Article Type : Research Article
Authors : Moniruzzaman M, Fatema K, Rabbani Mondal AKMG and Hossain A
Keywords : Textile and Clothing industry; RMG sector; Export; MFA phase; Pre-MFA period; Post-MFA period; Quota withdrawal
The textile and clothing industry plays a
significant role in the economy of Bangladesh. It acts as a key player in the
progress of the country. At present, the export performance of the readymade
garment sector is more than 80% of total export and hence makes up about 12% of
the Gross Domestic Product (GDP) in Bangladesh. Thus, the country’s development
largely depends on this sector which is considered the backbone of Bangladesh.
As the quota system under the Multi-Fiber Agreement (MFA) phase greatly impacted
the development process of the readymade garment sector in Bangladesh, many
researchers disputed that after the abolition of the quota system, the growth
of this sector might be hampered. Therefore, this study aims to find out the
impact of quota withdrawal on the readymade garment (RMG) sector and, thereby,
the roles of this sector to the economy of Bangladesh. For this purpose, the
research has covered a period of twenty years as sample size, where ten years
has been considered as the pre-MFA period and ten years as the post-MFA period.
Being a quantitative study, comparative statements and descriptive statistics
techniques have been used to determine the impact of quota withdrawal on the
export performance of Bangladesh's textile and clothing sector. The evidence
shows a smooth upward trend of textile and clothing exports towards the ten
major countries in the world following the post-MFA period, and Bangladesh is
registered as a significant export growth country following the withdrawal of
MFA. Consequently, the arguments about the RMG sector concerning the textile
and clothing industry that Bangladesh might not be able to compete in the
global market during post-MFA periods proved wrong; thereby, this sector’s
contribution to the economy is increasing progressively.
Bangladesh is a globally recognized name for a
significant textiles and clothing (T&C) export industry. Like this, the
readymade garment industry has turned into the lifeline of the Bangladesh
economy. Consequently, the T&C sector has been an enormous component of
global trade, and along these lines, the trade in this industry is led to a
gigantic scope. Having said this, the Multi- Fiber Arrangement (MFA) in the
global textile and clothing trade set out an intense opportunity for Bangladesh
to take advantage of its comparative advantage in the labour-intensive garment
industry. As the quota system under the Multi-Fiber Agreement (MFA) phase
greatly impacted the development process of the readymade garment sector in
Bangladesh, many researchers disputed that after the abolition of the quota
system, the growth of this sector might be hampered. Therefore, this study
strives to find out the impact of quota withdrawal on the readymade garment
(RMG) sector and, thereby, the roles of this sector to the economy of
Bangladesh. While the World Trade Organization (WTO) was formed in 1995, it was
assumed that the MFA arrangement of controlled trade would be deliberately
staged out by January 1, 2005. At the beginning of 2005, the export from China
and India hopped in the first 50% of the year. As China was the biggest
exporter of garments to the US and the growth rate in the worth of export from
China was very high. Consequently, the US government genuinely thought to be
engaging protections to place brakes on garment imports from China. Besides,
The European Union (EU) additionally confronted an overflowing in garment
imports from China. Therefore, the EU and China agreed on a three-year
"temporary game plan" on June 10, 2005, that set roofs on development
paces of exports of the major types from China and cutoff the yearly expansion
in Chinese garments imports to around 10% until the trade was changed in 2008.
Moreover, the US and China settled on a comparable understanding in November
2005, which set quotas to cover almost 50% of China's garments imports into the
US before the finish of 2008. Subsequently, the controlled trade system was
made-up until 2008.
Bangladesh's textile industry has become a mentionable
part of the world's garment trade. The consolation of the garment industry of
Bangladesh as an open trade system is professed to be a substantially more
viable type of assistance than foreign help. In this manner, instruments like
quota through the WTO, Agreement on Textile and Clothing (AT&C) and
Everything but Arms (EBA), and the US 2009 Tariff Relief Support in the
comprehensive apparel market have advanced business people in Bangladesh's
readymade garments (RMG) industry. In 2012, the garments business represented
45% of all industrial workers and contributed 5% of Bangladesh's all-out public
pay. The abrogation of MFA occurred in December 2004 under the Uruguay Round
Agreement in three phases. Any place the agreement on textile and clothing
(ATC) suggests the stage out of import quotas and calls attention to the plan
between which global exchange in textile and clothing will be continually brought
together into the GATT/WTO erection somewhere in the range of 1995 and 2005.
