Knit Communique, Issue May-2015

“Working Today to Shine Tomorrow”

Volume 09, May 2015

KnitCommuniquéCommuniqué

Incentives on RMG:A Comparative Analysis Based On The CompetitorCountries of Bangladesh and Policy Suggestions

ADVISORY BOARD

EDITOR

Chief Advisor : A. K. M Salim Osman, M.P President, BKMEAAdvisor : A.H Aslam Sunny 1st Vice President, BKMEA Mansoor Ahmed 2nd Vice President, BKMEA Masuduzzaman 3rd Vice President, BKMEA G. M. Faruque Vice President (Finance), BKMEA

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Sulav Chowdhury Chief Executive Officer (CEO), BKMEA

A.H Aslam Sunny 1st Vice President, BKMEA

DATA & STATISTICS COLLECTION, RESEARCH & ANALYSIS

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Message from President


Message from Editor


List of Tables

Table No. Table Name Page No.

Table 1 Top Bangladesh Apparel Items Exported to the World (million US$) 06

Table 2 Comparison of Share of Textile (HS 5063) in GDP of Different Competitive Countries in the World 07

Table 3 Bangladeshi Knitwear Product Import Scenario of Emerging Countries (Million US$) 09

Table 4 Input Cost Ranking in Five Countries 10

Table 5 Provision of Subsidies for Textile Companies Grants from Central Government 16

Table 6 Subsidy Standard for the Brand Development of Textile & Apparel 20

Table 7 Youngor Group Company Ltd Subsidies as Percentage of Revenue 1999 to 2006 23

Table 8 Ningbo Shanshan Company Ltd, Subsidies as Percentage of Revenue 1999 to 2006 24

Table 9 India’s Textile Exports at a Glance (Principal items) 26

Table 10 Financial Allocation for the Textile and Apparel Sector 30

Table 11 Budget Allocation on Various Schemes, Initiatives and Promotions 33

Table 12 Prioritiesd Sectors in the Budget Allocation of 201516 for the Development of the Textile and Clothing Industry of India 33

Table 13 Value of Sri-Lankan Industrial Export (in million US$) 49

Table 14 Apparel Export of Sri Lanka in EU & USA 49

Table 15 Vietnamese Textile and Apparel Industry Development Plan 55

Table 16 Present Condition of Textile and Apparel Sector of Cambodia 61

Table 17 Number and Capacity of Textile and Garment Units in Bangladesh 65

Table 18 RCA Analysis of China in Textile and Apparel Sector (HS Code 5063) 78

Table 19 RCA Analysis of India in Textile and Apparel Sector (HS Code 5063) 79

Table 20 RCA Analysis of Pakistan in Textile and Apparel Sector (HS Code 5063) 80

Table 21 RCA Analysis of Vietnam in Textile and Apparel Sector (HS Code 5063) 81

Table 22 RCA Analysis of Sri Lanka in Textile and Apparel Sector (HS Code 5063) 82

Table 23 RCA Analysis of Cambodia in Textile and Apparel Sector (HS Code 5063) 83

Table 24 RCA Analysis of Bangladesh in Textile and Apparel Sector (HS Code 5063) 84

Table 25 Provision of Incentive for Exporter of Bangladesh RMG Sector 96

Table 26 Summary of the Policy Matrix, Expected Results and the Implementing Body 101

Table 27 Prioritization of Policy Matrix 106


List of Figure

Figure No. Table Name Page No.

Figure 1 Contribution of the Textile Industry in the GDP of Several Countries 08

Figure 2 RMG Market Share of Competitive Countries 14

Figure 3 Cambodia Private investment, Annual Average and Sector Specific 62

Figure 4 No of Factories in RMG Sector of Bangladesh 64

Figure 5 Competitive Position of Major RMG Producing Countries in Global Apparel Trade 72

Figure 6 Number of days to Reach USA from the day of Shipment by Different Countries 73

Figure 7 Trend in Estimated Value Added as a Percentage of Garments export Value, by Country 73

Figure 8 Country Rankings Based on the Ease of Cross-border Trade 74


CONTENTSPresident Message

Editors Message

Research and Development Cell

Acronyms

List of Tables

List of Figures

Chapter-01 01

− Introduction ............................................................................................ 01 − Objective ................................................................................................ 02 − Literature Review/ Finding ..................................................................... 02 − Methodology ........................................................................................... 04Chapter-02 06

− Current Scenario of the RMG Sector ..................................................... 06 − Contribution of Textile & Clothing Sector on Bangladesh & its Competitors Economy .................................................................... 07 − Future Demand Pattern of RMG Product & Opportunity ..................... 08 − International Competitiveness of Bangladesh ....................................... 10Chapter-03 12

− China ...................................................................................................... 13 − India ........................................................................................................ 25 − Pakistan .................................................................................................. 38 − Sri Lanka ................................................................................................ 47 − Vietnam ................................................................................................... 53 − Cambodia ................................................................................................ 60Chapter-04 63

− Bangladesh Apparel Sector .................................................................... 63Chapter-05 72

− Global Competitive Position of Bangladesh RMG Sector ...................... 72 − Comparative Analysis of Incentives: Where BD Stands ......................... 74 − Strategy for the Development of RMG sector ......................................... 75Chapter-06 78

− RCA Analysis on RMG Sector of Different Countries ............................ 78 − SWOT Analysis on BD RMG Sector ....................................................... 86Chapter-07 93

− The Proposed Solution & The Policy Matrix .......................................... 93 − The Implementation Framework .......................................................... 106Reference 109


01

CChhaapptteerr -- II Introduction:

Bangladesh has posted a robust and resilient economic performance over the past decade, accompanied by a sustained decline in poverty. Real GDP grew at a healthy rate of around 6 percent per annum over the past decade, accelerating by a percentage point compared to the previous one. GDP growth was remarkably stable with a low standard deviation of 0.7 percent during this decade (half of what it was from a decade earlier). This robust growth was accompanied by a uniform and steady decline in poverty headcount rates between 2000 (48.9 percent) and 2010 (31.5 percent), and a continuous decline in the number of poor people from nearly 63 million in 2000 to 47 million in 2010, despite a growing population (HIES 2010).

The ready-made garment (RMG) industry is a strategic sector for Bangladesh. In 2013 it provided 4.2 million direct jobs, 16 percent of GDP, and more than 75 percent of foreign exchange earnings. Most other manufacturing sectors in Bangladesh have, by and large, not been able to create jobs and generate export revenues of any significant scale since the country’s independence over 40 years ago. Over the past two decades, starting from the early 1980s, Bangladesh has built a strong reputation centered on price advantage via low-cost labor and investment incentives; production capacity, particularly within export processing zones (EPZs); and satisfactory quality levels, especially in value and mid-market price point segments. Going forward, the price advantages may erode somewhat as new entrants are able to offer labor at an even lower cost, although Bangladesh looks to retain its capacity advantage for the time being. Bangladesh has not made marginal advancements in production of high-end apparel segments, which require greater labor skill and higher technology, two areas in which Bangladesh is weak. For Bangladesh, opportunities for growth in the apparel manufacturing sector lie in enhancing productivity within existing production value chains without adversely impacting the social welfare within the sector, which has become a critical issue. The country’s concentration of exports in one industry subjects Bangladesh to greater risk; as exports are diversified it will be even more critical that apparel manufacturing productivity be enhanced.

The paper attempts to compare the incentives provided by the governments of seven countries including Bangladesh and China, the world leader of apparel export. The first chapter discusses about introduction, objective, literature review and methodology. The second chapter discusses about the present condition of the RMG trade in Bangladesh and its competitors country. The Third chapter discusses about incentives and patronage different countries got from their govt. The fourth chapter discusses about what has been given to the RMG sector of Bangladesh and what are needed to develop the sector further. Then the chapter 5 discusses about the suggested policy matrix based on SWOT analysis and policy


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prioritization and implementation method. Based on the statistical analysis of the incentives provided for the RMG sectors in comparison with that of others, the paper suggests significant policies to improve the competitiveness of the RMG export of Bangladesh.

Objective of the Study:

The objective of the paper is to discover the comparative position of Bangladesh RMG sector in light of other competitor countries and find out the areas where Bangladesh government should give more emphasis. The paper addresses the following questions:

1. Are the incentives provided by the government of Bangladesh at par with the others? 2. How much of the growth of the textile industry is Bangladesh is attributed to the

government incentives? 3. Are the existing incentives for RMG sector of Bangladesh enough to take it to the

top spot on the exports table? 4. Are additional incentives essential for the growth of the apparel sector of

Bangladesh?

Literature Review

Just as a child requires assistance from its parents to survive and thrive in this rigid world; an export sector of a country also needs incentives to emerge in the world market as a strong contender. Incentives provided by governments have always played a vital role in shaping the outcome of the export sectors of a country. All the leading players of the global RMG trade have enjoyed incentives provided by their respective governments in their growth stages.

The story behind the RMG sector of Bangladesh is an exceptional one. The saga of the leading export sector of Bangladesh started in the early 1980s. It followed a natural flow of events and boomed into the world market as the second biggest apparel exporter of the world. According to Yunus and Yamagata (2012), the government of Bangladesh formulated policies in such ways that it let the sector more or less alone. Although innovative policy measures such as Back-to-Back Letter of Credit and Bonded Ware House Facilities boosted the export sector. Under the bonded ware house facilities, 75% of the value of the product can be stored in the factory premises; Yunus, et al. (2012). It was feared that after the abolishment of MFA (Multi Fibre Agreement) in 2005 the RMG export of Bangladesh would falter. It was not to be. Even after the phasing out of MFA the RMG industry exhibited a positive growth. The RMG industry has maintained its competitive strength in the market by exporting low cost apparels based on the availability of cheap labor; Hasan (2013) among other incentives exporters are given the retention of earnings in foreign currency. Exporters are allowed to retain a portion of their export earnings in foreign currency. The entitlement varies in accordance with the local value addition in export items. The maximum limit is 40 per cent of total earnings although for low value added products


03

such as RMG the current ceiling is only at 7.5 per cent.; according to Razzaue and Eusuf (2007). The government has provided a wide range of incentives to facilitate exporters of RMG. However, few major incentives such as Technology Up-gradation Fund (TUF) and fund for Synthetic Fibre development are yet to come. Along with new policies the existing policies, the likes of lower Mark up rate for export finance needs to be revised to make our apparel sector more competitive.

China has been the largest exporter of textile products since more than two decades. China is also the world largest producer of cotton which played vital part in the growth of the textile industries. China’s trade was facilitated by its inclusion in the World Trade Organization (WTO). According to MacDonald, Pan, Somwaru and Tuan (2004); Since China’s accession to the WTO in December 2001, China’s textile and apparel (T&A) exports have grown by more than 40 percent and China’s cotton consumption has grown by 34 percent. MacDonald, et al. (2004); using Computable General Equilibrium (CGE) method predicted that textile export of China will experience 12 percent growth and apparel export of China will experience 16 percent growth in 2014. The growth of the textile industries are due to programs taken by the central government of China. The Chinese government provided the textile and apparel industries with cash incentives and special fund schemes etc. China, the world leader in RMG export, has enjoyed the benefits of the growth of their industries. The Chinese central government was the first winner of the export trade. The central bank of China was able to cash in the foreign currencies earned by global trade of apparel products and use it to strengthen the local industries. The textile industries have provided the means to make a transition from textile to an innovative industry; Ruffier (2013).

India, representing the strongest economy of the South Asian region, is doing well. The apparel export accounts for 4% of the total GDP in 2014. India enjoys availability of abundant raw materials. To support the textile sector the government of India provided incentives to the industries. In 1999, the Technology Up-gradation Fund and Scheme was launched. According to Gera (2012), under the TUFS 24.91 billion US dollars have been sanctioned on March 31, 2008. India is the second largest producer of cotton in the world. India is trying to capture new markets for its RMG export. Under the foreign trade policy, 26 new markets have been added under the Focus Market Scheme. These include 16 new markets in Latin America and 10 in Asia- Oceania, Chaudhary (2011). India aims to export 300 billion US dollars of textile and apparel products by 2024-25.

Among the emerging exporters of the apparel sector in Asia, Vietnam is a bright example. Vietnam is one of the top ten garment exporting countries in the world with foreign exchange earnings of US$ 9.11 billion in 2009, Hossain (2010). Vietnam is said to follow China’s footstep. The garments industry of Vietnam is mainly based on foreign direct investment. According to Hossain (2010); 19 different countries have invested in the garments sector of Vietnam. A range of measures were taken by the Vietnamese government


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such as tax incentives and export processing zones which helped to reduce the anti-export bias resulting from the structure of trade protection, which tended to reduce the profitability of exporting compared to producing for the domestic market (Athukorala, 2006b).Vietnam targets RMG export turn-over of US$ 18 billion dollars in 2015 and US$ 25 billion dollars in 2020, Hossain (2010).

Methodology

The paper uses different statistical tools for studying the relative state of the incentive policies among the top players of RMG business. The paper utilizes tabular, percentage and ratio analysis to understand the pros and cons of incentive policies in different countries. Secondary data from different public and private sources have been used in this paper. Export-Import data has been generated from International trade map, Export Promotion Bureau of Bangladesh and World Integrated Trade Solution. Tariff data has been collected from Market Access Map.

We used revealed comparative advantage to find out the relative importance of the Ready Made Garments Industry in their respective economies in comparison to other economies. The revealed comparative advantage is an index used in international economics for calculating the relative advantage or disadvantage of a certain country in a certain class of goods or services as evidenced by trade flows. It is based on the Ricardian comparative advantage concept.

To analyze the comparative advantage of apparel sector of different countries we use The RCA indicator, commonly known as the Balassa index, is calculated using the following equation:

=

Where, K= Exported Product; i = Country and W= world.

= Export of k product by China to the world,

= Total export of China to the world;

= World export of product k to world;

The index compares the share of exports of i country of Textile and Apparel products, with the share of exports of that product in world exports. If the export of a product is proportionally greater than the level of world export than the country is said to have a “revealed” comparative advantage in that product.

A comparative advantage is “revealed” if RCA>1. If RCA is less than unity, the country is said to have a comparative disadvantage in the commodity or industry.


05

A comparative analysis in different indicators has been done between Bangladesh and its competitor countries in the global textile and clothing trade. At first we analyze the current scenario of the Ready Made Garments industry in the countries that are playing significant role in the global RMG production. Here we studied on seven countries: China, India, Sri Lanka, Vietnam, Pakistan, Cambodia and Bangladesh- selection was made based on the relative share in the global RMG trade. Then we examine the facilities given to the RMG sector of different countries by their government. We also examine the policies taken by their government to have a sustainable RMG industry in those countries. We incorporate some case studies based on the real ground- the developments accrued from government support to the sector. Having completed the study on the competitor’s country, Bangladesh RMG sector has been taken into consideration for study. We compiled all the facilities given by Bangladesh Government to the RMG sector. We conducted a SWOT analysis to understand the strength, weakness, opportunity and threats involved in the RMG sector of Bangladesh. Then for the long run sustainability of Bangladesh’s RMG sector, we identify some areas where special attention should be given with highest priority. At the end of the paper, we will try to develop a policy matrix for the RMG sector of Bangladesh and give a guideline for policy prioritization.


06

CChhaapptteerr -- IIII Current Scenario of the RMG sector:

Bangladesh is the second largest exporter of RMG after China. In the just-concluded fiscal year (2013-14), Bangladesh exported $ 24.49 billion worth of RMG products to world while the total export was $30.18 billion. More than 81 percent of total export comes only from RMG sector.

Bangladesh is the third-largest knitwear exporter in the world, after China and Turkey. Bangladesh exported $12.049 billion worth of knitwear product in FY 2013/14. Major products include T-shirts and other causal shirts and trousers. Over the past decade, knitwear’s share of total apparel exports rose significantly, from 30.8 percent in FY 2000/01 to 49.20 percent in FY 2013/14.

For both knitwear and woven wear, the leading buyers of Bangladesh apparel were the United States, Germany, and the United Kingdom in FY 2013/14. Top export markets (EU28, USA and Canada) for Bangladesh reflect traditional apparel consumers. Together these three markets represented 85.34 percent of all Bangladesh apparel exports. Within Bangladesh apparel exports, products are fairly concentrated: the top 10 products comprised 85 percent of total apparel exports and the top three alone comprised 68.36 percent in FY 2012/13. The dominant categories in FY 2012/13 were HS610910, HS620342, HS620462, and HS611090 as shown in the table below.

Table 1: Top Bangladesh Apparel Items Exported to the World (million US$)

HS Code 2012-13 2013-14

Growth Rate %

Knitwear

610910 4905.63 5594.62 14.04

611090 1565.91 1523.24 -2.72

611020 826.91 1032.87 24.91

610510 645.58 780.29 20.87

610462 260.32 331.88 27.49

611030 198.02 315.99 59.57

610990 237.58 269.18 13.30

610821 207.15 210.76 1.74

610711 172.86 207.55 20.07

610342 163.90 202.52 23.56


07

HS Code 2012-13 2013-14

Growth Rate %

Woven

620342 4,300.07 4782.19 11.21

620462 1,784.34 1986.47 11.33

620520 1,326.19 1509.43 13.82

620590 601.21 615.23 2.33

620469 323.48 320.03 -1.07

620349 289.47 288.22 -0.43

620333 198.25 170.34 -14.08

621210 164.30 165.15 0.52

620343 151.08 157.09 3.98

620193 105.90 200.58 89.41 Source: Apparel Export Statistics of Bangladesh FY2013-14, BKMEA

Contribution of Textile & Clothing Sector on Bangladesh & its Competitors Economy:

The textile (HS 50-63) sector has emerged as a driving force for some developing economies like Bangladesh, China, India, Vietnam, Sri Lanka, Pakistan etc. This statistics reveals the relative importance of the textile industry in the respective economies. Bangladesh scores highest contributing 20.91 percent to Gross Domestic Product (GDP). In the 1980s jute sector was the major export earnings source for Bangladesh. In the span of 20 years, scenario has been changed. Textile industry has developed rapidly by dint of Multi-fiber Agreement (MFA) which ensured secured market for Bangladesh RMG.

Table 2: Comparison of Share of Textile (Hs 50-63) In GDP of Different Competitive Countries in The World

Year China India Pakistan Vietnam Sri Lanka Bangladesh

2008 3.97% 1.85% 6.25% 10.24% 8.65% 18.44%

2009 3.23% 1.60% 5.73% 9.83% 7.94% 17.22%

2010 3.36% 1.59% 6.54% 11.48% 7.23% 18.10%

2011 3.29% 1.78% 6.35% 12.37% 7.27% 21.35%

2012 2.99% 1.77% 5.74% 12.43% 6.94% 20.91%

2013 2.96% 2.14% 5.89% 13.39% 6.88% 18.69% Source: ITC Trade Map, World Bank


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Textile industry plays crucial role in the economic development of Pakistan. Textiles is the most important manufacturing sector of Pakistan and has the longest production chain, with inherent potential for value addition at each stage of processing, from cotton to ginning, spinning, fabric, processing, made-ups and garments. The sector contributes nearly one-fourth of industrial value-added, provides employment to about 40% of industrial labor force, consumes more than 40% of banking credit to manufacturing sector.

Vietnam has become an important player in the textile industry in Southeast Asia and also in the global textile market. The textile and apparel industry plays a major role in increasing the country's prosperity. The Vietnamese textile industry, with more than 3,800 companies, is the leading export sector.

Textile Industry has also a significant role in the economic development of Sri Lanka, India and China.

Figure 1: Contribution of the Textile Industry in the GDP of Several Countries

Source: Based on the Calculation of R&D cell, iART, BKMEA from ITC Trade Map, BBS & World Bank

Future Demand Pattern of RMG Product & Opportunities for the RMG Sector of Bangladesh:

Global economy is expected to grow further in 2014-15 as the global activity has strengthened mostly in advanced economies. We have seen signs of improvements recently: the euro area has finally come out of a recession slowly; a few large emerging economies, including China, Brazil and India, seem to grow moderately. Considering a set of assumptions, World Gross Product (WGP) is forecast to grow at a pace of 3.0 and 3.3 per cent for 2014 and 2015, respectively (World Bank 2014). According to IMF, global economy is projected to grow at 3.6 percent in 2014 and 3.9 percent in 2015. In advanced economies, growth is expected to increase to about 2.25 percent in 2014-15 (WEO 2014).


09

Ample opportunities for Bangladesh RMG sector are waiting to flourish. As the recent survey (McKinsey’s apparel CPO survey 2013) reveals that the sourcing of apparel from Bangladesh will increase through 2020. Though the recent tragic accidents which occurred in the RMG sector in the last two years reduced the popularity of Bangladesh as a promising apparel products supplier, it is still considered as a best alternative of China. In a survey conducted by McKinsey (2011), a growing number of Chief Purchasing Officers (CPOs) expressed their keen interest to source RMG products from Bangladesh mainly for price and capacity advantage. More than 89 percent of CPOs surveyed ranked Bangladesh among top 3 sourcing destination over the next 5 years. After two subsequent accidents, the percentage reduced to 53 but Bangladesh remained top following Vietnam obtaining 48 percent in the survey (McKinsey’s apparel CPO survey 2013).

European and US apparel buyers have successfully reduced the purchasing price by shifting their sourcing activities to low cost countries and by removing middleman in the sourcing channel. They select countries based on five main criteria: price, quality, capacity, speed, and risk. In the last few years, buyers have been experienced with increasing number of margin and capacity issues. Volatility in the prices of raw materials has emerged as a serious concern for European and Us buyers. Also the labor costs in China and other important sourcing countries have increased considerably. As a result, buyers are rethinking about the sourcing strategy and some buyers have shifted some of their orders to alternative country.

Fast-growing emerging countries have become lucrative markets for the traditional suppliers of the apparel. Purchasing power of a large number of citizens in those countries has increased significantly. For example, China itself has become a potential market for apparel exporting countries like Bangladesh, India, and Vietnam etc. Recently Bangladesh’s apparel export (Table:) to emerging countries like Brazil, Russia, Australia, Japan, Mexico, South Korea etc. has increased dramatically and is expected to increase further.

Table 3: Bangladeshi Knitwear Product Import Scenario of Emerging Countries (Million US$).

Country Year Knit

Import from Bangladesh

Import from World

% Market Share of BD

Australia 2012-13 268.18 2,800.47 9.58%

2013-14 287.99 2988.20 9.64%

Brazil 2012-13 118.92 989.59 12.02%

2013-14 100.1 1090.4 9.18%

China 2012-13 70.96 1,455.60 4.87%

2013-14 120.55 1889.49 6.38%

India 2012-13 11.96 123.48 9.69%


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Country Year Knit

Import from Bangladesh

Import from World

% Market Share of BD

2013-14 20.60 176.46 11.68%

Japan 2012-13 224.62 15,658.21 1.43%

2013-14 268.70 15349.4 1.75%

Mexico 2012-13 102.21 1,455.55 7.02%

2013-14 105.76 1681.45 6.29%

Republic of Korea

2012-13 46.48 2,012.56 2.31%

2013-14 69.71 2342.34 2.98%

Russia 2012-13 247.02 4,087.02 6.04%

2013-14 314.47 4031.77 7.80%

South Africa

2012-13 26.23 807.09 3.25%

2013-14 22.81 875.68 2.60%

Turkey 2012-13 212.98 875.43 24.33%

2013-14 244.44 1001.05 24.42% Source: Based on the Calculation of R&D cell, iART, BKMEA from ITC Trade Map

International Competitiveness of Bangladesh:

The standard costs of production is one of the major factors in determining international competitiveness in global textile and apparel industries. This include key cost categories: the price of land, price of labor, hours worked, electricity and energy costs, building costs (or rent), ocean transport, land transport and taxation. Along with this equally important are delivery times and the cost of inventories held in the factory, in transit or at the warehouse. The table given below indicates Input Costs ranking in five countries. We have strong competition with Pakistan, India and China with respect to apparel and garment manufacturing industry. In order to improve our competitiveness and thereby increase our apparel exports, we have to focus on increasing labor productivity/ reducing labor costs, improving the working hours, reducing power cost, reducing transport costs and reducing the VAT rates for apparels.

