Presentation on Post-MFA scenario and its Impact on Garment Export from Bangladesh By Monoranjan Biswas Deputy chief (Textile) Ministry of Commerce Govt. of the People’s Republic of Bangladesh Presentation date : 2nd May, 2006 Venue : Imperial, Janpath, New Dehli, India
The export of RMG plays an immensely important role in the socio-economic development of Bangladesh accounting for more than 75 percent of Bangladesh’s total export earnings.
The sector accounts for about 10 percent to the GDP.
The foreign exchange reserve of the country largely depends on the RMG sector.
The employment of woman in this sector has created empowerment amongst women of the lower segment of society.
RMG sector is playing the pivotal role in the export and social economic development of our country.
The export earning has rose to U.S. dollar 6.4 Billion in 2004-2005 from U.S. Dollar 1 Billion in 1985.
With the span of 15-20 years, export earning from this sector has been increased more than 5 times, which is a phenomenal growth.
Contribution of RMG in the national economy:
Export earning from RMG for last five years are shown below : (Value in million U.S Dollar) 74.15 6418 8655 2004-05 74.78 5686 7603 2003-04 75.01 4912 6548 2002-03 76.57 4584 5986 2001-02 75.16 4861 6467 2000-01 Contribution of RMG (%) Export of RMG Total Export Year
The textile and clothing sector now stands at a crossroads.
Trade in RMG & Textile sector has undergone a fundamental change as MFA quota system has been out on December 31, 2004 .
Only tariffs remain as a market entry mechanism.
It was apprehended that phase-out of quota would have a serious adverse impact on RMG and Textile sector of Bangladesh.
A study namely “Post-MFA development Strategy and Technical Assistance for the RMG sector” was undertaken by Government of Bangladesh in 2002-2003 fiscal to assess the post-MFA scenario, its challenges and recommendations to address the coming challenges.
This study was undertaken under Bangladesh Export Diversification Project (BDEXDP) by a world renowned Swiss organization namely Gherzi Textil Organization.
This study indicates that quota phase out might have a serious negative impact on RMG export of Bangladesh.
A considerable number of RMG factories would shut down failing to compete in the quota-free regime resulting in losses of jobs.
30-40 percent garment industries of Bangladesh would be closed down after 2004, some other showed.
There would be 100 to 300 thousand loss of jobs in the RMG sector.
Gherzi study proposed 14 recommendations, which are
Export Trade Promotion; Infrastructure; Central Bonded Warehouse(s); Duties- dyes, chemicals, spares; Investment Incentives; interest Rates- BMRE/Green issues; Bureaucracy and speed money; Human Resource Development; Compliance, Clusters; Local Operating Environment/ FDI; Social Accountability; Labour Safeguards; Marketing Support & Business Strategies.
Predictions of several studies including Gherzi study regarding closure of considerable number of garments factories and job losses of about 100 to 300 thousand in the post-quota regime helped the Govt.(MOC) to undertake extensive programme namely ‘ Post MFA Action Programme (PMAP)’ to address those adverse impact,
Apprehension that between one and three lac workers would be jobless as many small and medium factories would be forced to close down
DWRP has been initiated under PMAP to help employment to those retrenched workers, most of whom are women.
Most of these workers are not in a position to go back to the place they come from particularly to rural areas.
The social and economic consequence of these may be disastrous.
No formal sector where this large workforce could be employed.
The government, the NGOs, the donors and the private sector needs to work together to face the situation through the following programme:
Imparting training on different trades including poultry, small diary, small scale leather goods, agro processing, hand dyeing, boutique, embroidery, tailoring, handicraft, nursing, hotel catering, small business and entrepreneurship, etc. This will help them finding alternative employments;
Provide micro credit to them for starting new business or enterprise at zero interest rates for at least five years;
Provide subsistence allowance or jobless allowance for the first six months of the training on alternative trade and unemployment; and
The training programme would be organized by both private Institutes as well as Govt. Departments like Youth Directorate, Women’s Directorate, BRDB.
