Whenever any of our major trade partners contemplates a free trade agreement or special trade preferences for countries that are exporters of apparels, an alarm is raised that such an agreement would adversely impact on the export of apparels from Bangladesh. There was considerable unease when the European Union (EU) granted generalised system of preferences (GSP)+ trade privileges to Sri Lanka in 2005 and later to Pakistan in 2013. A great deal was said about the adverse impact of the privileges on Bangladesh’s apparel export to the EU. But belying the predictions, the export of apparel from Bangladesh to the EU grew by 2.8 times during the period 2005-14. Recently, the USA has moved to conclude a free trade agreement namely, Trans Pacific Partnership (TPP) Agreement, with eleven Pacific Rim countries including Vietnam. Since Vietnam is the second largest exporter of apparels to the USA, which happens to be the largest single country market for apparels of Bangladesh, the prospect of Vietnam receiving duty-free access to the USA has predictably raised an alarm among concerned people. With China in decline, Vietnam is already the most dynamic exporter of apparels to the USA. If it gets duty-free access, it can accelerate the increase in its US market share. Bangladesh being hobbled by high tariffs will be unable to match the competitive strength of Vietnam, and hence lose out – so the argument goes. It is undoubtedly true that Vietnam will become a more attractive import source of apparels if and when it gets duty-free access to the USA. Currently the importers of the USA pay 19 per cent duty on knit garments and 17 per cent on woven garments originating from Vietnam. The landed prices of Vietnamese knit and woven apparels could be reduced by this margin if Vietnam were to be granted duty-free status making it a rather attractive source for the US importers. Hence Vietnam’s export of apparels could increase at an even faster rate than the current high rate, and it will capture an increasingly larger share of the US market. However, this need not mean that Vietnam would increase its market share at the expense of Bangladesh. Vietnam is not the only competitor of Bangladesh in the US market; all countries that export apparels to the USA are competitors. Even if Bangladesh is less competitive than Vietnam, it is certainly more competitive than most of the other exporting countries. As shown in the table below, Vietnam’s apparel export to the USA increased by a massive 244 per cent during the 10-year period between 2005 and 2014, unmatched by any other substantial exporter. Bangladesh did not do as well, but the growth of its apparel export to the USA was 108 per cent during this period, which was the second highest among the top exporters. China with 81 per cent and Indonesia with 70 per cent were the next most dynamic exporters. Since these growth rates were much higher than the growth of apparel import demand of the USA, the share of all these countries in the US import of apparels increased albeit in different proportions. Hence good export performance by one or two countries does not necessarily stymie the space for growth of every other country.
There are at least two reasons why many exporting countries may not suffer, at least in absolute terms, due to a rapid expansion of export of a particular country such as Vietnam. First, secular increase in the US import of apparels may be greater than the increase in the export of Vietnam. Hence the absolute export of the other countries need not decline although the relative shares may change. Second, the duty-free access granted to Vietnam will most likely reduce the landed price of its apparel imported into the USA. There will be pressure on other exporters to reduce their prices. Firms in other countries that were exporting already at a slim margin may not be able to withstand this pressure. They will either reduce their export or go bust. Thus the main burden of adjustment to a large increase in the export of Vietnam, or for that matter any other country, will fall on these marginal firms in other countries. Bangladesh fortunately is not in this group as suggested by 2005-14 US import data. If it can improve its efficiency, then it need not suffer at all from Vietnam’s fortune. However, there are reasons for concern. The 10-year growth hides an important development. Most of the growth actually took place between 2005 and 2011. Since then there has been little growth in export of either knit or woven garments. Total apparel export increased by only 7.3 per cent between 2011 and 2014, which is only slightly more than the increase in the US apparel import demand. This obviously meant that Bangladesh barely managed a very small increase of 0.1 per cent in its share of the US market. In contrast, Vietnam’s share increased by 2.8 per cent (from 8.3 to 11.1 per cent) during these three years. Another important development is the beginning of the decline of China; its share declined from 38.2 per cent to 36.7 per cent. Its highest share of the US market, 39.7 per cent, was attained by China in 2010. Despite much hype about Bangladesh becoming an alternative powerhouse of apparel export, it is still to emerge as an alternative to China in the US market. But Vietnam has been successful in positioning itself as the major alternative source. Since China is likely to lose apparel market share rapidly in future, there will still be opportunities for Bangladesh. It must raise its efficiency level in order to carve out a greater share of the market. Given the political realities, there is little likelihood of obtaining duty-free access to the US apparel market without a free trade agreement. A country, especially the USA, does not enter into a free-trade agreement without a lengthy period of careful study, scrutiny and intense negotiations with both domestic stakeholders and partner countries. One does not have to be a genius to understand that the USA will not alter its decision on what is going to be the ‘cornerstone of the Obama Administration’s economic policy in the Asia Pacific’ representing 40 per cent of global gross domestic product (GDP) because of a complaint by a minor third party. What can then be achieved by expressing our concerns about TPP? Come to think of it, it does actually help the apparel exporters. If they could be shown to be a possible loser from the proposed TPP, it might help them extract some concessions from our government. It is a credible hypothesis that the presumed future loss of export market in the USA influenced, at least to some extent, the decision of the Finance Minister to a large reduction in the small tax-at-source on all apparel export proposed in the 2015-16 budget. (e-mail: m_a_taslim@yahoo.com)
