Different types of tariff and non-tariff barriers imposed by India and Bangladesh are the major impediments to the growth of bilateral trade and textile-clothing value chain engagement between the two countries, according to a World Bank report.
Both countries put a number of non-tariff barriers on textile and clothing products despite the agreement of cooperation between the Indian Bureau of Standards (BIS) and Bangladesh Standards and Testing Institution (BSTI), said the report titled ‘The Textile-Clothing Value Chain in India and Bangladesh’.
According to the report, the specialisation of India is in the upstream segment — supplying such intermediate inputs as silk, cotton, yarn, and fabrics to Bangladesh while the specialisation of Bangladesh is in the downstream final apparel segment.
Tariff and non-tariff barriers in both countries inhibited the growth of value chain linkages, the report said.
‘For example, India has imposed a testing requirement for RMG products which is very complex due to the divergent testing procedures for specific ingredients of the product at the laboratory level in each country. Furthermore, India also imposes a CVD (countervailing duty) of 16 per cent on RMG exports from Bangladesh to protect its domestic garment industry,’ the report read.
The World Bank report stated that exports of readymade garments from Bangladesh were yet to achieve effective market access in India due to non-tariff barriers.
It also said that the amended registration rules of India for importing raw jute and jute products made it mandatory that all importers would have to obtain a no objection certificate from the Jute Commissioner of India for each consignment and the procedure was restricting the import of raw jute and jute products from Bangladesh.
World Bank found that para-tariff barriers in India affected import of inputs for the export-oriented RMG industry of Bangladesh and prevalence of disguised trade barriers between the two countries inhibited the capacity of textile and clothing firms to engage efficiently in bilateral value chains.
‘For instance, while India imposes a 1-per cent service tax on all imported items, Bangladesh charges a pre-inspection fee,’ it said.
Frequent changes in regulations, procedural issues, lack of regulatory convergence and information asymmetry act as major barriers for the textile and clothing manufactures on both sides.
The WB suggested that both the countries need to put due emphasis on promoting the convergence of trade and technical standards, certification requirements, and testing requirements through mutual recognition agreement.
It said that reforms in trade policy (including rules of origin), trade facilitation, trade-related standards, and institutions could help both countries better take advantage of value chain linkages.
The report, however, said India and Bangladesh introduced various schemes that had enabled them to eliminate, reduce or refund tariffs for exporters and duty drawback schemes performed better in Bangladesh than India.
Traders in India experienced a cumbersome and time-consuming procedure of duty drawback schemes, the report observed.
The WB recommended reducing tariffs gradually through necessary reforms in the trade policy of Bangladesh and undertaking policy measures for strengthening its specialisation in clothing taking advantage of India’s specialisation in textiles.
It also said India should undertake policy reforms to gradually eliminate incentives and subsidies, and gradually remove non-tariff barriers to improve efficiency and reduce distortions in the textile-clothing value chain and both the governments should explore all possible measures for trade and transport facilitation related reforms for easy clearance of goods and seamless cross-border movement of cargos.
The WB report suggested that India and Bangladesh encourage the movement of goods through other cheaper modes of transportation, such as inland waterway and sea as the cost of transportation through roads is very high in India and Bangladesh.
Rules of origin under the South Asian Free Trade Area need to be modified as the current rules do not place any restriction on sourcing textile-clothing intermediate inputs from non-member countries, the report said.
It also suggested that Bangladesh allow banks to open letters of credit for exporters before receiving export orders by the exporters.
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