EU-Vietnam FTA new challenge for Bangladesh RMG sector

Staff Correspondent | Published: 23:35, Feb 13,2020

 
 

A file photo shows a visitor looking at a pair of jeans at a denim fair in Dhaka. The EU-Vietnam trade and investment agreement, which was approved by the European Parliament on Wednesday, might pose a challenge to Bangladesh’s struggling readymade garment export business as the pact would scrap almost all tariffs on Vietnamese export goods in the European market. — New Age photo

The EU-Vietnam trade and investment agreement, which was approved by the European Parliament on Wednesday, might pose a challenge to Bangladesh’s struggling readymade garment export business as the pact would scrap almost all tariffs on Vietnamese export goods in the European market.

Experts and exporters said that as a competing country of Vietnam, Bangladesh might lose its competitiveness in the EU market by 12-15 per cent as Vietnam would get the same percentage of duty benefit in the market due to the European Union-Vietnam Free Trade Agreement.

Although the rights groups expressed their deep concerns over the situation of labour rights and human rights in Vietnam and urged the European Parliament not to approve the agreement, the EP approved the arrangement.

The EU-Vietnam trade agreement is now set to come into force in 2020 upon completion of the ratification procedure by Vietnam.

The trade agreement would eliminate virtually all tariffs on goods traded between the two sides and would guarantee – through its strong, legally binding and enforceable commitments on sustainable development – the respect of labour rights, environmental protection and the Paris Agreement on climate, according to an announcement of the European Commission.

Experts and exporters also said that the EVFTA would create new challenge for Bangladesh to remain competitive in the EU market as country’s readymade garment sector had faced difficulties.

The EU is the largest export destination for Bangladesh and the country enjoys generalised scheme of preferences in the economic bloc.

Bangladesh’s RMG export to the EU in 2019 stood at $20.42 billion.

Country’s readymade garment exports have been struggling for the last few months due to a global slowdown in demand and fall in prices.

Export earnings from RMG in July-January of current financial year 2019-20 stood at $19.06 billion with a 5.71-per cent negative growth, the government data showed.

Although, Bangladesh is the second largest RMG exporters in the world, the country’s global market share has been reducing for the last few months while Vietnam has been grabbing more share, said a recent report of the World Trade Organisation.

According to the European Commission data, the EU imported readymade garment worth $16.36 billion from Bangladesh in 2018 while import from Vietnam was $3.34 billion in the year.

According to the World Trade Statistical Review 2019, Bangladesh’s share in the global clothing market decreased slightly by 0.1 percentage point to 6.4 per cent in 2018, which was 6.5 per cent in 2017.

Bangladesh’s main competitor Vietnam narrowed the gap by 0.3 percentage points to 6.2 per cent in 2018 from 5.9 per cent in 2017.

‘The EVFTA would eliminate the existing disadvantage of Vietnam in the EU market and would pose challenges to Bangladesh’s export to the bloc,’ Policy Research Institute executive director Ahsan H Mansur told New Age on Thursday.

He said that Bangladesh would have to increase its competitiveness to retain the share in the EU market against the duty benefit of Vietnam.

‘Vietnam will get weaver of duty by 12-15 per cent in exporting RMG to the EU that means that Bangladesh would lose its competitiveness by 15 per cent in the market,’ Mansur said.

He also said that Bangladesh would have to go for GSP Plus negotiation with the EU as the country would not get GSP facility in the economic bloc after graduation from least developed to a developing country in 2024 but Vietnam would get duty benefit.

Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association, said that Vietnam was not strong in the EU market as they exported less than $4 billion last year, but now they would penetrate that market as the EU-Vietnam FTA started taking effect.

She said that Vietnam had already been the second largest source of apparel for the US with the import of $13.56 billion apparel whereas import from Bangladesh was $5.93 billion in the year.

‘This means the US has larger sourcing base in Vietnam, which can grow faster. And the other factors of competitive advantages like strong currency, efficiency, value addition capabilities, lesser lead time, product development capability, and ease of doing business persist,’ Rubana said. The European Union on Wednesday also slashed trade benefits for Cambodia over the kingdom’s human rights record.

Mansur said that the suspension was a political issue as the authority of the country had created a difficult situation for the elections and harassed the opposition.

‘Bangladesh should be careful as the elements, which were responsible for the suspension of Cambodia’s GSP, exist in our country,’ he said.

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