Full FoC import could backfire, say textile, accessory makers

Textile millers and garment accessories manufacturers have voiced strong opposition to the government's proposed amendment to the import policy, which would allow full import of raw materials for export-oriented garments under the free-of-charge (FoC) arrangement.

Currently, exporters can import only 50 percent of the raw materials they need under FoC. Under this system, international buyers supply fabrics, accessories, and other inputs, while local manufacturers are paid only for cutting and making the garments.

Although the policy aims to reduce costs and encourage high-end exports, the amendment could undermine Bangladesh's domestic textile and accessories industries, leaders of the sectors conveyed to Commerce Adviser Sk Bashir Uddin at a meeting at the ministry on Tuesday.

They warned that the primary textile sector – which has attracted around $23 billion in investment and provides yarn, fabrics, dyeing, washing, and finishing services to garment exporters – could face severe disruption due to the amendment.

In a statement issued yesterday, Showkat Aziz Russell, president of the Bangladesh Textile Mills Association (BTMA), said the FoC amendment "will destroy the primary textile sector."

He noted that local mills are already struggling with gas shortages and cannot operate at full capacity.

Allowing full FoC imports would further reduce demand for locally produced raw materials, potentially weakening the entire supply chain that supports Bangladesh's garment industry, he said.

Similarly, in a separate statement, Md Shahriar, president of the Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA), expressed concern that the Tk 40,000-crore packaging and accessories sector will be severely affected due to the change.

However, exporters say that FoC is straightforward, less risky and faster. Without any quota on FoC import, they believe global brands will place more orders in Bangladesh because of the country's skilled workforce and strong manufacturing capacity.

At present, more than 95 percent of garments are exported using usual letters of credit (LCs). FoC has seen limited uptake because of import restrictions and bureaucratic hurdles.

The move is expected to bring an additional $5 billion in export earnings within the first year of implementation, Md Shehab Udduza Chowdhury, vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told The Daily Star in early November.

In the second year, he added that the value is expected to cross $10 billion as factories can get all raw materials under the FoC arrangement.

A few years ago, FoC imports were capped at 33 percent of total raw materials. This was increased to 50 percent later.

Local apparel exporters currently use FoC for less than 5 percent of total shipments due to restrictive conditions and reported complications at Chattogram customs.