In addition to 35% tariff, US demands 40% local value addition for 'Made in Bangladesh' goods

In addition to imposing a 35% tariff on Bangladeshi exports, the United States wants a minimum 40% local value addition for ready-made garments to qualify for the "Made in Bangladesh" label, according to commerce ministry sources.

RMG industry insiders fear that if the 40% threshold is not relaxed, Bangladesh's woven export sector could face significant setbacks in the US market. For India, the requirement is even higher— 60% value addition.

In addition, the US has raised concerns over the rising volume of Chinese investment in Bangladesh and the increasing transfer of ownership of local companies to Chinese entities.

Amid these challenges, a Bangladesh delegation led by Commerce Adviser Sk Bashir Uddin is currently in Washington, negotiating for tariff reduction through a trade agreement.

The delegation is also pushing for a relaxation of the "Rules of Origin" requirement, aiming to lower the 40% local value addition threshold.

The final day of the second round of negotiations began at 9pm (Bangladesh time) Friday and was continuing as of filing this report around 1am Saturday, confirmed Golam Mortoza, press minister at Bangladesh embassy in US.

Asked about progress on the US tariff issue, Energy Adviser Fauzul Kabir Khan told TBS last night, "There has been good progress in the discussions. Meetings will continue today [Friday] as well. Hopefully, something positive will come out of it."

The US is Bangladesh's leading single-country export market, particularly for garments. High tariffs and strict value-added requirements could seriously affect the RMG sector, the backbone of the economy.

According to the Export Promotion Bureau (EPB), Bangladesh exported $7.60 billion worth of apparel goods to the US in the fiscal year 2023–24 (July to June period), accounting for 17.09% of the country's total exports during that period.

Of Bangladesh's total apparel exports, 25.93% of woven garments, 11.71% of knitwear, and 16.12% of home textiles are destined for the US market.

A senior commerce ministry official, requesting anonymity, told TBS yesterday, "A key focus of the tariff talks is the Rules of Origin, requiring 40% local value addition to access the US market. This stems from Washington's concern over Bangladesh's reliance on Chinese inputs, reflecting its broader strategy to counter China's economic influence."

The proposed RoO threshold presents a major challenge for Bangladesh, particularly for the woven garment sector — a key component of the country's apparel exports to the US.

Around 70% of the woven fabric used in products like trousers and shirts destined for American buyers is sourced from China. This stands in contrast to the knitwear sector, where local spinners meet up to 90% of the fabric demand, making it far less dependent on Chinese imports.

Bangladesh currently lacks the capacity to quickly reduce its reliance on Chinese materials in the woven segment, where local production remains underdeveloped and imports dominate.

40% RoO rule threatens woven exports to US, experts warn

Mostafa Abid Khan, former member of the Bangladesh Trade and Tariff Commission, told TBS, "If the 40% value addition requirement is enforced, Bangladesh's woven exports to the US market will be severely affected."

He explained that the US uses a different method for calculating value addition. "They count only the cost of domestic inputs and workers' wages as value addition, excluding the producer's profit. As a result, any woven garment made from imported fabric will fall short of meeting the 40% threshold."

Abid noted that in 2023, Bangladesh imported nearly $9 billion worth of fabric, and approximately 27% of its total woven garment exports are destined for the US.

Md Hafizur Rahman, former director general of the Ministry of Commerce's WTO Cell, echoed similar concerns. "It is impossible to achieve 40% value addition when garments are made from imported fabric," he told TBS.

"To meet this requirement, we must use locally produced fabric. That means increased investment in the backward linkage industry is essential," he added.