Table 4: Input Cost Ranking in Five Countries COST/ RANKING 1 2 3 4 5

Minimum wage (a) (US$/per month)

Bangladesh (68)

Pakistan (95)

Cambodia (110)

India (130)

China (300)


11

Mean weekly working hour (b)

Bangladesh (48)

India (48)

Pakistan (48)

China (46.7)

Cambodia (47)

Power Cost (c) (US$/KWH)

Bangladesh (0.053)

China (0.065)

Pakistan (0.071)

India (0.086)

Cambodia (0.14)

Cost to Export (d) (US$/20 container)

China (823)

Cambodia (795)

Pakistan (765)

India (1332)

Bangladesh (1281)

Land Transport (e) (US$/20 container)

Bangladesh (250)

Pakistan (300)

India (400)

China (470)

Cambodia (600)

Building Cost (f) (US$/Sq .m)

China (97)

Bangladesh (120) Cambodia

(130) India (140)

Pakistan (150)

Vat for Textile and (g) Apparel Export (%)

BD, Pakistan, Cambodia (0)

India (12.5%) and (0) in SEZ

Corporate Tax (% of profits) (Jan, 2015) (h)

Cambodia (20)

China (25)

India (34.31)

Pakistan (33)

Bangladesh (27.5)

Source: b: ILO, a: Media report, d: World Bank, h. www.tradingeconomics.com; Werner International Reproduced in “Benchmarking of International Competitiveness of the India Textile and Apparel Industry”, ICRIER, New Delhi, January 2011.


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CChhaapptteerr -- IIIIII Current Status of BD’s Competitor in RMG Export and the Incentives by Their Govt.:

Despite the recent global economic crisis, the global apparel industry continues to grow at a healthy rate and this, coupled with the absence of switching costs for consumers and great product differentiation, means that rivalry within the industry is no more than moderate. The apparel industry has a great importance to the economies of Asia and Southern Asia in terms of trade, employment, investment and revenue. This particular industry has short product life cycles, vast product differentiation and is characterized by great pace of demand change coupled with rather long and inflexible supply processes.

The global apparel industry - encompassing clothing, textiles, footwear and luxury goods - reached approximately $2,560 trillion in 2010. The apparel, luxury goods and accessories portion of the market, which accounts for over 55% of the overall market, is expected to generate $3,180 billion in 2015, with a yearly growth rate in excess of 4%.

In view of the relation of factor and international competitive advantage, the development of the textile industry is still determined by labor costs and technological Up gradation. In comparison, the RMG industry is labor intensive while the textile industry, particularly in the chemical fiber sector, capital and technology are becoming more and more important.

In that line, China’s textile industry shows apparent economies of scale and cost effects in material supply, labor costs, product qualities, compatibility between up and down stream, which contribute to its vigorous export competitive advantage. On the other hand, other competitor countries like India, Vietnam, Bangladesh, Pakistan and Sri Lanka are also persistently investing new technologies into their textile and Apparel industries; with the advantage of cheap labor will lead the productivity improvement.

Before the MFA Phase out most of the countries in the world are protecting their textile and Apparel sector by using the Quota facilities of Developed countries and also protect their domestic industry by imposing higher tariff rate on import of Apparel. But after MFA phase out in 2014 and the introduction of free trade practices in different countries, textile and apparel industries of those countries started to face different types of international competition in the production and export of apparel. As a result, most of the government started to provide several incentives to their Textile and Apparel industries to protect & enhance their competitiveness in the long term to cope with prevailing hard competition.

Here in this Chapter, we will discuss about the textile policy adopted by the competitor countries for the development of textile and apparel sector and also the incentives provided by their government according to the collected information from different websites and papers. And hereby review of the current status of Bangladesh in the context of those countries.

ChinaTextile and Apparel industry is one of the traditional pillars of the Chinese economy. In 2013, apparel sector’s contribution in the export was 165.08 billion US dollar which was increased by more than 132.67 billion dollar than 2001. This sector has also a direct contribution to the livelihood of 100 million cotton farmers. The share of Chinese apparel sector in the world clothing busi-ness has increased to 38.57% from 17.54% within the period 2001 to 2013.


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Textile and Apparel industry is one of the traditional pillars of the Chinese economy. In 2013, apparel sector’s contribution in the export was 165.08 billion US dollar which was increased by more than 132.67 billion dollar than 2001. This sector has also a direct contribution to the livelihood of 100 million cotton farmers. The share of Chinese apparel sector in the world clothing business has increased to 38.57% from 17.54% within the period 2001 to 2013.

In present, a Textile and Apparel industry of China is also playing an important role in the national economy. It is the largest producer and exporter of clothing in world market. In 2013, the output value of the apparel industry accounted for 4.63% of China’s GDP. Both the exports of Chinese textiles and garments comprehensively increased and the export amounts were separately USD 94.71 billion and USD 153.24 billion, respectively increasing by 22.9 % and 18.4%. The growth rate of garment export lagged behind that of textiles (Research Report on China's Textile Industry, 2012).

In the late 1990s, the central government launched a massive campaign to restructure the industry and reform unprofitable and debt-ridden state-owned enterprises (SOEs). Major modernization and restructuring of the industry took place between 1997 and 2000, presumably in anticipation of China's accession

to the WTO and the expiry of ATC quotas. About 30 billion US dollar valued modern textile machineries has been imported within this period and at the same time, central government provided different support to the certain State owned Enterprise (SOE) that were running at a loss. About Y 1.6 billion and Y 1.5 billion were provided as assistance to those SOE in the form of grants or tax forgiveness.

Present status of China in World Apparel Market in 2013 in terms of Knitwear and Woven Export

Figure 2: RMG market share of competitive countries

Source: Compiled by iART from ITC Trade Map


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At the end of the 10th development planning, the following 11th planning urge to the development of the technique of industry. In this period, about 18.9 billion US dollar valued machinery has been imported which was accounted about 50% of the total capital investment. Meanwhile, domestic textile machinery manufacturing capacity also expanded significantly.

Development Goals:

In The 11th Five-Year (2006-2010) Guideline for National Economic and Social Development, “Optimizing And Upgrading Industrial Structure” is laid out as a development focus. Under this overriding principle for industrial development, one of the priorities of the Guideline is to increase the value-added in the textile industry, specifically:

To strengthen the technological capability of the textile industry and increase the number of Chinese-owned brand names; to develop high-tech, high-performance, differential, and environmental-friendly fibers and renewable fibers, and to enhance the development and utilization of textiles for industry-use, silk and non-cotton natural fibers; to advance the gradient shift of the textile industry.

A set of planning envisaged as follows:

1. To significantly enhance the independent innovation capacity of the textiles industry, develop influential technologies with intellectual property rights ownership and foster well-known global brand names;

2. To optimize the industrial structure and upgrade technologies and equipment; and 3. To effectively control inefficient low-level manufacturing which consumes

excessive amounts of energy and is not environmentally-friendly.

Some policy supports were also given to achieve the goal of such development planning. Major policy supports are –

1. To allocate special funds from the state fiscal budget to support the development of key equipment and technologies.

2. To use tax incentives to encourage R&D spending and technological innovation of textile companies.

3. To introduce the policy of increasing the magnitude of tax deductions for advertising expenses.

4. To aid the brand development and overseas investment of domestic textile companies, rendering support in the establishment of overseas manufacturing facilities, R&D centers, logistics and distribution centers, and the application for international certificates and registration of trademarks.

5. To implement preferential tax policies for the import of key spare parts and raw materials required for the manufacturing of textile machinery.

6. To encourage the procurement of major domestically-produced equipment.


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In accordance with government development goals and policy support guidelines, the central government has implemented many concrete programs and policies to subsidize textile companies and the textiles industry. The subsidies take the form of government grants and tax incentives, and include those available nationwide and those provided to selected regions.

Grants from Central Government:

Go Global Special Fund: A special fund announced to support the “Go Global” project and to restructure the Textile industry and to expand Chinese owned enterprise globally. The State Development and Reform Commission, and the Ministry of Commerce, authorized the allocation of a special government fund to support technology innovation and restructuring in the textiles industry and overseas investment by textile companies. The initial scale of the fund was about RMB 1.35 billion, with RMB 560 million dedicated to projects related to technology innovation and restructuring and RMB 800 million for the “going global” operation. More specifically, the fund is utilized as follows:

To support technology innovation and restructuring in the textile industry and facilitate the shift to the new growth mode in foreign trade.

To provide loan interest subsidies for the establishment of overseas textile industrial parks, providing a favorable environment for textile companies in the course of “going global.”

To support textile companies in “going global” through overseas investment involving R&D, consulting services, feasibility study and project evaluation, and intellectual property rights protection and diversifying their products origin through overseas manufacturing.

The following table presents the detailed standards for the provision of subsidies under this program. The amount of subsidies is specified on a single project basis.

Table 5: Provision of Subsidies for Textile Companies Grants from Central Government

End-uses Amount of subsidies Recipients

Leasing or purchasing and construction of manufacturing facilities in overseas investment

A grant of up to RMB 1 million

Textile companies

Insurance for overseas investment projects 50% subsidy on premium

Textile companies

Leasing office space for R&D activities, hiring designers, and purchasing relevant materials in overseas operations


Textile companies

Overseas trademarks registration and product certification


Textile companies

Insurance for the overseas marketing and 50% subsidy on Textile companies


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End-uses Amount of subsidies Recipients

sales branches premium Decoration and space leasing for boutique stores opened overseas

A grant of up to RMB 200000

Textile companies

Source:

The amount of the fund for “going global” received by each province was in proportion to the exports and overseas investment of that province.

Trade Promotion Fund: Under the Provisional Measures on the Administration of the Trade Promotion Fund for Agriculture, Light Industry and Textile Products issued by the Ministry of Commerce and the Ministry of Finance in 2005, textile companies that have conducted R&D projects for new products or have been contracted for state or provincial research projects in the past three years, as well as textile industry associations with a membership of not less than 500 that have hosted national or international exhibitions, seminars and trainings in the past three years, are both eligible to receive grants from the fund. In 2006, each project related to the technology service platforms can be subsidized with a grant up to RMB 2 million.

Special Fund for Brand Development: Chinese government encourages the brand development initiative of textile companies. To encourage such endeavor government has launched a series of brand appraisal and brand promotion activities such as the “Ten Thousand Miles March for Brand Building.” Fifty-five textile and apparel brands are listed as the 2005-2006 “Export Brand Names with Priority Support from the Ministry of Commerce”. Twenty-four textile and apparel products were awarded with the title of “The Most Competitive Brand Names” in 2006. Companies owning these brand names can benefit from the Special Fund for Brand Development that the central government has earmarked from the Central Foreign Trade Development Fund.

Pursuant to the Circular on the Administration of the Special Fund for Brand Development, issued by the Ministry of Commerce and the Ministry of Finance in 2006, the fund should serve the following purposes:

To support companies in implementation of brand development programs. To support companies in participation of national and international exhibitions. To support brand promotion activities. To support international exchanges, trainings and seminars related to brand building. To support other public services those facilitate brand building.

For corporate development projects, each project can receive a grant up to RMB 200,000 or 50 percent of the actual expenses required by the project


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Case Study: Utilization of Fund by Fujian Province

Grants for corporate development projects provided to textile and apparel companies with brand names that are awarded with the titles of “Export Brand Names with Priority Support from the Ministry of Commerce” and “The Most Competitive Brand Names”:

To subsidize the exhibition and shipping expenses for major trade fairs organized by the Ministry of Commerce and the provincial government.

To subsidize the expenses for the establishment of R&D centers of export brand names recognized by the provincial government or agencies of a higher level.

To subsidize the certification fees for quality and environmental management systems and the testing fees for product certification.

To subsidize the expenses for the opening of boutique stores and after- sales branches in overseas markets.

To subsidize the expenses for trademark registration and patent application in overseas markets, and the legal expenses for dealing with intellectual property rights infringement cases.

To subsidize the expenses for acquiring foreign well-known brand names. To subsidize the expenses for advertising via major media in domestic and overseas

markets.

Grants for Public Services Projects Provided to Intermediaries and Service Companies:

To subsidize the expenses for promoting and advertising brand names in domestic and international trade fairs and exhibitions.

To subsidize the expenses for coordinating the participation of companies in domestic and international trade fairs.

To subsidize the expenses for preparing and distributing advertising materials. To subsidize the expenses for brand development planning, exchange programs,

seminars, research, and training. To subsidize the expenses for the development and maintenance of export brand

names network that provides information services to companies. To subsidize the expenses for brand appraisal. To subsidize the expenses for other public services that facilitates brand

development.


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Tax Incentives from The Central Government:

The Central Government provides various tax incentives to textiles and apparel companies that are designed to support brand promotion efforts, stimulate technology innovation and encourage both domestic and foreign investment. Major types of benefits include income tax deductions and reductions, and refunds of import tariff and value-added taxes (VAT).

Supportive Incentives for Foreign Investor:

Two years of income tax exemption and three years of 50% reduction for production – oriented FIEs (Foreign-Invested Enterprises) scheduled to operate for not less than ten years from the first profit – making year.

Refund of 40% of income tax paid on reinvestment for increasing the registered capital of the existing enterprise or establishing other enterprises, to operate for not less than five years.

Full refund of the income tax paid on the reinvestment in China for the organization and expansion of export-oriented enterprises or advanced-technology enterprises.

Reduced income tax rate of 10% for the royalty received for the supply of technical know-how in scientific research and the development of important technologies.

Foreign-Invested Enterprises can avail an income tax rate reduced by half after the expiration of tax exemption and reduction if they export 70% of the output. If these enterprises situated in the special economic zone or economic and high-tech zone then they can enjoy 10 % income tax where others faces 15 % rate of income tax.

Support Programs of Provincial or Local Government:

Provincial governments promulgated many supportive incentives to the development of Textile sector which was different from province to province. Some notable incentives were:

Monetary Awards to Textile & Apparel Export:

Many local governments provide monetary incentives to boost textiles and apparel exports and encourage brand building.

Ningbo City of Zhejiang Province Under the Measures on Awarding Brand Name Textile and Apparel Exports issued in 1999, exporters of textile and apparel products with trademarks registered overseas and annual exports of over

USD $200,000 can receive, an award of RMB 0.03 for every U.S. dollar of textile exports and an award of RMB 0.05 for every U.S. dollar of apparel exports.

Hangzhou City of Zhejiang Province has a slightly different subsidy mechanism. Pursuant to the Notice on Applying for the Awards for Brand Name Textile and Apparel Exports in 2004, benefits are extended to exporters on the basis of the total amount of exports. The standards are as follows:


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Table 6: Subsidy Standard for the Brand Development of Textile & Apparel

Exports in 2004 (in USD)

Amount of the Award (in RMB)

1-5 million 10,000

5-10 million 30,000

10-50 million 60,000

Over 50 million 100,000 Moreover the Local Govt. also Provided Different Types of Facilities. Such as:

Tax benefits: local income taxes can be refunded to the enterprises in full within 5 years; enterprises with annual VAT payments above RMB 1 million and sales taxes of RMB 500,000 may receive a 20 percent refund of the portion of the tax allocated to the industrial park.

Preferential treatment in land use: Land was given to high-tech enterprise as well as to the textile and apparel enterprises at low price through the subsidy program by the local government. Also enterprises with a fixed asset investment of above RMB 10 million and annual tax payments of RMB 1 million can receive a waiver of the land leasing fee for 20 years.

Different types of export incentives were given to the exporters based on the Chinese brand name. For instance, RMB 100000 was given to the 1st ten exporters as cash incentives in the Zhejiang province. Some of the province also gave cash incentives on the extra per dollar export above a certain threshold.

Tax Exemption:

Income tax reduction was available to the foreign invested enterprises for the purchase of Chinese-produced equipment if the enterprise purchased domestically produced equipment about 40% of the cost.

Tax Refund:

Income tax refund available to foreign-invested companies that reinvest profits in certain qualified projects in China.

Import Tariff:

Machinery:

To encourage foreign investment and to introduce foreign advanced equipment govt. kept provision of VAT and Tariff Exemptions for FIEs Using Imported Technology and Equipment in Encouraged Industries.


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100% Export oriented foreign invested Enterprises (FIE) that are fully accredited by the State can avail the exemption of import tariff and VAT on the purchase of equipment for their own use.

Raw-materials:

Government of China has imposed at most 40% tariff duty for the Most Favored Nation (MFN) and at most 125% rate of tariff duty for the Non-MFN on the import of cotton to keep its domestic production level of cotton.

Facilities and Incentives for the Investors:

Government also provided some other facilities and incentives to the investors. Those facilities and incentives are following:

Enterprises whose annual exports exceeding USD $200 million in value and that meet certain other conditions related to foreign exchange and export receipt verification forms may receive up to a 10% reduction in lending rates of RMB loans extended by commercial banks based on the lending rates fixed by the People's Bank of China.

Low-cost export credit was provided to the enterprises by the bank for global market access which was 5 billion Yuan and since then it saved about RMB 150 million interests.

Export credits offered by China Development Bank to support sectors considered to be essential to China’s long-term competitiveness and

specifically for companies engaging in R&D, Chinese brand name companies, and certain companies in overseas expansion.

Export Processing Zone:

Government has taken a stratified tax system for the enterprises. Foreign Invested Enterprises who are established in Special Economic Zone can avail the following reduced rate of income tax.

Companies located in Shenzhen, Zhuhai, Shantou, Xiamen and Hainan Special Economic zone can enjoy the 15 % reduced income tax rate.

Companies located in outside of the Special Economic Zone or in the old city of the district where special zone situated have to pay at the rate of 24% of income tax.

Others Measurement:

China artificially kept the value of Renminbi low to hold the job market and export during the Chinese currency’s appreciation. Such exercise of engaging in illegal competitive currency devaluation has been questioned by the USA.


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12th Five Year Plan:

Following the 11th Five year plan, Govt. of China issued the National Economic and Social Development 12th Five Year Plan (the “12th Five Year Plan”), covering 2011-2015 in March 2012. Ministry of industry and Information Technology has announced Textiles second five-year planning along with the National planning to promote the textile industry stronger . With the line of 11th FYP, 12th FYP also provided some specific subsidies like preferred financing, tax breaks, subsidized electricity and utility fees, free or subsidized land, etc. may be made available to SEIs by local governments. However, there are five general areas for industrial development in textiles and apparels with respect to industrial growth, structural improvements, innovation, establishment of brand-name recognition, and energy conservation and pollution reduction.

Growth Targets: The plan calls for annual increases of 8% in added value by large-scale enterprises. Total exports by the textile industry should reach US$ 300 billion, increasing annually by 7.5%. The total volume of value-added fibers should reach 51.5 million metric tons, increasing annually by 4.5%. The entire industry should continue to employ around 20 million people.

Structural Improvements: The plan calls for development of new products; increased textile manufacturing in central and western China reaching 28% of total output; increased concentration of synthetic fibers industries; and twenty enterprises with annual output in excess of RMB 10 million.

Innovation: The plan calls for annual increases in employment at major firms by 10%; expenditures on R&D at amounts in excess of 1% of income from companies’ core business; and focus on R&D in textile equipment and techniques in cotton textiles, synthetic fibers, and apparel. As a subsidized program, China initiated State Special Fund for promoting innovation technologies and also established a R&D fund for industrial technologies but the initial amount of fund’s information is unavailable.

Brand Names: The plan calls for the development of 5 to 10 brand names with international recognition, and 100 trademarks that become famous domestically. There should be 50 enterprises with well-known brand names with annual sales revenues in excess of RMB 10 million, and 25% of this amount should be from exports.

Energy Conservation and Pollution Control: The plan envisions reduction in energy consumption by 20% across the industry as compared to 2010; reduction in carbon dioxide emissions by 20% as compared to 2010; reduction in the intensity of water usage per unit of value added by 30% as compared with 2010; and reduction of emissions of major pollutants of 10% as compared with 2010. The plan also calls for greater recycling of textile fibers on the order of 8 million metric tons.


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Other initiative:

In 2012, the People's Bank of China (PBC) made efforts to enhance coordination between credit policy and industrial policies by promoting the balanced development of the economy, speeding up the innovation of rural financial products and services and improving financial services for SMEs. Financial institutions were encouraged to use flexible credit products so as to enhance support for export-oriented enterprises. In line with the principle of "differential treatment for different industries", financial institutions were guided to increase "green" credit.

Case Study on the Significance of Govt. Subsidies Received at the Enterprise Level:

The following is a review of the subsidy amounts received by six major Chinese textiles and apparel companies between 1999 and 2006 based on information disclosed in their annual reports. For these companies, the average ratio of subsidies, including VAT export rebates in some cases, calculated by comparing the total amount of subsidies actually received with the total sales revenue, ranges from 2.01 percent to 0.12 percent. The weighted-average ratio of subsidies for these six companies is 0.8753 percent.

1. Youngor Group Company, Ltd.

Youngor Group Company, Ltd. is the leading company in China’s textiles and apparel industry. It ranks first in the industry with regard to both sales revenue and net profits in 6 years (2001-07). Its men’s suits, marketed under the Youngor brand, have had the largest market share since 1994. The company’s principal business includes garment manufacturing, textiles production, and accounting for 41 percent, and 32 percent respectively of the company’s revenue. The company is also a large textiles and apparel exporter.In 2006, 27 percent of its revenue stemmed from sales in foreign markets

Table 7: Youngor Group Company Ltd Subsidies as Percentage of Revenue: 1999 to 2006 Year Subsidy (RMB) Revenue (RMB) Subsidies as % of Revenue

2006 50,367,519.40 5,975,663,895.34 0.84288

2005 81,007,176.20 4,628,151,622.29 1.75031

2004 85,282,253.91 4,155,210,902.92 2.05242

2003 82,469,252.68 2,703,068,207.91 3.05095

2002 82,594,331.83 4,155,210,902.92 1.98773

2001 64,900,933.29 2,703,068,207.91 2.40101

2000 55,491,875.50 1,437,739,642.57 3.85966

1999 35,593,090.73 1,040,912,020.47 3.41941

TOTAL 537,706,433.54 26,799,025,402.33 2.00644 Source: Youngor Group annual reports 1999-2006


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2.Ningbo Shanshan Company, Ltd.

Ningbo Shanshan Company, Ltd. ranks fifth in China’s apparel industry in terms of sales revenue. The company is principally engaged in the manufacture and sale of garments and chemical materials used in batteries.The company’s brand name “Shanshan” has been certified by various authorities as a “famous brand.” Its suit products, marketed under the Shanshan brand, have the second largest market share.Its stock is listed on Shanghai Stock Exchange.

Table 8: Ningbo Shanshan Company Ltd, Subsidies as Percentage of Revenue: 1999 to 2006

Year Subsidy (RMB)

Revenue (RMB)

Subsidies as % of Revenue

2006 13,777,485.95 1,543,823,311.15 0.89243 2005 12,234,422.33 1,241,371,633.48 0.98556 2004 13,136,004.64 1,000,739,388.05 1.31263 2003 18,039,512.91 860,404,079.46 2.09663 2002 9,454,147.89 894,813,987.06 1.05655 2001 18,501,312.76 730,459,982.81 2.53283 2000 16,138,231.22 807,048,429.71 1.99966 1999 11,609,262.16 782,382,081.00 1.48384

TOTAL 112,890,379.86 7,861,042,892.72 1.43607 Source: Ningbo Shanshan Co., Ltd., annual reports for 1999-2006

To accomplish these goals, the plan sets forth fiscal and tax policies to assist with implementation by creating favorable market conditions for the textile industry, developing industry standards, and guaranteeing the availability of raw materials. Such fiscal policies include special funds for national and provincial technological innovation plans; high technology industrial development funds; and enterprise innovation construction project funds to promote the construction of textile innovation services centers and the use of new equipment.

