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EU's relaxed RoO turns out to be a mixed blessing
Jul '11
The European Union's new Rules of Origin (RoO) have come as a mixed blessing. While the country's exported-oriented readymade garment (RMG) industry has been able to cash in on it, the same is proving detrimental for domestic textile mills as they are losing on their assured customers and market.

The new revised RoO are aimed at granting the least developed countries (LDCs) a wider access to the EU markets. Bangladesh has managed to draw positive benefit from these relaxed and simplified rules and processes devised to help the LDCs to gain from the preferential trade access extended by the EU.

The new revised rules which became effective from January 1, 2011 do not necessitate use of local fabric in manufacturing apparels meant for export to the EU. This makes the apparel exporters in Bangladesh free to procure fabric even from other countries.

The positive influence of this development is well reflected in the significant boost achieved in Bangladesh's RMG exports, especially to the EU during the first half of this year. But, the advantage which has proved to be a boon for RMG industry has turned to be a bane for textile mills in Bangladesh.

The revision in rules has greatly benefited countries that export fabrics to Bangladesh. These include India, Thailand, China, Turkey and Pakistan. Due to the significant rise in the volume of fabric imports from these countries by Bangladesh's apparel exporters over past six months, the domestic textile millers have voiced their concerns regarding the same.

The Bangladesh Textile Mills Association has said that the situation is greatly troubling them and a sharp fall of around 30 to 40 percent has been witnessed in their output during the period.

These circumstances threaten, the association leaders say, to jeopardize their investment worth Tk 300 billion in the industry. Hence, it is not an enviable development, as there is a high probability that it may eat away jobs of thousands of people employed in the country's textile spinning and weaving mills.

In such a scenario, a normal question that anyone would tend to raise is why the RMG exporters in Bangladesh prefer procuring fabrics from other countries while overlooking the domestically-produced ones.

Obviously, the domestic textile mills lack on some fronts like its reliance on imported raw inputs, as certainly the countries that undertake fabric production while using their domestically produced cotton have a competitive advantage over the non-cotton cultivating countries like Bangladesh.

The Bangladesh's textile mills have capacity to meet 80 percent of overall demand of apparel exporters, but they are not so economical that they can withstand competition from other fabric supplying countries.

Thus, it is apparent that the Bangladesh Government needs to initiate some steps to raise the level of competitiveness of the domestic textile mills. So, in view of the prevailing conditions, it is likely that the Government may lend a sympathetic ear to millers appeal for raising the prevailing subsidy rates for domestic textile millers.

Fibre2fashion News Desk - India

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