For Bangladesh there has possibly been nothing more spectacular than the growth of its export sector. In the decade of the 1980s, Bangladesh’s exports doubled from US$ 0.9 billion to US$ 1.8 billion, which in the next decade increased three-folds to cross US$ 5 billion on its way to over US$ 10 billion within the next six years (Figure 7.1a). This apparently impressive performance has been single-handedly driven by the apparel export sector alone that has witnessed its share in total exports rising from virtually nothing in 1980 to 75 percent in 2006 (Figure 7.1b). From a base of US$ 0.6 billion in 1990, exports of apparels – more popularly known in Bangladesh as readymade garments (RMG) – on average had grown at an annual rate of about 19 percent to reach US$ 7.9 billion in 2006. The comparable growth rates for non- RMG exports and GDP had been 8 and 5 percent, respectively. Given the
162 highly labour intensive production process, the growth of the apparel
industry has generated huge employment opportunities. While in 1985 just about 0.1 million people were employed in garment making, within the next 20 years the figure rose to more than 2 million, accounting for 35 per cent of all manufacturing employment in the country – 80 per cent of whom would be women. If one considered the jobs created in the complimentary enterprises as a result of the growth in this sector, the number of people either directly or indirectly depending for their employment on the existence and expansion of the export-oriented apparel sector would rise to three millions (Ahmed and Sattar, 2004).
Figure 7.1(a): Apparel, non-apparel and total exports 0 2000 4000 6000 8000 10000 12000 1973 1978 198 3 1988 199 3 1998 2003 M ill io n U S $ T ot al Export s Apparel Export s Non- Apparel Export s
Figure 7.1(b): Share of Apparel and non- apparel export s in t otal export s
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1980 1985 1990 1995 2000 2006 Apparel Export s Non-Apparel Export s
The emergence and development of Bangladesh’s RMG industry has largely been a result of the long restricted global trade in textiles and clothing (T&C) under which the developed countries attempted to control imports through some non-transparent bilateral deals known as the Multifibre Arrangements (MFA).10 While the intention was to provide protection to domestic manufacturing units in the importing countries from the more efficient producers in developing countries, operation of this ‘managed trade’ regime in the process led to exporting opportunities in countries where textiles and clothing were not traditional export items. Many international firms, in particular those from the Asian newly industrialising economies (NIEs), facing binding quota restrictions in their own countries, relocated part of their production and trade to
10 The MFA evolved through four successive phases: MFA-I(1974-77), MFA-II(1978-81), MFA-
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other relatively poor developing countries including Bangladesh. As the process of production was labour intensive in nature, especially in the production of apparels, the availability of cheap and easily trainable labour in these countries facilitated the growth and development of the sector. The restricted global trade regime therefore ensured a de facto
reserved market status for the new suppliers and gave them some time to develop and learn the skills required in the production and marketing. In addition to quota-protected export markets, Bangladesh’s apparel industry has also been greatly benefited from a generous Generalized Systems of Preference (GSP) facility that allowed duty-free and quota- free market access for T&C products of LDCs to the European Union (EU).11
Apart from a favourable international trade environment, the growth of the RMG industry in the country coincided with Bangladesh’s changing trade policy regime, providing the much needed policy support to the export sector. Untill the early 1980s Bangladesh followed a very rigid import-substituting trade regime. This generated a highly distorted incentive structure resulting in widespread allocative and productive inefficiencies, which not only inhibited the prospect for growth but also led to a policy induced anti-export bias thus undermining the potential for export growth. In the face of some serious macroeconomic imbalances and stagnating export performance, Bangladesh had to undertake the policy of reforms for stabilisation and structural adjustment. This policy reversal introduced generous promotional measures for exports so that the erstwhile bias against the export-oriented investment could be reduced significantly. Important export-promotion schemes included, inter alia, allowing exporters to open letter of credit (L/Cs) for the required imports of raw materials against their export L/Cs (popularly known as the back-to-back L/Cs), bank credit at a subsidised rate of interest, duty free import of machinery, providing intermediate inputs at world price either by bonded warehouse or by duty draw back facilities, cash subsidies, and exemption from value-added and other
11 However, not all apparel exports are eligible for duty-free access to the EU market. Duty-free access is preconditioned by the fulfilment of EU rules of Origin (ROO). In the case of apparels, EU ROO specify that LDCs must undertake two-stage domestic value addition before taking the advantage of duty-free access. For a woven shirt, this would imply that the fabrics used in its make should be locally produced while for a knitwear product the used yarn should be of domestic origin.
164 taxes. These incentives along with the duty-free access to the EU market
to a large extent mitigated the problem of policy induced anti-export bias, especially against the RMG sector.