Thanks to liberal policies and governmental support

Bangladesh successful in post-quota period, WTO reports Country Report

The WTO just praised Bangladesh for its success in the post-quota period, very far from the expected disaster. Liberal policies mixed with sectoral support helped the domestic industry in further developing exports. Risks remain, however, warns the WTO while the country does not take a full advantage of its duty-free access on EU's market.

Bangladesh's clothing industry until now brilliantly survived the phasing-out of textile quotas, a report by the World Trade Organisation (WTO) just acknowledged.

In the period preceding quotas' elimination, Bangladesh was expected facing terrible difficulties, as a result of surging competition from China.

Overcoming the new threat

In sharp contrast, the impoverished country was able overcoming the new threat that was later weakened after the United States and the European Union reimposed limits on shipments from China.

In its Trade Policy Review, the WTO praised Bangladeshi authorities for supporting the domestic apparel industry in the past years.

Bangladesh was also offered a decisive support from EU's duty-free access, granted under the Everything But Arms (EBA) provision of its GSP program.

The share in shipments to the European Union significantly rose when compared with exports to the United States.

Washington did not yet offer a duty-free access to Bangladesh. US preferential treatment and free trade agreements benefited other countries, on the contrary, with more competition for Bangladeshi products on the US apparel market.

Rebound on US market

Apparel exports to the United States however rebounded after quotas were phased out (see our graph below).

US imports from Bangladesh were up 16.68% in volume terms in the first seven months of the year after increasing by nearly 20% in 2005.

Bangladesh clearly benefits from its "liberal, export-oriented and generous (in terms of incentives) investment regime," the WTO's report says.

Such a policy "attracted increasingly large annual inflows of foreign direct investment; these inflows originated largely in the EC and Norway and were channelled mainly into textiles manufacturing."

The WTO also praised a "high degree of transparency in customs tariffs," since almost all tariff rates are "ad valorem".

"Risks remain", however, added the report. With clothing accounting for about 75% of total exports, the country is still heavily dependent on international apparel trade.

The knitwear industry was strongly developed, mainly due to EU's preferential access while ready made garment makers were less successful as they were not allowed using EU's cumulation of origin (see box below).

A National Coordination Council was formed and efforts are now made to improve infrastructure and establish a central bonded warehouse.

IMF's financial assistance is also helping Banglasdesh in its adaptation to the post-quota world.

Impact of EU's Rules of Origin

Although benefiting from EU's duty-free access, Bangladesh is far from taking a full advantage of the preferential treatment under the European GSP regime.

Dhaka's government continues protecting its textile industry by refusing to implement a so-called "regional cumulation" in EU's rules of origin.

Under EU's rules, a "2-stage transformation" in the country is required to get the GSP treatment and therefore the duty-free access.

In theory, such a regulation would force Bangladesh in producing the fabrics that are used for making clothing.

Brussels however accepts to consider fabrics from other South Asian (SAARC) countries as originated in Bangladesh.

The Bangladeshi government rejected implementing this regional cumulation, since it wants favoring the development of a national textile industry in order to successfully compete with India and China.

With domestic production of quality fabrics still limited, the domestic ready-made garment industry cannot take a full advantage of EU's duty-free access, as a result.

By contrast, yarn production was significantly developed in the past years in Bangladesh, allowing knitwear industry in getting EU's duty-free access under the two-stage requirement.

WTO's TRADE POLICY REVIEW: BANGLADESH - Good economic performance and reforms should lead to sustained growth

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Related Reports :
EU and US Imports from Bangladesh in 2006 (26 Jun 2006)
Bangladesh clothing exports hit by violent protests (24 May 2006)
Bangladesh seeks US and EU help in challenging China (30 Mar 2006)
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