Govt weighs import curbs, incentives to protect struggling local spinners

Infographics: TBS

The government is weighing a range of policy options – including tighter import controls, curbs on duty-free yarn imports and incentives to encourage the use of locally produced yarn – as it comes under growing pressure to protect domestic spinning mills from a surge in imported yarn, particularly subsidised supplies from India.

Officials from the Bangladesh Trade and Tariff Commission (BTTC) met representatives of the Bangladesh Textile Mills Association (BTMA) and the country's two garment exporter bodies in Dhaka on Wednesday. While participants broadly agreed on the need to safeguard the textile value chain, no decision was reached amid sharp differences between mill owners and garment exporters.

"We are studying the issue and working on it," Commerce Secretary Mahbubur Rahman told The Business Standard when asked whether the government was considering import restrictions to protect local textile industries.

Bangladesh's ready-made garment (RMG) sector, the world's second-largest exporter, has developed significant backward linkages over the years. Local textile mills now meet about 60% of the demand for woven fabrics and almost the entire yarn requirement of the knitwear sector. Despite this, spinning mills have been under severe financial stress for more than a year, often selling yarn below production cost to remain competitive.

Mill owners say unsold yarn worth more than $1 billion is currently piled up across factories. The BTMA recently urged urgent government intervention, warning that an industry which has attracted investments of around $23 billion is at risk.

According to BTMA data, Bangladesh imported yarn worth about $2.20 billion in 2024, of which roughly 76%, around $1.64 billion, came from India. Spinners argue that Indian exporters benefit from subsidies provided by both the central and state governments, estimated at about $0.30 per kilogram of yarn, enabling them to undercut domestic producers.

A senior BTTC official who attended Wednesday's meeting, speaking on condition of anonymity, said all parties recognised the need to protect the textile sector, but competing interests prevented a consensus.

"Before taking any decision on import restrictions or other measures, we need a deeper assessment of WTO rules, revenue implications and the legal aspects," the official said.

Industry insiders said the meeting discussed the possibility of suspending yarn imports or imposing additional duties on 10 to 30 count yarns for one year. These categories account for nearly 95% of Bangladesh's total yarn imports.

BTMA Director Masud Rana proposed a 7% incentive for exporters using locally produced yarn, a suggestion supported by representatives from the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA). However, two other BTMA representatives called for a complete withdrawal of duty-free yarn imports under the bonded warehouse facility.

A BKMEA leader present at the meeting said data presented there showed yarn imports had declined over the past six months compared to the same period a year earlier.

Garment exporters push back

Garment exporters, however, strongly opposed any move to restrict imports.

Fazlee Shamim Ehsan, executive president of BKMEA, said exporters were already operating under intense cost pressure. "About 80% of exporters are selling below production cost," he said. "If yarn imports are restricted, costs will rise further and buyers may shift orders to countries like India, where prices are lower."

While acknowledging the need to support the textile sector, Ehsan argued that import restrictions were not the right solution. "The government could instead provide special incentives or other forms of support to spinners," he said.

BGMEA leaders echoed similar concerns, questioning whether international buyers would be willing to absorb higher costs if local yarn prices exceeded imported alternatives.

Textile mill owners, however, warned that continued inflows of low-priced yarn could permanently erode domestic capacity. Former BTMA vice-president Salehuddin Zaman Khan described Indian yarn shipments as a form of dumping. "If local mills shut down, garment manufacturers will eventually be forced to import yarn at higher prices," he said.

BTMA Director Khorshed Alam said even vertically integrated manufacturers were unable to rely on their own production. "A representative from RN Spinning told the Tariff Commission that he was forced to import yarn because he could not match imported prices even for use in his own garments factory," Alam said. "The benefit of cheaper yarn is ultimately captured by buyers, not local producers."

BTMA President Showkat Aziz Russell has said nearly 100 textile mills have already shut down fully or partially, adding that he himself was forced to close one of his factories.

Bond misuse allegations resurface

Garment exporters also questioned whether import restrictions would achieve their intended objective. Ehsan warned that buyers might instead nominate Bangladeshi exporters to import grey fabric from India, offsetting any gains from restricting yarn imports.

Meanwhile, mill owners renewed allegations of widespread misuse of the bonded warehouse facility, which allows exporters to import raw materials duty-free on the condition that they are not sold domestically.

Khorshed Alam estimated that textile goods worth around $5 billion enter the local market annually through bond misuse and smuggling. "The local apparel market is worth about $12 billion, of which domestic producers supply only $7 billion," he said. "The remaining $5 billion is largely met through duty-free imports diverted into the local market."

He added that falling yarn prices have inflicted heavy losses on mills and reduced government revenue. "The price of 53-count yarn has fallen by Tk60 per kilogram since February, causing a net loss of Tk41 per kilogram," he said. "In November alone, one mill recorded losses of Tk1.8 crore."

VAT receipts have also declined, he said. "The mill paid Tk15 lakh in VAT in October, which fell to Tk8 lakh in November as sales dropped."