Apparel exporters want local LC facility without bond licence

3 trade bodies request BB to relax or withdraw related condition

Jasim Uddin | Published: 22:37, Nov 24,2020

 
 

A file photo shows readymade garment workers sewing clothes at a factory on the outskirts of Dhaka. Three major trade bodies in the country’s apparel sector have requested the Bangladesh Bank to relax or withdraw the condition of having bond licence for opening back-to-back letters of credit as many exporters have been facing difficulties in opening such LCs for sourcing raw materials from the local market due to the condition.— New Age photo

Three major trade bodies in the country’s apparel sector have requested the Bangladesh Bank to relax or withdraw the condition of having bond licence for opening back-to-back letters of credit as many exporters have been facing difficulties in opening such LCs for sourcing raw materials from the local market due to the condition.

There is no necessity of having bond licence for an exporter for sourcing raw materials from the domestic market against master export LC and using those raw materials for producing products for export, the trade bodies said.

In a joint letter to BB governor Fazle Kabir, Bangladesh Garment Manufacturers and Exporters Association, Bangladesh Textile Mills Association and Bangladesh Terry Towel and Linen Manufacturers and Exporters Association also requested the governor to hold an emergency tripartite meeting involving the central bank, National Board of Revenue and stakeholders in this connection.

BGMEA president Rubana Huq, BTMA president Mohammad Ali Khokon and BTTLMEA president Shahadat Hossain made the appeal in a letter sent to Fazle on November 12.

Back-to-back LC is a specialised letter of credit which is opened against the export LC received from the buyer. This LC consists of two letters of credit, a master LC and a back-to-back LC, to finance a transaction.

The back-to-back LC is opened to procure raw materials to produce finished goods and the payment is adjusted when the export proceeds are received.

According to the Foreign Exchange Transaction Guideline-2018, an export-oriented manufacturing unit is required to have bonded warehouse licence for opening inland back-to-back LCs against master export LCs for sourcing raw materials from the local manufacturers and suppliers.

In practice, many textile and readymade garment exporters do not obtain bond licence under the bonded warehouse system of the NBR as they import raw materials rather they procure the items from the local market.

But recently many banks have showed reluctance to open local back-to-back LCs against master export LCs of exporters without bond licence under the guideline.

Exporters from woven, knitwear, terry towel, home textile and other textile products manufacturers are facing problems due to the crisis.

‘We think bond licences are not required for an exporter to source raw materials from the local market against the master export LC,’ the letter signed by the three leaders said.

Bond licence is required only for import of raw materials under duty-free benefit, they said.

According to the associations, around 40 per cent of woven product exporters, 60 per cent of knitwear exporters, 70 per cent of home textile exporters and 95 per cent of terry towel product exporters use local raw materials to produce goods for export.

So, the provision of having bond licence should be relaxed for exporters for opening back-to-back LCs to collect raw materials from local sources, they added.

Earlier in January, the Bangladesh Knitwear Manufacturers and Exporters Association also requested the central bank to relax the condition as some banks refused to open the LCs for knitwear exporters without bond licences.

Previously all banks had opened the LCs without bond licence, but in recent times, some banks have started following the guideline provision strictly and refused to open the back-to-back LCs without bond licence, it said.

Exporters said that the foreign exchange guideline was enacted in the 1980s making bond licence mandatory for opening back-to-back LCs as the garment sector was completely dependent on imported raw materials at that time.

Bond licence had been made mandatory to facilitate import of duty-free raw materials and ensure their re-export.

But, now a strong backward linkage of the knitwear sector has been established in the country and nearly 60 per cent of the manufacturers have no need to import raw materials to produce export goods, they said.

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