The plan provides that the GOC should adopt policies to help companies obtain financing through bonds and short term debt instruments, among others. Additional policies should include the rebate of VAT upon export and support for companies expanding overseas in order to secure raw materials. The import quota for cotton should be modified as appropriate infrastructure should be built to service production bases for cotton, wool and hemp, and chemical facilities should be built to provide raw materials for synthetic fibers.

IndiaIndia’s textile and clothing sector is one of the pillar industries of the national Economy which play a significant role in India’s exports worldwide. India’s textile industry contributes about 14 per cent to industrial production; 4 per cent to the country’s gross domestic product (GDP); 12 per cent to its export earnings; and is a source of direct employment for over 45 million people and 60 million people indirectly. Abundant raw materials, healthy foreign direct investments (FDI) and a government willing to invest ensures a bright future for India’s textile sector.


India’s textile and clothing sector is one of the pillar industries of the national Economy which play a significant role in India’s exports worldwide. India’s textile industry contributes about 14 per cent to industrial production; 4 per cent to the country’s gross domestic product (GDP); 12 per cent to its export earnings; and is a source of direct employment for over 45 million people and 60 million people indirectly. Abundant raw materials, healthy foreign direct investments (FDI) and a government willing to invest ensures a bright future for India’s textile sector.1

After the ending of exports quota regime in 2004, the Textile and clothing products from India have increased steadily over last few years. In the year 2005-06 Textiles & Clothing (T&C) exports recorded a robust growth of 25% which was US$ 3.5 billion in value terms and reaching a level of US$ 17.52 billion. The growth continued in 2006-07 and 2007-08 with T&C exports of respectively US$19.15 billion and USD 22.15 billion but declined by over 5% in 2008-09.After that the growth again started to rise gradually.2 In 2014-15, the growth rate of domestic garment market will be 10 to 12 per cent, while the growth rate of export market would be 18 to 20 per cent.3 The total value of export (US$ Million) and export growth of textile and clothing industry is shown in the table below -

Table 9 : India’s Textile Exports at a Glance (Principal items) Item 2010-11 2011-12 2012-13 2013-14* Variation from

2012-13 to 2013-14*

US$ Mn US$ Mn US$ Mn US$ Mn US$

Readymade Garment 11026.48 13094.62 12398.1 14385.84 16%

Cotton Textiles 8701.83 11139.28 11272.29 12509.8 11%

Man-made textiles 4706.67 5658.01 5045.7 5693.89 13% Wool & Woolen textiles 441.18 501.23 415.35 423.59 2%

Silk 631.04 475.67 403.63 397.49 -2%

Handloom Product 345.55 551.94 515.31 370.15 -28%

Total Textile & Clothing 27508.9 32945.16 31625.15 35425.97 12% Total T&C including Handicrafts 27508.90 32945.16 34930.05 39310.88 13%

% Textile Exports 10.95% 10.77% 11.63% 12.58% 0.95%

India's overall exports 251136.19 305963.92 300400.68 312610.3 4.06% Source: Note on Textiles & Clothing Exports of India, Ministry of Textile

In the year 2012-13, the growth of textile export faced a negative growth rate i.e. 4.82 %. This was because of the volatility in the large market during that period. As textile export is one of the major sources of employment, so the Ministry of Textiles took necessary steps to reverse the trend of declining export through multi-pronged strategy.

Central government and provincial government collaboratively play an important role to promote the textile and clothing industry of India. For this purpose, the Government’s role

1,2Note on Textiles & Clothing Exports of India, Ministry of Textile 3http://economictimes.indiatimes.com

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extends to a range of activities such as price support to cotton and jute, incentives for investments in technology up-gradation and modernization, setting up of world class Integrated Textile Parks, implementation of Technology Mission on Cotton, Jute and Technical Textiles, development of mega clusters for power looms, handlooms and handicrafts, development of handlooms, handicrafts, sericulture and wool sub-sectors by implementing a number of schemes, implementation of welfare schemes for handloom weavers and handicrafts artisans and promoting skill development of textile workers in collaboration with the industry. The Government is also providing a number of incentives for export of textile products. A large network of Government Offices, public sector enterprises, textile research associations, textile design and education institutions such as National Institute of Fashion Technology (NIFT), Sardar Valla bhai Patel International Institute of Textile Management, various textile industry associations, Export Promotion Councils etc. provide a robust institutional framework for the development of the textile sector.

Keeping in view the various changes in the textile industry on the domestic and international fronts and the need for a road map for the textile & apparel industry, Ministry of Textiles had initiated the process of reviewing the National Textile Policy, 2000. The new National Textiles Policy for 2024, which aims to achieve $300 billion exports by 2024-25 and envisages creation of additional 35 million jobs, is going to be announced soon.4

The previous Strategic Plan (2011-12 – 2015-16) of the Ministry of Textiles was prepared with a view to achieving a number of strategic development goals and objectives for the textile sector set by the Ministry of Textiles in consultation with the stakeholders.

Vision of the Strategic Plan:

To build state of the art production capacities and achieve a pre-eminent global standing by 2020in manufacture and export of all types of textiles including technical textiles, jute, silk and wool and develop a vibrant handloom and handicraft sector for sustainable economic development and promoting and preserving the age old cultural heritage in these sectors. In case of Cotton production, the govt. of India has set up a vision to increase the current production of Cotton 500 kg/acar to 750kg/acar, which will lead India as the world largest cotton producing countries. Previously the production of Cotton was on 250kg/acar.

Mission of the Strategic Plan (2011-15):

The missions of the strategic Plan (2011-15) for textile sector are as follows:

1. To promote planned and harmonious growth of textiles by making available adequate fibers to all sectors.

2. To promote technological up-gradation for all types of textiles including technical textiles, jute, silk and wool.

4http://economictimes.indiatimes.com


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3. To promote skills of all textile workers, handloom weavers and handcrafts artisans, and creation of new employment opportunities and development of new designs to make these sectors economically sustainable.

4. To ensure proper working environment and easy access to health care facilities and insurance coverage to weavers and artisans to achieve better quality of life.

5. To promote exports of all types of textiles and handicrafts and increase India’s share of world exports in these sectors.

Objectives of the Strategic Plan:

The core objectives of the Strategic Plan (2011-2015) are to have sustainable growth and development of Textiles Sector in the country through:

Overall capacity addition in the Textile Industry to be increased by 10% per year. Aim at overall fiber production growth rate of seven percent per year. Achieve overall cloth production growth rate of 9% per year Achieve textiles and apparel manufacturing growth rate 10% per year To achieve textiles and apparel export growth rate of 15% per year.

Other Objectives:

Along with these Core objectives the Strategic Plan also includes so of the other specific objective as follows:

1. To improve productivity across the entire textiles value chain. 2. To achieve inclusive growth by improving productivity in handlooms, handicrafts and

sericulture and by ensuring welfare of weavers and handicrafts artisans. 3. To develop Sericulture & Silk Sector

Raw silk production targeted to grow at an annual average rate of 4.5% during 2010-15

4. To promote Growth and Development of technical textiles in India. Production of technical textiles to grow at 11% per year till 2012-13 and

thereafter at 6-8% per year till 2020 5. To develop Wool & Woollen Textiles Sector. Wool production to grow 1% per year 6. To develop and modernize the decentralized Power looms Sector. Power loom cloth

production targeted to grow at 10% per year. 7. To develop handloom sector and ensure welfare of weavers. Handloom cloth

production projected to grow at an annual average rate of 5%. 8. To ensure efficient functioning of the RFD System. 9. To improve internal efficiency/ responsiveness/ service delivery of Ministry.


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Initiative of Indian Government for Expansion of Textile sector:

The govt. of India continually supports the textile industry through different foreign trade policy and other related policy to develop and increase the market share of Indian textile sector across worldwide. After the MFA phase out, the govt. of India has taken several initiatives for the expansion of the textile and Clothing sector of India. In 2004-05, the govt. of India had launched a program of providing long term loan facilities at 4% interest rate for the import of Capital machineries for the Textile and Clothing industries. After that the Central and State govt. of India has providing several incentives, favorable policy, fiscal and Monetary benefit for the textile sector of India.

Make in India:

In recent 2015-16 budget, government of India has launched a major new national program called “Make in India”. It is designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best-in-class manufacturing infrastructure.5Under this program the proposed policies for textile industry are –

FDI Policy:

100% FDI is allowed under the automatic route in the textile sector; investment is subject to all applicable regulations and laws.

Sector Policy:

Technology Up gradation Fund Scheme has infused investment of more than INR 2500 Billion in the industry. Support has been provided for modernization and up gradation by providing credit at reduced rates and capital subsidies.

Scheme for Integrated Textile Parks provides world class infrastructure to new textile units. To date, 57 Textile Parks have been sanctioned with an investment of INR 60 Billion. By 2017, 25 more Textile Parks are to be sanctioned.

Integrated Processing Development Scheme for sanctioning processing parks has been initiated. INR 5 Billion has been earmarked for this scheme.

Integrated Skill Development Scheme has provided training to 1.5 Million people to cover all sub-sectors of textiles such as Textile and Apparel, Handicrafts, Handlooms, Jute and Sericulture.

Financial Support:

To provide full financial support to this program, the following allocation is proposed in budget 2015 -16 for textile industry. The Outlay for Ministry of Textiles is of 3523.32 crore Rupee including 352.33 crore Rupee for NER (North Eastern Region), 176.17 crore Rupee

5http://www.makeinindia.com/sector/textiles-garments/


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for SCSP (Scheduled Caste Sub Plan) and 42.28 crore Rupee for TSP (Tribal Sub-Plan)). This is mainly for Technological Up-gradation, Human Resource Development, and Special Economic Zone etc.

Table 10: Financial Allocation for the Textile and Apparel Sector

Scheme Allocation in crore Rupee

Technology Up gradation Fund Scheme 1520.79

Human Resource Development 201.00

Integrated Textiles Parks 240.00

Usage of Geo Textiles North Eastern Region 85.00

NER Textile Promotion Scheme 157.00

National Handloom Development Program 150.00

Catalytic Development Program 150.00

Handloom Weavers Comprehensive Welfare Scheme 20.00

Yarn Supply Scheme/Mill Gate Price Scheme 150.00

Trade Facilitation Centre &Craft Museum 80.00 Source: Expenditure budget Vol.I , 2015 -16

This allocation is very much consistent with previous budget allocation and provision.

Key Provisions of Budget 2O14-15 Regarding Textile Sector:

Allocation of INR 500 Million towards the setting up of a trade facilitation centre and a crafts museum to develop and promote handloom products and carry forward the rich tradition of the handlooms of Varanasi.

Allocation of INR 2000 Million towards the proposed setting up of mega textile clusters at Bareilly, Lucknow, Surat, Kuttch, Bhagalpur and Mysore and one in Tamil Nadu.

The duty-free entitlement for import of trimmings and embellishments used by the readymade textile garment sector for manufacture of garments for exports is being increased from 3% to 5%.

Fusible embroidery motifs or prints, anti-theft devices, pin bullets for packing, plastic tag bullets, metal tabs, bows, ring and slider hand rings are being included in the list of items eligible to be imported duty-free for manufacture of handloom made ups or cotton made ups or manmade made ups for export.


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Specified goods imported for use in the manufacture of textile garments for export are fully exempt from Basic Customs Duty (BCD) and Countervailing Duty (CVD) subject to conditions that the manufacturer produces an entitlement certificate from the Apparel Export Promotion Council or from the Indian Silk Export Promotion Council.

Basic Customs Duty (BCD) on raw materials for manufacture of spandex yarn viz. polytetramethylene ether glycol and diphenylmethane 4,4 di-isocyanate is being reduced from 5% to NIL.

Any of the Following Two Deductions can be Availed:

1. Investment allowance (additional depreciation) at the rate of 15% to manufacturing companies that invest more than INR 1 Billion in plant and machinery acquired and installed between 01.04.2013 and 31.03.2015, provided the aggregate amount of investment in new plant and machinery during the said period exceeds INR 1 Billion.

2. In order to provide a fillip to companies engaged in manufacturing, the said benefit of additional deduction of 15% of the cost of new plant and machinery, exceeding INR 250 Million, acquired and installed during any previous year, until 31.03.2017.

Tax Incentives:

R&D Incentives: Industry/private-sponsored research programs will be considered for the tax incentives. Research and Development activities under Tax incentives may include:

A weighted tax deduction is given under Section 35 (2AA) of the Income Tax Act.

A weighted deduction of 200% is granted to assess for any sums paid to a national laboratory, university or institute of technology, or specified persons with a specific direction that the said sum would be used for scientific research within a program approved by the prescribed authority.

Companies Engaged in Manufacture having an In-House R&D Center:

A weighted tax deduction of 200% under Section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure incurred on scientific research and development.

Export Incentives:

1) Export Promotion of Capital Goods Scheme (EPCG): EPCG scheme was introduced in order to enable manufacturer exporter to import machinery and other capital goods for export production at concessional or no custom duties at all. Facility is subject to export obligation, i.e., the exporter is required to guarantees exports of certain minimum value.

EPCG allows of capital goods for production at 5% custom duty subject to an export obligation equivalent to 8 times of duty saved on capital goods imported under EPCG scheme to be fulfilled over a period of 8 years reckoned from date of issue of license.


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Under the EPCG scheme capital goods may be imported at a concessional rate of customs duty of 25% of CIF value with an export obligation of 3 times CIF value to be achieved within 4 years. The duty will be further reduced to 15% of CIF value where the export obligation undertaken is 4 times the CIF value within a period of 5 years.6

2. Duty Remission Schemes:

The Duty Remission Schemes includes -

i) Duty Drawback Scheme:

Various schemes like EOU (Export Oriented Units), SEZ (Special Economic Zones), DEEC (Duty Exemption Entitlement Certificate), manufacture under bond, etc., are available to obtain inputs without payment of customs duty/excise duty or obtain refund of duty paid on inputs. In case of Central Excise, manufacturers can avail Cenvat credit of duty paid on inputs and utilize the same for payment of duty on other goods sold in India, or they can obtain refund. Schemes like manufacture under bond are also available for customs. Manufacturers or processors who are unable to avail any of these schemes can avail ‘duty drawback’.

ii) Duty Entitlement Passbook Scheme:

The Duty Entitlement Passbook Scheme (DEPB) is devised for those exporters who wish to avail the facility of importing various inputs and other approved items under DEPB scheme on post-export basis. As such, this scheme operates in a procedure exactly opposite to that of Advance Authorization Scheme, which allows imports prior to exports.7

3. Focus Product Scheme, Special Focus Product Scheme, Focus Market Scheme:.

Focus product scheme and special focus product scheme was introduced and was in operation in 11th September, 2014 under the guidance of Foreign Trade Policy with annual supplements later. The exporters are entitled to avail duty credit Scrip of 2%, 5% and additional 2% depends up on nature of exports with volume.

Focus market scheme provide Duty credit scrip equivalent to 3% of FOB value of exports in free foreign exchange to the exporters of all products to several countries.

Under Special Focus Market Scheme, if an exporter effects shipment to mentioned 41 countries, duty credit would be 4%.8

Area-Based Incentives:

Govt. of India providing several incentives for units in SEZ (Special Economic Zone)/NIMZ (National Investment & Manufacturing Zones) as specified in respective acts or the setting up of projects in special areas such as the North-east, Jammu & Kashmir, Himachal Pradesh & Uttarakhand.

6http://www.yourarticlelibrary.com/ 7http://www.yourarticlelibrary.com/ 8http://howtoexportimport.com/


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Long Term Vision for Textile & Clothing Sector:

The govt. of India has taken several long term plans to provide Incentives, supports and provision for the development of the Textile and Clothing industry of India. The budget allocation on various schemes, initiatives and promotions by the Government of India over the years are as follows –

Table 11: Budget Allocation on Various Schemes, Initiatives and Promotions Allocation of budget (In crores of Rupees)

Schemes 2013-14 2014-15 2015-16 Technology Up-gradation Fund Scheme(TUFS) 1730.59 1864.02 1520.79

Scheme for Integrated Textile Parks 110.98 105.00 240.00 Human Research Development or Integrated Skill Development Scheme (ISDS) 99.52 181.00 201.00

Integrated Processing Development Scheme(SPP) ... 16.00 50.00

Source: The Budget allocations 2015-16, Ministry of Textile

Along with these sectors some other sectors which got the priorities in the budget allocation of 2015-16 are as follows:

Table 12: Prioritiesd Sectors in the Budget Allocation of 2015-16 for the Development of the Textile and Clothing Industry of India

Allocation of budget (In crores of Rupees)

Schemes 2013-14 2014-15 2015-16

Grants to National Institute of Fashion Technology 17.87 66.50 65.50

Research and Development 3.73 12.00 40.00

Technical Textiles (TMTT) 22.57 32.00 25.00

Welfare scheme (Handloom Weavers Comprehensive Welfare Scheme)

66.00 27.50 15.00

Textiles Labor Rehabilitation Scheme 5.00 2.78 3.00

Source: The Budget allocations 2015-16, Ministry of Textile

Grants to Textile Sector: Indian government is pushing the limits of their textile industry through diversifying products and producing fashion products. They are allocating huge fund for National Institute of Fashion Technology and Research & Development to serve this purpose.


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Technical textiles are textile products which support a vast array of other industries like geo-textile (reinforcement of embankments), agro-textile (textile for crop protection), medical textile (implants) etc. India is working on this sector as a part of product diversification. Welfare Scheme and Textiles Labor Rehabilitation Scheme: Health insurance coverage and life insurance coverage to 161.10 million weavers and ancillary workers has been offered by the Government of India under the Handloom Weavers’s Comprehensive Welfare Scheme, while 733,000 artisans were provided health coverage under the Rajiv Gandhi Shilpi Swasthaya BimaYojna.

E-Marketing: The Central Cottage Industries Corporation of India (CCIC), and the Handicrafts and Handlooms Export Corporation of India (HHEC) have developed a number of e-marketing platforms to simplify marketing issues. Also, a number of marketing initiatives have been taken up to promote niche handloom and handicraft products with the help of 600 events all over the country.

Credit Linkage: As per the Credit Guarantee program, over 25000 Artisan Credit Cards have been supplied to artisans, and 16.50 million additional applications for issuing up credit cards have been forwarded to banks for further consideration with regards to the Credit Linkage scheme.

Financial Package for Waiver of Overdue: The Government of India has announced a package of US$ 604.56 million to waive of overdue loans in the handloom sector. This also includes the waiver of overdue loans and interest till 31st March, 2010, for loans disbursed to handloom sector. This is expected to benefit at least 300000 handloom weavers of the industry and 15000 cooperative societies. Other Provision:

In 2013-14, a fund of Rs. 96 crore proposed to allocate in purpose for interest subvention provides capital and term loans at a concessional interest of 6 percent to the handloom sector which is belongs to backward class specially women. .

Recent Measure:

2% Interest Subvention Scheme on rupee export credit is available to certain specific export sectors. These are (i) Handicrafts, (ii) Carpets, (iii) Handloom, (iv) Ready Made Garments, (v) Processed Agriculture Products, (vi) Sports Goods and (vii) Toys. In addition Small and Medium Enterprises (SME) in all sectors enjoy this benefit. The scheme ended on 31st March, 2013. Recently the scheme of 2% interest subvention to these specific sectors extended by one more year, i.e., up to 31st March, 2014. Exporters have demanded that the scheme be restored as it would help them to be more competitive in global market.9

9 http://www.thehindubusinessline.com/economy/exporters-urge-finance-minister-to-extend-interest-subvention-scheme/article6760225.ece


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Introduction of a new scheme to incentivize incremental exports in certain sectors and to certain markets. Under Incremental Export incentive Scheme, Indian exporters who are exporting more than previous period on increment basis to fifty three countries of Latin America and Africa along with USA, EU and Asia will get special benefit.

State Incentives:

Apart from the above, each state in India offers additional incentives for industrial projects. Some of the states also have separate policies for the textiles sector.

Incentives are in areas like subsidized land cost, relaxation in stamp duty exemption on sale/lease of land, power tariff incentives, concessional rates of interest on loans, investment subsidies/tax incentives, backward areas subsidies and special incentive packages for mega projects.

Several states of India, who have huge potential in textile business, are providing several incentive policies –

The Industrial Incentive Policy of Bihar:

Textile sector offers huge potential to the investors. The State has strong weaving traditions. The total number of weavers in the State is over 90,000. The major policy being, the Industrial Incentive Policy, which has been formulated with a view to promote end accelerate balanced industrial growth in the State. The broad objectives of the policy are to:-

Enact Bihar Single Window Clearance Act, with a view to promote all round development of the State and industrial growth rapid clearance procedures for establishing industries, to issue license and certificates, as well as to provide a congenial atmosphere to the investors of Bihar State;

Provide for a comprehensive legislation for designing, financing, construction, operation, maintenance of infrastructure projects, so that administrative and procedural delays are reduced;

Make available provision of self-certification for simplifying the inspection of factories;

Make labor laws simple and development oriented;

Develop human resources so as to promote and create industrialization of high degree;

Meet the requirement of land for industries and development schemes;

Enhance capital investment in the industrial areas and invite the private sector for investment as well as encourage public private partnership for this purpose;

Identify sick units and suggest necessary remedial measures for reviving them;

Develop handicraft, handloom, khadi, silk and village industries in the State; etc.


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The Industrial Policy of Gujarat:

The textiles sector is critical to the State's economic growth as it contributes 23 per cent to the State's Gross Domestic Product. The State accounts for 12 per cent of the total textile exports from the country. It produces about 30 per cent of woven fabric in the country.

The Industrial Policy, which has been formulated to promote sustainable industrial development in the State. The policy aims to achieve global competitiveness for industries in Gujarat and make it one of the most competitive destinations for investment. The objectives of the policy are to:-

Develop the best of infrastructure facilities by infusing private sector investment;

Establish strategic linkages between educational institutions to meet the future requirements of manpower;

Promote industries which are labor-intensive in nature so as to create large-scale employment opportunities in the State;

Strengthen existing industrial clusters and promote new clusters;

Inculcate a sense of quality consciousness by promoting R & D efforts in the industries;

Equip the industries in Gujarat to meet with the challenges of WTO regime;

Establish Gujarat as second to none in terms of ‘quality’ and ‘brand image’ of products, on international platform;

Ensure adequate supply of natural gas available from Gujarat at competitive tariffs to the industrial units in the State;

Rationalize tax regime;

The Industrial Policy of Maharashtra:

Maharashtra has an excellent infrastructure to play a key role in the growth of the textiles industry. It accounts for about 65 million kg of cotton production which is 25% of the country's total. The textile industry of the State holds a strategic importance in the country as it is the single largest employer and contributes around 27% of India's total exports. Besides, the textile parks are being set up in Maharashtra in order to maintain its leadership position in textile exports and production. These Textile Parks are aimed to provide world class infrastructural components for textile sector and enhance its productive capacity.

