Govt to allow bonded warehouse facility for cotton traders to ease US trade gap

Summary:

• Initiative has already been taken to amend Bonded Warehouse Licensing Rules
• Bonded warehouse facilities would help reduce lead time and lower cotton prices
• It will help reduce trade gap between Bangladesh and the United States
• The facility will help avert supply chain disruptions during any crisis 

The government plans to provide cotton traders with a bonded warehouse facility to import the fibre duty-free, aiming to ease the trade gap with the United States – the single largest export destination for Bangladesh – according to sources at the National Board of Revenue (NBR).

An initiative has already been taken to amend the Bonded Warehouse Licensing Rules after receiving a letter from the Bangladesh ambassador in Washington in favour of a US company seeking the facility.

"The amendment process will take at least two weeks as it requires certain formalities, including legal vetting by the law ministry," a senior NBR official told The Business Standard on condition of anonymity.

"We are trying to complete the process in the shortest possible time. Officers are even working on this issue on Saturdays," he added.

The NBR official said allowing bonded warehouse facilities for cotton traders or ginners would help reduce lead time and lower cotton prices.

On 22 January, Ambassador Asad Alam Siam wrote a letter to NBR Chairman Abdur Rahman Khan, informing him that Cargill India, a US-based company, had sought bonded warehouse facilities in Bangladesh to import cotton duty-free.

The letter also requested the revenue authorities to take the necessary steps in this regard, adding that "It has also requested permission to export surplus cotton to other countries after meeting local demand."

On 11 March, the NBR chairman's office received the letter and forwarded it to its policy wing.

During an event on Monday, Foreign Affairs Adviser Md Touhid Hossain said, "There is a significant trade imbalance in our imports and exports with the United States, which is in our favour. In this situation, if we import cotton from the US, it would benefit them to some extent. If they gain this advantage, they may hesitate to take any measures against us.

"Cotton imports are duty-free. If we allow bonded warehouse facilities, it will not affect revenue collection unless there is any misuse."

The adviser said government initiatives generally take a long time, but if approval is granted within seven days, operations could start within three months, which would be beneficial.  

"However, a group is likely to be affected by this decision – those involved in cotton trading and syndication. Due to this syndication, we are forced to buy low-quality cotton at high prices. We need to break this racket to make cotton comparatively cheaper," he said.  

The adviser added, "If we can purchase cotton at a price 10 cents lower, it will enhance everyone's competitiveness."  

The government will offer a bonded warehouse facility to cotton ginners so they can receive fair prices as part of a process to ensure the adequate and timely supply of cotton, he added.  

A cotton ginner is an individual or entity that operates a cotton gin, a machine that separates cotton fibres from their seeds and other impurities.  

The adviser also said the government will consider classifying cotton as an agricultural product so that growers can benefit from subsidies and feel encouraged to cultivate more cotton.  

The workshop was jointly organised by the Economic Reporters' Forum, the Bangladesh Cotton Ginners Association, and Bangladesh Sudan Ginning Cotton Co Ltd (Sudan) at the ERF auditorium in Dhaka.

What does the US company's letter say?  

Cargill, a 160-year-old family-owned company based in Minneapolis, operates in 70 countries and serves 125 markets worldwide. Cargill has been operating in Bangladesh since 1974.  

"We are one of the major exporters of high-quality US cotton to Bangladesh. However, it takes over 100 days to ship cotton to customers in Bangladesh from the day the order is placed," said Dhritiman Biswas, director of Government Relations for South Asia for Cargill, in the letter.  

"In view of the highly volatile external environment, we humbly request that building bonded warehouses to store cotton be permitted prior to customs clearance at ports. Companies can pay monthly rent as per fixed charges to the government or private firms for using the warehouses," he added.  

According to the letter, local importers and the textile industry would be able to access high-quality US cotton within hours or days of making a request after opening letters of credit (LCs).  

The letter also noted that the fast encashment of LCs – as raw materials would be immediately available for clearance – would reduce LC days, benefiting Bangladesh's banking system.  

In FY24, US exports to Bangladesh stood at $2.53 billion, while imports totalled $6.80 billion, according to the Bangladesh Bank.