Rising dispute in Indo-Bangla trade

13 Feb 2020 11:22 PM
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After a major jump in the bilateral trade in goods between Bangladesh and India, the total trade dropped moderately previously fiscal year due mainly to a major decline in import from India. At the same time, exports of Bangladeshi goods to India registered robust growth and for the first time crossed $1.0 billion level. Because of this, bilateral trade deficit declined by around $1.30 billion to 6.40 billion in FY19 from $7.74 billion in FY18. As export of clothing doubled during the past fiscal year, it contributed drastically to fetch $1.25 billion export earnings from India in FY19. Some 40 % of the full total exports to India result from readymade garments (RMG).

Being the second greatest exporter of clothing globally, it isn't very surprising that RMG export from Bangladesh has also been rising in India. The phenomenal increase in export of Bangladeshi RMG in India, however, irks Indian textile and clothing manufacturers. It would appear that they are sceptical about the strength and capacity of Bangladeshi clothing industry. That's why they have asked the Indian government to take some measures to curb the import of Bangladeshi apparel items. They allege that Chinese clothing is entering into India through Bangladesh.

Giving an answer to Indian textile lobby, the Indian government has decided to review the provisions of 'rules of origin' beneath the Customs Act to 'check misuse of FTA route and strengthening provisions relating to safeguard duty,' according to a news published by The Hindu Business Line (HBL). Indian textile lobby argued that by taking the advantage of some flaws in South Asia Free Trade Area (SAFTA) agreement, Chinese RMG is being diverted to India creating the rise in Bangladeshi RMG. HBL report said: "What particularly drew the attention of the Indian textile industry was the lack of the minimum value addition standards in SAFT. ...Confederation of Indian Textile Industry (CITI) was apprehensive that the loophole could possibly be used for diversion of Chinese man-made fibre-based garments through Bangladesh."
MISINTERPETATION: Allegation of diverting Chinese RMG items because of no value addition standards in SAFTA isn't only misleading but also misinterpretation of relevant provisions in SAFTA agreement. ANNEX-IV of the SAFTA agreement evidently outlined the guidelines of origin applicable for SAFTA trade. Rule-6 supplies the direction regarding 'Not wholly produced or obtained' products. These kind of products of any SAFTA member country is eligible for preferential treatment at the mercy of full-filing of certain conditions outlined in Rule-7 and the conditions approved under Rule-8, Rule-9 or Rule-10.

Clause-i of paragraph-a under Rule-8 allows change in tariff heading (CTH) for non-originating products. Clause-ii of paragraph-a under Rule-8 plainly mentioned the worthiness addition standards for products. It says: "Products done or processed as a result of which the total value of the materials, parts or produce from other countries or of undetermined origin used will not exceed 60% of the FOB value of the products produced or obtained and the final process of manufacture is conducted within the territory of the exporting Contracting State." It means local value addition requirement of a non-originating product is 40 per cent. Again Rule-10 clearly helps it be 30 per cent in case of Least Developed Countries (LDCs). The essential rules of origin for Bangladeshi RMG product is thus CTH-plus 30 per cent DVA or direct value addition.  Unless contained in the list of 'product specific rules' under SAFTA rules of origin all the products (except included in the negative list) of Bangladesh are eligible for preferential market access at the mercy of CTH-plus 30 % DVA. Thus the allegation, as reported in Indian newspapers, that there surely is no value addition standards in SAFTA is wrong and misleading.

Bangladeshi RMG was beneath the original sensitive set of India in which a total of 480 products were included. For non-LDC, the quantity of products in the list was 848. Through the second phase of trade liberalisation programme, India decrease the number of products to only 25 in the revised sensitive list for LDC. These 25 products include alcoholic and tobacco items. Thus, India allowed tariff-free usage of Bangladeshi RMG products.  

As a matter of fact, India allowed tariff-free market usage of all but 25 Bangladeshi products in 2011. Since then, export of Bangladeshi products to India has increased with a gross fluctuation. Twelve months it increased while another year it dropped.

A major reason for upsurge in Bangladeshi RMG in India is replacing 12.0 % countervailing duty with Goods and Services Tax (GST). The GST rate applicable on almost all of the apparel clothing items is 5.0 per cent. For all of those other items, it really is 12.0 %.

Against this backdrop, Indian government's proceed to restrain the incremental import of Bangladeshi RMG has a trade implication for Bangladesh.  So far, there is no scope to make any revision in SAFTA agreement in conditions of alleged value addition standards and also rules of origin. Indian textile lobby has, however, suggested imposition of safeguard duty on Bangladeshi RMG. Article-16 of SAFTA agreement outlines certain requirements and steps on safeguard measures. 

It really is to be noted that in this past year, Indian authorities have informed Bangladesh regarding some 'discrepancies' in the process of exporting RMG.  We were holding: discrepancies between Free On Board (FOB) value and SAFTA value, re-issuance of country of origin (CoO) certificate after one year of shipment and issuance of dual CoO certificates by the Export Promotion Bureau (EPB).

Thus, it isn't possible to entirely eliminate the Indian allegations regarding some faulty procedure of Bangladeshi RMG export. Though there is little room to manipulate value addition criteria, procedural flaws will there be because of negligence of EPB. In this connection, India may tighten its procedural mechanism by firmly taking some non-tariff measures (NTMs). RMG exporters and also relevant government bodies must be more vigorous to contain any flaws to avoid any undue trade restriction.

ANTI-DUMPING DUTY: With rise in export to India, bilateral trade tension has also risen slowly. It really is reflected in Indian anti-dumping measures. India slapped the anti-dumping duty on Bangladesh's jute yarn, hessian, and bags back January 2017 which range from $19 and $352 a tonne. A similar duty was imposed on the exports of hydrogen peroxide to India, in the number of $27.81-$91.47 per tonne in April the same year. Twelve months later, India imposed anti-dumping duty, at $2.69 per kilogramme, on the shipments of fishing net from Bangladesh.

At a commerce-secretary level trade talk in New Delhi a few months back, Bangladesh requested India to withdraw the anti-dumping duties. Indian side, however, made it clear that there was no scope to take action.  For the last two years, India made similar response to several requests of Bangladesh on withdrawing anti-dumping duties especially on jute goods. India argued that anti-dumping duty has been imposed through a quasi-judicial process and the federal government has nothing in connection with this.

Bangladesh at one stage made a decision to move to the dispute settlement body of the World Trade Organisation (WTO) to challenge the India anti-dumping duties. The Ministry of Commerce has lately asked the WTO cell to recourse to the WTO's dispute settlement procedure following suggestion from the Bangladesh Tariff Commission which earlier said India imposed the anti-dumping duties 'violating the WTO rules'. Actually, without taking legal steps through the WTO, it really is impossible to remove the anti-dumping duties.

There is, however, a catch. Businesses have to extend their cooperation to the federal government. It would appear that jute industry has some interest to help make the legal fight as India is a large market. For the manufacturers of hydrogen peroxide and fishing nets, the trade volume is indeed small that they do not find it worthy to spend money and time on WTO dispute mechanism.

Nevertheless, the government must move ahead considering the country's long-term trade interest. As Bangladesh is in the ultimate phase of graduation from the LDC status, trade partners will try to place more restrictive measures. To fight and overcome such measures, the united states needs to strengthen its capacity on the settlement of trade dispute.