It was an ultimatum that sent ripples through Bangladesh’s garment industry: If the interim government failed to safeguard domestic yarn production by suspending duty-free yarn exports under the bonded warehouse facility, the Bangladesh Textile Mills Association warned, all mills would be indefinitely closed starting February.
“We do not have the capacity to repay bank loans,” BTMA president Showkat Aziz Russell said at a press conference in Dhaka last week. “Even if we sell off all our assets, it will not be possible to clear the debts.”While the BTMA on Thursday announced a “temporary suspension” of its declaration, the move had by then provoked a standoff between textile producers and ready-made garment manufacturers, exposing long-simmering tensions between the two sectors.
For years, export-focused suppliers have relied on cotton from India and polyester from China for their lower cost and greater consistency. Imposing import duties on these inputs, the Bangladesh Garment Manufacturers and Exporters Association and the Bangladesh Knitwear Manufacturers and Exporters Association said, would be tantamount to industrial suicide, especially since factories were already struggling with muted demand from trade disputes and other geoeconomic uncertainties. The mills, for their part, cited crippling financial losses that were compounded by high borrowing costs and a worsening fuel deficit.
“More competitive pricing from Indian yarn that’s about 15-20 percent cheaper, plus higher energy costs that have almost doubled in the last two years, have caused a major slowdown in the Bangladeshi spinning industry because of the depressed domestic demand,” Munir Mashooqullah, founder and chairman of M5 Groupe, a business network whose portfolio includes Simco Spinning & Textiles, told Sourcing Journal. “A lot of these factories were already headed toward closure with mounting debts and layoffs.”
Mustafain Munir, director of Cyclo, a recycled fiber manufacturer operated by Simco, said that U.S. tariffs on Indian exports have created a surfeit of Indian cotton at even lower prices, further eroding Bangladeshi mills’ ability to compete if they don’t have value-added advantages like sustainable certifications.
Both the BGMEA and BKMEA have balked at the prospect of bonded yarn imports being withdrawn just as Bangladesh prepares to graduate from the United Nations’ Least Developed Country status this year. Removing duty-free access, they said, would hike yarn prices by nearly 37 percent, adding roughly 60 cents per kilogram to the cost of raw materials.