The most important being, the Industrial Policy, which has been formulated with a view to ensure all-round and sustainable growth of industry in the State, through innovative initiatives for development of key potential sectors. The objectives of the policy are to:-


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(i) building up of quality infrastructure; (ii) incentivizing investments for employment generation in districts low on Human Development Index; (iii) attracting mega investments both foreign and domestic; (iv) commercial exploitation of local resources and local economic potential; (v) strengthening the small and medium sector through promotion of quality competitiveness, research and development and technology up gradation; (vi) streamlining procedures, debottlenecking and creation of hassle free industry friendly environment; (vii) strengthening institutional support, etc.

Along with these facilities, Government of India has signed several MoU (Memorandum of Understanding) with Mauritius, Uzbekistan, Kazakhstan, Tajikistan, Israel, Bangladesh and Australia; and some of the MoUs are under discussions with Sri Lanka, Romania and Belarus to develop textile and clothing sector.

PakistanPakistan is the second largest economy of South Asia. They are the fourth largest producer of cotton in the world. Pakistan is able to perform every step of production including cotton production, cotton ginning, spinning, fabric, processing, made-up and finished garments products. A complete value chain exists in the country itself, which is rare in the world.


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Pakistan is the second largest economy of South Asia. They are the fourth largest producer of cotton in the world. Pakistan is able to perform every step of production including cotton production, cotton ginning, spinning, fabric, processing, made-up and finished garments products. A complete value chain exists in the country itself, which is rare in the world.

Current Scenario of Textile and Apparel Sector:

Textiles is the most important manufacturing sector of Pakistan and has the longest production chain, with inherent potential for value addition at each stage of processing, from cotton to ginning, spinning, fabric, dyeing and finishing, made-ups and garments. The sector contributes nearly one-fourth of industrial value-added, provides employment to about 40% of industrial labor force, consumes about 40% of banking credit to manufacturing sector and accounts for 8% of GDP. Along with these textiles products have maintained an average share of about 54% in national exports.

Export of textile manufactures, which account for an average share of about 55 percent of total exports, registered a growth of 6.5 percent during first ten months of FY 2013-14 (July-march). The textiles sub-sector occupies a pivotal position in Pakistan’s economy, accounting for 8 percent of GDP. It has created 35% of total employment and 46% of manufacturing employment facilities in the economy of Pakistan.

Pakistan is the fourth largest producer and third largest consumer of cotton in the world. In addition, Pakistan is the world’s second largest cotton yarn exporter and third largest cotton cloth manufacturer and exporter. In addition, this sector provides a livelihood to more than 10 million farming families.

Though Textile is one of the major cotton Producer, Consumer & Exporters across the world but Pakistan’s comparative advantage diminishes due to export of low value added textiles products.

So the Government has introduced a comprehensive agenda of reforms which is highly focused on inclusive growth to reinvigorate the economy, spur growth, maintain price stability, provide jobs to the youth and rebuild the key infrastructure of the economy.

Textile Policies of Pakistan:

The share of Pakistani textile and clothing in world trade decreased to 1.81 percent in 2012 while it was 1.94 percent in 2011. In 2013-14, the textile sector experienced 1.44 % growth and contributed only 0.30 % in Local Store Marketing in national level.

In 2009 Pakistan had announced the first ever five year (2009-14) textile policy with 87 billion rupee cash incentive to improve apparel sector and apparel export to 25 billion within 2015. Under this package tax holiday, advance loan in research, loan for long term


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development, and others subsidies for textile sector has announced. The second textile policy was announced in February, 2015 with an aim to further strengthen the textile sector.

Goals Under The Second Textile Policy:

Under the second textile policy (2014-19) the government of Pakistan aims to reach the following goals:

To double value-addition from $1billion per million bales to $2 billion per million bales in five years.

To double textiles exports from $13 billion per annum to $26 billion per annum in next five years.

To facilitate additional investment of $5 billion in machinery and technology. To improve fibers mix in favor of non-cotton i.e. 14% to 30%. To improve product mix especially in the garment sector from 28% to 45%. To strengthen existing textile firms and establish new ones. SME sector will be main focus of attention to enhance growth in value-added products

through support and incentives schemes. Schemes and initiatives will be launched for increasing usage of ICT. The textiles sector will be made domestically and internationally compliant especially

with respect to labor and environment rules and conventions. Textiles units will be encouraged to use modern management practices for improving

efficiency and reducing wastages. Clusters would be systematically developed and existing clusters will be strengthened. Vocational training of workers for capacity building, internships and different

programs for enhancement of skills and higher per capita productivity would be introduced.

Facilitate the creation of 3 million new jobs. Promotion of specialty skills training for professionals and supervisory levels. Adopt measures to increase ease of doing business and reducing cost of doing

business.

Incentives Under the Second Textile Policy (2014-19):

Drawback of Local Taxes and Levies (DLTL):

Draw-back for local taxes and levies would be given to exporters of textiles products on FOB values of their enhanced exports on an incremental basis if increased beyond 10% over previous year’s exports at the following rates: Garments sector will get 4% draw-back on taxes Made ups producers will get 2% draw-back on taxes; and Processed fabric will get 1% draw-back on taxes


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Easy Finance:

Mark up rate for Export Refinance Scheme of State Bank of Pakistan is being reduced from 9.4% to 7.5% from 1st of July 2014.

Textiles industry units in the value added sector would be provided Long Term Financing Facility (LTFF) for up gradation of technology from State Bank of Pakistan at the rate of 9% for 3-10 years duration.

Sales Tax Regime:

An expeditious refund system is being introduced and a fast track channel for manufacturers-cum-exporters is being created, whereby FBR (Federal Board of Revenue) would dispose of all their pending sales tax refund claims within 3 months, if not earlier.

Tariff on Machinery Imports:

Textiles sector enjoyed duty free import of machinery under Textiles Policy 2009-14. This facility (SRO 809) has been extended for another two years.

Vocational Training:

A new vocation training program will be launched through PSDP (Punjab Skill Development Fund) to train sufficient men and women over five years period for skills required in the value added sector such as garments and made ups. This will be done in two phases during the policy period.

According to the budget speech of 2014-15, a new vocation training program will be launched to train 120,000 men and women, over the five year period, for skills required in the textile sector, especially in the value added sector such as garments and made ups. The scheme will have following features; - Total Cost: Rs 4.4 billion - Monthly stipend of Rs.8000 per month - 3 months training program - To be run through TEVTA institutes and textile industry

Product Diversification:

Efforts would be made to widen the production base to include value-added products such as children wear, lingerie, beachwear, leisure wear, technical textiles, geo textiles and medical textiles. For this purpose, collaborations with foreign experts, donor agencies and international universities would be sought and the existing bases at National Textile University, Faisalabad, and Textile Institute of Pakistan, Karachi, would be strengthened.

Government will also establish a Product Development & Innovation Fund.


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Technology Up-gradation Fund Support Scheme:

In the first textile policy for the development of textile sectors “Technology Up gradation Fund” (TUF) have been founded. Under this TUF government will bear up to 50 % cost of interest in newly invested plant and about 5% cost in case of machineries for capital intensive project. At the same time at most 20% of small investment will be allotted from this fund. To meet this goal government have allotted 1.6 billion rupee which is going to be 17 billion in 2014.

SME Development:

One of the weakest links in textiles value chain is unorganized power loom sector which consists of mostly 4 to 32 power looms, classified as cottage industry with unskilled labor force. The Ministry of Textile Industry would adopt three pronged strategy to address this issue.

Mapping, surveys and diagnostic studies of existing clusters for various subsectors including wool, silk, hand looms, embroidery, weaving, knitting and stitching.

Option of opening engineering campuses of recognized universities and/or new universities in mega clusters will also be explored.

Launch an online Business Portal to facilitate sales. Top fifty SMEs each year in exports would be identified and would be facilitated for

organizational restructuring, business development, export marketing, IT usage and infrastructure etc for their growth in exports and to become listed companies.

Cotton:

Model Cotton Trading Houses:

The Ministry will set up Model Cotton Trading Houses in Multan and Sakrand in collaboration with the PCCC (Pakistan Central Cotton Committee), to facilitate farmers, ginners and other stakeholders.

Cotton Regulatory Regime:

Ministry of Textile Industry will purse for enactment of Plant Breeders Right Act as well as amendment in Seed Act and Quarantine to facilitate research, attract new technologies and increase the availability of certified quality seed. Cotton Control Act is also imperative for the development of cotton sector.

Pakistan Central Cotton Committee (PCCC):

The PCCC will be restructured to strengthen their research activities. Focus will be to increase per hectre yields, reduce the risk of cotton leave curl virus and introduce longer staple length varieties. Organization rules will be amended to extend incentives to the employees on the basis of performance and output.


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Pakistan Cotton Standards Institute (PCSI):

The PCSI was in a state of disarray after Cotton Standardization Fee (CSF) was suspended in 2007. The Ministry has revived the CSF to ensure its survival. The PCSI has been shifted to new premises and its capacity and equipment will be strengthened through funding from relevant forums.

Fiber Diversification: (BD)

Technical Boards will be formulated to carry on research on Silk, Wool, Jute, Synthetic, Artificial, and Vegetable Fibers to meet the world demand of Man-made fiber & the natural fiber.

The fiber usage pattern in the world is continuously shifting from cotton to manmade fiber and the ratio has reversed from 60-40 to 40-60 within ten years. This ratio was 80-20 in favor of cotton three decades earlier. With such a drastic change in the demand pattern in the world, Promotion of MMF industry is key objective of the present Textiles Policy of Pakistan.

To bring the change SFDAC (Synthetic Fibre Development & Application Centre) will be reorganized to provide strength and support in the development of MMF (Man Made Fibre) based industry of Pakistan and to train technologists and technicians engaged in raw material manufacturing and whole downstream chain processing industry to develop better quality products according to the global demands.

Spinning:

Investment in new capacities in finer counts, rotor technology, value-added attachments and economies of scales will be encouraged.

Weaving:

Weaving City would be established, initially in Faisalabad through PSDP (Public Sector Development Fund) funding and then will be replicated in other part of the country to de-fragment this sector, along with the provision to provide space for machinery and spare parts manufacturing.

Knitting:

The small and medium knitting units will be supported to increase their capacities, up-gradation of their machinery and de-fragmentation.

Processing:

The Government will identify areas where effluent treatment plants can be established through public-private partnerships. Special Purpose Vehicle (SPV) will be incorporated to establish Model Combined Effluent Treatment Plant (CETP) in Khurrianwala, Faisalabad. The Government would seek funding from international donors and operational cost would be provided by the processing industry. Further, machinery for the ETP may be considered for inclusion in the LTFF (Long Term Funding Facility).


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Technical Textiles:

Government will develop a proper strategy for the promotion of technical textiles in the country. For this purpose an exclusive centre of excellence to impart training, develop skills and provide relevant information about world trends in such fields like geotech, meditech and sportech will be established. Government will pursue the KOICA (South Korean agency) who has shown interest in establishing a research facility for technical textiles in National Textile University, Faisalabad.

Garments & made-ups:

Training for Product Development:

Through the establishment of product development centers different types of training will be provided on sourcing and marketing activities to ensure the effective and efficient use of abundant labor force. The training would also focus on fashion garments and trends, apparel merchandising, made-ups designing and quality control etc.

The centers will collaborate with leading fashion institutes to provide in-depth training in specialized high value fashion garments. Programs will be initiated to raise profiles of local brands and designers and to explore new overseas markets.

Textiles Exporter of the Year Award:

In order to create recognition of the textiles sector’s role in the national economy, the Ministry of Textile Industry would initiate a Textiles Exporter of the Year Award in various categories including highest value-addition.

Brand Development:

The Ministry of Textile Industry would encourage setting up Pak cotton brand, fashion labels and brands abroad to increase exports. This will be done under LTFF. Under the first textile policy, retail shops were encouraged to set up in major importer countries to introduce quality and brand of Pakistani products. To promote this activity government has proposed to give 75%, 50% and 25% cost of that retail shops in consecutive three years. For this purpose estimated cost for 2012-13 was 50 million rupee and 380 million for next three years.

Market Support and Development:

To Develop the market for textile products, a dedicated “annual textiles exhibition” will be organized domestically in each year of the Policy period. The first Textiles Pakistan exhibition will be held in Lahore in 2015-16. Also the Ministry would ensure the participation of international Participation of different stakeholders specially the SMEs through the support from TDAP program.


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World Textiles Centre:

Establishment of World Textiles Centre envisages the setting up of an international buying house to attract more export orders, which includes two phases as:

In the first phase, thirty renowned international buying houses will be provided free space and services.

In the second phase, more buyers would be provided space as per requirement. The Ministry of Textile Industry would also establish “Apparel Houses” in metropolitan cities which are also textiles hub to provide one stop showcase facility to exporters so that international buyers can see a range of products in one place and place their orders.

Pakistan Textile City Limited:

The project was initiated in 2004; the objective was to develop a state of the art industrial area for the textiles sector at an area of 1250 acres. The Ministry would operationalize this project and plots will be launched for sale when ready.

Garment Cities:

The Ministry of Textile Industry has established three garments cities in Faisalabad, Lahore and Karachi. Two buildings each in Faisalabad and Lahore Garment Cities have been leased to textiles units. Karachi city will be done on fast track basis. In addition, training facilities would be developed in these incubators.

Capacity Building for Textile Industry:

Special initiatives will be taken for institutional restructuring and human resource development and the Ministry will accordingly provide training to the human resource working under the Ministry in the fields of textiles engineering, international trade matters and negotiations, project development, project monitoring, tariff rationalization and other related matters

The Ministry will introduce new Textile Act legislation to override multiple laws and ordinances under the administrative control of the Ministry of Textile Industry.

Textile Commissioner Organization will be restructured to make it a strong and effective implementation arm of the Ministry for conducting technical surveys, data collection, holding of seminars and workshops, PC-1 development and project coordination.

National Textile University:

The National Textile University (NTU) will continue to provide higher education and would increase the number of PhDs to meet the skill gap in research and development. The NTU will be encouraged to establish departments for technical textiles in collaboration with


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foreign donor agencies, and also set up a department for textiles dyes, pigments and finishing to support dyes and chemical manufacturing in the country.

Incentives for textile in Budget 2014-15:

In the budget speech of FY 2014-15, several policies and facilities are provided for the development of the Textile sector of Pakistan.

EXIM Bank of Pakistan (Specialized DFI):

The Government has decided to set up the Export-Import (EXIM) Bank of Pakistan to enhance export credit and reduce cost of borrowing for exporting sectors on long term basis and help reduce their risks through export credit

guarantees and insurance facilities. The bank will provide liquidity to exporters. Its authorized capital will be Rs.100 billion while the initial Paid up Capital will be Rs 10 billion. Legal framework for the establishment of the Bank will be developed through an Act of Parliament.

Revitalizing Export Development Fund (EDF):

The EDF was established through the contributions of the exporters for the promotion of exports. The EDF Board has been reconstituted and its organization is overhauled with a view to make it more responsive and effective for the benefit of exporters.

Establishment of Pakistan Land Port Authority:

It has also been decided to establish Pakistan Land Port Authority to transform land ports into efficient facilitators of trade while being responsive to risks such as security issues, smuggling and human trafficking. This measure will help Pakistan to increase its exports through the overland route where numerous opportunities are offered by regional countries and connectivity to northern and western corridors.

Sri LankaSri Lanka is another quality apparel producer country of the South Asia. Mainly, the sector started to grow by producing textile and clothing for the local market in the 1960s under heavy protection.


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Sri Lanka is another quality apparel producer country of the South Asia. Mainly, the sector

started to grow by producing textile and clothing for the local market in the 1960s under heavy protection.

After one decade the production of this sector became export oriented and got a rapid growth after the liberalization of the economy in 1977. In that time the country was able to attract quota hoping East Asian garment exporters because of its low labor cost which ensured the production costs being low. This relocation encouraged local business community to commence its own garment enterprises to exploit markets guaranteed by quotas assisted by the liberal trade regime for importations and subsequently incentives granted by the Board of Investment of Sri Lanka (BOI) including tax holidays and other fiscal and non-fiscal concessions.

During 1980s garment exports were growing rapidly and by 1986 garment exports accounted for the largest share of all exports (27%). In 1992, the Board of Investment (BOI) of Sri Lanka offered an attractive incentive package to all garment manufacturers to move into the rural areas of Sri Lanka under 200 garment factory programs which are considered as the turning point of the apparel industry. The BOI was able to set up 163 factories under the said program by 1995. By 1992, the garment industry had become the largest foreign exchange earner in the country (US$400Mn) overtaking the tea industry. By 2002, Sri Lanka’s textile and garment sector accounted for 6% of the GDP, 30% of industrial production, 33% of manufacturing employment, 52% of total exports and 67% of industrial exports. With the growth of apparel slowing down, in 2013 the textile, wearing apparel and leather products constitute only 3.6% of GDP. According to Export Development Board (EDB) textile and garments export of Sri Lanka grew by 6.6% in February 2014.

Current Status of Apparel Sector:

The apparel sector is the highest industrial employment generator and the highest foreign exchange earner sector of Sri Lanka. Today it is the main foreign exchange earner accounting to 40% of the total exports and 52% of industrial products exports. The export earning of the Apparel sector for the year 2011 was US$ 4.2 Bn which is equivalent to 39.6% of total export earnings, with a growth rate of 24%. In 2012 the total export income in the textile and garments industry was $ 3245.3 million and in 2013 the total export income in the garment industry was $ 4,508 million which is reflecting a 13 percent growth over the last year.

The top three apparel companies of Sri Lanka are already amongst the 50 most important suppliers of the world. And also this industry has sustained over US $3 billion in export revenue for five consecutive years. (EDB)

Apparel manufacturers comprise nearly 90% of the textile/apparel sector in Sri Lanka. They produce a wide range of international branded clothing such as Victoria’s Secret, Liz


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Claiborne, Pierre Cardin, Nike, Gap etc.BOI approved ventures account for almost 90% of Sri Lanka’s total garment export.

The value addition of textiles, apparel and leather products rose from 172,726 in 2010 to 268,431 in 2013 at current Prices (Rs.Mn.) in manufacturing sector. Earnings from exports recovered strongly by 6.4% to US$ 10,395 million in 2013 in comparison to the 7.4% contraction experienced in the previous year. Industrial exports constitute a 75% of the total exports which has increased by 5.1% in 2013 in comparison to the decline of 4.8% in 2012. (Source: Annual report 2013 of ministry of finance and planning, Sri Lanka)

The below table will give the consequent development data of textile and garments sector of Sri Lanka:

Table 13: Value of Sri-Lankan Industrial Export (in million US$)

Category 2007 2008 2009 2010 2011 2012 2013

(provisional)

Textile and Garments 3,337 3,478 3,261 3,356 4,191 3,991 4,508

Garments 3,144 3,284 3,120 3,178 3,986 3,784 4,265

Woven Fabrics 61 66 55 70 85 92 124

Yarn 45 44 42 50 57 58 58

Other made up Textile Articles 86 84 44 57 64 56 61

(Sources: Sri Lanka Customs, Department of Trade and Investment Policy, Central Bank of Sri Lanka)

Picture of Garments Exports to EU and USA:

USA and the EU are the traditional markets of Sri Lanka. In these two markets there is a consequent expansion of apparel demand due to the efforts taken by exporters to improve productivity, lower tax and other incentives provided by Sri Lankan government.

Table 14: Apparel Export of Sri Lanka in EU & USA

Country Increase rate Month and year

U.S 8.8% February 2014

EU 8.7% February 2014 Source: EDB blog

Sri Lanka has introduced the world’s first eco-friendly “Green Garment Factory” that cut energy in half and water consumption by 70%. These factories also practice lean manufacturing, with lower overheads and faster return on investment. A collective effort to reduce the carbon footprint of suppliers has been made and is ongoing. Waste management, effluent treatment and international standards of recycling all are practiced by these industries.


Strategic Goal for Apparel Industry:

Sri Lanka is trying to develop textile manufacturing and also processing the sector to reach a target of 30 million meters (10 million kg). It is also processing the sector to bring in new areas of textiles to increase apparel exports (EDB).

Sri Lankan Government has a target of generating a US$500 million export earnings of apparel industry this year since export industries have picked up showing a 12 percent growth and the apparel industry has shown a 15% growth.

In addition Sri Lanka’s envisaged exponential growth through hub services will emphasis the apparel industry rise to international fame.

The apparel industry is now arranging a number of local design festivals and trade shows in order to work hand in hand with customers on forecasting trends. It is also trying to create new customized ranges with innovative techniques, bridging the gap between developing and developed.

Incentives of Sri Lankan Government for Apparel Sector:

The government has offered various incentives for the textile and apparel industries since the late 1970s when it moved towards a liberalized open economic policy. In this regard, some incentives were also offered to textile and apparel industries though:

Investment Incentives:

The apparels exporters are entitled in to dispose 40% of the output locally subject to the payment of all inclusive levies of Sri Lankan Rupees (Rs.) 25 per Piece and income tax for such local sales is 12% as against the normal corporate tax of 28%.

Five years tax holiday and in the following years a concessionary 12 % rate of tax continue in for the establishment of import substituting fabrics manufacturing enterprise.

Small, medium and large company can receive an exemption from profit and income tax for five years from the commencement of the business.

75% or more export oriented new apparel and textile manufacturing company whose investment is 700 to 1000 million Rupees and 1000 to 1500 million Rupees can avail tax exemption for 8 years and 9 years respectively.

Export oriented medium and large manufacturing Enterprises can avail the tariff exemption on the import of capital machinery and raw material for the production export purpose.

Any dividend paid to a shareholder of a small, medium or large scale company, is exempted from Dividend Tax during the tax holiday period. However, a resident construction project will be eligible for additional one (01) year exemption from the Dividend Tax.

In order to encourage the modernization of export industries there is a proposal to grant accelerated depreciation provision & exemption from income tax on dividend

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provided they undertake over US$2 million investment on machinery and equipment.**

The government has removed the ports and airport levy on export and import items for processing and re-export products which benefits the textiles and clothing industry

Direct or indirect export oriented company can enjoy the VAT exemption.

According to the latest budget speech Manufactures of exports are provided with a low income tax rate of 12 percent, a high depreciation provision for advanced machinery and custom bonding and port facilities.

Export Financing:

Government of Sri Lanka has taken several initiatives to facilitate the Financing for Small and Micro industries (Textile and apparel) who are engaged into export. There are two main schemes under the project named as:

General Loan Scheme and Technical Transfer Assistance Loan Scheme

Under general loan scheme an exporter can get maximum loan amount of Rs. 5 Mn with 9% interest rate. The repayment of the loan amount has to be performed within 10 year time period including a grace period of two years.

Under Technical transfer Assistance Loan Scheme an exporter can get maximum loan amount of Rs. 2.5 Mn with 5% interest rate. The repayment of the loan amount has to be performed within 7 year time period including a grace period of two years.

Above scheme is applicable to Textile and Apparel along with other subsectors. EDB also announces best exporter award for apparel sector including twenty seven sectoral awards in order to promote trade. 10

Outstanding Loans and Advances Provision:

Commercial Banks of Sri Lanka provide outstanding loans and advances to the different sectors including the apparel sector. There is a 10.1%increase (Rs 96.3 Bn in 2012 and Rs 106.0 Bn in 2013) in facilities such as loans, a overdrafts and bills discounted and excludes cash items) granted by Commercial Banks to the Textile and Apparel sector.

Other Incentives:

- If a company has a minimum of 50 million rupees of foreign investment, the company is liable to receive an exemption from profit and income tax for five years from the commencement of the business.

10 Budget Speech, section 17.1


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- In addition, the textiles and clothing industry also benefited from a law which states that the profits and income of any company engaged in exporting commodities other than tea, rubber and coconut should be taxed at a rate not exceeding 15 percent.

- Business entities approved by the Textiles Quota Board (TQB) of Sri Lanka for the manufacture of clothing or provision of services which add value to clothing products are taxed at a rate of 15 percent, on the relevant part of profits or income applicable to the service provided.

