Sherpa Hossainy's Blog

Textiles sector in peril

Posted in Bangladesh, Business, Dhaka, Economy, Export and Import, RMG and textile by Sherpa Hossainy on June 6, 2011

Published in The Independent on 5 June, 2011

Read the article on Independent website

Digital print edition

Bangladesh’s textiles sector is under a grave threat arising from the European Union’s adaptation of new rule and rising cotton prices in the international market, cautioned textile mill owners on Saturday.

The new rules of origin (RoO), adopted from January 1 by the European Union (EU), fixed single-stage processing instead of two-stage as a condition to enjoy the Generalised System of Preferences (GSP) facility for the least developed countries.

The two-stage processing meant the garment makers had to purchase fabrics from the native country. But under the new rule they can import fabrics from other countries and still attain GSP facility, which gives their products duty-free access in the EU.

“Now the ready made garment (RMG) exporters can purchase low-priced woven and knit fabrics from China and India, because those countries have their own cotton production,” said Jahangir Alamin, president of Bangladesh Textile Mills Association (BTMA).

According to the National Board of Revenue (NBR) statistics, the imports of woven and knit fabrics went up respectively by 88.34 and 32.35 per cent, during January-March 2011 period.

Alamin also blamed unprecedented rise in cotton prices in the international market for the textile sectors’ waning competitive edge. The cotton prices in the international market hit a historic high of $2.19 on March 7 this year, while the prices were $0.95-$1.10 per pound in August-September last year.

He also said the textile mills’ production capacity has decreased by 35-40 per cent for the relentless gas and power crisis.

The BTMA president said 70 per cent of the total capacity of manufacturing mills is currently unused because of lower export orders and local demands.

“At present the spinning mills has a yarn stock of over 200,000 tonnes, worth over Tk 8,000 crore ($1.1 billion),” Alamin said.

According to fabric manufacturing mill owners’ information, more than Tk 2,000 crore ($285.7 million) worth export orders could not be taken, which shifted to other countries.

The BTMA president said the new GSP criteria might seem to have benefited the RMG makers, but the long-term growth potential of RMG solely depends on the textiles sector.

“Eighty per cent of all yarns and fabrics produced by this backward linkage industry are exported to the EU countries in the form of RMG. If the textiles sector does not survive, there is no chance of the RMG sector to survive either,” Alamin said.

“There is a national and foreign syndicate who are sabotaging to destroy our promising textiles sector,” the BTMA president alleged.

“Our main competitor China and India are providing strong policy support and cash incentives for their textiles sector, which creates a 15-20 per cent price disadvantage at the onset,” he said.

Moreover, China and India’s market manipulation and anti-dumping policy is also hurting the textiles sector, he added.

Alamin said the government has failed miserably to provide any support and the existing incentives are insufficient to offset the rising price disadvantages.

The BTMA president proposed a seven-point demand to the government to save the textile sector.

The demands included: increasing the existing cash incentives from 5 percent to 15 per cent, fixing income tax rate at 10 percent for the primary textiles sector companies, extending tax holiday facility till 2015, removing all taxes and duties on polyester and viscous staple fibre to encourage diversification and reduce dependency on cotton, following Turkey by taking safeguard measures to discourage imports of raw materials of RMG sector, removing taxes and duties on the chemicals used in effluent treatment plants and fixing bank interest rate down to a single-digit.

Alamin said in the past three years there had been no new investments in the textiles sector, which boasts existing investments worth over Tk 30,000 crore and where almost 10 million people are involved.

“If these problems persist, let alone new investments the existing ones would be wiped out and creation of new employment would become impossible,” he said.

In the first ten months of the current fiscal year the export earnings were $15.07 billion, where primary textiles sector’s contribution was $9.06 billion. The contribution of the textiles sector is more than 80 percent of the total export earnings of the country.

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