The NGO's who are involved in doing such type of activities would also be involved.
GEREC (Garment Employees Retraining and re- employment Cell ) was formed in Textile Cell of Export Promotion Bureau, Dhaka in 2005 for the purpose of training and re-employment of the retrenched garment workers in other profession.
A special budgetary provision amounting to TK.200 million was made in 2004-05 fiscal year for this purpose.
But no one came to register his name for training and re-employment purpose.
Again same budgetary provision has been made in present fiscal year and efforts are also going on to transfer the amount for training of RMG workers, Management Officials, factory owners in the field of Compliance (both on Labour Welfare and Occupational Safety) and in other areas of Management, Production, Merchandizing and etc. to enhance their skill.
Actual RMG exports registered 10.77% growth (US Dollar 6889.30 million in 2005 from US Dollar 6219.38 million in 2004) leaving behind all negative prediction and scare.
Knitwear export grew at an impressive 26.58% over the previous year (amounting to US$ 3,206.76million) .
263 new RMG factories are registered in Export Promotion Bureau (EPB).
Created approximately 75,000 - 80,000 new jobs in the RMG setor during the year 2005 and 2006.
Export of Woven & Knitwear during MFA & post MFA (Value shown in million U.S. Dollar) (+) 10.77% 6219.38 6889.30 Total : (+) 26.58% 2533.29 3206.76 Knit (-)0 .10% 3686.09 3682.54 Woven % of growth Jan-Dec’2004 Jan-Dec’2005 Commodities
A considerable investment has occurred in the field of RMG as well as in the textile sector and a sizable investment is in the offing in the field of textile and ancillary industries to facilitate the necessary support to RMG sector
Positive initiatives taken timely by Bangladesh Government in association with exporters’ associations and different development partners.
Simplification of customs procedures for clearance of goods through computerization, erection of new gantry cranes and deduction of procedural delays, etc.
Withdrawal of VAT from utility bills, reduction of insurance premium .
Duty free import of capital machinery & raw materials for export oriented RMG & Textile Industries.
Continuation of cash incentive in export of RMG & Textile products.
Import of yarn through land port,. One-Stop-Service for FDI.
Reduction of interest rates in export credit & port charge.
Permission to set up RMG industries in EPZ area with 100% foreign investment.
Initiatives of both the Government & exporters’ associations in collaboration with different development partners to make the sector compliant.
The new GSP scheme of the European Union has opened up tremendous opportunities for LDCs as well as Bangladesh regarding RMG & Textile exports.
Decision of EU to graduate India from their new GSP scheme and imposition of anti - dumping duty on home textile exports from Pakistan.
European Commission‘s voluntary imposition of restraint for 10 categories of Chinese Readymade Garment products has created new opportunities for Bangladesh.
CITA ‘s announcement of invoking safeguards on textile imports from China to USA will opt U.S buyers for sourcing from Bangladesh instead of China.
Factors helping our RMG and Textile sector to continue its growth:
Global sourcing pattern, particularly for the apparel and textile products has undergone drastic changes.
Consumers, and thus buyers, demand not only the quality products at competitive prices with reduced lead times but also they expect the suppliers to be socially compliant while producing the goods.
They demand that minimum labour standards, occupational safety measures and other environmental concerns are properly addressed by the suppliers.
As a result, compliance issue has come out as a major threat to our RMG sector.
All the big and medium range buyers are setting different conditions (code of conduct) as precondition to secure order.
Before confirming export orders, importers are pressing RMG exporters to ensure that these exporters are in a state of situation to comply with these codes of conduct, briefly known as compliance.
A core labour standard which covers wages, working hours, overtime, safety, job-security, right to form trade unions, environment and social security are being negotiated under compliance issues.
Many of our RMG units are finding it very difficult to cope up with the demand, set out by the importer under compliance issue as every single components of compliance issues means additional investment.
Though these issues are very fundamental as far as the workers interest is concerned but at the same time these are very capital intensive for implementation.
