Clothing exports from Bangladesh could fall by 20% this year, according to trends so far and forecasts by businesses and experts. This 20% means nearly $7 billion business losses for exporters.
Can Bangladesh offset the losses by exploring opportunities in China that has allowed the duty-free market access for Bangladesh's all major export items, including apparels from July 1?
China, the world's second-largest economy, has granted this access to Bangladesh under the World Trade Organisation's status on least developed countries.
Shafiul Islam Mohiuddin, a garment exporter, said Bangladesh's production costs in readymade garments are less than that in China. Moreover, China is moving away from low-cost production.
"Thus comes an opportunity to boost garment exports to that country," said Mohiuddin, also former president of the Federation of Bangladesh Chambers of Commerce and Industry.
Knitwear exporters see more potentials than woven ones in China because of the condition of 40% local value addition for the duty-free access.
"We hope knitwear exports to China will surge as the value addition to those items is more than 70%," Mohammad Hatem, senior vice-president of Bangladesh Knitwear Manufacturers and Exporters Association informed.
"The export potential of Bangladesh lies with the need to develop manufacturing industries, break through the limitations of its own industrial structure, continuously improve the quality of export products and shift to higher value-added exports, said Li Jiming, Chinese ambassador to Bangladesh in a statement.
Why and where are the hopes in Chinese apparel market?
Chinese economy has been growing for over three decades and its per capita income has reached around $10,000 now from less than $1,000 in 2000. So, the consumers' disposable income has increased significantly over the years.
In 2018, China's domestic apparel sales were 2,077 billion Yuan, equivalent to nearly $300 billion. If Bangladesh can grab 2% of China's domestic clothing market, the amount could be almost equal to Bangladesh's projected losses in the USA and European markets this year.
According to the Chinese embassy, Bangladesh exported over $1 billion worth of goods to China in 2019. Of which, textiles, clothing and accessories accounted for $590 million or about 57% of the total exports to China.
Apparel exporters said they have the potential to export more as production costs in China have increased significantly because of a hike in the minimum wage to around $300, which is one-third of that in Bangladesh.
Non-RMG sectors could be the game-changer
In spite of the promise of the garment market, leather and leather goods, jute and jute goods, frozen fish, agro and livestock products and tropical fruits have the potential to earn more than what the apparel export does.
Bangladesh has a clear advantage in leather and jute when it comes to sourcing raw materials. Leather products are costly. A wallet or a belt can cost upward to a few hundred US dollars. But a rawhide of a cow sells only at $10 in Bangladesh, a few dozen belts or wallets can be made from that.
Bangladesh is well-known for its quality jute. The country is the second-largest producer of jute after India. But Bangladesh has failed to take advantage of its high-quality jute that is now used from the interior of high-end cars to furniture and home appliances. It is the best alternative to plastics and is considered as the most environment-friendly product.
China and India buy raw jute from Bangladesh and export value added finished goods to the western markets. The duty-free market access for jute and jute goods can really boost Bangladesh's entrepreneurs and export.
Seafood, agro and livestock products and tropical fruits can also take advantage of a big market in China, a country of 140 crore consumers.
"Bangladesh is rich in agricultural and livestock products, tropical fruits and seafood. Bangladesh has the full potential to continuously expand its exports to China through industrial upgrading, expanding production scale and improving product quality," said Chinese Ambassador in Dhaka Li Jiming.
ATM Azizul Akil, senior vice-president of Bangladesh-China Chamber of Commerce and Industry, said, the duty-free export facility in China would help Bangladesh minimise a massive trade deficit.
"In order to increase exports by utilising this facility, we have to emphasise diversification and improvement of product quality. Otherwise, Bangladesh cannot benefit from the duty-free facility on 97% of its products."
He said there is a huge demand for freshwater fish in China, now imported from Vietnam. Bangladesh also has the opportunity to export fish and poultry products.
"For this, we have to ensure strict quality, he added.
Policymakers see bright prospects
Commerce Secretary Dr Md Jafar Uddin told The Business Standard that China has provided duty-free facilities for all Bangladeshi products, except arms, alcohol, maize and nuclear items, and it is a big opportunity.
"To take advantage of it, we are emphasising product diversification. A meeting will be called next week to pinpoint and solve the problems of the exporters. If we take the right steps, our exports to China will increase," he added.
Dr Mustofa Abid Khan, member of Bangladesh Trade and Tariff Commission, said China has also offered a Change of Tariff Heading (CTH) facility as an alternative to the condition of 40% value addition.
For example, if a shirt is made by importing fabric and adding less than 40% value to it, the duty-free facility will be available under the CTH because the HS code of imported fabric is different from that of shirts, he said.
Hafizur Rahman, director general of the WTO cell at the Ministry of Commerce, said exports to China will not increase appreciably overnight.
"We have a lot of work to do with the Chinese market. It is necessary to determine which products of Bangladesh have a demand in that country," Hafizur said.
He also said India was the only market for Bangladesh's jute and jute products. Jute exports have been suspended as the country has imposed various non-tariff barriers, including anti-dumping duties. In this case, export initiatives to the Chinese market will be taken as an alternative.
There is a huge demand for leather and leather goods, fish and aquatic products in China. If traders take initiatives, it will be possible to increase export income from that country in phases, he added.
Stringent rules of origin is a concern
The latest duty-free market access to China has come up with the condition of 40% value addition (rules of origin), meaning that Bangladesh has to add 40% value to a product's price for exporting it to China under the duty-free benefit.
Experts and exporters say it is a very stringent condition. Bangladesh has few items where a 40% value addition can be done locally.
Bangladesh used to enjoy duty-free access to the Chinese market under the Asian-Pacific Trade Agreement (APTA) for around 3,000 items since 2015. But the local value addition condition was 35% under APTA.
"We are not sure about it. We got documents of around 1,200 pages in Chinese language, we are trying to translate it," said Al Mamun Mridha, joint secretary general of Bangladesh China Chamber of Commerce and Industry.