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India plans to delete 48 apparel items from sensitive list to allow Bangladesh garment sector duty-free access

Economic Times, India

India plans to delete 48 apparel items from sensitive list to allow Bangladesh garment sector duty-free access

By Amiti Sen, ET Bureau

2 September 2011

NEW DELHI: Prime Minister Manmohan Singh and chief ministers of eastern and northeastern states will push for a thaw in relations with Bangladesh by talking trade next week. And trade with Bangladesh invariably means textiles.

Instead of addressing Bangladesh as a rival in export markets, the government wants to give it access to our markets, without charging duties. This gesture faces opposition from domestic textile-makers who say this will be a major blow.

Bangladesh wants India to remove 61 items, including 48 readymade garments, from the list of protected goods India maintains under its free trade agreement with Saarc countries known as Safta. This will allow Bangladesh’s garment industry, which accounts for 80% of the country’s total manufacturing, duty-free access into India.

"We are considering Bangladesh’s request of deleting 48 apparel items from the sensitive list," a commerce department official told ET. It is consulting with the textiles ministry on the issue.

Relations between India and its neighbour had hit rock bottom during the administration of prime minister Khaleda Zia, but have improved since the head of the Awami League, Sheikh Hasina, was elected prime minister three years ago.

Bangladesh wants several other things to be scrapped from the list, including natural rubber, toilet tissue stock, sanitary napkins and paper or paperboard labels. Some of these might continue to remain on the list.

India expects Bangladesh to reciprocate by removing restrictions imposed by Dhaka on yarn and fabric, and scrapping a ban on imports through the extensive land border that India and Bangladesh share.

India’s textile producers are contesting the move to relax trade regime with Bangladesh, claiming it would jeopardise their domestic business. Bangladesh’s exports of readymade garments are around $15 billion a year, ahead of India’s $11-12 billion, owing to its low production costs.

"We will be affected in a major way, especially in lower-end items," said D K Nair, secretary-general, Confederation of Indian Textile Industry. Bangladesh’s request list includes items where it has a major cost advantage: knitwear, jeans and men’s shirts.

Blow for textile belts in Ludhiana, Tirupur

"Removal of import duties on knitwear will hit the textile belts in Ludhiana and Tirupur which provide employment to lakhs of people," Nair said.

"Because of low cost of production in developing countries such as Bangladesh and Vietnam, our exports have suffered. Giving them more concessions on political grounds does not make sense," said Chand K Anand, president, All India Garment Exporters Common Cause Guild.

India’s large domestic market for readymade garments is already worth $25 billion a year, most of which is catered to by domestic producers as high duties make imports uncompetitive. India slaps an import duty of 10-15% on garments or a high specific duty ranging between 25 and 125 per piece, whichever is higher, to keep out even very competitively priced imports from the market.

Textile producers have sent representations to the commerce and textile ministries asking the government not to give in to Bangladesh’s demand. "This will encourage more foreign investment to flow into Bangladesh’s textile industry from South Korea, China and other Southeast Asian countries as they will find a ready market in India," Nair said.

However, India is expected to be generous in its economic dealings with Dhaka as its exports to Bangladesh at $3.5 billion exceed its imports of $390 million. India has asked Bangladesh to allow import of yarn and fabric from the land route, because allowing it only by sea hikes costs.

It has asked Dhaka to revoke its orders preventing textile makers who source raw materials from India to benefit from the EU’s GSP scheme that allows duty-free access to its markets. "We have heard reports that a section of Bangladesh’s industry is trying to dissuade its government from removing these hostile measures taken especially to target India," said a Delhi-based garment producer who did not wish to be named.