercial) of Indian High Commission in Dhaka, told The Daily Star yesterday that Bangladesh still gets 100 percent duty-free market access for its garment products to India as there is no customs duty.
“CVD is not a customs duty, it is to make sure national treatment. Otherwise, domestic industries will be washed away,” said Shyam.
Bangladesh's apparel exports to India never crossed $100 million though the country's total garment exports were worth $19 billion in fiscal 2011-12.
Exporters had considered the neighbouring market a lucrative destination after they got the duty-free market access.
Of the 46 items that received duty waiver in the Indian market, 24 were knitwear products, 21 woven garments and one silk fabrics item. The list includes shirts, trousers, blouses, children's wear, nightwear, T-shirts and jeans that cover all major garment items made by Bangladesh.
“The retail apparel market in India is worth $30 billion. India has to outsource from Bangladesh (with short lead time) to meet rising demand,” said Abdus Salam Murshedy, a former president of the BGMEA.
Although he is optimistic about the Indian clothing market, he said it all depends on how the India's chain stores develop in the days to come.
Murshedy said a couple of issues, on India's part, have recently affected the level of confidence of the Bangladeshi exporters.
The CVD apart, the delay in clearing payments to around 20 Bangladeshi exporters by Lilliput Kidswear of India has also led to frustration, he said.
Murshedy urged both the governments to settle the issues for a better relationship between the two neighbours.
Bangladesh's garment exports to India soared by more than 52 percent to around $55 million in fiscal 2011-12, but the overall exports declined 2.7 percent, according to the Indian High Commission in Dhaka.
The total exports to India were worth $498.4 million in 2011-12, down from $512.5 million a year ago, while imports from India were around $5 billion.