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Textile Trade Trouble? Bangladesh Has It Worse

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Textile Trade Trouble? Bangladesh Has It Worse: Andy Mukherjee

May 31 (Bloomberg) -- Free trade in textiles is not even six months old, and it has already put Bangladesh in a tight spot.

U.S. and European stores haven't stopped stocking ``Made in Bangladesh'' trousers, shirts and T-shirts; it's just that the quota-free world that has existed since Jan. 1 is a buyers' market, and all suppliers are under pressure to match Chinese prices.

Prices of woven-fabric clothing have crashed as much as 30 percent, said Annisul Huq, president of Bangladesh Garment Manufacturers and Exporters Association. Woven garments make up two- thirds of the South Asian nation's $6 billion-a-year apparel exports; knitwear account for the rest.

``Forget profits,'' Huq, who runs a $34 million garment export company, said yesterday in a phone interview from the capital Dhaka. ``We're gasping for survival.''

Garments account for almost 80 percent of Bangladesh's exports. The industry, the largest employer outside of agriculture, directly provides livelihood to 2 million people, almost 80 percent of whom are women. Some factories may have to close down by next year if prices -- or productivity levels -- don't improve.

There's a message here for the Bush administration: Don't worry so much about the U.S. apparel industry, which is simply unviable, and worry more about garment makers in Dhaka. An increase in unemployment and poverty in Bangladesh could seriously undermine the war on terror.

The country of 138 million people, of whom a majority is abysmally poor, is ``a perfect target for al-Qaeda,'' says a report in Jane's, a defense publication. ``Virtually unnoticed by the world at large, Bangladesh is being dragged into the global war on terrorists by becoming a sanctuary for them.''

Wage Advantage

Wages in Bangladesh can't drop much lower. A study by the Harvard Center for Textile and Apparel Research shows that Bangladeshi garment workers earn 39 U.S. cents an hour, while the hourly wage for sewing and stitching in coastal China is 88 cents.

Moreover, the European Union allows duty-free imports of Bangladeshi apparel under a program for the world's poorest countries. Why, then, is Bangladesh finding it so hard to compete?

For one, the Bangladeshi garment industry relies heavily on imported textiles. That puts it at a cost disadvantage against China. Second, foreign investors have found it tough to enter the highly controlled Bangladeshi apparel industry. That has, in turn, slowed infusion of new capital, technology and best practices.

`Serious Tangle'

Another big factor is infrastructure. The port of Chittagong, which handles 80 percent of trade, has been described by the Asian Development Bank as ``a serious tangle in the supply chain.''

On average, a container ``dwells'' at the Chittagong port for 18 days; and it takes 30 hours, and costs $250, to send a 20-foot container by rail from the inland depot in Dhaka to the port. It takes a bribe to speed up the process.

``These delays and payments,'' says the ADB in its latest quarterly review of the Bangladeshi economy, ``contribute to the higher maritime cost of Bangladesh's textile exports to the U.S., compared with China.''

Politics is also a big headache. According to a United Nations estimate, Bangladesh loses as much as 4 percent of its gross domestic product every year to ``hartals,'' which are general strikes called by political parties.

Losing Time

Two working days were lost this month alone. The opposition Awami League brought business in Dhaka to a standstill on May 18 to protest the killing of one of its leaders; it then called a nationwide strike on May 21.

``The factories have different coping strategies and are able to make up for some of the loss,'' writes Nasreen Khundker, an economics professor at Dhaka University in ``Beyond Hartals,'' a report produced by the United Nations Development Program.

``What the industry can't make up for is the clear signal of an unreliable market and political instability -- two factors that act as deterrents for investments and export,'' Khundker says.

As Bangladesh gets closer to general elections in January 2007, the ruling Bangladesh Nationalist Party and groups opposed to it are likely to clash more often. That could possibly lead to more frequent strikes, says the ADB.

Duty-Free

It will take Bangladesh many years to improve its investment climate. Meanwhile, the country needs immediate relief, which should be possible if the U.S. grants Bangladesh's request for a waiver of $300 million in annual apparel import duties.

Nike Inc., which accounts for 2 percent of the global $800 billion footwear and apparel industry, has said it would ``actively support'' legislation for preferential trade access to countries such as Bangladesh, Cambodia and Vietnam that would be hit hardest by the end to the global quota regime.

From Bangladesh's perspective, it's a saving grace that the trade spat between China and the U.S., and between China and Europe, is getting uglier by the day. As long as Chinese exports face the threat of fresh quantitative limits -- or ``safeguards'' - - international buyers like Nike would be hesitant to sever ties with nations such as Bangladesh that can fill a sudden gap between demand and supply.

``We're confident that volumes will hold up until 2006 at least,'' said the exporter association's Huq. ``But volumes alone won't help us if prices keep falling.''

http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_mukherjee&sid=axKTp8Z41Fq0

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