BGMEA seeks 4% incentive against RMG items made with imported yarn

Highlights:

• Government now only gives a 4% incentive against exports of RMG goods made with locally-produced yarn and fabrics
• Cotton prices in global market have increased by 50%
• Garment owners look to import yarn from abroad
• BGMEA also demands a 10% incentive for exports of manmade fibre-based items

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) in a letter to the commerce ministry has sought a 4% cash incentive on export-oriented apparel items that are made from imported raw materials. 

Exports of garment items can almost double with such a reward on imports of yarn and fabrics.

However, spinners say this kind of incentive will deal a devastating blow to the country's textile industry. 

Giving an incentive to imported yarn means subsidising foreign companies with public money, which is not desirable at all, they add.

Abdul Hai, former president of Bangladesh Textile Mills Association (BTMA), told The Business Standard that if an incentive is given on exports of readymade garments produced from imported yarn, huge investments in the textile sector will go in vain and millions of workers will lose their jobs.

The government now only gives a 4% incentive against exports of RMG goods made with yarn and fabrics produced in Bangladesh. 

As prices of yarn have recently gone up in the country, garment owners are getting interested in importing yarn from abroad. So, the BGMEA seeks an incentive at a 4% rate on the exports of RMG items produced from imported yarn.

"The spinners have sold yarn at huge losses in the last two years. Those who have other businesses have managed to survive. Now, cotton prices in the international market have increased by 50%. When the cotton production season starts next November-December, yarn prices will also come down," he added.

In the letter sent to Commerce Minister Tipu Munshi on 16 August, the BGMEA president said Bangladesh is the second-largest exporter of garments, but the industry is mainly dependent on imported raw materials. There has been a significant investment in backward linkages because of alternative cash assistance to them and regulations on yarn imports, but the demand for imports of core raw materials like fibre and yarn will still be there.

Faruque said Bangladesh's stake in the international apparel market is only 6.8%, which can almost double. This requires motivating the procurement of raw materials from international sources as well as domestic mills so that the country does not miss out on export opportunities owing to the insufficiency of raw materials. 

Encouraging yarn imports will increase the supply of raw materials and motivate buyers to place more orders, he also said.

According to the BGMEA, RMG factories collect about 80% of required yarn from domestic sources. Therefore, to increase fabric production capacity at the local level, it is necessary to motivate and facilitate yarn imports. 

 A  4% cash incentive on yarn imports will also increase investment in knitting, weaving, processing, brushing, sewing, bleaching, dyeing, printing, washing and finishing industries, which will help Bangladesh retain market benefits after the LDC graduation, the BGMEA president said. 

"Our mills basically make yarn of certain categories. We have to rely heavily on imported yarn for manufacturing specialised fabrics and product diversification and innovation," he added.

However, regarding the quality of locally produced yarn, Abdul Hai said, "The quality of yarn in Bangladesh is much better and more varied than that of Indian yarn. Because India produces yarn in its own machine. Bangladeshi mills produce yarn with the latest machines of Germany and Switzerland." 

The BGMEA's allegation that garment products cannot be diversified and innovated with locally produced yarn is completely baseless, he added.

10% incentive demanded for non-cotton garment exports

In a separate letter to Commerce Minister Tipu Munshi on 21 August, the BGMEA proposed a 10% incentive for non-cotton garment exports, saying it will boost exports as well as investment and employment.

RMG exports have increased to $34 billion, but there is no product diversification. In FY19, 74.14% of garment items exported were made of cotton, up from 69% a decade ago. The garment industry's dependence on cotton has increased over a decade.

According to the BGMEA, in 2018, Bangladesh imported a total of 20.52 lakh tonnes of fibre. Of them, 93.57% were cotton items. Some 403 out of 430 spinning mills in the country are cotton spinning mills.