Therefore, the finish of MFA on January 1, 2005, has undoubtedly changed the
approaches of trade in the garments industry. Subsequently, as the global
rivalry expanded under the new quota-free trading arrangements, nations
worldwide are getting ready to drive advancements in finding and supplying
clothing from around the world. Subsequently, the nations like China, India and
Mexico and so on with consistent inventory organisations and grounded limits
will profit from the evacuation of quotas. It likewise saw that albeit numerous
troubles challenged by the RMG business over the earlier years, it supported
showing its substantial exhibition and competitive strength. The adaptability
and fearless pattern in this MFA deliberately phase-out period to some degree
uncovers the inconvenience of 'safeguard quotas' by the US and similar
limitations by EU organisations on China up to 2008, which has been the biggest
provider of textile and clothing to the USA. Until recently, Academics and
Researchers have generally ascribed the significant development of RMG export
from Bangladesh to the Multi-Fiber Arrangement (MFA), which is a respective
quota arrangement forced by advanced nations and low wages in Bangladesh [1,2].
Whereas the inception of the industry began with the Korean and Hong Kong
ventures to infiltrate the market of the advanced nation via diverting their
production through Bangladesh's allowed quota access, and in 2002, Bangladesh
relied upon quota-limited markets for around 94% of its RMG export among the
most elevated proportions on the globe. Such high thoughts of market access
through quota promptly pose worry for her likely susceptibility to the enormous
scope shock because of the elimination of quota among strategy organisers’
scientists and academicians. In this way, the principal concern was connected
with the competitiveness of Bangladesh's garment industry and its improvement
in the quota-liberated world that may thusly crumble the nation's balance of
payment results and business concerning, generally speaking, macroeconomic
equilibriums of our country.
Conducted a study on WTO, Post MFA era and the
Bangladesh RMG sector [3]. The fundamental goal of this study was to find out
the future effects of WTO and post- MFA times on the RMG of Bangladesh. In so
doing, the study revealed that Bangladesh is confronting tough rivalry in the
worldwide market, particularly rival nations like China and others. In their
research work on RMG export performance following two years from the MFA
phase-out exposed that the strong growth rate of Bangladesh’s exports mainly
depends on the safeguard measures imposed on China both by the US and EU [4].
In addition, the actual situation will be visible from the beginning of 2009,
when all sorts of restrictions will be removed. Revealed in their review of the
post-MFA performance of the Bangladesh Apparel Sector that the evacuation of
all quotas in 2005 has made gainers and failures among the emerging nation
suppliers [5]. It has been seen that the expiration of MFA prompted a change in
the national pattern of trade, which produced the two champions and failures
among significant exporters. Albeit the low work cost, nations have arisen as
gainers; the predicted significant changes underway have not happened. In their
investigation “Export Performance of Bangladesh: Global Recession and after”
indicated that world trade was harshly upset by the overall slump of 2008- 09,
with exports of most countries declining powerfully [6]. In addition,
conferring to this study, Bangladesh is yet a provider of cheap fundamental
attire things that can be cost-effectively delivered by incompetent and
semi-gifted labourers. Furthermore, it also revealed that to climb the worth
chain as new open doors arise in the post–downturn worldwide market, Bangladesh
should work on the quality of its labour force and executives. In his study
“Performance of Indian Textile & Clothing Industry in the United State
Market: A Post ATC Analysis”, found that in 2004-05, when the quota was
nullified, India’s textile export reduced, which was not usual [7]. This was
the vital sign India was not about to seek after on this open entryway. It also
exposed that India’s export of textiles and clothing could not battle China in
the United States market. In their review of “Export Performance and
Competitiveness of Indian Textile Industry” analyzed the export competitiveness
and export performance of Indian textiles as to the rest of the world and
revealed that there is still opportunity for Indian Textile items on the global
market and exports are expanding from US$ 3.5 billion out of 2004-2005 to DSD
24.47 billion of every 2010-11 [8].
