RMG exporters support relaxed FOC rules, local suppliers raise investment and value addition concerns

Ready-made garment (RMG) exporters and local textile and accessories suppliers are at odds over the government's recent decision to relax conditions on importing raw materials on a free-of-charge (FOC) basis.

Currently, exporters can import FOC materials such as fabrics, trims, accessories, or samples, up to 50% of their previous year's export value. The government had decided last month to lift this cap, allowing unlimited FOC imports, but concerns from local industry stakeholders have prompted a reassessment.

Shibir Bicitro Barua, joint secretary at the Ministry of Commerce, told The Business Standard today (3 December), "We had decided to remove the quota for FOC imports, but objections from local suppliers have emerged. We will hold discussions again, possibly next Monday."

RMG exporters, however, support the relaxation, arguing it will lower costs, simplify sourcing, and boost exports. Mohammad Hatem, president of Bangladesh Knitwear Manufacturers and Exporters Association, said, "If my buyer wants to send us raw materials and accessories, why should there be any restriction? Exporting is what matters."

He explained that under the current system, if buyers cannot send materials due to FOC limits, exporters must open back-to-back letters of credit (LCs), involving bank approvals, mortgages, and significant annual charges. "If FOC restrictions remain, we might lose additional export orders. Allowing unlimited FOC imports reduces financial risks and increases export potential," Hatem added.

FOC raw material imports have been increasing in recent years. Buyers supplying all types of raw materials directly to garment factories reduce exporters' sourcing burden and risk, enabling smoother production. RMG exporters argue that removing the quota entirely will allow them to increase exports while reducing unnecessary financial and operational hurdles.

Local industry concerns

Local suppliers fear that lifting the FOC quota could severely impact domestic production and value addition. The Bangladesh Textile Mills Association (BTMA) and Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA) sent separate letters to the Ministry of Commerce in late November and early December, highlighting the risks.

In a letter dated 29 November, BTMA warned that removing the FOC quota would reduce demand for locally produced yarn, fabrics, and accessories, decreasing local value addition and putting $23 billion in investments at risk. BGAPMEA, in a 3 December letter, said over Tk40,000 crore (more than $3 billion) invested in accessories production could be jeopardised.

The associations emphasised that local manufacturers have the capacity to supply 100% of the accessories demanded by the garment sector, and unrestricted FOC imports could divert orders away from domestic suppliers.

The Ministry of Commerce plans further consultations before finalising the policy. "We will discuss the matter with all stakeholders, including local suppliers and RMG exporters, to find a balanced solution," Barua said.