Another headache for apparel exporters

The apparel exporters are going to face a further challenge to enter the Indonesian market as the latter has slapped an additional duty on the import of clothing goods and accessories from Bangladesh.

Long since Bangladesh has been facing a 25 per cent tariff for apparel export to Indonesia while the other countries like China, Vietnam and Singapore are exempted to do so.

According to the safeguard duty policy, the Indonesian garment importers have to pay duty ranging from $ 1.33 to $ 4.34 per piece of the products imported from Bangladesh based on types.

The new measure is likely to dent Bangladesh’s export of clothing products to Indonesia that will see a price rise in line with the safeguard policy.

This tariff rate will be applicable for first year. For the second and third year the rate will be $ 1.26 - $ 4.12 and $ 1.20 - $ 3.91 respectively. The new tariff rate came into effect on November 12 for three years.

The industry insiders claimed that Indonesia could be a good market due to its higher population; an imposition of additional duties adds to the burden on the industry.

Apparel goods and apparel accessories exported to Indonesia were worth $ 34 million in Fiscal Year 2000-21 which was around $ 29 million in FY20, $ 30 million in FY19, $ 20 million in FY18 and $ 13.8 million in FY 17. Over the last five years, the export of clothing products to Indonesia continued to rise.

Besides, textile goods exported to Indonesia were worth around $ 7 million in FY 21 and around $ 3 million in FY 20.

In return, Bangladesh imported textiles worth $187 million in 2019 from Indonesia putting the balance in favour of Indonesia either way.

The import of textiles by Bangladesh which goes to the production of export-oriented garment is allowed to enter duty-free here.

“Comparing the recent growth rate, Indonesia is a promising market for Bangladesh, but the imposition of recent duty will hamper export,” said Sahidullah Azim, vice-president, Bangladesh Garment Manufacturers and Exporters Association.

He called upon the government to immediately take steps through diplomatic channel to grab the market.

“If we are able to sign FTA or PTA, it could be helpful for good export earnings from Indonesia,” added Azim.

Md Hafizur Rahman, director general, WTO Cell under the Ministry of Commerce, however said, “Before the duty was slapped, the ministry discussed the issue with the World Trade Organization (WTO).

“Even we tried to negotiate on the issue with the Indonesian government, but to no avail. They imposed it on all countries,” Hafizur added.

Bangladesh will suffer and export growth may decline due to the Indonesian safeguard measures.

Citing the fallout from the pandemic and a subsequent decline in gross domestic product (GDP), the Indonesian government came up with the safeguard tax to help the nation’s garment industry.

Last year the Indonesian Textile Association anticipated a compound annual growth rate (CAGR) of 5 per cent for the textile and garment sector, but the Covid-19 wreaked havoc on the plan.

However, analysts believe that the path to recovery has already begun spurred on by recovering household and capital spending.

The government has also been working on helping apparel manufacturers by improving critical infrastructure like highways and ports, and helping ease business in terms of incorporation procedures under the recently introduced Omnibus Law.

While Indonesia has been one of the top 12 countries for apparel manufacturing and sourcing over the past two decades, global brands have also been paying attention to the fast-growing domestic market there.

This is a two-sided coin as many wonder if imposing a safeguard duty will dent the nation’s $ 16.4 billion apparel market at home.

Many analysts believe that the growing number of consumers in Indonesia (the world’s fourth most populous country, with a median age of 28.6) could turn to more upscale options in terms of shopping for both local and globally manufactured apparel.

An estimated 30 per cent of Indonesia’s total production goes toward meeting domestic demand, with the remainder exported to the U.S. (36 per cent), the Middle East (23 per cent), the EU (13 per cent) and China (5 per cent).

Meanwhile, the government is taking no chance in enhancing protection for the local apparel industry.

“Deliberations to impose the safeguard duty have been going on since November after the authorities launched a “safeguard investigation” that sought to determine whether increased imports of a product are causing, or threatening to cause, serious injury to a domestic industry,” according to the World Trade Organization (WTO).

The industry heads in Bangladesh are opposing this additional blow to their garment industries, which have been suffering outsize losses due to cancellation of orders from brands in the EU and the US.