- Fabric imported for the clothing industry is excluded from value added tax (VAT), subject to approval from TQB and BOI. Yarn, dye and other materials used for handloom manufacturing are exempted from VAT.

- The government has reduced the Economic Service Charge for exports, supply to exporters and sales of BOI-approved trading houses to 0.1 percent from 1 percent which applies for all other exports.

- And in order to further facilitation of export, such as a one stop service center providing banking, quarantine, quality standards and other trade services through a computer network will be established at customs.

- According to the latest budget speech of Sri Lanka there is a provision of pension scheme for employees in the apparel industry to improve job attraction & security.

Other Supportive Materials:

Government of Sri Lanka has also taken different supportive initiative to the Apparel and Clothing Sector to become sustainable and more competitive in world market. The initiative includes:

- Private sector enthusiasm on improving quality standards.

- Diversifying product mix and markets to persist in export market.

- Tax concessions granted for reducing the cost of production.

- Promote domestic demand by allowing the supply of garments by export oriented companies to domestic market.

- Vertical and backward integration.

- Greater emphasis on activities at the higher end of the value chain.

- Close proximity to major trade routes and the hassle free Colombo port.


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VietnamAfter getting the membership of World Trade Organization (WTO), Vietnam, a country of South-East-Asia, experienced with an annual industrial growth of about 22% through bi-lateral and multi-lateral agreement with different countries in the field of textiles and clothing. About more than 2 billion US dollar of capital has injected into the Textile and Garments industry in Vietnam through 485 FDI projects from 2007 to 2012.


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After getting the membership of World Trade Organization (WTO), Vietnam, a country of South-East-Asia, experienced with an annual industrial growth of about 22% through bi-lateral and multi-lateral agreement with different countries in the field of textiles and clothing. About more than 2 billion US dollar of capital has injected into the Textile and Garments industry in Vietnam through 485 FDI projects from 2007 to 2012.

In 2014, Vietnam exported $23.39 billion worth of textile and garment (HS 50-63) which was $22.95 billion in 2013, where USA covers 42.45%, Japan 13.41% and South Korea 11.41% of total export. At present, Vietnam is the 2nd largest textile and garments exporter in USA, 3rd largest in Japan and 5th largest in European Union.

Vietnam is now considered as international textile and apparel export and import center for its high quality cotton, yarn and fabrics. It took the membership of WTO because of the international adjustment which paves the way for conversations about market, investment and policy in regards of Textile and Garments industry in Vietnam. Recently, it has been included in different FTA prioritizing the textile and garment industry such as ASEAN-Korea FTA, Vietnam-Japan FTA etc.

The Tans-Pacific Partnership (TPP) contract developed the market, custom, rules of origin, food security including technical barriers, investment and service sectors significantly. The market of Textile and garments product in USA has been opened because of this contract.

After the contract in TPP, Vietnam enjoys tariff concession in exporting the Textile and garments product in the member countries of TPP. This TPP does not only increase export and tariff concession but also accelerate the investment and development.

Along with this, Vietnam also designed Five-year plan to promote production and trading, investment and development of The Vietnam National Textile and Garment Group for the period of 2011-2015, is described with the following principle contents:

Overall Objectives

The overall objectives of the Five-Year plan 2011-15 regarding the Textile & Garments sector are:

1. To develop garment and textile industry to become one of key, export-oriented industries and have ability to meet increasingly domestic consumption demand; to create more jobs for society; to enhance competitiveness, integrating firmly into regional economy and the world;

2. To ensure sustainable, effective development of garment and textile industry on basis of modern technologies, quality management system, employee management, environmental management under international standards;

3. To arrange garment and textiles industry in appropriate areas: having advantages of human resources, transport, seaports;

4. By 2020, garment and textile industry will be built some famous brands.


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Strategic Goals

Government of Vietnam has taken some development strategic initiative to promote the textile and garments industry. For this purpose it ordained some specific goal. By this goal, from 2011 to 2020 – (Decision No. 36/QD-TTg, on 10/3/2008)

To increase the annual growth rate of textile production within 12-14% and to achieve the annual export growth rate at 15%.

To generate employment for 2.75 million people and make it to 3 million within 2020. To achieve the export turnover about 18 billion US dollar with in 2015 and make it

25 billion dollar in 2020. Table 15: Vietnamese Textile and Apparel Industry Development Plan11

Norm Unit 2015 2020 2030

1. Export Value USD billion 23-24 36-38 64-67

Ratio of export value against that of the wholly country

% 15-16 13-14 9-10

2. Number of laborers (million person) 2.50 3.30 4.40

3. Major products

Fiber cotton 8000 tons 15000 tons 30000 tons

Synthetic fiber, yarn 400,000 tons 700,000 tons 1,500,000 tons

Yarn (pulled from shorten fiber) 900,000 tons 1,300,000

tons 2,200,000

tons

Kinds of fabric 1,500

million. m2 2,000

million. m2 4,500

million. m2

Garment products 4,000 million 6,000 million

9,000 million

4. Localization rate 55% 65% 70%

In a Period of 2013–2015: growth rate of industrial production value of the wholly garment and textile industry reaches from 12%-13%/year. Out of which, textile industry increases by 11%-12% per year, garment industry raises 13%-14% per year. Export growth posts from 10%-11% per year. Growth rate of domestic market hits 9%-10% per year. By 2015, the industrial production value reaches 28,144 billion VND; non VAT turnover reaches 53,858 billion VND; export turnover reaches 3,865 million US dollars and before-tax profit reaches 2,434.3 billion VND.

In a Period of 2016-2020: growth rate of industrial production value of the wholly

11 http://asemconnectvietnam.gov.vn/


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garment and textile industry reaches from 12%-13% per year. Out of which, textile industry increases by 13%-14% per year, garment industry rises 12%-13% per year. Export growth posts from 9%-10% per year. Growth rate of domestic market hits 10%-12% per year;

In a Period of 2021-2030: growth rate of industrial production value of the wholly garment and textile industry reaches from 9%-10% per year. Out of which, textile industry increases by 10%-11% per year, garment industry rises 9%-10% per year. Export growth posts from 6%-7% per year. Growth rate of domestic market hits 8%-9% per year;

Ratio of textile industry, garments industry in the whole structure of garment and textile industry: in 2015, textile industry accounts for 45%ofthewholly garment and textile industry, garment industry makes up 55%; by 2020, textile industry accounts for 47%, garment industry makes up 53%; by 2030, textile industry accounts for 49%, garment industry makesup51% of the whole garment and textile industry.

Implementation Solutions

a. Strategic Solutions

To expand the areas of raw material plantation for textile industry, especially the fabric cotton development program by 2015 and orientation to till 2020. To strive for the Cotton area to reach 50,000 ha by 2015, of which the irrigated cotton area will reach 10,000 ha. The average productivity will to reach 1.5 tons / ha, 2 tons / ha for irrigated cotton. The production of fiber cotton will to reach 35-40 thousand tons.

To strengthen assessment, examination of production and business efficiency of investment projects and of the affiliates. To dissolve or merger the affiliates operating inefficiently.

To perfect regulation on standardization of internal control department at Group enterprises holding controlling shares.

b. Market Affairs

To balance and improve the quality of supply chain (yarn - weaving - completed dyeing - sewing) in order to increase the competitiveness of the Group and Group subsidiary enterprises and be ready for the shifting of textile trend from Europe and China to ASEAN countries.

To improve the quality of research, analysis, evaluation, and forecast of socio-economic reality and competitors in order to decide appropriate strategies for each stage.

To build appropriate development strategies for domestic and international market. To organize a domestic retail network, renew export marketing method, to emphasize on development of VINATEX brand name, together with other fashion brand names of affiliates e.g. Viet Tien, San Sciaro, Mattana, etc, in order to dominate the domestic market and conquer international market.


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-To assign adequate legal resource person for textile and garment enterprises to engage in making and negotiating contracts, especially international trade contracts, and settling disputes

To strengthen dissemination of international trade laws to help businesses overcome barriers of importing countries e.g the U.S., EU and Japan. Develop research programs to exploit new markets such as Canada, Korea, ASEAN, Russia, etc.

To promote administrative procedure reform in fields of taxation, customs, import towards simplifying procedures; to strengthen inspection and control of market and fighting against smuggling, tax evasion.

To invest in improving the fairs and exhibition organization and to actively participate in international fairs. Improve the quality of system of retail service and e-commerce.

c. Financial Solutions

- Develop detailed financial plan, to strictly balance capital demands in production, business and investment. To raise capital by Vietnamese textile and garment industry from domestic and foreign economic sectors in the form of business cooperation, joint venture business association, equitization of enterprises.

To encourage enterprises to raise capital via the securities market (issuance of bonds, shares or international bonds) or get commercial loans with or without the Governments guarantee.

To enhance the efficient use of capital, reduce capital turnover. To flexibly balance USD and VND loan structure for lower average interest rates.

To invest capital in efficiently performing companies. To contribute and supplement capital to efficiently performing companies and shall

not to reduce the holdings in these companies.

Investment Targets for FY 2011–15

The expected new investment projects and transitional forwarding projects in the period 2011 - 2015 of the Vietnam Textile and Garment Group and its subsidiaries will continue to increasing the production capacity, dominating the domestic market and gradually promoting their competitive capacity in the international market.

Non Fiscal Incentives

Capital and other legal assets of investors will not be expropriated or confiscated by law or administrative measures and businesses with foreign-invested capital will not be nationalized.

Expatriates working for businesses with foreign-invested capital are permitted to remit their income abroad.


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The Government of Vietnam respects intellectual and industrial property rights and the interests of foreign investors relating to technology transfers into Vietnam. The Vietnamese Government had entered into bilateral agreements in trade relations with 72 countries and double taxation agreements with 45 countries.

Fiscal Incentives:

Corporate Income Tax: Applicable to both domestic and foreign invested enterprises, with a standard CIT rate of 28%. Preferential rates of 10%, 15% and 20% are available where certain criteria are met.

Capital Assignment Profits Tax: Gains on transfers of interests (as opposed to shares) in a foreign invested or Vietnamese enterprise are subject to 28% CIT.

Value Added Tax: VAT system has three rate categories: 0%, 5%, and 10% (the standard rate). Currently, there are 29 categories of goods and services that are VAT exempt.

The Institution and Training of Human Resources:

Develop appropriate incentive policies in order to draw high quality human resources for textile and garment research.

To start undergraduate enrollment of Hanoi Fashional Textile Industry College from school in accordance with Vietnamese international commitments.

To Train and develop succeeding forces till 2015 of enhancing competitiveness of garment and textile industry. To strengthen training system of garment and textile industry, establishing an university specializing in garment and textile technology and fashion.

To cooperate with other universities at home and abroad to develop and implement international professional training programs in textile and garment, fashion and fashion business.

To enterprise environmental funds capital for the implementation of environmental treatment project.

Efficiency Improvement of the Sector:

To emphasize on building and implementation of investment projects under the oriental investment planning for the establishment of the value-linked chain to improve synergic strength & increase the competitive capacity of the textile sector of Vietnam, which includes:

To research and apply new technologies, new materials to create textile products having different features; to implement cleaner production programs, energy savings, increasing productivity and quality of products, ensuring safety and


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protection of consumers; to apply software into design, management of production and quality of garment and textile products;

To step up trade promotion, to draw foreign and domestic investors to invest in the key projects during the period of 2011-2015.

The State support a part of activities of design research, controlling product quality and overcoming trade technical barriers of importing countries; to support to upgrade quality assessment center, inspection of garment and textile products;

To enhance international cooperation to learn experience management and transfer modern technology.

Initiative for Environmental Friendly Production:

- To formalize and perfect organization structure of research institutes in 03 major professional sectors: the new product research, consultation, and test and examination.

- To develop and implement technology towards "environmentally friendly" production, cleaner production, using rationally, saving and high efficiency of chemicals and additive, dye, gas, electricity, water.

- To promote & strengthen scientific and technological research on environment to meet environmental requirements and technical barriers in international economic integration.

Communication:

To develop professional communication strategies, to emphasize the brand and core values of the Vietnam Textile and Garment Group.

To improve the quality and popularity of magazines e.g. Fashion Magazine, Vietnam Fashionable Textile Magazine. Perfect and develop the Group's new website.

CambodiaSoutheast Asian country Cambodia started its garments and textile industry in 1993 when foreign investors started investing in manufacturing in this region. This industry has been developed vast in past years and now it is the major exporting sector contributing a lot to Cambodia’s economy.


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Southeast Asian country Cambodia started its garments and textile industry in 1993 when foreign investors started investing in manufacturing in this region. This industry has been developed vast in past years and now it is the major exporting sector contributing a lot to Cambodia’s economy.

Over the past 20 years, the industry has grown tremendously and is now the largest foreign exchange earner in Cambodia and a significant contributor to its economy.

Since 2001, the country has been a beneficiary of the Everything but Arms (EBA) initiative, which is part of the EU's generalized system of preferences (GSP) and which grants virtually all products except arms and ammunition from 49 of the world's least developed countries (LDCs) duty-free and quota-free access into the EU market. The EBA's rules-of-origin policy was relaxed in January 2011 to allow LDCs to export to the EU duty-free even if they are involved only in the processing of the goods; a change that is highly advantageous for Cambodia, which imports almost all of its fabric.

Present Condition of Textile and Apparel Sector:

Cambodia's garment and textile industry has seen a rapid increase in investment from foreign manufacturers. The country's low production costs, and particularly its lower-than-average wages along with other benefits such as tax incentives and the duty and quota free access to the U.S. and EU markets have prompted companies from higher-priced locales in Asia to set up manufacturing in Cambodia. In fact, only a small percentage of garment and textile manufacturing operations are locally owned.

Table 16: Present Condition of Textile and Apparel Sector of Cambodia

Garments

Employment Creation

Sector Employment (2013) 0.65 million* (45% of Manufacturing employment)1

Future Sector Growth 10% or more

Gender Equality 80%-90% women; under-aged labor an issue.

Wages and Working Hours

Minimum $100 monthly up to $180. 48 hours+OT/week.

Export 5.10 US$ (billion), 55.16 percent of the country's total exports2

Production 16 percent of Cambodia's total gross domestic product (GDP)1

Source: 1 the South East Asia Textile Business Review 2013; *The total direct employed workers in the textile and the garment industry up to December 2014; 2ITC Trade Map -2013


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The industry's dependence on fabric imports, foreign investment and export demand make it particularly vulnerable to global financial crises and rising raw material prices. In 2010, 236 garment export-oriented factories were operating and registered with GMAC (Garment Manufacturers Association in Cambodia).

Figure 3: Cambodia Private Investment, Annual Average and Sector Specific 2007-2011 (Per cent)

Present Incentives:

As foreign investment is more than domestic investment in textile sector so government has been providing incentives to encourage foreign investment. Followings are some examples of present incentives in Cambodia.

Investors in textile sector after starting their operation will enjoy tax holiday up to 9 years.

100% foreign investment is granted in all sectors including textile sector. Investors get opportunity to repatriate 100% of their invested capital and profit. Special depreciation opportunity has arranged for investors who want to reinvest

their profit Corporate tax is 20 percent. Capital machineries and raw materials for export

purpose get full tax exemption.

BangladeshApparel is the second basic need of Human being. On the basis of the comparative demand and supply cost different countries are now producing the textile and apparel goods. The apparel and textile sector of Bangladesh comprised of the subsector Spin-ning, Weaving, Knitting, Dyeing-Finishing, Hosiery, Home textiles, Teri Towel, Sericul-ture, Silk, Hand loom and Export Oriented Ready-made Garments. But Ready-Made Garments is the prime sector of export earnings of Bangladesh. In present, about 5091 Factories have been established from the beginning of the flourishing of this sector. And it also has employed about 3.67 million in which the lion share is women worker.


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CChhaapptteerr -- IIVV Textiles and Apparel Industry of Bangladesh

Apparel is the second basic need of Human being. On the basis of the comparative demand and supply cost different countries are now producing the textile and apparel goods. The apparel and textile sector of Bangladesh comprised of the subsector Spinning, Weaving, Knitting, Dyeing-Finishing, Hosiery, Home textiles, Teri Towel, Sericulture, Silk, Hand loom and Export Oriented Ready-made Garments. But Ready-Made Garments is the prime sector of export earnings of Bangladesh. In present, about 5091 Factories have been established from the beginning of the flourishing of this sector.12 And it also has employed about 3.67 million in which the lion share is women worker.3

Basically, the first initiative was taken by private entrepreneurship in 1980’s but it started to grow extensively in 1990’s. Now, Bangladesh is the 2nd largest textile and apparel exporter in the world. In 2014, the accounted amount of the export was US $24.49 billion.

Figure 4: No of Factories in RMG Sector of Bangladesh

Source: Compiled from BKMEA Database

In 1982, there were only 47 factories in Bangladesh but in 1984-85 the number was increased to 587. In 2000-01, this number was raised by 1790 factories. In the following decade the number was picked at 5085 but at the present time it has broken all previous record. The current number of RMG factories in Bangladesh is 5900.

In 2012-13, Bangladesh earned US$ 21.52 Billion and in 2013-14 the amount accounted at US$ 24.49 billion by exporting RMG (Knit & Woven) where the share of knit and woven is respectively 79.61 % and 81.16% of the total export earnings in the following year.

12 Apparel Export Statistics of Bangladesh FY 2013-14

0100020003000400050006000

No. of Factories in RMG

No. of Factories in RMG


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Table 17: Number and Capacity of Textile and Garment Units in Bangladesh

Sl. Subsector Number of units Installed capacity

Annual production

capacity

1 Spinning 385 8.7 million spindle 0.23 million rotor

2,050 million kg

2

Weaving/fabric manufacturing 721 17,250 shuttleless

13,500 shuttle 2,150 million

meters

1. Weaving 584

2,390 million meters 2. Denim 20 3. Home textile 17 4. Knitting 100

3 Dyeing-printing-finishing 233 2,470 million meters 2,200 million meters

4 Export oriented garment industry 5,150 650 million dozen 561 million dozen

Source: Bangladesh Textile Mills Association

Patronage of Government to the Development of RMG sector:

Government had brought a massive change in the Industrial policy in the beginning of 1990’s. In that time, New Industrial Policy (NIP) was designed for the purpose to introduce the private sector based export oriented industry instead of import substitute industry. Two types of decision taken in the New Industrial Policy had a great impact on the development of the RMG sector. At First, there was Duty Drawback or DEDO provision for the entrepreneur where Duty Drawback is the rebate of duty chargeable on imported material or excisable material used in the manufacturing of goods. But after a period the DEDO provision which was applicable for textile & Clothing sector was substituted by Bond.

In 1986-87 another concession was introduced to the textile and Apparel sector, Entrepreneurs don’t need to expanse any kind of money to import related raw-materials or accessories if they have Back to Back L/C. They would just need to collect the export orders. Basically these two types of Bond concession and Back to Back L/C had great impact on the extended development of the textile and apparel sector.

In FY 1999-00, Govt. gave another great incentive to the textile and apparel sector. Initially the amount was 25% cash incentive to the exporters. However, it was reduced to 15% after 3 years and now the amount of cash incentive is 5% for the export-oriented apparel sector. Again, RMG sector has got the concession of exemption of VAT since the fiscal year 2004-05.


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Textile Policy Towards the Development of Textile And Apparel Sector:

People’s Republic of Bangladesh Government has also introduced textile policy towards the development of the apparel and textile sector as other competitive countries. In 1989, Textile policy was introduced to the development of textile and apparel sector for the first time. But there were many weaknesses for which it was failed to achieve the target. In 1995, the second textile policy was promulgated but it also had some weakness. After more than a decade, the third textile policy was forth in 2011 where it has tried to minimize the previous weakness of the textile policy.

The vision of the present textile policy-2011 is to raise the production of textile to 10972 million meters within 2014-15 and 17000 million meters within 2020-21, considering the demand of RMG and domestic textile. In other way, the vision target is to increase the production of domestic textile from current 64% to 72% and 80% within fiscal year 2014-15 and 2020-21 respectively.

Modern technical capable yarn and textile factories will need to be established to achieve the vision goal. Government and Non-government commercial bank, leasing institute, related govt. organization and ministry will help to establish the new yearn and textile factories privately. Management and Development activities of different Textile related govt. organization will be managed by government and other activities such as creating sufficient workforce, increasing efficiency of workforce, creating employment for the women, coordinating within the intra subsector of textile, inventing new technology with the research work, producing hi value added multi commodities, using high tech etc. will be managed by the private and govt. coordinating body.

Fiscal and Other Cash Incentives in the Textile Policy 2011:

Textile policy 2011 covers a number of policy supports in the form of fiscal and cash incentives. Facilities for garment industry are given below:

1. To provide level best cooperation by the government consisting with the Export policy to the export oriented textile and apparel industry on priority basis for the purpose of the expansion of forward and backward linkage of this sector.

2. Customs simplification procedure and swift product clearing by customs will be continued and export oriented garment industry will be allowed to import machineries at a special grace rate.

3. To arrange tariff and tax free importation of accessories, dye-chemical, sizing materials etc.

4. Duty Drawback arrangement has been more simplified and for this purpose, a flat rate will be determine for the all exportable garments clothing. Exporters will allow enjoying the flat rate concession from related commercial bank.


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5. The arrangement of 90% loan will be allowed in contrast to irreversible and fixed L/C or export contract.

6. Local raw materials using export oriented garments will allow enjoying benefits and facilities as previously specified for ensuring backward linkage. The same provision will also provide to the deemed exporters of other textile subsector.

7. Export oriented garments industry can avail the opportunity to carry rational amount of foreign currency out of the regulation of Bangladesh Bank for the special purpose such as establish foreign office, marketing campaign and attending in international trade fair.

8. Registered Company in Bangladesh who don’t avail any kind of rebate concession, can enjoy tax free concession for 50% of the export revenue according to Income tax ordinance 1984.

9. The facility will be continued to provide for import of necessary but prohibited or reserved raw materials for the production of export goods subject to consent of the competent authority for a limited period.

10. A bonded ware house facility will be given to all raw material import depended export goods producer including export oriented RMG except the cotton.

11. The investment limit for establishing ETP (Effluent Treatment Plant) will be increased to 3 million under the investment funds allocated by the government of Bangladesh.

12. Export credit guarantee scheme will be strengthen and extended. 13. The existing facility for Back to Back L/C will be continued. 14. The customs act will be simplified to facilitate the raw material import and goods

export. will be updated time to time based on reliable information 15. The export product list will be updated time to time based on the available

information to diversify the export and different policy action will be taken which will expanse the export of potential products or services. With these initiatives, Quality of apparel product will be strengthen to promote the export of RMG and the institutional capacity of negotiation with regional cooperation organizations like SAFTA, SAPTA, BIMSTEC etc. will be increased.

16. Government will discuss strongly to include the potential export goods in the WTO duty free list which has a great importance in export. Different strategy will be taken to utilize the opportunity of duty free entrance in developed and developing countries with diversify export product, increase local value addition, promote the quality of product and develop the of sanitary and phytosanitary condition. Government will take initiatives to reduce the tariff of exportable goods steps by steps because of the reduction of extended preference erosion for the tariff of non-agricultural product of developed or developing countries under the WTO contract.

17. The negotiation will be continued with USA for including the prospective proposed goods that may get the facility for duty free and quota free access in USA market


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under the New Partnership for Development Act 2007. Related persons of RMG will be encouraged to diversify their export and required initiative will be taken to establish the ideal standards for work in factory level.

18. 10% products of EPZ’s textile and clothing industry may be export (through the foreign currency bonds) within domestic market subject to pay applicable tariff and tax.

