TPP and fate of garments export to USA

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TPP and fate of garments export to USA
« on: July 25, 2015, 12:01:47 PM »
TPP and fate of garments export to USA


Bangladesh's export of ready-made garments (RMG) to the United States grew remarkably between 2005 and 2011. Since then, there has been little growth in export of either knit or woven garments. Total apparel export increased by 7.3 per cent between 2011 and 2014, which is slightly more than the increase in the US apparel import demand.  This obviously means that Bangladesh barely managed a very small increase of 0.1 per cent in its share of the US market. Declining exports to Bangladesh's single largest export destination indicates that a downtrend has started in garment exports.

The US passed 'The African Growth and Opportunity Act (AGOA)'  on May 18, 2000. The Act offers tangible incentives to African countries to continue their efforts to open up their economies and build free markets. Bangladesh could also lose its competitiveness in export of garments to the US market to African countries which enjoy zero-duty benefit. The export of clothing products originating in different African countries has been on the rise in the US. Garment exports from nine advanced African countries increased by 9.66 per cent year-on-year to $ 926.8 million in 2013, according to data from the US Department of Commerce.

At present, Bangladesh pays 15.62 per cent duty for its garment exports to the US whereas Vietnam pays 8.38 per cent. If the TPP (Trans-Pacific Partnership) is signed, Vietnam's garment items will enjoy duty-free access to the US market. Bangladesh 'pays' more tariffs than France for one-fifteenth of the exports since US tariffs do not treat Bangladesh like a LDC (least developed countries) but rather like a developing country. The RMG sector's capacity to take a bigger share of the US market is hindered by the high tariff rates levied on Bangladeshi apparels.

Vietnam's export of apparels could increase at an even faster rate than the current high rate, and it will capture an increasingly larger share of the US market. Vietnam's apparel export to the USA increased by a massive 244 per cent during the 10-year period between 2005 and 2014, unmatched by any other substantial exporter.  Bangladesh did not do as well, but the growth of its apparel export to the US was 108 per cent during this period, which was the second highest among the top exporters. China with 81 per cent and Indonesia with 70 per cent were the next most dynamic exporters.

Bangladesh is the largest exporter of men's and boy's trousers to the US, followed by China, Mexico, Vietnam, Pakistan and Indonesia. Another significant issue is the gradual decrease of price of exported Bangladesh garments in the US. A research showed that the prices of Bangladeshi cotton trousers in the US market decreased by 40.89 per cent in last 14 years. The American retailers have progressively been lowering the prices they pay for Bangladeshi garment items, a recent study found.

The prices of apparel products decreased significantly on the international market in last couple of years as the global buyers controlled the market and mounted pressure on suppliers to lower the prices. The reduction of price is through 'monopsony' that helps big buyers to put pressure to reduce the prices of products because the number of suppliers is much higher than that of buyers. 'Monopsony' is a market condition similar to monopoly, except that a large buyer, not seller, controls a major portion of the market, and drives the prices down. It is sometimes referred to as buyer's monopoly. At the same time, the prices of garment items from China and Vietnam have increased, according to a study. For instance, trousers, the most popular export item from Bangladesh to the US, saw its prices declining by 40.89 percent between 2000 and 2014.

Moreover, Vietnam has already entered into a partnership agreement with some other countries including the USA. The US-led trade pact, Trans-Pacific Partnership  (TPP) involving 12 countries - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam collectively account for 40 per cent of the world GDP (gross domestic product). Vietnam is the only garment-producing country that is included in the TPP. The TPP is called a partnership because the negotiation goes beyond lowering traditional trade barriers, such as tariffs and quotas, and is expected to include rules on regulatory policies. With the implementation of TPP by 2015, Vietnam will become a more attractive import source of apparels if and when it gets duty-free access to the USA. Moreover, Vietnam will receive a lot of foreign investment if the TPP is signed, as the US and the other signatories of the deal are richer and are interested to expand their operations beyond their national borders.

Bangladesh has, however, signed the Trade and Investment Framework Agreement (TIFA). It is a bilateral agreement between the US and another country. In principle, TIFA allows for treaties that are more responsive to the partners' needs and tailor-made to their situation. A TIFA between Bangladesh and the USA was drafted in 2005 but it was never brought to completion. The TIFA 2005 stressed the need to "encourage and facilitate the exchange of goods and services and to secure favourable conditions for long-term development and diversification of trade between the two countries." A next step from there could be negotiating a bilateral free trade agreement between Bangladesh and the US.

The existing negative US-Bangladesh trade balance and the limited presence of American investors make the country less significant economic partner from American point of view. Reputational issues in terms of social compliance also affect negatively Bangladesh's export potential. The US policy makers consider the RMG sector as harbouring unethical manufacturing conditions. The USA also expects Bangladesh to take a favourable role in WTO negotiation on trade liberalisation and Non-Agricultural Market Access (NAMA) negotiations.

Bangladesh should initiate lobbying for actively pursuing a US-Bangladesh bilateral agreement, improving the RMG's social compliance record and investing in backward linkages and, above all, political-level consensus on certain issues and, of course, certainty and speed of delivery.

A country, especially the USA, does not enter into a free-trade agreement without a lengthy period of careful study, scrutiny and intense negotiations with both domestic stakeholders and partner countries.

As interim measure, Bangladesh may improve compliance, take a initiative to take protection of the Competition Act and coordination and close relation with the US lawmakers and the Washington administration to get favourable terms of trade. Bangladesh may ask for protection from monopsony from small US buyers and too many exporters in Bangladesh leading to control over price and market by the retailers. Garment exporting countries like Bangladesh are advised to concentrate on other ways of gaining share of the lucrative US markets.

Bangladesh may follow the Chinese strategy of enhancing productivity and manufacturing high value-added products to increase its market share in the US.

After the Rana Plaza collapse, 175 export-oriented small and medium garment factories were closed and many improved the factory conditions but compliance in Bangladesh is not enough. There are other many issues like labour rights and workplace safety, minimum wages and other social issues to address as per requirement of buyers. Bangladesh can take short-term measures to increase export and go for long-term negotiation for free trade agreement with the USA.

Source: http://www.thefinancialexpress-bd.com/2015/07/25/101405
Md. Abdullah-Al-Mamun (Badshah)
Assistant Director, Daffodil International University &
‚ÄčOperation Manager, Skill Jobs
01811-458850
badshah@daffodilvarsity.edu.bd
www.daffodilvarsity.edu.bd

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