A recommendation by the Ministry of Commerce to withdraw bonded warehouse facilities, effectively imposing duties, on the import of cotton yarn from India and other countries has once again created instability in the readymade garment (RMG) and textile sectors.
Sector stakeholders have also questioned the justification of this recommendation, alleging that it was made hastily without comprehensive studies or consultations with all relevant parties.
The Ministry of Commerce completed the process of recommending duties on yarn imports with notable speed.
Garment manufacturers allege that, in this process, the demands of textile mill owners were prioritised while the views of garment factory owners, the buyers of yarn, were not adequately considered.
The Ministry has cited data from the 2023–24 fiscal year, stating that yarn imports from India under three HS codes increased.
However, imports of these yarns declined during the first five months of the current fiscal year, as Bangladesh banned yarn imports through land ports in April last year. At present, yarn is imported only through seaports.
Economists and business leaders note that Indian yarn has historically been priced 20 to 25 cents higher per kilogram than domestically produced yarn.
However, due to increases in gas and electricity prices and ongoing supply shortages, high interest rates on bank loans, and the depreciation of the taka against the US dollar, which has raised the cost of importing raw materials, the production costs of domestic spinning mills have also risen.
In addition, cash incentives were reduced to 1.5 per cent, further widening the price gap between Indian and Bangladeshi yarn.
When asked, former BKMEA president Fazlul Hoque told Prothom Alo, “Why should we bear the burden of inefficiency in the textile sector? Withdrawing bonded facilities effectively grants textile mill owners a monopoly.
Garment manufacturers will be forced to buy yarn at whatever price they set. Such a decision cannot, in any way, be considered prudent for a globally competitive business like the readymade garment sector.”
Questions over the haste
On 29 December, the Bangladesh Textile Mills Association (BTMA) sent a letter to the Bangladesh Trade and Tariff Commission demanding either the imposition of a 20 per cent safeguard duty on imports of 10–30 count cotton and blended yarn from India, or the withdrawal of bonded facilities for such imports, in order to reduce imports from India.
The approach being taken to resolve the problem is not justified. The government should commission an independent study and take measures based on its findings.Khandaker Golam Moazzem, research director, CPD
In a statement issued on Sunday, BTMA president Showkat Aziz claimed that, prior to submitting the proposal, leaders of BTMA, BGMEA and BKMEA had reached a consensus in informal meetings that, in the interest of domestic industry, yarns that could be fully produced locally could be excluded from bonded facilities.
Following BTMA’s letter, the Tariff Commission held a meeting with the association’s leaders on 5 January.
The very next day, the tariff commission sent a recommendation to the Ministry of Commerce to exclude imports of 10–30 count yarn from bonded facilities.
Objecting to this process, BGMEA and BKMEA sent separate letters to the Tariff Commission on 6 January.
Subsequently, the Tariff Commission convened a meeting with all parties on 8 January.
At the meeting, leaders of BGMEA and BKMEA opposed the imposition of duties on yarn imports. The meeting ended without any decision, although Abdul Gafur, the tariff commission’s acting chairman, stated that a study on the issue would be conducted.
Three days after that meeting, on 12 January, the Ministry of Commerce recommended to the National Board of Revenue (NBR) the withdrawal of bonded facilities for imports of 10–30 count cotton yarn, taking into account the tariff commission’s recommendation of 6 January.
The ministry’s rationale for the recommendation is that the production cost per kilogram of yarn in Indian and Bangladeshi spinning mills is almost identical, at approximately USD 2.93.
However, Indian producers receive various forms of government incentives, enabling them to export yarn to Bangladesh at prices ranging from USD 2.50 to USD 2.60 per kilogram.
Domestic producers, on the other hand, have not been able to enhance production efficiency or reduce yarn production costs sufficiently to compete with producers in the neighbouring country.
Speaking on condition of anonymity, a BTMA leader stated that the association’s leaders used their influence to expedite the recommendation to withdraw bonded facilities.
When contacted, commerce secretary Mahbubur Rahman told Prothom Alo, “Yarn and knitwear are both major sectors of the country’s economy. Local mills have achieved capacity in yarn production. If this capacity is undermined, they will not be able to recover. That is why we have recommended to the NBR that bonded facilities for the import of 10–30 count yarn be withdrawn.”
In response to another question, he said that there had been no undue haste and that the views of garment industry owners had also been taken into consideration.
Who gains, who loses
For nearly four decades, the readymade garment industry, particularly knitwear exporters, has imported yarn under bonded facilities. If these facilities are withdrawn, they will have to pay nearly 40 per cent in duties on yarn imported from India and other countries.
Business leaders and economists warn that, if bonded facilities are withdrawn, garment exporters will be compelled to purchase yarn from domestic sources, at prices approximately 40 cents per kilogram higher than imported yarn.
This would reduce their competitiveness. Conversely, in the absence of competition, spinning mill owners would be able to set yarn prices at their own discretion.
There are also concerns that withdrawing bonded facilities for yarn imports could have repercussions in other areas. In April last year, at the request of textile mill owners, the Ministry of Commerce suspended yarn imports through land routes.
Following this measure, India imposed restrictions in three phases on the export of Bangladeshi goods through land ports. As a result, Bangladesh’s exports to the Indian market declined by 6.5 per cent during July–November of the current fiscal year.
When asked, Khandaker Golam Moazzem, research director at the private research organisation CPD, told Prothom Alo that the approach being taken to resolve the problem is not justified.
As alternatives, he suggested strengthening monitoring at Chattogram Port to prevent irregularities in yarn imports, providing subsidies on gas and electricity bills, or offering loans at preferential interest rates for the import of raw materials.
He added that the government should commission an independent study and take measures based on its findings.