Under the new EU rules of origin, which became effective from January 1 this year, clothing exporters can enjoy duty-free access to 27-nation European Union - the world's largest apparel market --- even if they source fabrics from other countries.
The previous RoO had worked as a protective shield for local textile sector for decades, as it required garment makers to buy bulk of their fabrics from Bangladeshi textile plants in order to enjoy zero-tariff benefit in the EU.
"New EU rules have badly affected our business. Many manufacturers now buy fabrics from abroad, turning blind eyes to local textile plants," A Matin Chowdhury, managing director of Rahim Textiles Mills, said.
While bigger and composite factories have managed to survive the EU policy onslaught, the relaxation has scythed through hundreds of small plants which enjoyed protection under the previous EU rules.
"Three months after the new rules have come into effect, we can see how they have impacted our primary textile sector," said the president of Bangladesh Textile Mills Association (BTMA), Jahangir Alamin.
"Thanks to the relaxed EU rules, many small and medium sized factories are facing a tough test for survival. The ongoing gas and power crises and soaring cotton prices have compounded their woes," he added.
The growth of primary textile mills, mostly export-oriented plants, has been robust for the last two decades due to the previous rules which all but forced garment makers to buy most of their fabrics from local sources, Alamin said.
"The previous EU rules of origin, which was effective from 1990s to December 2010, have been the single most important catalyst to our growth. Many investors set up textile plants just because of the EU rules," he said.
He said some textile mills based at Gazipur, Narayangankj and Chittagong have either been shut down during the last three months or shed workers due to the new rules.
"The EU should have consulted us and studied its impact before imposing such one-sided rules on us," said another textile miller.
Mr. Matin added further said: Thanks to the new relaxed rules, local garment makers are now procuring fabrics from India, Pakistan, China, Turkey and other countries. Textile millers of these nations are undercutting us.
Local primary textile mills produced around 1,700 million kilogram of cotton yarns, 2,000 million metres of woven fabrics and almost 2,000 million metres of dyed and finishing products last year.
Zillul Hye Razi, EU trade advisor in Dhaka, defended the relaxed rules, saying local textile millers were aware of the new RoO for more than 15 years.
"Every textile mill in the country knew that sooner or later we would lift the protection it has been enjoying for decades. They should have been prepared for the new rules," he told the FE.
Mr. Razi said apparel export from Bangladesh got a big boost by the relaxed rules. "Since it came into effect, export volume has increased as many garment makers are making maximum use of the new rules," he said.
"In the ultimate analysis, Bangladesh has been benefited by the new rules. If the textile millers are hurt by the new rules, they should find ways to stay competitive," he added.
BTMA president Mr Alamin said millers need cash incentive to make their products competitive. "We've already appealed to the government to raise cash incentive to 15 per cent from the existing 5.0 per cent."
He said the local textile millers were also hit by soaring prices of cotton. Local mills purchase the entire demand of their cotton from international market, making the country the world's second largest cotton importer.
"We need an extra financial muscle to buy cotton at a hefty price from the international market," he said.
News Source: The Financial Express, Sun, 03/04/2011
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