Local RMG industry hopes to dodge USITC penalty

Apparel exporters are optimistic that the United States International Trade Commission (USITC) would not impose any penalty against them, as the sector is already navigating a challenging environment and tough global competition while following all international guidelines.

The local readymade garment (RMG) industry has also made an example in reducing the carbon footprint.

Industry insiders added that Bangladesh’s exports to the USA have increased despite the country’s reduced sourcing from the global market. This feat was achieved by comparatively lower labour costs, adoption of latest technology, reduction in utilities costs and low profit margin.

A green factory helps reduce utilities costs by 30 per cent – 40 per cent. Bangladesh has 207 LEED certified factories, and nearly 500 are currently waiting for certification. Last year, the country’s apparel sector minimum wages was around $73 [Tk 8,000], and after the new wage hike implemented in December last year, the figure rose to $113 [Tk 12,500].

However, due to the new wage hike, RMG manufacturing costs are up by almost 30 per cent.

Amid such a situation, the government has gradually been reducing additional facilities such as Export Development Fund (EDF), cash incentive, while simultaneously increasing gas, electricity, water and other costs.

Bangladesh is set to graduate from LDC in 2026, which will put the country’s exporters who depend on the USA into a more difficult situation, as production costs will go up thanks to economic development.

It should be noted that Bangladesh’s apparel industry does not get any trade and tariff facility from the US government, despite the country occupying 10 per cent of Bangladesh’s cotton market share, and enjoying duty-free access.

Nevertheless, the USA is the single largest export destination country for Bangladesh’s RMG and most other industries.

Speaking to The Business Post, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Faruque Hassan said, “We have fair and ethical business practices.

“We have a lot of limitations as the government has been increasing utilities prices almost every year, and the new wage structure is reviewed after every five years. On the other hand, the government is gradually reducing policy support such as EDF and cash incentives.”

He continued, “But we are able to retain our export growth due to reduced production costs made possible by sustainable technology, and manufacturing goods with marginal profits.

“I strongly believe that our industry is more competitive than our competitors, and that is why I believe that the USA will not impose any restrictions on Bangladesh’s apparel sector. When my board took charge of BGMEA, we focused on environmental issues.”

USITC investigation

The USITC is investigating a sudden rise in per unit import prices of garment items exported from Bangladesh, Cambodia, India, Indonesia and Pakistan. The USITC will submit its report this August.

In a hearing, titled “Apparel: Export Competitiveness of Certain Foreign Suppliers to the United States” held on March 11, the USITC found that the prices the US paid for each unit of Bangladeshi garments had recently exceeded the average of the prices paid by America for garments sourced from different countries.

On March 11, the USITC completed oral hearing, and fixed March 24 for written. BGMEA President Faruque Hassan attended the oral hearing and defended the country.

Besides, the American Apparel and Footwear Association (AAFA), a US trade body, defended Bangladesh in the hearing, saying despite facing one of the highest tariff rates, Bangladesh is the third-largest apparel exporter to markets in the US because of its efforts to improve working conditions, end forced labour, stamp out counterfeits, and provide safe and high-quality products to American consumers.

Beth Hughes, vice-president on Trade and Customs Policy at AFFA, said in her testimony, “Bangladesh has been lowering its carbon footprint to ensure the planet is preserved for future generations.”

Source said in the hearing, the USITC wants to know from Faruque Hassan about the source of cotton imports, and if there is any linkage with Chinese Xinjiang cotton.

The BGMEA chief assured that Bangladesh is not sourcing cotton from China due to the force labour issue. He also informed that nearly 80 per cent cotton came from West Africa, Brazil, India and the US.

Faruque said the USA has the opportunity to increase cotton export to Bangladesh, which is already 10 per cent compared to the country’s total import.

The USITC also wanted to know Bangladesh’s export competitiveness, and what kind of facilities are being provided by the government.

The BGMEA president informed that Bangladesh’s exporters have to face competition to export to the US, as well as the global market, as the Bangladesh government has been increasing utilities costs every year.

Besides, the Bangladesh government reduced almost all facilities, while its competitors are still increasing those. Faruque also informed that the cost of production has already increased thanks to the new wage structure implemented in December last year by 56 per cent.

As a result, overall product cost will be increased from this year.

Replying to a USITC question, Faruque said Bangladesh’s apparel sector has achieved a lot to reduce carbon footprint, and the BGMEA took Sustainability Strategic Vision 2030.  Bangladesh has 207 LEED certified RMG factories, while top rated nine of ten are located in the country.

Under the environment, social and governance, the BGMEA plans to invest $1 billion on sustainable communities. It also planned to reduce blue water footprint 50 per cent, energy consumption 30 per cent and use renewable energy 20 per cent in 2030.

In his testimony, BGMEA President Faruque Hassan further said the US apparel imports between 2013 and 2023 showed that America's import from the world in terms of USD value declined by 0.25 per cent. But it increased by 3.95 per cent from Bangladesh.

This is despite local garment exporters having to face a 15.62 per cent duty on exports to the USA.

In terms of quantity (square metre equivalent), imports from the world to the US declined by 0.20 per cent, but imports from Bangladesh grew by 2.93 per cent.

During 2013-2023, Bangladesh's unit price has gained 0.99 per cent, while the global average unit price paid by the US has declined by 0.04 per cent.

Bangladesh’s unit price to the US has followed a moderate upwards trend since 2017. The average unit price in 2017 was $2.74 while it increased to $3.23 in 2023, the BGMEA president added.

BGMEA newly elected director and TAD Group Managing Director Ashikur Rahman Tuhin said, “US manufacturers increased sourcing from Bangladesh for two reasons – China plus one policy and our comparatively low product costs.

“We created a strong backward linkage and our workers are skilled. That is why brands are comfortable in sourcing from Bangladesh as an alternative, while other countries are far away in these areas. So we believe that the USITC will consider our situation and release us from the investigation.”