19. 100 % export oriented textile and clothing industry that situated outside of the export processing zone may sell their 20% product in the domestic market subject to pay applicable tariff and tax.

20. Debt equity ratio will be determined on the basis of bank-client relationship and required initiative will be taken to keep yearly interest rate at flexible level in order to encourage investment in BMRE project of new and old textile and clothing industry. Following subsector will be given priority on the ascending basis:

i. Dyeing – printing and finishing subsector of weaving ii. Balanced capacity of modern weaving factories

iii. Spinning Mill iv. Knitting and knit dyeing v. Specialized textile and Small and Medium sized Power loom unit.

vi. Readymade Garments and Allied industries. 21. Existing rate of cash incentives to local yarn and other clothing product suppliers

and producers (including handloom, clothing, terry-towel and Linen products) in exporting RMG will be determined at rational level and it will be considered to increase at higher level in order to make this sector more competitive in world market.

22. The initiative for tax holiday facility will be continued for specific period of time depends on area. Following tax holiday facility will be provide to those who are going to commercial production within 30th June in 2011. b. Industries that’s are established in Dhaka and Chittagong division (except the 3

hill tracts) will allow to enjoy tax holiday facility at 100% rate for first two years, 50% for next two years and 25% for next one year (5th).

c. Industries that’s are established in Rajshahi, Khulna, Sylhet and Borishal Division including three hill tract district will allow to enjoy 7 years of tax holiday facility from the commence of production as 100% rate for 1st three years, 50% rate for next three years and 25% for the following last year (7th

year). 23. Special facility and Risk fund assistance will be provided to the preferential RMG

and Home textile industries. 24. Special incentive will be given to promote the hand loom sector as well as protect

the handloom sector and a silk village will be established like Benarshi and Jamdani Polli.


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25. An initiative will be taking to provide the special incentives under the existing law to those textile and clothing factories who use the alternative power in factory or have own electricity production system.

26. VAT on the utility (like electricity, gas, and water) use charge will be considering for remission.

27. Interest rate on short and medium term loan will be reduced gradually to encourage the implementation of BMRE in old and newly established industry in textile sector.

Some Incentives Mentioned in Export Policy 2012-15

1. After paying VAT equivalent to the amount of drawback received as per Mushak-11chalan payable at the local stage as per the existing VAT Act and after repaying for products that failure to re-export as per the undertaking, can be sold in the local market, only in the case of domestic inputs/fabrics.

2. Exporters can use the retention quota balance under the existing foreign exchange dealing system for business-related tour participation in export fairs and seminars; setting up and management of offices abroad; importing raw materials/capital machinery; etc and retain a certain amount of their export earning in their foreign currency time to time.

3. There shall be an Export Promotion Fund (EPF) for venture capital at lower interest rates, support for obtaining foreign technical assistance, service and technology for development and diversification of products. Support for sending marketing missions abroad and participating in international trade fairs, set up sales and display centers as well as warehouse facilities abroad and development and expansion of markets, including products and services.

4. Export Development Fund (EDF) will provide loans at lower interest rates and on soft terms will be made available for import of capital machinery and raw materials to promote exports.

5. Bangladesh Bank may open up an “Export Credit Cell” for arranging necessary fund for the development of export sector. Similarly, commercial banks will set up “Special Credit Unit” for arranging export fund and Initiatives will be taken to provide financial compensations, through creating a fund similar to the Export Credit Guarantee Scheme (ECGS), to those exporters who have incurred losses;

6. The National Board of Revenue will examine the possibility of permitting duty-free import of machinery and equipment by the exporting establishments for research and development purposes. Research institutes may be provided this facility based on recommendations from the Export Promotion Bureau.

7. Before acquiring the actual work order An exporter can spend a maximum of US$ 15,000 for communication, sending representatives, traveling abroad, purchase of tender documents etc. having an authorization from Bangladesh Bank.

8. Improving port management, simplifying procedures for releasing goods, resolving electricity problems etc. several steps will be taken to reduce the "lead time” for export of readymade garments

9. Initiatives will be taken to set up “garments villages” at various places with adequate infrastructural and utility facilities waste water treatment plants;

10. To reduce risks of accident and to fulfill the compliance requirements at the factory


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level Assistance will be provided to improve the working environment in the readymade garments factories.

11. Initiatives will be taken to provide trainings of different tenures to the workers to increase their productivity and diversify of products

12. Establishment of backward and forward linkage industries will be encouraged; 13. Necessary steps will be taken by Ministry of Commerce to coordinate financial

and technical cooperation related to export development of different development partners

Existing Incentives for Textile and Clothing Industries of Bangladesh:

5% alternative cash assistance is applicable to the export oriented local textile and clothing sector instead of tariff bond and duty draw back facility. 5% extra cash incentive is also applicable on repatriated amount to those organizations that are exporting at most $3.5 million and defined as medium and small industry since the fiscal year 2008-09.

Incentives for New Market Expansion:

An incentive at rate 3% on the repatriated value has been given by the government as export expansion incentive to export any countries other than EU countries, America and Canadian market since fiscal year 2013-14. The support was 5%, 4% and 2% respectively for the previous three fiscal years when the program was commenced for expanding export market.

Support in Export Policy:

1. Value Added Tax (VAT) on fire fighting and safety equipments has been removed fully by SRO No. 148-Law/2015/28/Customs dated on 4th June 2015.

2. Opportunity for exporting without L/C: Manufacturer can conduct activities without export L/C like purchase contract, purchase order, pay in advance under the sales contract and export on the basis of cash purchase subject to surrender EAP form and Shipping bill in contrast to TT.

3. Chief Controller of Imports and Exports (CCI&E) will give clearance with the consent of customs authority and Lien Bank for re-exporting the defectives goods to interested suppliers or exporters in that case where any foreign currency has not been sent to exporters or suppliers.

4. Exporters may get loan up to 90% on the irrevocable letter of credit or confirmed contract and commercial banks will consider in this regard. Further, there is an arrangement for export credit guarantee scheme.

5. Basically, 10% Spare parts of capital machineries can be import as tariff free rate for a two years interval.

6. Tax on source has been reduced to 0.3 % from 0.8% for the RMG business on 1st January 2014. Tax on source has been increased to 0.6 % from 1st July 2015.

7. Bangladesh Export Processing Zone Authority (BEPZA) has arranged special incentives and facilities in order to increase the foreign investment in its 8 exporting zones. There are different facilities of fiscal and non-fiscal incentives including tax


holiday, tax rebate etc. in these zones. The industries in EPZ area get electricity, gas water, telephone line and others utility connection automatically.

8. The depreciation on newly established plants and machineries will be determined at the rate of 50%, 30% and 20% on the year of 1st, 2nd and 3rd respectively.

9. The export oriented businesses who exports at least 80% of the produced goods or services will allow importing machineries at zero tariff as well as using the facility of Bonded Ware House.

10. Government of Bangladesh has proposed 30 special economic zones under Bangladesh Economic Zones Authority (BEZA) in budget FY 2015-16.

Other Facilities:

1. The zero tariff rates has been approved for importing machineries and parts to establish ETP (Effluent Treatment Plant) in export oriented industry since the fiscal year 2012-13.

2. Per person allowance has been increased to 400 taka in Lactating Mother Project. 3. Industry owners get 5% cash intensive against repatriate value for using domestic

yarn and fabrics 4. In FY 2015-16 budget, more than 5% duty has been waived for importing Fire

Resistant Door, Sprinkler System and Equipments and Emergency light with Exist sign and double heads

5. The industries that export more than US$ 6 million in value have been classified against their bank loan.

6. Importers get duty free facility for importing machineries to set up ETP. 7. Exporters get 80% VAT release for gas and 60% for water that used to export

production process 8. Realizing the present vulnerable situation of textile sector, the government has

launched SRO no- 137- law/2014/2501/customs Dated-05/06/2014 in current budget to give duty free facility in importing Pre-fabricated Building Materials.

9. Importer may import Dyes Chemical and Accessories for 4 months for the purpose of using these in export oriented production.

10. About Tk. 465 corer has been allotted for the Development of Mongla Port. Import and Export activities are conducting through this port which reduces the pressure on Chittagong port.

11. If the exporters buy yarn from domestic market by Back to Back L/C against master L/C. they get VAT released facility for 2 years

12. The Pangaon Inland Container Terminal (ICT) situated at Keranigonj in Dhaka has been opened for fully operational activities. Exporters can export as well as imported goods have been also cleared through this terminal.

13. Tk 2200 Cores was allotted for the extended cash incentive in the budget of fiscal year 2013-14. Finance ministry clear the allocation of Taka 555 corer after a 3 months interval from this allocation. Woven, Knit and Terry- Towel will allow getting this cash assistance in contrast to TT in advance.

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CChhaapptteerr -- VV Global Competitive Position of Bangladesh RMG Sector:

Undoubtedly China is the major player of Global Textile and Apparel Business in recent days with a strong supply chain management. The Apparel sector of China is vertically integrated with domestic cotton, Yarn, Knitting & Weaving facilities, which produces full package facilities for the Textile sector.

On the other hand, Now a days, Bangladesh is the second largest exporters of Apparel product worldwide. Though Bangladesh is the second best player in Apparel export but the market share of Bangladesh RMG product is negligence regarding the market share of China. The major hindering of RMG sector of Bangladesh is the unavailability of domestic raw materials specially the raw cotton. Also the foreign dependency of Dyes and Chemical, the man-made fiber are the another issues which pulling back the export if RMG product of Bangladesh. Most of cases, Bangladesh is only conducting the cutting-making and sewing (assembling) procedure rather than full package, which is the minority share of total value-addition of RMG product.

Figure 5: Competitive Position of Major RMG Producing Countries in Global Apparel Trade

Source: UNCTAD, based on Gereffi et al (2010), UNCTAD (2011), WTO International Trade Statistics (2011) Lead time of apparel export plays an important role in global competitive position of the exporting countries. The average lead-time of RMG export from Bangladesh is higher than the competitor countries like China, India, Vietnam, Cambodia etc. The infrastructural bottleneck, poor road & highway facilities, poor and inefficient port authority, legislation on Customs & Documentation are the major hindering export of RMG from Bangladesh.

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Figure 6: Number of Days to Reach USA from the day of Shipment by Different Countries.

Source: Omar Bargawi “Cambodia’s Garment Industry-Origins and Future Prospects” (ESAU Working Paper 13, Overseas Development Institute, London, 2005)

According to UNCTAD, Using the residual from the share of textiles imports in garments exports as a proxy for the value added, the below figure depicts that the apparel industry of Bangladesh has the highest domestic value addition than its major competitors.

Figure 7- Trend in Estimated Value Added as a Percentage of Garments Export Value, By Country

Source: UNCTAD based on UN Comtrade data

Cross-country rankings of the Ease of Doing Business highlight Bangladesh’s weak position in comparison to other major garments exporting countries. The figure below shows an overall ranking for cross-border trade which measures the related procedures, time and cost to export and import a package, Business registration, time need for the connection of Electricity & other indicators comparing with the competitor countries.

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Figure 8: Country Rankings Based on the Ease of Cross-border Trade

Source: www.doingbusiness.org/rankings, June 2014

Comparative Analysis of Incentives: Where BD Stands-

Bangladesh is the 2nd largest country in exporting apparel. Though, Bangladesh provides some incentives and facilities like as other competitive apparel exporting countries yet there are some weaknesses in the Bangladesh Government to develop the textile and clothing sector.

All other competitive countries like China, India and Sri Lanka have taken a long-term goals and also steps to implement those long-term goals. In order to do that, they have taken short-term policy consisting with the current economic and social condition which tunes with the long term goals subject to amendment after assessing. But there is no such potential policy which follows such method for implementation after the period of flourishing of textile and clothing sector. Though, recent textile policy has taken in 2011 which covered the weaknesses in previous two textile policies but there are also some debilitations. Most of the goal is set to achieve in future but there is no time limit. Moreover, it is observed that there is a gap between the goals and the activities which have been told in policy to achieve the goal.

Government of China, India, Pakistan and Sri Lanka are not only the main patron they also provide necessary support to the domestic textile and clothing industries to establish the world known international brand name. Govt. forms fund for this purpose. In Bangladesh, Most of the world known international brand sourcing their product from our textile and clothing industry. But we don’t have any international brand and there are no observable initiatives from the government in this regard.

There is no notable contribution as well as investment in the innovation of modern textile technology. Most of the modern machineries and technologies are imported from the international market while Govt. of China and India encourages the investor in investing in high-tech modern technology through providing different support.

7890

99128

135142

173

VietnamChina *

Sri LankaPakistan *Cambodia

India *Banglade…

Ease of Doing Business Rank Bangladesh and its Competitors

Ease of Doing …

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On the other hand, the production technique and the use of modern technology in the production process are still limited which hamper the production also the productivity. The Govt. of China, India and Pakistan initiated The Technological Up-gradation Fund (TUF) for the renovation of the technology and the machineries in the production process at subsidized interest rate. But In proposed Budget FY 2015-16, the govt. of Bangladesh has initiated 1% tariff rate on the import of modern machineries for the garments sector of Bangladesh, which will hamper the renovation process of machineries in the RMG sector of Bangladesh.

Frequent Research is needed to hold the existing market as well as to get accessing opportunity in potential new markets. Moreover, product developing activities also need to conduct continuously. Chinese Govt., Indian Govt., Pakistani Govt. and Sri Lankan Govt. are supporting their domestic producers in this regard. Furthermore, Different types of Training are also provided to the different level of workers and officers to increase the efficiency and competitiveness through increasing the productivity. But there is a gap or lacking in Bangladesh in this regard. The Research and Development activities are very inadequate in contrast to keep us competitive in world.

The RMG sector of Bangladesh is almost fully dependent on the international market for its basic raw-material i.e. cotton. But in China, India and Pakistan are competitive in this case. If we could source cotton from the domestic suppliers then the value addition in this sector would increase and also would reduce the dependence on the international market which would make us more competitive in the world market.

Strategy for the Development of RMG sector

A Clear Statement of the Vision for the RMG Sector of Bangladesh:

To rise the production of textile to 10972 million meters within 2014-15 and 17000 million meters within 2020-21, considering the demand of RMG and domestic textile. In other way, the vision target is to increase the production of domestic textile from current 64% to 72% and 80% within fiscal year 2014-15 and 2020-21 respectively.

Objectives of Textile Policy:

Followings are the main objectives of textile policy –

To take the potential initiative towards the development of domestic textile sector, coherent with GATT-Uruguay Round – contract, 1994 and the Agreement on Textiles and Clothing (ATC) under the World Trade organization WTO.

To develop the primary textile industries with aim to meet the demand of internal and export oriented high value added textile sector with increasing the domestic production.

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To assure the quality production of versatile garment products at a competitive international price with the goal of the confirmation of direct export provision.

To formulate the planning and the proper implementation of that planning considering the aim of proper development of the sub-sector such as spinning, weaving, knitting, dyeing-finishing, hosiery, home textiles, RMG and handloom on national priority basis.

To take proper initiatives for creating a special fund like the other countries and its proper implementation.

To continue its effort for gaining easy access to the market of all countries through gaining facilitated market access privileges for commercially produced textile and clothing goods in those countries.

To take short-term, medium-term and long-term planning in order to create efficient, modern and technical knowledgeable human resources for the purpose of efficient management. In order to achieve the goal, textile related education and training system will expand through establishing different university, college, vocational school and training institute

To take effective steps for establishing Effluent Treatment Plant (ETP) in Dyeing, Printing and finishing factories of Textile sector in order to reduce waste and overall assure environmental friendly production.

To take effective steps in order to develop the quality and testing system which meet the global standard in case of RMG production.

To develop the private institutional framework with the help of govt. assistance to conduct research and increase the use of technology and cooperation.

To give emphasis on the production and marketing of greater value added textile products.

The Long-term Outcome Goals and Results that must be Obtained to Fulfill the Vision:

1. Build a strong and vibrant textile industry which is technologically advanced and internationally competitive. Incentivize investment in technological up-gradation and modernization through

schemes such as TUFS with enhanced plan allocations. 2. Generate large scale employment and to improve the availability of skilled man-

power for the entire gamut of the RMG sector and to enhance the welfare of spinning, weaving, knitting sector workers. Encourage faster development of the Knitwear sector. Encourage vertical integration and value addition in the industry. Scale up plan allocations for Welfare Schemes.

3. Enhance Bangladesh’s share of global market for RMG’s. Achieving faster growth in RMG exports. Enhancing the export growth rate

from the present-level of 10-15% to 20-25% in the next five years.

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4. To make employment intensive subsectors such as spinning, weaving, knitting more vibrant, rewarding for all the stakeholders, rich in quality and design. Enhancing of plan outlays for spinning, weaving, knitting sector and effective

implementation of such plan schemes for these sectors. 5. Achieve maximum value addition throughout the entire value chain of the RMG

sector. Encourage spinners to attempt forward integration into hosiery and

fabrics and even woven materials and to increasingly look at export potential in terms of fabric.

6. Enhance the RMG sector’s contribution to Bangladesh’s GDP, employment and foreign exchange earnings. Overall development of the textile industry at a faster rate than before is

expected to increase its share in GDP, contribution to employment and export earnings.

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CChhaapptteerr -- VVII RCA Analysis on RMG Sector of Different Countries

China:

Through the RCA indicator we have analyzed the comparative advantage of apparel sector of China as follows:

Table 18: RCA Analysis of China in Textile and Apparel Sector (HS Code 50-63)

Product code

Export Value

HS Code wise (in

Billion $)

Total export of China (in Billion $)

World Export Product

Code wise (in Billion $)

World total export (in Billion $)

Normalized RCA

World Market

Share (in %)

50 1.63 2209.01 3.02 17974.40 0.63 53.93

51 2.62 2209.01 14.08 17974.40 0.20 18.61

52 17.55 2209.01 68.05 17974.40 0.35 25.78

53 1.29 2209.01 4.09 17974.40 0.44 31.40

54 16.01 2209.01 47.52 17974.40 0.47 33.70

55 11.21 2209.01 39.26 17974.40 0.40 28.56

56 4.13 2209.01 23.72 17974.40 0.17 17.39

57 2.51 2209.01 15.57 17974.40 0.13 16.10

58 4.87 2209.01 12.55 17974.40 0.52 38.85

59 7.38 2209.01 24.91 17974.40 0.41 29.61

60 12.90 2209.01 30.89 17974.40 0.55 41.76

61 96.79 2209.01 223.37 17974.40 0.56 43.33

62 68.25 2209.01 202.09 17974.40 0.47 33.77

63 26.83 2209.01 62.00 17974.40 0.56 43.26

Textile And Clothing 273.96 2209.01 771.13 17974.40 0.49 35.53

RMG Products 165.04 2209.01 425.47 17974.40 0.52 38.79

Source: Based on the Calculation of R&D cell, iART, BKMEA from ITC Trade Map

RCA are normalized so that they lie within the interval -1 to 1. Positive values identify comparative advantages and negatives values capture comparative disadvantages of the respective product.

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In this regard, China has comparative advantage in export of all textile & Apparel product both individually and group wise. In the case of RMG sector the normalized value of RCA is 0.52, which implies that China has a comparative advantage of production and export of RMG product.

In case of, Articles of apparel, accessories, knit or crochet, Vegetable textile fibres nes, paper yarn, woven fabric, Articles of apparel, accessories, not knit or crochet, other made textile articles, sets, worn clothing etc export China have comparative advantage position. The values of RMG’s RCA of all countries show that RMG sector has comparative advantage. China enjoys comparative advantage in all textile products individually and group wise.

India:

The RCA indicator shows that most of product in Textile and Apparel Sector of India has a comparative advantage on export. In the case of HS 52 product that is Cotton export, India has a RCA of 0.80, which is highest among the entire product of textile and Clothing; also the volume of export of Cotton is highest, implies that India has a comparative advantage on the production and export of Cotton and covers the 16.60 % of total cotton export market share all over the world. In case of RMG export India has a RCA of 0.33 implies that RMG export from India has less competitive advantage position. Though the RCA of Indian RMG product is low but the volume of export is high regarding the Textile and Clothing product of India rather than Cotton.

Table 19: RCA Analysis of India in Textile and Apparel Sector (HS Code 50-63)

Product code Export Value

HS code wise(in Million $)

Total export of India (in Million $)

World Export Product Code

wise (in Million $)

World total export (in Million $)

Normalized RCA

Share in World Market

50 164.30 336611.39 3022.28 17974395.14 0.49 5.44 51 163.36 336611.39 14075.17 17974395.14 -0.23 1.16 52 11293.95 336611.39 68051.31 17974395.14 0.80 16.60 53 326.89 336611.39 4093.20 17974395.14 0.62 7.99 54 2680.86 336611.39 47518.45 17974395.14 0.50 5.64 55 2185.63 336611.39 39255.79 17974395.14 0.50 5.57 56 352.62 336611.39 23724.03 17974395.14 -0.12 1.49 57 1715.70 336611.39 15566.45 17974395.14 0.71 11.02 58 397.53 336611.39 12549.35 17974395.14 0.26 3.17 59 239.93 336611.39 24913.22 17974395.14 -0.32 0.96 60 256.50 336611.39 30894.81 17974395.14 -0.39 0.83 61 6959.26 336611.39 223371.77 17974395.14 0.25 3.12 62 8743.40 336611.39 202093.39 17974395.14 0.40 4.33 63 4712.82 336611.39 62004.39 17974395.14 0.60 7.60

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80

Product code Export Value

HS code wise(in Million $)

Total export of India (in Million $)


wise (in Million $)


Normalized RCA



RMG Products 15702.66 336611.39 425465.17 17974395.14 0.33 3.69


Pakistan:

The RCA indicator for the Textile and Apparel sector of Pakistan implies that Pakistan has comparative advantage on the export of Textile and Apparel product. In case of HS 52, Pakistan has the most RCA, which is .96. In case of export of RMG product has a RCA of 0.74 implies that Pakistan has a comparative advantage of RMG export but lower than the competitor countries.

Table 20: RCA Analysis of Pakistan in Textile and Apparel Sector (HS Code 50-63)

Product code

Total Export Value HS

Code Wise (in Million $)

Total export of Pakistan

(in Million $)


wise (in Million $)

World total export (in Million

$) Normalized RCA


50 1.83 25120.88 3022.28 17974395.14 -0.40 0.06 51 16.09 25120.88 14075.17 17974395.14 -0.10 0.11

52 5333.78 25120.88 68051.31 17974395.14 0.96 7.84

53 2.14 25120.88 4093.20 17974395.14 -0.46 0.05

54 30.35 25120.88 47518.45 17974395.14 -0.37 0.06 55 418.17 25120.88 39255.79 17974395.14 0.77 1.07

56 27.34 25120.88 23724.03 17974395.14 -0.10 0.12

57 128.30 25120.88 15566.45 17974395.14 0.71 0.82

58 21.92 25120.88 12549.35 17974395.14 0.11 0.17 59 12.66 25120.88 24913.22 17974395.14 -0.47 0.05

60 32.57 25120.88 30894.81 17974395.14 -0.14 0.11

61 2105.32 25120.88 223371.77 17974395.14 0.74 0.94

62 1854.93 25120.88 202093.39 17974395.14 0.74 0.92 63 3685.49 25120.88 62004.39 17974395.14 0.95 5.94


RMG Products 3960.25 25120.88 425465.17 17974395.14 0.74 0.93



Vietnam:

Vietnam is one of the major apparel exporting country across the world with comparative advantage on the production and export of major textile products. The textile sector has a normalized RCA of 0.59 which implies that the export bundles of Vietnam are not diversified and textile sector plays significant role in the export earnings.

On the other hand the RMG products such as Knitwear and Woven product have a RCA of 0.70 which implies that in case of RMG product export Vietnam has comparative advantage position.