Price fall against volume of export.
Key issues and challenges that face the RMG sector.
To help the Bangladeshi RMG exporters being socially compliant, the Ministry of Commerce has formed in July 2005 a high power “ Social Compliance Forum for RMG ’ headed by Honourable Commerce Minister. All related stakeholder associations (BGMEA, BKMEA, BTTLMEA etc.)/Ministries/Departments/Workers’ Associations/ NGOs /Development Partners/Buyer Groups etc. are represented in the Forum.
This Forum acts as the guiding authority on compliance issue in RMG. Since its establishment, there have been three formal meetings.
Moreover, a small group of people known as the ‘Working Group’ meets often, conducts threadbare discussions on the issue and recommends various suggestions to the Forum.
Under the Forum, two Taskforces – one on ‘ Occupational safety in RMG , and the other on ‘ Labour Welfare in RMG ’ were formed. Representative from related associations/Ministries/ Departments / Workers’ associations / Development Partners etc. are included in both the taskforces. Some issues like minimum wages and maximum working hours could be resolved soon.
Steps Taken to Address the challenges by MOC, GOB:
The Taskforces were entrusted with the responsibility of formulating time-bound Work Plans to be implemented in the short, medium and long terms.
A 3 tier mechanism would enforce Implementation of the actions suggested in the Work Plans.
The factory owners in cooperation with factory based worker leaders would implement the recommendations at the grass-root level in the 1st tier.
The Taskforce members would physically visit the factories, monitor implementation status & report to the Monitoring Working Group of Social Compliance Forum for RMG in the 2nd tier.
At the final tier, Forum would oversee and guide the implementation.
In addition to the Forum and Taskforces, a Compliance Monitoring Cell (CMC) headed by Director General (Textile) in the Export Promotion Bureau has been created.
CMC’s responsibilities include—to provide secretarial support services to the Forum, review the reports received from the Taskforces, keep contacts with the international buyer groups on compliance, raise awareness, do publicity abroad on measures taken for compliance, etc.
A conference regarding compliance issue is being organized b y MFA Forum in Dhaka from 2 nd to 3 rd May, 2006 in collaboration with UNDP . Ministry of Commerce is also participating in the conference and some positive results would come up from it.
Both BGMEA and BKMEA have started Crush Programmes regarding factory inspection by forming several Inspection Teams.
BGMEA has formed 10 inspection teams for Dhaka region and 3 teams for Chittagong region. They already have inspected nearly 1000 factories.
These teams are conducting fire drills, checking whether the factory has alternative fire exits or not, whether the stairs of the factory building is blocked or not, whether the gates(exits) are locked or not during working hours, and whether the factory employs any child labour or not.
They have chalked out some punitive measures for the non-compliant factories regarding the aforesaid matters to be checked during inspections.
A fine for first time offence is Taka 10,000/-, Taka 50,000/- for the second time of the same offence and cancellation of BGMEA’s membership for 3rd time of same offence. But very few factories are found to be non-compliant regarding this.
Proper punitive measures have also been taken against the non-compliant factories.
BGMEA in collaboration with SEDF is going to start a project regarding inspection of the RMG factories.
BKMEA also inspected near about 300 factories in which very few factories are found non-compliant regarding the aforesaid offence and those non-compliant factories are taken under proper punitive measures.
Initiatives taken by RMG Manufacturers and Exporters associations:
Post MFA scenario has been talked about for a long time. We have to be serious and do all necessary so that Bangladesh’s market share in RMG sector should be retained and expanded.
We are committed to follow the post-MFA Action Programme (PMAP) with full determination, drawing support from both the private and public sector.
We are taking necessary steps to formulate common code of conducts covering labour law, safety and job security conforming to our socio- economic condition and with these efforts we surely will be able to address the post-MFA challenges and retain our export-market share with continual growth.
That is why we want to say that optimists see opportunities in challenges and pessimists see challenges in the opportunities . We are definitely optimists and we will turn all challenges into our opportunities and potential.