Without the duty-free benefits, Bangladesh has been able to remain the third largest source of apparel for the USA. As China’s grip weakens and brands look beyond Vietnam, can Bangladesh sustain its share in the American market? The latest US International Trade Commission report suggests Bangladesh is well on its way.
American buyers view Bangladesh as a promising sourcing alternative to China and Vietnam and find it one of a few countries that can compete with China in some clothing categories, according to the USITC report published on 30 August.
It acknowledges Bangladesh’s success in export growth in the US market despite having no market preference or duty breaks as offered by most other destinations including the European Union.
In 2023, the US was Bangladesh’s largest single-country export market for apparel, totalling $7.1 billion and representing 17.4% of exports, while exports to the EU, another important destination for Bangladesh’s exports, totalled $18.8 billion, it says.
Between 2013 and 2023, Bangladesh saw increased exports to its top destinations, growing by 51.5% in the United Kingdom, 31.9% in Canada, and 123% in Japan, finds the report that prepared country-specific profiles of the apparel industries in Bangladesh, Cambodia, India, Indonesia, and Pakistan for the US Trade Representative.
US imports of apparel from Bangladesh increased by 92% from $4.8 billion in 2013 to $9.2 billion in 2022 before dropping in 2023. Still, Bangladesh remains America’s third largest source of apparels.
“Apparel exports from Bangladesh have no preferential duty access to the US market,” it says, stating US apparel imports from Bangladesh were on average subject to a 16.9% applied duty in 2023.
It mentions duty-free market access offered to Bangladesh’s apparel by several significant trade partners such as the EU, Japan and Canada through their Generalized System of Preferences or similar programmes.
As such, the US is the only country in the top 10 destination markets for Bangladesh apparel that does not offer preferential market access, the report points out.
Though the report speaks highly of Bangladesh’s growing strength in apparel exports, an Indian newspaper Business Standard makes a negative campaign about Bangladesh’s largest export sector. In a news item on 21 October, it says that “concerns rise over the garment sector in Bangladesh”. While highlighting “India’s growing credibility as a preferred apparel sourcing destination”, it quotes the USITC report out of the context, saying, “Brands are more willing to source high-value or fashion items from India compared to less politically stable countries…”
However, nowhere in the section of the USITC report that deals with Bangladesh’s scenario was any reference to political stability or any concern about Bangladesh’s apparel industry as referred to in the Indian newspaper’s report headlined “US buyers turn to India for apparel as Bangladesh faces growing concerns.”
The US trade commission’s report highlights how Bangladesh’s largest export industry grew considerably during 2013-23, increasing by more than 60% from $24.1 billion to $39.8 billion, consistently accounting for 82-86% of all exports.
US imports accounted for almost 50% of Bangladesh’s total apparel exports in the early 1990s, which fell to 17.4% in 2023 as the “Bangladesh industry identified new destination markets and exports shifted to countries offering duty-free access for apparel.”
Still, it points out, Bangladesh accounts for 9% of total US apparel imports in 2023, an increase from 6% in 2013, with knit apparels having more robust growth than woven. During the period, share of MMF garments also rose from 17% to 25.3% of US imports of apparel from Bangladesh.
It refers to major shifts in US apparel sourcing from its two largest suppliers in Asia during the period, with its share of imports from China falling by 16.8%, while that from Vietnam rising by 7.8%.
Jointly, the five profiled countries saw their share growing from 21.3% to 27% of total US apparel imports.
The USITC says in recent years, the number of apparel brands and retailers that source from Bangladesh as well as the volume each firm sources from the country both marked an increase.
By 2022-23, says the report, 80% of brands and retailers reported increased sourcing from Bangladesh, and more than 20% of respondents reported sourcing more than 30% of their orders from this country – both shares had increased significantly from the 2017-19 period.
It cites aspects that have made Bangladesh a low-cost apparel supplier. Though low labour costs are often stated, factors such as low input costs as a result of domestic sourcing as well as economies of scale, industry subsidies, and duty-free access to large non-US destination markets also help Bangladesh’s apparel makers keep cost of production low.
Bangladesh’s competitive strength in vertical integration and domestic production of textiles also result in lower trade costs.
Owing to these advantages, Bangladesh is one of the few countries that can compete with China on a cost basis for large orders of bulk items, and viewed as a promising sourcing alternative to China and Vietnam, it compares.
It identifies two critical government actions – bonded warehouses and separate credit lines – behind Bangladesh’s readymade garment industry’s rapid growth with lower costs and higher competitiveness. Export-oriented firms also benefit from tax incentives paid by the Bangladeshi government. “The government, however, is said to be rolling back some of these tax incentives and it is unclear whether this will affect the sector’s costs and competitiveness,” it mentions.
Bangladesh’s apparel industry has large factories that have the capacity to fill big orders, reducing the overhead cost per item and increasing economies of scale, the USITC report says, citing one US brand that sees Bangladesh as the only country other than China that can make sweaters at scale.
It also highlights the industry’s efforts to partly alleviate the vulnerability to global shocks by gradually moving from concentration in basic apparel categories towards a wider variety of higher value-added and higher-priced items.
The competitiveness of Bangladesh’s apparel industry lies in its ability to provide high-quality, low-cost apparel for the value and low-mid markets as well as its increased access to locally produced inputs.
Despite 56.3% increase in wages for the lowest-grade RMG workers in the latest review of minimum wage in January 2024 from the 2018 levels, Bangladesh is reported to have one of the lowest minimum-wage rates for apparel workers in the world, which some observers have attributed to low unionisation rates, the USITC report says.
Though wages in the apparel industry are reportedly higher on average than wages in other manufacturing sectors in Bangladesh, some viewed the practice of a five-year review might keep workers’ wages low compared to inflation.
Though Bangladesh’s apparel industry has improved in workplace safety standards, it still struggles with social responsibility, particularly regarding labour issues. “US buyers have noted that news coverage of violations of labour standards can deter companies from sourcing from Bangladesh,” it warns.