Table 21: RCA Analysis of Vietnam in Textile and Apparel Sector (HS Code 50-63)

Product code

Export Value HS Code wise (in

Billion $)

Total export of

Vietnam(in Billion $)

World Export Product Code wise (in Billion

$)

World total export (in Billion $)

Normalized RCA

World Market Share

50 0.057 140.08 3.02 17974.40 0.42 1.89

51 0.005 140.08 14.08 17974.40 -0.91 0.04

52 1.200 140.08 68.05 17974.40 0.39 1.76

53 0.037 140.08 4.09 17974.40 0.08 0.91

54 0.648 140.08 47.52 17974.40 0.27 1.36

55 0.611 140.08 39.26 17974.40 0.33 1.56

56 0.187 140.08 23.72 17974.40 0.01 0.79

57 0.030 140.08 15.57 17974.40 -0.60 0.20

58 0.058 140.08 12.55 17974.40 -0.25 0.46

59 0.440 140.08 24.91 17974.40 0.39 1.77

60 0.182 140.08 30.89 17974.40 -0.14 0.59

61 8.498 140.08 223.37 17974.40 0.66 3.80

62 9.999 140.08 202.09 17974.40 0.73 4.95

63 1.004 140.08 62.00 17974.40 0.35 1.62


RMG Product 18.497 140.08 425.47 17974.40 0.70 4.35


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Sri Lanka:

Sri Lanka has comparative advantage on the production & export of different product on Textile and Apparel sector. In the case of HS 53, Sri Lanka has RCA of 0.96, which is the highest among the entire product of textile and apparel sector. In case of RMG export Sri Lanka has a RCA of 0.89 implies that the RMG sector plays a significant role on the export volume, also in case of RMG production Sri Lanka has comparative advantage position.

Table 22: RCA Analysis of Sri Lanka in Textile and Apparel Sector (HS Code 50-63)

Product code

Export Value HS Code wise (in Million $)

Total export of Sri Lanka (in Million $)


wise (in Million $)


Normalized RCA

World Market Share

50 0.009 10004.88 3022.283 17974395.14 -0.99 0.000

51 0.126 10004.88 14075.167 17974395.14 -0.97 0.001

52 39.702 10004.88 68051.314 17974395.14 0.02 0.058

53 116.753 10004.88 4093.204 17974395.14 0.96 2.852

54 6.916 10004.88 47518.449 17974395.14 -0.59 0.015

55 30.702 10004.88 39255.791 17974395.14 0.17 0.078

56 22.28 10004.88 23724.034 17974395.14 0.26 0.094

57 5.834 10004.88 15566.447 17974395.14 -0.20 0.037

58 44.659 10004.88 12549.351 17974395.14 0.73 0.356

59 9.385 10004.88 24913.222 17974395.14 -0.19 0.038

60 27.007 10004.88 30894.807 17974395.14 0.22 0.087

61 2366.689 10004.88 223371.772 17974395.14 0.90 1.060

62 1904.122 10004.88 202093.393 17974395.14 0.89 0.942

63 51.17 10004.88 62004.387 17974395.14 0.19 0.083


RMG Products 4270.811 10004.88 425465.165 17974395.14 0.89 1.004


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Cambodia:

The RCA indicator of Cambodia shows that in the major product of Textile and Apparel sector has comparative disadvantage position. In case of HS code 50-59, Cambodia has comparative disadvantage position on export. Though Cambodia has a comparative advantage on the export of Ready Made Garments product but in case of Knitwear export Cambodia has a RCA of 0.95 implies that Knitwear export has more comparative advantage position than the Woven export. Despite the RCA in Knitwear export is highest in Textile and Apparel export of Cambodia, it covers only 2.11% of total market share of Knitwear business.

Table 23: RCA Analysis of Cambodia in Textile and Apparel Sector (HS Code 50-63)

Product code

Export Value HS

Code Wise (in million $)

Total export of Cambodia (in million $)


wise (in million $)

World total export (in million $)

Normalized RCA


50 0.009 9248.134 3022.283 17974395.141 -0.99 0.000

51 0.048 9248.134 14075.167 17974395.141 -0.99 0.000

52 1.454 9248.134 68051.314 17974395.141 -0.92 0.002

53 0.000 9248.134 4093.204 17974395.141 -1.00 0.000

54 0.201 9248.134 47518.449 17974395.141 -0.98 0.000

55 10.516 9248.134 39255.791 17974395.141 -0.32 0.027

56 0.164 9248.134 23724.034 17974395.141 -0.97 0.001

57 0.091 9248.134 15566.447 17974395.141 -0.98 0.001

58 1.715 9248.134 12549.351 17974395.141 -0.58 0.014

59 0.926 9248.134 24913.222 17974395.141 -0.87 0.004

60 29.876 9248.134 30894.807 17974395.141 0.31 0.097

61 4719.638 9248.134 223371.772 17974395.141 0.95 2.113

62 279.224 9248.134 202093.393 17974395.141 0.46 0.138

63 57.269 9248.134 62004.387 17974395.141 0.28 0.092

Textile And

Clothing 5101.131 9248.134 771133.621 17974395.141 0.86 0.662

RMG Products 4998.862 9248.134 425465.165 17974395.141 0.92 1.175


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Bangladesh:

The RCA indicator for the Textile and Clothing sector of Bangladesh shows that Bangladesh has comparative advantage position in few products. The RCA indicator for RMG is 0.95 implies that Bangladesh has a comparative advantage position in production and export of RMG product. The volume of RMG product export covers the major part of the Textile and Clothing export of Bangladesh also covers the 6.17 % share of total RMG export entire the world.

Table 24: RCA Analysis of Bangladesh in Textile and Apparel Sector (HS Code 50-63)

Product code

Export Value HS Code wise (in million

$)

Total export of Bangladesh (in million $)


wise (in million $)

World total export (in

Thousand $)

Normalized RCA

World Market Share

50 0.089 30999.23 3022.28 17974395.14 -0.97 0.003

51 0.144 30999.23 14075.17 17974395.14 -0.99 0.001

52 43.212 30999.23 68051.31 17974395.14 -0.46 0.063

53 613.247 30999.23 4093.20 17974395.14 0.98 14.982

54 4.992 30999.23 47518.45 17974395.14 -0.89 0.011

55 16.919 30999.23 39255.79 17974395.14 -0.60 0.043

56 24.461 30999.23 23724.03 17974395.14 -0.25 0.103

57 13.536 30999.23 15566.45 17974395.14 -0.33 0.087

58 2.527 30999.23 12549.35 17974395.14 -0.79 0.020

59 0.479 30999.23 24913.22 17974395.14 -0.98 0.002

60 6.29 30999.23 30894.81 17974395.14 -0.79 0.020

61 13161.652 30999.23 223371.77 17974395.14 0.94 5.892

62 13097.166 30999.23 202093.39 17974395.14 0.95 6.481

63 1047.123 30999.23 62004.39 17974395.14 0.81 1.689


RMG Products 26258.818 30999.23 425465.17 17974395.14 0.95 6.172


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85

From the above table, it is clear that RMG sector of Bangladesh has a comparative advantage in RMG production & export, also the sector plays very crucial role in shaping economic building block.

HS code wise RCA analysis for Bangladesh & its competitor countries for Textile and Clothing sector shows the comparative advantage or disadvantage in different products categories. The RCA indicator shows that the major competitor of Bangladesh in RMG export like China, India, and Pakistan has comparative advantage position in major product of Textile and Clothing sector implies the vertically integrated position in the value chain. On the other hand, Bangladesh RMG sector is not fully integrated in its value chain. Bangladesh has to import almost 95% of total Cotton used in the production of yarn, the major raw materials of RMG product. Though the availability of yarn from cotton is almost sufficient but in case of manmade fiber Bangladesh is fully dependent on import, which makes the RMG industry more vulnerable in the volatility of world apparel business.

According to the RCA indicator, the RMG product of Bangladesh has the highest RCA value of 0.95 among the major competitor countries, implies that the RMG sector has a great contribution on the national export of Bangladesh. In sort, we can say that the export from Bangladesh is highly concentrated to the export of RMG product.

STR

ENG

THS

WEAKNESSES

THREATS

OPPO

RTU

NITIES

Electrical Safety

LACK OF EU GSPfor

RMG

SWOT Analysis of Bangladesh RMG Sector


SWOT Analysis on Bangladesh RMG Sector:

To evaluate the strengths, Weakness, opportunity and threats of a sector; SWOT analysis is a structured planning method. It involves the nature and objective of a project, also identifying the internal and external factors that are encouraging and hostile to achieve the goal.

Now a days, RMG sector of Bangladesh is passing a transitional phase due to the internal factors like political instability, Fire, Electrical & Structural safety and several external pressure for certification & Compliance from buyers end. Such a environment creates a serious threat for RMG sector of Bangladesh. On the one hand, it is opening a vast market with unlimited export potentials across the world. Again, it signals fierce competition from textile giants like China, India and, from efficient producers like Thailand, Sri Lanka and Vietnam. Competition may also come from Sub Saharan Africa and the Caribbean countries due to preferential treatment from USA through TDA 2000. Also different regional agreements like NAFTA, TPP and several FTA may appear to be unfavorable for the RMG sector of Bangladesh.

The changing environment scenario described above, the following sections focus on SWOT (strengths & weaknesses and opportunities & threats) analysis of the RMG industry of Bangladesh.

Strengths:

Initiating Green Production Technique across the RMG sector of Bangladesh.

High quality diversified products at Competitive price rate.

favorable endowment of labor and flexibility of the labor markets

A large pool of Skilled, Semi skilled & experienced workforce.

Easily trainable Workforce.

Abundant of Young workforce may be transformed as skilled worker if required.

Low labor cost compared with competitor countries.

Domestic Value addition is more than 75% in Knitwear sector of Bangladesh.

Energy and Utility services at comparatively lower price.

Separated dyeing and finishing industry has grown up over the time to support the

sector.

More than 200 composite factories in RMG sector of Bangladesh

Long experience of apparel business and a created value chain across the globe.

Extensive experience of dealing with foreign Buyers.

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Duty-free and quota-free access to the markets of several developed and developing

countries, such as EU, Canada, Australian, Japan etc.

Simplification of tariff regime & Improved GSP advantages under regional

cumulative for RMG product.

Duty free & Quota free export facilities to 49 countries across the world.

Socially and Environmentally compliant ISO, BSCIS, WRAP, OKETEX etc.

certified factories

Implementation of social compliance, fire safety mechanism in the factories

Linkage the factories with environmentally and chemical sustainability

program.

Adopting the Green factory mechanism for a sustainable industrial build-up.

Application of CPM (Clean production mechanism) into the factory

production strategy.

Structural adjustment policies of the factories according to the demand of

ILO, ACCORD, and ALLIANCE & Other related international bodies.

Easily accessible infrastructure like sea road, railroad, river and air communication.

FDI is legally permitted.

Moderately open Economy, particularly in the Export Promotion Zones.

Investment assured under Foreign Private Investment (Promotion and Protection)

Act, 1980 which secures all foreign investments in Bangladesh.

Bangladesh is a member of Multilateral Investment Guarantee Agency (MIGA)

under which protection and safety measures are available.

Favorable exchange rate of currency against dollar/euro and the condition will

persist to help exporters.

Convenience of duty free customs bonded w/house.

Weaknesses:

Dependence on others for raw materials who are the major competitor of

Bangladesh.

Low productivity of the workers.

Poor Negotiation & Bargaining skill regarding price negotiation.

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Shortage of Power & Utility services.

Limited knowledge in international marketing information & Lack of marketing

tactics.

Poor infrastructure facilities for Manufacturing Sector.

Inefficiency in port management which increases Lead time.

Hap-hazard Customs and Documentation Procedure.

Unauthenticated & unrecognized Trade Union.

Inefficient mid-level management.

Lack of training organizations for industrial workers, supervisors and managers.

Low acquiescence: there is an international pressure group to compel the local

producers and the government to implement social acquiescence. The US GSP may

be cancelled and purchasing from US& EU may decrease significantly

Lack of Modern technological Production Process.

Use of Traditional machineries and equipments.

Autocratic approach of nearly all the investors.

Speed money culture.

Language barrier regarding the communication with foreign buyers.

Opportunities:

Unlimited Market Stock outside Bangladesh is the greatest opportunities of RMG

sector.

With the highest potential for future Apparel sourcing “Bangladesh is going to be

No. 1,” [McKinsey & Co.]

EU is willing to establish industry in a big way as an option to china particularly for

knits, including sweaters.

To increase the market share as Chain may shrink the production of traditional

Garments Products.

Bangladesh may expand the export of high value added products through product

diversification.

Under the provision of WTO Rules & Regulation, Bangladesh seek more

preferential market access in developed countries worldwide.

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90

If the uninterrupted supply chain of Raw Materials ensured Bangladesh can be the

sourcing hub of RMG products.

Non Traditional but Potential Markets have the potentiality to expand the market

share of Bangladesh Apparel product.

If skilled technicians are available to instruct, prearranged garment is an option

because labor and energy cost are inexpensive.

Japan with a market of $30 billion annual apparel import; providing 2 stage GSP

facilities which may be transformed into single stage soon for RMG product of

Bangladesh.

Through the proper training if the unemployed workforce transformed to skilled, the

productivity will increase.

Through the implication of modern machinery and technology based production

technique both the labor and factor productivity will increase.

Chittagong port is going to be handed over to the foreign operator ,which will make

the port’s service much faster, it will also reduce lead-time as well as total cost will

be decreased.

Implication of Dhaka-Chittagong 4 lane Highway will be helpful to reduce the

transportation lead time.

The proposed deep sea port in ‘Sonadia’ need to be operating in near future would

be very helpful to reduce the lead time of export and import of RMG product and

required raw materials.

Threats:

China is a most likely the biggest threat for Bangladesh as this country has

relatively high labor productivity and applies more capital-intensive modern

technology and it has less lead-time because of its relative advantages in getting

locally available raw materials like fabrics, various RMG accessories.

Vietnam is attracting huge amount of FDI in RMG sector which will be beneficiary

to implication of modern technology based production which increase both the

production of fashion items and the productivity also bolster the market share

worldwide.


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TPP agreement by Vietnam with 12 developed and potential Markets including

USA, Australia, New Zealand, Japan, Canada, Mexico etc likely to take effect in

2015, will affect the export of RMG from Bangladesh largely.

Now a days, India with enormous amount of investment on Textile sector; debut as

the potential threat of Bangladesh RMG sector.

Political instability, Continuous Blockade and Shutdown, Fire arson, Vandalism in

recent days became the main challenges of RMG Export of Bangladesh.

Over dependent on sourcing of Raw materials for foreign countries like China &

India; major competitor of RMG export, may rise the product price or reduce the

supply of raw materials which may reduce the competitiveness of Bangladeshi

RMG product in world market.

Shortage of Power supply and Gas supply reduce the production of Knitwear sector

by at least 40%, also increase the cost of production as alternative source is used to

continue the production.

China has also relatively better infrastructural facilities like energy supply,

transportation and communication system. Some African and Caribbean countries have enjoyed zero-tariff facility under AOA

act (Agreement on Agriculture) that helps them to be more competitive relative to

Bangladesh.

Incentivisation ofInvestmentsfor Modernizationand Expansion

Policy Matrix forSustainable

Ready Made GarmentsIndustry

ImprovingSupply ChainManagement

AddressingInfrastructureBottlenecksandStrengthening ofInstitutionalFramework

Human ResourceDevelopment andSkill Up-gradation

Trade Policy &Export Promotion

Research & Developmentfor Product Innovation

and Differentiation


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CChhaapptteerr -- VVIIII The Proposed Solution and the Policy Matrix:

Incentivizing Investment:

The Industry needs an investment of $2 billion till the end of 2020 to cater to demand growth. The spinning, weaving and processing segments would require a significant portion of this investment. These segments are capital intensive and are also characterized by low returns, thus heightening the need to incentivize investments through interest subsidization.

Technology Up-gradation Fund Scheme (TUFS):

TUFS is mainly focused on the modernization of the textile and Readymade Garments sector of Bangladesh. As the productivity of Bangladesh RMG sector is below the average due to the tradition technology and production technique. It is therefore imperative that Technology Up-gradation Fund Scheme (TUFS) is much more needed to achieve the ultimate vision of RMG sector of Bangladesh.

Objective of Technology Up-gradation Fund Scheme:

Upgrade & modernize the Bangladesh Garments Industry by encouraging it to undertake & adopt modern technological process & or undertake capacity expansion.

To achieve the vision of export growth and the development of country’s main source of export earnings Government should initiate the Technology Up-gradation Fund Scheme (TUFS) for the garments industries and provide the financial and operational parameters of the scheme as follows:-

i. A reimbursement of 5% on the interest charged by the lending agency on a project of technology up-gradation in conformity with the Scheme. However, for spinning machinery the scheme will provide 4% for new stand alone / replacement / modernization of spinning machinery; and 5% for spinning units with matching capacity in weaving / knitting / processing / garmenting.

ii. Cover for foreign exchange rate fluctuation / forward cover premium not exceeding 5% for all segments except for new stand alone / replacement / modernization of spinning machinery, the foreign exchange rate fluctuation/ Forward cover premium will be 4%.

iii. Additional option to the spinning units and independent preparatory units to avail of 20% Margin Money subsidy under Restructured TUFS in lieu of 5% interest reimbursement on investment in TUF compatible specified machinery subject to a capital ceiling of Tk. 50 lakh and ceiling on margin money subsidy of Tk. 60 lakh. However, for brand new shuttleness looms the ceiling on margin money subsidy will be


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Tk 1 crore. A minimum of 15% equity contribution from beneficiaries will be ensured. iv. 5% interest reimbursement plus 10% capital subsidy for specified processing,

garmenting and technical textile machineries. v. The Common Effluent Treatment Plants (CETPs) will be covered under the

structured TUFS. vi. 5% interest reimbursement plus 10% capital subsidy for brand new shuttle less looms.

vii. Interest subsidy/capital subsidy/Margin Money subsidy on the basic value of the machineries excluding the tax component for the purpose of valuation.

viii. 25% capital subsidy in lieu of 5% interest reimbursement on purchase of the new machinery and equipments for the weaving & spinning operations, and testing & Quality Control equipments, for spinning production units.

ix. 25% capital subsidy in lieu of 5% interest reimbursement on benchmarked machinery of silk sector as applicable for Spinning and Weaving sector.

x. The Scheme will cover only automatic shuttleless looms of 10 years’ vintage and with a residual life of minimum 10 years.

xi. Investments like factory building, pre-operative expenses and margin money for working capital will be eligible for benefit of reimbursement under the scheme meant for apparel sector and spinning with 50% cap. In case apparel unit is engaged in any other activity, the eligible investment under this head will only be related to plant & machinery eligible for manufacturing of apparel.

xii. Interest reimbursement will be for a period of 7 years including 2 years implementation / moratorium period.

It is necessary to unite the Technology Up-gradation Fund Scheme with other schemes, such as Cluster development schemes and if necessary, introduce new schemes to focus on modernization of the Knitting, Spinning and weaving sector.

The Special Fund for Bangladeshi RMG Producer and Exporters to “Market Diversification”:

A special fund needed to support the “Market diversification” project and to restructure the RMG industry and to expand Bangladeshi enterprise globally. The Ministry of Finance, and the Ministry of Commerce, can authorize the allocation of this special fund to support technology innovation and restructuring in the RMG industry and overseas investment by textile and apparel companies. The initial scale of the fund will be Tk. 1500 crore for restructuring and “going global” operation. More specifically, the fund will utilize as follows:

To support technology innovation and restructuring in the textile industry and facilitate the shift to the new growth mode in foreign trade.

To provide loan interest subsidies for the establishment of overseas garments industrial parks, providing a favorable environment for textile companies in the


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course of “Market Diversification.” To support RMG companies in “Market Diversification” through overseas

investment involving R&D, consulting services, feasibility study and project evaluation, and intellectual property rights protection and diversifying their products origin through overseas manufacturing.

The fund may be utilized as the form of tax subsidies and cash subsidies on a single project basis as follows:

A grant of up to TK 2 crore on leasing or purchasing and construction of manufacturing facilities in overseas investment for RMG producers of Bangladesh.

50% subsidy on premium on the Insurance for overseas investment projects of RMG exports of Bangladesh.

A grant of up to TK 1 crore on leasing office space for R&D activities, hiring designers, and purchasing relevant materials in overseas operations of BD exporters.

A grant of up to TK 50 lakh on Overseas trademarks registration and product certification of Bangladeshi RMG producers and exporters.

50% subsidy on premium on the Insurance for the overseas marketing and sales branches of BD exporters.

The Trade Promotion Fund for Readymade Garments Producers:

With a view to enhancing the export quality and competitiveness of readymade garments industries, the government of Bangladesh through Ministry of Commerce and the Ministry of Finance can operates a fund of TK 500 crore to promote international trade of Knitwear products as well as RMG products.

The Trade Promotion Fund can be Utilized under the Project of

50% subsidy on arranging national and international exhibitions, seminars and trainings, individually or jointly run by industry associations.

A grant up to 1 core for providing technologies and equipment required in R&D, product design, quality control, and product testing, run by individually or industry associations of RMG sector.

The Special Fund for Brand Development:

After the Rana Plaza collapse and blaze in Tazrin garments, the brand image of Bangladeshi RMG products is on crisis. Still the RMG sector of Bangladesh is passing a critical situation. To recover these crisis and build & spread out “Made in Bangladesh” worldwide, the govt. of Bangladesh should initiate a series of brand appraisal and brand promotion fund of Tk 500 core. The fund can be issued by the Ministry of Commerce and the Ministry of Finance and should serve the following purposes:


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To support companies in implementation of brand development programs. To support companies in participation of national and international exhibitions. To support brand promotion activities. To support international exchanges, trainings and seminars related to brand building. To support other public services that facilitates brand building.

With respect to the amount of the grants, each project can receive a grant up to Tk. 50 lakh or 50 percent of the actual expenses required by the project.

Enterprise Income Tax Law:

The Govt. of Bangladesh can launch new Enterprise Income Tax Law which will equalize the income tax rate for domestic and foreign enterprises at 25 percent also state-encouraged new- and high-technology enterprises can enjoy a favorable 15 percent income tax rate. This benefit would encourage domestic and foreign companies to invest in the manufacturing of advanced textile and clothing machinery.

Monetary Awards to RMG Producers Contingent upon Export Performance and Brand Development:

The Govt. of Bangladesh has initiated a 5% cash incentives for small and medium RMG exporter whose annual volume of export was less than or equal to $ 3.5 million in FY 2008-09. With these facilities the govt. can expand the provision of incentives to boost textiles and apparel exports and encourage brand building. The standards can be as follows:

Table 25: Provision of Incentive for Exporter of Bangladesh RMG Sector

Exports in USD Amount of the Award

(% of total Export)

1-3.5 million 5%

3.5-10 million 4%

10-25 million 3%

25-50 million & above 2%

Incentives for “Knit Polli”: Special Economic Zone for Knitwear Sector To boost local competitiveness, and ensure compliance related issues, the government of Bangladesh can adopt various preferential policies to attract domestic garments industries to shift their factories to the proposed Knit Polli, situated on the estuary of Buriganga, Dholeshowri & Shitolokkha. The Govt. can provide different types of incentives to the investors to invest on Knit Polli, which may include:

Tax Benefits: local income taxes can be refunded to the enterprises in full within 5 years for at least 80% export oriented factories.


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Preferential Treatment in Land Use: enterprises with a fixed asset investment of above Tk 10 million and annual tax payments of Tk 1 million can receive a waiver of the land leasing fee for 20 years.

