The government is considering a proposal to tighten rules on the origin of imported garments, amid warnings by the industry that Bangladesh — which enjoys duty-free access to the Indian market — is buying cheap fabrics from China in large volumes and dumping garments made out of them here. The textile and garment industry has represented to the ministries of commerce and textiles to make it mandatory for Bangladesh under the South Asian Free Trade Area (Safta) agreement to use either their own or Indian yarn and fabric in their garments to be able to supply to India at zero duty, said Confederation of Indian Textile Industry chairman Sanjay K Jain.
“The proposal is under consideration,” said a senior government official. But a decision is yet to be taken, the official said, adding, though, that tweaking rules under trade agreements is not so easy and it needs more deliberations. Senior textile and garment industry executives have now cautioned that the move to double import duties on close to 400 products to 20% could fail to yield desired results, unless the rules of origin are made more stringent under the Safta agreement.
As such, India’s garment imports from Bangladesh jumped 44% to $201 million last fiscal from a year before and 80% in the first two months of 2018-19, despite the fact that India is a large manufacturer of apparel. The rise in imports comes at a time when India’s own garment exports have been dropping month after month since October 2017. Consequently, despite a relatively good performance by certain textile segments, India’s overall textile, garment and allied product exports eased 0.5% in the first quarter of this fiscal to $9.31 billion.
On the other hand, imports of textiles and garments rose 6% to $1.7 billion in the first quarter. Some industry executives also complain that some garments from China are finding their way into India, albeit in limited volumes, through Bangladesh, with which India has a trade arrangement under the Safta agreement. Gautam Nair, managing director at Matrix Clothing, one of the largest garment exporters, made a pitch for tightening the rule of origin clause under Safta. “Bangladesh is buying fabrics from China, converting them to garments and shipping out to India. Why should we incentivise Chinese fabrics?” he asked.
Noted textiles expert DK Nair said the existing rule of origin clause under Safta stipulates domestic value addition for Bangladesh to be able to supply to India at zero duty. But since Bangladesh is converting Chinese fabric to garments, they are able to show as much as 100% value addition and thus qualify for the duty-free access.
India will not be alone if it does tighten the rules. The US has imposed sourcing restriction under the North American Free Trade Agreement for accepting duty-free imports of garments from Mexico and others. Even under the Trans-Pacific Partnership (TPP), the US (which has pulled out of the pact now) had kept such restriction for members including Vietnam. India had permitted imports of ready-made garments up to 8 million pieces a year from Bangladesh at zero duty in 2006. The cap was, however, lifted in 2010.