Apparel makers in Bangladesh have long been opposing foreign direct investment (FDI) in the Ready-Made Garments (RMG) sector outside the Bangladesh’s Export Processing Zones (EPZs) fearing competition by foreign companies.
The Vice-president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the apex trade association of the industry, Mr. Faruque Hassan said that allowing FDI in the basic garment sector outside the EPZs could create chaos in the industry when foreign companies start paying workers above minimum wages. “We have no capacity to compete with them in terms of wages.”
Foreign companies inside the EPZs are already paying higher wages. When they set up factories outside the EPZs, workers of local factories also may demand similar wages, which may create chaos. Usually a foreign company offers BDT 8,000 per month to a low-skilled worker against BDT 5,000 set as minimum wage for this category of workers. Local factories cannot afford such high wage — and denial may lead to labour unrest.
Over 300 foreign-funded apparel factories operate inside the EPZs.
The BGMEA said that they had recently agreed to accept foreign-funded factories as member in their association. Declining membership was a serious hindrance to FDI in the RMG industry because the utilisation declaration (UD) certificates, a mandatory document for exporting the RMG products, is currently issued by the BGMEA and BKMEA to it’s members only.
A senior official at the ministry of commerce (MoC) said at the first stage customs department had issued UD certificates, which is necessary to avail bonded-warehouse facility for export-oriented industries so that the 100% export-oriented factories can source raw materials from abroad without paying import duty. The UD is being used to keep count of the use of raw materials imported duty-free by the factories.
Later, the responsibility was vested to the EPB and thereafter to the BGMEA and the BKMEA as demanded by the association members, those who are actually supposed to submit reports of their use of raw materials imported duty-free by themselves. But the both trade associations declined to accept foreign funded companies as it’s member.
Many foreign companies diverted their projects to Bangladesh’s competitor countries in this sector finding such “chicken-egg” problems unsolvable where state services are privatised to those who are actually meant to be policed by the state.
Finding no better options attracting FDI in the RMG sector the Export Promotion Bureau (EPB) of the Ministry of Commerce (MoC), has expressed it’s readiness to issue utilisation declaration (UD) certificates in favour of externally-financed garment units, if necessary. In case a foreign factory fails obtaining membership of either associations, the EPB would issue UD certificates for them since the certificate is mandatory to export apparel from Bangladesh to the rest of the world, a top official said.
“We have issued UD certificate in the past before the responsibility was vested in the BGMEA and the BKMEA. We don’t need additional preparation to do it again,” EPB vice-chairman Bijoy Bhattacharjee told the FE. “If anyone approaches us, we will issue the certificate. But we will encourage foreign-funded factories first to get membership of BGMEA or BKMEA and take UD certificate from them,” he said.
According to a MoC official Japan is particularly interested to invest in Bangladesh’s apparel sector both in high-end and basic garments. Some other countries have also expressed interest in investing in this field on different occasions. But as long as the “chicken-egg” problems in Bangladesh remain unsolvable FDI will continue bypassing Bangladesh in spite of some good potentials in this country.
Customs and import duty related services are usually the jurisdiction of a state anywhere in the world as an important source of internal revenue collection for funding national budget, development and state services to it’s citizen. How can such major state authority be privatised, particularly to those who are supposed to be supervised, asked a Dutch investor group a few years ago.
The full in-depth report may be available upon request from the author.