Preferential Treatment in Administrative Fees: enterprises with a fixed asset investment of above Tk 5 million can receive a waiver of administrative fees during the construction period and within 5 years of operation.

Preferential Interest Rate Facilities: enterprises with modern technological renovation and high-tech production procedure can get 5% subsidy on the interest of loan required.

Central ETP System: enterprises that shift their factories in the Garments Polli can get the facility of central ETP system with a minimum cost.

Human Resource Development:

At present, the Readymade Garments industry provides employment to about 4.5 million people directly and 2 million people indirectly. The major concern which hampers the growth prospects of the industry is the non-availability of quality & skilled manpower and the inadequacy of training facilities in the country.

To surmount the huge skill gap of workforce, the Ministry of Textiles and Jute can launch an Integrated Employee Development Scheme to impart employable skills in different segments (textiles, apparel, handicrafts, pharmaceuticals, shipyard, jute etc.) to train approximately 15 lakh persons over a span of 5 years with an outlay of Tk 2000 crore .

As part of the program, an Integrated Employee Development Scheme, Tk 500 crores should be provided to train 4.5 million workers who are employed in RMG sectors, which will raise the productivity of the worker and boost the volume of export.

Apart from this the scheme can also be used specifically tailor-made to suit the requirement of all the segments of the textile sector, providing for a direct linkage with the job requirements in the RMG sector.

In addition, mapping of the human resource requirements of the textiles industry to facilitate creation of a pool of skilled labor will also have to be undertaken.

Strengthening of Institutional Framework:

In addition to the existing institutional framework to support the textile and apparel sector, the following additional institutional mechanisms can be utilized.

a. The Cotton Advisory Board has been entrusted with the responsibility of ensuring adequate availability of cotton for domestic consumption by recommending appropriate and timely measures.

b. Establishment of a Yarn Advisory Board for formulation of a yarn Balance sheet to ensure adequate yarn availability for handlooms and garments sector;


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c. Launching of a Technology Mission on Technical Textiles and creation of centre’s of excellence in the identified sub groups of technical textiles

d. Creation of a RMG Development Fund for R&D efforts in fashion product development of Ready Made Garments Sector.

e. In addition, existing institutions which are responsible for the development of RMG sector of Bangladesh will be strengthened and modernized.

Correcting Fiscal Anomalies:

The excise and customs tariffs and other taxes on various raw materials and finished products of the textile sector will be constantly monitored and appropriate remedial measures taken in consultation with the industry stakeholders and the Ministries of Commerce, Industry and Finance.

Addressing the Problem of Infrastructure Bottlenecks:

Under developed infrastructures remain to be a serious handicap affecting industrial development including the development of textile and clothing industries. Visible efforts are needed to improve the physical and social infrastructure of textile centers, including provision of adequate and un-interrupted power supply at competitive rates. The Ministry of Textiles and Jute would constantly monitor the infrastructure constraints faced by the textile and clothing industry and take appropriate and timely measures to address the issues in consultation/ collaboration with the Ministry of Communications. In addition to this, the infrastructure issues would be addressed by setting up Integrated Textile Parks (RMG Garments Polli) and Mega Clusters for Knitting, Weaving and Spinning in Public Private Partnership mode.

Improving Backward Linkage:

Backward linkages sub-sector for RMG industry includes cotton production, spinning, weaving, dyeing and printing, and accessories. RMG manufacturers usually import fabric from different countries as locally produced raw materials cannot compete with imported materials in terms of price and quality. (Habib, 2009)

Cotton:

Bangladesh has diversified its sources of cotton imports. While in the past nearly all of Bangladesh’s cotton imports came from Uzbekistan, the country now purchases about 33 percent of its cotton from Uzbekistan, 28 percent from India, 12 percent from Africa, and 9 percent from Turkmenistan, with the remaining 12 percent coming from other (Ahsan, 2012).

Disruption in cotton supply is a serious risk for Bangladesh. Although not a major trading partner in cotton for Bangladesh, China still can impact Bangladesh’s cotton supply as the


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largest producer and importer of cotton. For example, in recent years, China stockpiled significant quantities of Indian cotton, prompting the government of India to ban cotton exports to all markets for two consecutive seasons, driving world prices up. As China utilizes its cotton reserve rather than importing cotton, cotton prices may decline due to decreased demand, exposing Bangladesh to price risk for its cotton imports. Additional supply risk comes from the fact that Uzbekistan ships most of its cotton through Iranian ports, which are subject to a U.S. embargo. Possible measures to mitigate this risk include: (i) government-to-government agreements with major suppliers to guarantee supply; (ii) the creation of a national reserve for raw cotton to ensure uninterrupted supply and stabilize the local market; (iii) increase domestic cotton cultivation; and (iv) further diversify sources, such as African countries, where there may be less geopolitical risk.

Spinning:

It is difficult to accurately determine the percentage of demand for yarn met locally because of the amount of yarn production varies with the efficiency of the spindles (Habib, 2009). There are 385 spinning units with installed capacity of 8.7 million spindle and 0.23 million rotor and the annual production capacity is about 2050 million kg (BTMA 2013). The current capacity of the spinning mills does not meet the demand for yarn that needed to produce fabric for RMG factories. Bangladesh needs to establish additional 100 spinning mills. Huge investment will be needed to develop the spinning mills. Before making a huge investment to backward linkage sub-sector in spinning mills, it is imperative to assess the level of competitiveness and viability for such project. The conversion costs and the total manufacturing cost must compare with that in China, India and Pakistan as Bangladesh imports cotton from these competing countries.

Hand loom is the important source to get yarn for the Bangladeshi clothing industry. This sector meets about three-fourth of local requirement for yarn in the apparel sector.

Weaving and Knitting:

The next stage after spinning is weaving and knitting where yarn are converted to fabrics. Fabric is the prime component to produce garments, accounts 75 percent of total production cost of producing a garment. The production capacity of hand looms and power looms is sufficient for local market, but huge demand of quality fabrics created by export oriented garment industry cannot be met by the existing capacity of hand loom sector. In case of power looms, there is an opportunity to increase the production provided that a large amount of money will be invested.

According to BTMA, total fabric manufacturing capacity of Bangladesh is about 2000 million meters. But in 2013, total demand for fabric was about 2200 million meters. The weaving industry needs to enhance the production capacity and efficiency. New factories and machines should be added with the existing set up.


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Weaving sector plays an important role in the supply chain of apparel industry. Bangladesh can only supply 20 percent of total input needed for weaving mills. Every year Bangladesh constantly falls short of fabric production owing to the shortage of yarn. As a result, the country has to import 4.20 billion grey fabrics per year. On the other hand, knitting sector performs well, meeting the demand for grey fabrics by domestic production. For export purpose, around 80 percent of total woven fabric demand and 15 percent of total knit fabrics demand are imported annually.

Weaving and knitting sub-sectors require immediate expansion to tap the opportunity created for Bangladeshi in the competitive world clothing industry. This sector is assumed to be more attractive for large capital investment. But the investment should be cost-effective in way that the country remains competitive in the world apparel market. To be cost-effective, increasing the skill of the workers and setting up of modern machineries are must.

In addition with the private initiatives, the government should waive import tax and VAT from spare parts, dyes and chemicals provide loans with 7% flat interest rate on all advances and loans, provide financial subsidy at least 5-6%, waive the peak hour electricity charges, build a textile park, reduce the container handling charge, and build a training centre for developing skilled labor.

Dyeing, Printing and Finishing:

In this final stage, fabric either can be used for domestic market or export oriented RMG sector. Dyeing, Printing and Finishing units in Bangladesh can process all of the locally produced grey. According to BTMA (2014), Bangladesh dyeing, printing and finishing sub-sector had 230 firms. Existing knitting, knit dyeing and finishing sub-sectors cover the local demand and the major portion of the export oriented knit sector. Dyeing, printing and finishing sub-sector had depended mostly on imported fabrics as Bangladesh’s weaving sector could not fill the demand of the RMG sector. This sector improved dramatically over the last few years because it needed relatively low level of investment. In FY 2012-13, Bangladesh imported US$399 million worth of dyeing materials which is 6.4 % higher than the previous year (Bangladesh Bank, 2014). However, the number of firms is limited who know how to carry out proper dyeing operations.

To develop the dyeing, printing and finishing sub-sector, it is necessary to build up modern units with suitable technology, stocks of dyes and chemicals that can meet the demand of dyeing, printing and finishing sub-sectors. This sub-sector can significantly reduce the lead time and price which in turn help to be more competitive. The efficiency of the sub-sector depends mostly on the quality of the imported grey fabrics. Imported grey fabrics can be substituted if we could ensure the quality of the domestic grey fabrics.

Only a few firms can match the colors demanded and they are experienced with considerable waste of raw materials. To produce quality fabrics domestically, government may provide


incentives and help the finishing industries to reduce the cost gradually to compete against the imported grey fabrics.

Common Compliance Code:

In the emerging global trading system, it is important to make Bangladesh the global benchmark for Social Compliance in Apparel and Textiles manufacturing for achieving higher global exports. A Common Compliance Code would be developed for the Textiles Industry with particular focus on Apparels, Spinning and Weaving sectors. The Common Compliance Code will address issues of social and environmental compliance, social security issues, Labor Standards, work place environment and Fire safety issues, etc

Development of Technical Textile Sector:

With globalization of Bangladesh economy and the rise in the expectations & capacity of the middle class, the market size for technical textiles have shown a healthy growth rate in our domestic market.

However, if government interventions take place in the form of a stimulus the growth of technical textiles industry can be enhanced to 12-15% per annum till 2020.

Table 26: Summary of the Policy Matrix, Expected Results and the Implementing Body Areas to be addressed

Issue to be addressed

Proposed Policy Measure Expected results Implementing

body

Incentivization of Investments for Modernization and Expansion

High interest rate Steps to lower the interest rate

Expansion of the business

Bangladesh Bank (BB)

Complex monitoring mechanism in the

financial transaction system

Easing the monitoring mechanism

Less time will be allocated for this

task that will increase the

Competitiveness

BB

Costly trade finance hurting

competitiveness of producers and

exporters

Reduce the transactions cost of

Letter of Credit (LC)

Supply chain will be strengthen BB

Cash incentive Increase cash incentive for export

Bangladesh RMG will be competitive

in terms of its competitors

Ministry of Commerce & Ministry of

Finance

Separate Garment Industrial Park for Knitwear Factories

Interest loan subsidy for interested entrepreneurs

Increased amount of RMG

production and competitive in the

world market

MoC, BB

Lower level of Develop Technology introduce new Ministry of

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Areas to be addressed



body technology Up gradation Fund

(TUF) textile and apparel

technologies; Upgraded

technology enables Bangladesh to develop new

products

Textiles and Jute; Ministry of Science and

Technology

Infrastructure Bottlenecks

High volume of containers in the port

Raise the capacity of the port

Increased amount of container

handling in the port

Ministry of Shipping,

Ministry of Commerce

Poor infrastructure for container

transport

Adopt a coordinated strategy to improve

performance of Dhaka - Chittagong

corridor (Infrastructure,

customs)

Reduced logistics cost for

containerized shipments

Ministry of Communications, Ministry of Railway, NBR

High cost Air shipment

Strengthen the capacity of the

airports

RMG suppliers will receive more

orders from buyers

Ministry of Aviation

Poor capacity and inefficient ground

handling capacity in the airport

Increase the competition in

ground handling of cargo

Increased export volume of the

garment industry

MoC, Ministry of Shipping

Shortages of gas, electricity and land

Set up Industrial Park and give special

incentive to those factories who are

interested to move there

Overall production will be increased

Ministry of Industry (MoI)

Investment in infrastructure

public resources should be mobilized to finance large large

infrastructure investment

requirements in electric power, gas,

ports, railways, roads, and

urban services

Bangladesh RMG will be competitive

in terms of price and cost

Board of Investment

(BOI)

Trade Policy Export policy is not

robust and compulsory

Formulate Export Policy Order in line with Import Policy

Order

Export volume will be increased

Ministry of Commerce; Ministry of Law, Justice

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body and

Parliamentary Affairs

Promote 'Made in Bangladesh Brand'

Develop special fund for branding

International recognition of

Bangladeshi RMG products

MoC, Ministry of Foreign

Affairs (MOFA)

Lack of cohesive policies to strengthen trade competitiveness

Develop joint committee of MoC

and NBR with consultation with

local stakeholders in setting tariff

An coordinated policy will improve

competitiveness

Prime Minister’s

Office (PMO)

Adopt a visible Trade competitiveness

vision to make sure all laws and policies contribute towards

this vision

Proper system of setting the tariff

will be established and intention for rent-seeking will

be removed

MoC, NBR, Bangladesh

Tariff Commission

(BTC)

Expanding market for Knitwear

products

Establishing bi-lateral trade agreement with emerging economies

like Japan, China, Brazil, South Korea

etc.

Demand for Knitwear products will be increased

MoC, MOFA

Outward FDI (OFDI) and international transactions are

complex

To provide interest subsidy for OFDI

Supply chain will be strengthen and competitiveness of

RMG will be increased

BB

Market Promotion

Export destinations are mainly

concentrated on traditional market

Develop Focus Market Scheme to explore the new markets. And

provide 5% cash incentive for

exporting to those markets

Unexplored and restricted market

will opened up for Bangladesh

MoC, EPB

Human Resource

Development and skill Up-

gradation

Most of the workers in the RMG factories

are unskilled

Skill development project both in the

factory and national level

Productivity in the factories will be increased and

business will be more competitive

Ministry of Textiles and

Jute, Department of

Textile Limited number of

educational Establish a number of

institutions which Productivity will Ministry of Textiles and

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body institutions providing knowledge on textile

technology

will produce skilled manpower

be increased Jute, Ministry of Education, Department of

Textile

Improving Supply Chain Management

Ensure smooth supply of raw

materials

Develop bilateral agreement for importing raw

materials

Volatility in the prices of raw

materials will be reduced

MoC, MOFA

Highly dependent on imported cotton

Take proper policy to produce cotton domestically

Volatility in the prices of cotton will be reduced and the price of clothing will be

more competitive

Ministry of Agriculture,

MoC

Appropriate policy to develop the

backward linkage economy is absence

Formulate proper policy for

developing the backward linkage.

Central Bonded Warehouse(CBW)

would be a effective initiative

Uncertainty in sourcing raw and

intermediate goods will be removed. Lead time also

reduced

MoC, NBR

Regulations, Procedures and

Testing

High customs clearance time

Make the documentation

process more easier by adopting

automation in the customs

Lead time to export and cost will be reduced

MoC, Ministry of Shipping

Prevalence of non-transparent and

unnecessarily trade restrictive quality

standards

Review mandatory standards to adopt

more flexible standards

Government certification

system will be closer to

international practice

BSTI, MoI, Ministry of Agriculture

(MoAg)

Strengthen BSTI

Train BSTI staffs on standardization,

testing and certification

Bangladesh RMG can comply with

international standards

BSTI, MoI

Education Country provides

inadequate Training to labor force

Develop institutional capacity to develop

skill manpower

More skilled manpower will

enhace the productivity

Ministry of Education,

Department of Textile,

Research & Development

Resaerch & Development

activities are not

Develop special fund for Research and

Development. Give

Market demand will be realized

and new product

Ministry of Textiles and

Jute, Ministry

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body properly undertaken monetary rewards

for those companies who have taken

research and development

activities

will be developed of Science and Technology

Analytical and research capabilities

should work for policy formulation

process

Utilize key policymakers from

think tanks, research organizations and

trade bodies in policy formulation process of MoC,

Ministry of Industry and Ministry of

Labor and Employment

Capacity for designing and

implementing of trade policies will

be strengthen

MoC

Train MoC staffs on trade related issues MoC

Provide training to the staffs of trade bodies, BFTI and personnel from

individual institution on trade related

issues

MoC, BFTI

Tele-communication

Slow and high cost Internet connection

Take proper initiative for ensuring high

speed and low cost internet service

RMG sectors integration with

global value chain will be

strengthened

Ministry of Posts,

Telecommunications and

Information Technology

Power Continued energy shortages

Increase generation capacity in low cost

Decrease the gap between demad and supply of

electricity

Ministry of Power, Energy

and Mineral Resources

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The Prioritization of the Policy Matrix Table 27: Prioritization of Policy Matrix

Solutions and Policies Priority Impact Successiveness Incentivisation of Investments for Modernization and Expansion High High Medium Term

Human Resource Development and Skill Up-gradation

High High Medium Term

Development of Technical Textiles High High Medium Term Trade Policy & Export Promotion High High Short Term Strengthening of Institutional Framework

High Medium Medium Term

Research & Development for Product Innovation and Differentiation High High Medium Term

Correcting Fiscal Anomalies High High Short Term Common Compliance Code High Medium Medium Term Cluster Development High High Medium Term Improving Supply Chain Management High Medium Short Term Addressing Infrastructure Bottlenecks High Medium Long Encouragement to Domestic Textile Markets

High Medium Medium

Term Implementation Framework

Strategic Initiatives: Although huge opportunity for Bangladesh apparel industry is visible, a number of challenges could create impediments to grasp the opportunity. If Bangladesh could take strategic initiatives in some priority areas where immediate actions are needed to be done, the export volume of RMG can reach a benchmark amount of $50 billion by 2021. Some strategic areas where urgent initiatives are required are given below:

Raising Productivity is a Key to Competitiveness:

In recent days, the cost of production increased hugely due to the rise of wages, the cost of raw materials and the compliance related cost like implementation of fire extinguisher, fire door, structural & Electrical safety. Also the international competitions for the RMG business are increasing almost every day. To make the garment industry sustainable, there is no other option to increase the productivity of the worker as well as the mid-level management of RMG factories of Bangladesh.

106


Reduce Lead Time:

Lead time has emerged as a crucial determinant of competitiveness. This is a point critically considered by the buyers. The RMG suppliers need to show apparel trade buyers that they can fill orders fast and due time. Among competing countries, their lead time is one of the longest (90-120 days), principally because of inadequate, easily available supplies of local woven fabric and the consequent need to procure the raw materials from overseas. If the raw materials could be sourced locally the time required to receive them at the factory gate could be reduced from 42-60 days to just one or two weeks. Policies should be taken to increase the supply of fabrics domestically. In the short run, advance stocks of grey fabrics can be good option. In that case, Bangladesh could offer quality products with limited time which will increase the competitiveness.

Sign Agreement to Secure The Supply of Raw Materials:

Bangladesh should sign MOUs with major cotton supplier countries so that the uncertainty in getting the cotton timely removed. If it happens, then volatility in the price of cotton will be reduced.

Modernizing Port and Custom Facilities:

Chittagong port needs to be equipped with modern and advanced facilities like physical infrastructure, such as roads and highways, railway and inland waterways, advanced information and technology, power and energy, banking and finance, hotels and restaurants, administrative, especially effective law enforcing machinery to ensure safe passage of foreign goods and, above all, a corruption-free business atmosphere.

Utilizing Preferential Access in the Prospective Markets:

Bangladesh is currently enjoying Duty Free Quota Free (DFQF) facility in the market of 49 countries (EPB). But Bangladesh’s RMG export is vastly concentrated on traditional markets (EU, USA, Canada etc.). Besides these markets there are huge potentialities of expanding the market share of Bangladesh RMG product in some emerging economies like Australia, Brazil, China, Russia, Japan, South Korea, South Africa, Malaysia, Mexico etc. Now a days, the per capita income & the per capita expenditure both are in upward trend and supposed to be continue in future.

Extending Backward Linkage Sector:

It may be unlikely that Bangladesh will become competitive in cotton growing or the production of machinery, but producing the necessary chemicals may be worthwhile exploring over the mid-term. In addition, it should be looked into the actual capacity in terms of trading, transport and storage necessary for the input provision. Finally, to make the RMG sector of Bangladesh vertically sound, value chain steps like domestic design center

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and Research & Development activities on both market & Product Diversification could be strategic options in upcoming days.

Simplify Regulatory Processes and Governance:

The export of final product from Bangladesh or import of raw materials from outside boarder is much complicated in Bangladesh, which needs a huge number of licenses, Documentation and reflect higher cost of production as well as the lead time for the export. So, to make the RMG sector more competitive across the world in terms of price and lead time, it is important to simplify the procedures for registration of firms, issuance of licenses, and abolish unnecessary licenses.

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RReeffeerreennccee:: 1. Stewart Terence P. et. all (June 2007), Trade Lawyers Advisory Group report on

“CHINA’S SUPPORT PROGRAMS FOR SELECTED INDUSTRIES: TEXTILES AND APPAREL”

2. Abeysingha , Subhashini , 2014. The time has come for Sri Lanka to look beyond apparel exports. Daily FT, March 21, (2014), Available at: http://www.ft.lk

3. Bargawi , O., (2005), “Cambodia’s Garment Industry-Origins and Future Prospects”, ESAU Working Paper 13, Overseas Development Institute, London,.

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8. Ficci’s suggestions for National Textiles Policy 2013, Federation of Indian Chambers of Commerce & Industry, November 2013, available at: http://www.ficci.com/sedocument/20275/ficci-suggestions-for-ntp2013.pdf

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10. Hasan, J, (2013). “The Competitiveness of Ready Made Garments Industry of Bangladesh in Post MFA Era: How Does the Industry Behave to Face the Competitive Challenge?”, British Journal Of Economics, Management & Trade, 17th July (2013).

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15. Jayawardenepura, Sri K., (2015), “Budget speech 2015, Sri Lanka”, 24th October 2014, Available at: http://www.treasury.gov.lk/images/depts/fpd/docs/budgetspeech/2015/Budget2015e.pdf

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20. McKinsey & Company, “Bangladesh’s ready-made garments landscape: The challenge of growth (2011)”, Available at: https://www.google.com.bd/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CBsQFjAA&url=http%3A%2F%2Fwww.mckinsey.de%2Fsites%2Fmck_files%2Ffiles%2F2011_McKinsey_Bangladesh.pdf&ei=oh6OVZPHA4HHuASU-YP4Bw&usg=AFQjCNEnNH-rSq0akMsQdzLXCse9nNZv7A&bvm=bv.96783405,d.c2E

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23. Razzaue, A., & Eusuf, A., (2007). “Trade, Development and Poverty Linkage: A case Study of Ready Made Garment Industry in Bangladesh”, Unnayan Shamannay, April 2007.

24. Siddique, A. H., (2014), “Trade and Payments, Pakistan Economic Survey 2013-14” , Chapter 8, 117-130. Available at: http://www.finance.gov.pk/survey/chapter 14/08 Trade and Payments. pdf

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111

26. Shah, S. A. S, Syed, G., Shah, Dr. A. A. M. & Shaikh, F., Effects of WTO on the Textile Industry on Developing Countries, Romanian Statistical Review 6/2013, Available at: http://www.revistadestatistica.ro

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32. Yunus, M., &Tatsufumi, Y., (2012), “The Grament Industry in Bangladesh”, The South East Asia Textile Business Review. IDE-JETRO, Chapter 6, 1-28.

33. The Textile Industry Development Plan for the 10th 5-Year Period, State Economic and Trade Commission (2002). See Exhibit T-18. Guo Fa [1998] No. 2. “State Council Circular on Certain Issues Regarding Deepening Structural Adjustment, Overcoming Difficulties and Stemming Loss of the Textile Industry”, See Exhibit T-19.

34. A Special Fund of RMB 1.36 Billion to Support the Restructuring of the Textile Industry; available at http://www.texnet.com.cn/news/2007/01/30/152680.html. See Exhibit T-31.

35. Jiangsu Province Obtained RMB 110 Million of the Special Fund for Textile Companies from the Central Government; available at http://www.sinotex.net/news/shownews.asp?id=64108. See Exhibit T-32.

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