Future of Bangladesh in global RMG market

Vietnam overtook Bangladesh to become the second largest clothing exporter to the US market in 2020 and Bangladesh again took over the second position.

The raise of Vietnam is not sudden but it quietly surpassed Bangladesh of the USA market and took over second-largest apparel supplier, leaving only China ahead by the end 2013. In 2016, Vietnam holds a 10.27 per cent overall share of US textile and apparel imports while Bangladesh holds a comparatively abysmal 5.09 per cent share.

The RMG-market share of Vietnam in 2000 was only 0.6 per cent while Bangladesh's was 2.3 per cent. Over the last 20 years, Vietnam's share swelled to 6.4 per cent in 2020 and Bangladesh's 6.3 per cent. It means, Bangladesh goes for a marathon race and Vietnam a sprint race. Vietnam RMG attracts an 8.38 per cent duty on garment exports to the US while Bangladeshi garment exports face a 15.62 per cent duty.

The situation has worsened in the recent times, according to data of the Office of Textiles and Apparel (OTEXA), affiliated with the US Department of Commerce, during the January-March period in 2021, Bangladesh’s apparel exports to the US sustained a negative growth of over 8 per cent. In contrast, Vietnam apparel export to the US witnessed a growth of 1.40 percent in the January-March period in 2021. The US apparel import from Cambodia witnessed a small growth of 0.94 per cent to $774.79 million in the said period, according to OTEXA data.

China reigns supreme maintaining its top position as the largest exporter with 31.6 percent share of the business cake, despite a 7.0 percent drop in 2020. Its exports fetched $142 billion during the period under consideration, the WTO Statistical Review
reckoning reveals.

Conversely, Bangladesh's market share fell to 6.3 per cent in 2020 from 6.8 per cent a year ago in 2019. In 2020 -- the year of pandemic corona onslaught globally, Bangladesh's apparel export dropped to $28 billion, the WTO
statistics show.

According to experts, Bangladesh may lose its position as the second RMG-exporting nation on the global market due mainly to its overwhelming reliance on cotton-made apparel, lack of preferential trade deals and product diversification, analysts say as its close competitor stands neck-and-neck.

The salient feature of the success story is that, Vietnam's several free trade agreements (FTA) and preferential trading arrangements in an aggressive market-expansion drive, higher non-cotton apparel items, stable political and business environment, and Chinese investment shifting ameliorated its position in the global arena.

Vietnam signed many bilateral, multilateral and regional FTAs over the past 15 years with an easy access to more than 50 per cent of the world economy; and, finally, a highly open trade regime with seamless imports and exports making global value chain integration are the main factors for the East-Asian nation specially China.

Vietnam has allowed FDI without conditions. Dr Zahedi Sattar, the noted economist, said that some 90 per cent of Vietnamese manufacturing exports are driven by foreign-invested enterprises. “It is effectively able to leverage the world market through its open-trade policies which will make it a strong competitor of Bangladesh in RMG exports the way it has become second-largest exporter of mobile phones after China in the world market," he said.

Vietnam is now recognised as an export powerhouse with exports worth $281 billion against its GDP of $265 billion. Dr Ahsan Mansur said that "Its export to GDP ratio is higher than 100 per cent. That happens in few other countries, like Singapore, which are highly trade-oriented economies."

Bangladesh's share in 5 export items is 71 per cent. On the other hand, Vietnam has the basic, low-end and high-end market products. Besides, its labour productivity is 72 per cent. But Bangladesh's productivity rate is 58 per cent. Vietnam is still adopting several innovations for accelerating its productivity.

A lot of Chinese and Japanese investments help the rising East-Asian nations including Vietnam to march ahead of Bangladesh -- a homegrown RMG-maker nation because Bangladesh don’t allow FDI outside the Export Processing Zone (EPZ).

There is more alarming news for Bangladesh. When Vietnam's products will enter the EU market with zero-rated tariffs for its recently signed FTA with the EU, Bangladesh's products will pay taxes there after 2026. Bangladesh will face even tougher completion once it fully graduates from the LDC bracket in 2027 as the duty benefits would be withdrawn then. Exports to the EU will then face 12 percent duty but Vietnam will continue to ship to the trading bloc at zero duty. With its 4 per cent share Vietnam is currently is the sixth largest apparel exporting nation to the EU, whereas Bangladesh is the second with its share of 19 percent. So we need to lobby with the EU either for the signing of an FTA or for continuation of the duty benefit.

If Bangladesh fails to attract more FDI, enhance non-cotton and fashion products, accelerate online-based marketing, sign several FTAs and PTAs simultaneously with the LDC graduation process, it may permanently lose its current position to Vietnam. Dr Zaidi Sattar suggests Bangladesh government should make a strong public announcement inviting FDI (foreign direct investment) in RMG sector, in addition to pressing BGMEA-BKMEA to welcome FDI (outside EPZ) with no strings attached.

Vietnam has been quite aggressively pursuing more bilateral and regional trade agreements. In the Canadian market by taking advantage of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), and in the markets of Japan, Australia and China on account of being a member of the recently concluded Regional Comprehensive Economic Partnership (RCEP). All these will provide Vietnam with a significant competitive edge over Bangladesh.

Interestingly, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Faruque Hassan said to a local media that the overall RMG exports saw a major drop in its major markets last year mainly because of the pandemic that resulted in a fall in demands. The opinion suggested that Corona-pandemic only came to Bangladesh. They are rigid on their demand not to allow FDI in RMG sector in the country except EPZ and remain mysteriously silent about Free Trade Agreements.

They rather pursue government to give them subsidy and incentive to make Bangladesh RMG competitive than competitors. The policymakers are also very kind to RMG exporters and willing to give all possible subsidy and discount. The policymakers oppose FTA with source of raw materials. The government has started negotiation with India for a possible Comprehensive Economic Partnership with India.

Bangladesh may be heading for a serious problem in the global export market due to lack of FDI, FTA and other trade facilitation as promised in Trade Facilitation Agreement (TFA) as a member of WTO to be implemented by 2022. 

The writer is a Legal Economist. He can be contacted [email protected]