Govt amending import rules so factories can get all raw materials from buyers, instead of the current 50% limit
Bangladeshi apparel manufacturers expect to earn an additional $5 billion in high-end garment exports in the first year after the government scraps the 50 percent ceiling on free-of-charge (FoC) imports. Under this arrangement, the buyer supplies raw materials such as fabrics, accessories and other inputs.
They say the additional earnings could cross $10 billion in the second year once the FoC quota is fully abolished.
The Chief Adviser's Office says the commerce ministry has decided to amend the Import Policy Order within the next two weeks. The amendment will allow garment exporters to source all raw materials from overseas buyers, process them and ship the finished products back.
At present, exporters are permitted to import only 50 percent of the required raw materials under the FoC arrangement.
Md Shehab Udduza Chowdhury, vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said Bangladesh could earn an extra $5 billion in exports in the first year of the FoC quota removal.
In the second year, he expects the value to cross $10 billion as factories can get all raw materials under the FoC arrangement.
A few years ago, FoC imports were capped at 33 percent of total raw materials. This was increased to 50 percent later.
Under FoC, international buyers supply fabrics, accessories and other inputs needed to produce export items. Local manufacturers receive only the cutting and making charge.
Local apparel exporters currently use FoC for less than 5 percent of total shipments due to restrictive conditions and reported complications at Chattogram customs.
Garment exporters say that FoC is straightforward, less risky and faster. Without any quota on FoC import, they believe global brands will place more orders in Bangladesh because of the country's skilled workforce and strong manufacturing capacity.
At present, more than 95 percent of garments are exported using usual letters of credit (LCs). FoC has seen limited uptake because of import restrictions and bureaucratic hurdles. BGMEA Vice-President Chowdhury said he submitted a proposal two months ago to ease the rules.
He said that Bangladesh exported $7 billion worth of garments made from man-made fibres in fiscal year 2022-23. Local textile mills supplied only 4 percent of the raw materials, with the rest imported, mainly from China.
Manufacturers say orders for high-end man-made fibre and polyester garments are shifting from China to Bangladesh as the United States has imposed higher tariffs on Chinese goods. Some Bangladeshi factories cannot take full advantage of it because they are barred from importing more than 50 percent of raw materials under the current FoC rules.
According to Chowdhury, FoC reduces risk because buyers cover raw material costs and cannot cancel orders abruptly.
Under full FoC imports, he said that more foreign currency will remain within the country, as apparel-makers will no longer need to spend dollars upfront on raw material imports, as required under the LC system.
After the fifth Investment Coordination Committee meeting on Sunday, the Chief Adviser's Office said the commerce ministry has decided in principle to remove FoC quotas for fully export-oriented companies. The amendment is expected within two weeks and should reduce stockpiling costs and enhance competitiveness.
Md Abdur Rahim Khan, additional secretary at the commerce ministry, said the government wants to support all export-oriented sectors equally to increase export value and volume.
He said the garment industry has grown due to facilities such as bonded warehouses and that other potential sectors will also benefit if buyers supply all required raw materials.
"The government is trying to facilitate the businessmen by easing the rules," Khan told The Daily Star.
BGMEA President Mahmud Hasan Khan said removing the FoC quota would bring a lot of benefits to the garment sector, as buyers will pay for raw materials and the risk of cancelled orders will be lower.
"It was our long-time demand to the government," he added.
However, Showkat Aziz Russell, president of the Bangladesh Textile Mills Association (BTMA), said the government should consult all stakeholders before taking such an important decision.
He believes heavy imports of raw materials could harm the local textile industry by reducing demand for domestically produced yarn, fabrics and accessories, and lowering local value addition.
Md Shahriar, president of the Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association, said removing the quota for FoC import would be beneficial if international buyers choose local accessory suppliers. Otherwise, he said, the sector may not gain.
