RMG in 2018 and what lies ahead
According to a research study published by Policy Research Institute of Bangladesh (PRI), the ready-made garments (RMG) sector has the potential to earn Bangladesh an additional USD 17.4 billion using its existing export capacity. The study, titled "LDC Graduation and Apparel Exports to EU", which was unveiled last Thursday, tells us that there is an urgent need to recognise the constraints that are holding back our exports; principal among them are low productivity, poor infrastructure, and low price-negotiation capacity by the manufacturers.
Yes, the country is in the midst of upgrading its physical infrastructure, but the mega-projects now underway are years behind schedule. Getting them on fast track should be the first priority of the incoming government. Then there is the big question looming over Bangladesh moving closer to graduation from the Least Developed Country (LDC) status to that of a developing nation in 2027—a major achievement that will be accompanied by the loss of preferential treatment that we get from the European Union (EU) as an LDC, a loss of business up to USD 1.6 billion per annum, because once Bangladesh graduates to the developing country status, our RMG products will be subject to 8.0-10.0 percent duty on export to the EU.
These are the hard facts of life. For our RMG products to enjoy zero-tariff status in the EU, our policymakers would have to obtain the Generalised Scheme of Preferences (GSP) Plus status. For us to get to that stage, experts and industry leaders believe that Bangladesh will have to overhaul its image as a labour-friendly country. Sadly, the mere ratification of EU conventions will not cut the ice. As pointed out by the managing director of a major RMG manufacturer, eight of the 27 EU conventions are labour-related, and that compliance must be taken seriously because the RMG industry will have a hard time competing in the EU market if Bangladeshi apparels are subject to 8-9 percent duty.
Although the RMG sector has taken big strides in ensuring workers' safety after the Rana Plaza disaster in 2013, IndustriALL (which is one of the two internally backed efforts to improve safety standards) stated recently that "over 50 percent of the factories still lack adequate fire alarm and detection systems and 40 percent are still completing structural renovations." Needless to say, RMG is the one sector that dominates our economy, and with good reason. Not only is it the largest industrial employer, it also generates 92 percent of our exports; our total export to the EU in 2018 was USD 21 billion (USD 19.6 billion came from RMG). As pointed out by industry insiders, safety cannot be treated as an afterthought; rather it should be embedded in the business model as one of the major compliance factors for guaranteed entry into foreign markets like the EU, and whilst many RMG factory owners are unhappy about the continued presence of IndustriAll and Accord and what they deem to be unrealistic demands for safety, can we really afford to step back from the work (albeit expensive in nature) and risk the backlash from big buyers?
We really need to get a move on at the policy level on a host of pressing issues. At policy level, there has to be a commitment to negotiate the possibility of a free trade agreement with the EU. That's the job of the government. We need policy initiatives and directives that will help expedite infrastructure development, product diversification and transfer of technology. The RMG sector will have to negotiate better prices from the buyers, without which all those expensive upgrades that come under safety, as advocated by the bodies working for better safety standards, are not going to bring dividends. Since adherence to safety standards is a core pillar of the EU conventions, the government, which is a part of the tripartite regime on improving safety in the RMG sector, will have to play its role on this issue.
As things stand now, all the hype has been around the country graduating from the LDC status. The loss of duty-free access will have a direct impact on loss of business which will inevitably be picked up by other countries like Cambodia, India, Turkey and Vietnam. The Bangladeshi RMG sector currently holds the no. 2 position globally and that was possible because the industry was able to deliver large volumes of apparels at competitive prices. But with the LDC graduation and the potential loss of EU preference, our competitive edge will be hit. We need to take cognizance of these realities, and as pointed out in the study, the time to start negotiating a bilateral trade deal with the EU is now, and not when we graduate.
Getting rid of the nagging infrastructure problems, improving productivity, ensuring safety compliance, upgrading technology, streamlining customs, improving port management efficiency, upgrading the transportation sector—all fall under the aegis of development, the benefits of which would be reaped by the exporters, particularly the RMG sector. All these areas of improvement must be priority areas for the government that starts a new term in office after the recently concluded polls.
Syed Mansur Hashim is Assistant Editor, The Daily Star.