In his research study “The Competitiveness of
Ready-Made Garment Industry of Bangladesh in Post MFA era: How does the
industry behave to face the competitive challenge?” exposed that the gradual
step out of MFA and evolving of new contenders could not confine the continuous
development of Bangladesh RMG industry [9]. He also stated that it was too
early to comment on the competitiveness of the Bangladesh RMG industry because
the industry had only gone through seven years after the abolition of the
quota. In their analysis titled “Comparative Advantage of Textile and Clothing:
Evidence for Bangladesh, China, Germany and Turkey” denoted that Bangladesh,
China and Turkey partake in a solid comparative benefit in both the textile and
clothing business sectors of the world while Germany partakes in no remarkable
comparative benefit in any of these business sectors [10]. Thus, the general
postulation was that the share of textile and clothing industries in the
economies of lower-income nations is higher than those of higher-income
nations. In his study of “Export Performance of Indian Textile Industry in the
Post multi- fibre Agreement Regime” signified that India could not acquire much
from the abolition of quota restrictions which was expected as per the past
research studies [11]. Moreover, at the hour of contrasting the performance of
Indian textiles and China, it was extremely evident that India could not
acquire much compared with China. In their research titled “Export Trend of
Bangladesh the Dominance of Readymade Garments Industry” stated that regardless
of the worldwide economic downturn, the garment role in the development of the
export area [12]. As well, export has expanded in the United States, European
Union and Canada sometimes, as this has contributed through tax-exempt
benefits. The study also suggested that for the sustainability and headway of
the RMG industry, the industrialist of this sector should push toward
high-esteem items. In the investigation titled “Effect of Post multi-fibre
Agreement- A blessing for Bangladesh: Study of Survival Strategy” discovered
that the evacuation of quota in 2005 had brought economic rise for a few
emerging nations and misfortune for certain economies [13]. In addition, among
the South Asian nations, the post-MFA execution of India and Pakistan has been sensibly
amazing. In his study titled “Garment Industry of India- a Comparison of Pre-
and Post- Liberalization Performance” revealed what is happening to win in
India [14]. Nonetheless, remember that comparable conditions get in different
nations, especially developing nations. The review was close, remembering that
global trade situations concerning garments export sine have altered over the
post-MFA period, with Bangladesh evolving as the fundamental exporter of
readymade garments.
The objective of this study is to analyze the export performance of Bangladesh's textile and clothing industry. So, as to investigate the impact of quota withdrawal on the growth of this sector and thereby expose the real prevailing status of the textile & clothing industry in Bangladesh.
Hypothesis of the Study
Ho – There is no significant impact of quota
withdrawal on the export performance of Bangladesh textile and clothing
industry.
H1 – There is a significant impact of quota withdrawal
on the export performance of Bangladesh textile and clothing industry.
The study is quantitative in nature and aims to assess
the export performance of Bangladesh’s textile and clothing industry during the
pre- and post-multi fiber agreement period. For this analysis, this study has
covered a period of 20 years, that is, ten years before the MFA and ten years
after the MFA periods, since the quota was abolished in 2005. The top ten
importing countries have also been taken as sample sizes where Bangladesh makes
its export of garments products. This study is based on secondary data and
carried out comparative statements and descriptive statistical techniques for
data analysis.
The Readymade Garments (RMG) industry was structured from 1974 to 2004 under the Multi- Fiber Arrangements (MFA). Through the MFA, advanced nations, particularly the US and the European Union (EU) controlled their market by forcing quotas on RMG imports to defend their home grown business sectors. However, emerging nations were additionally likely to import levies, yet some less competitive trading countries, including Bangladesh, Pakistan and Sri Lanka, got a small level of import levy exception under the Generalized System of Preferences (GSP) in the US and the EU markets. A comparative analysis of Bangladesh’s textile and clothing exports to the major importing ten countries during Pre and Post MFA Periods has been explained in (Table 1). Based on table 1, it is observed that the exports of Bangladeshi garments to the major importing ten countries in the world have increased significantly in the Post MFA periods compared to the Pre MFA period. Additionally, the growth of export regarding readymade garments products from Bangladesh was highest in Spain, Germany, the UK, Netherlands, Belgium and Italy, which are more than 100 % among these ten countries. However, the export growth to other countries has also increased except for Canada, where the export growth shows a negative trend, i.e., 13% in the Post-MFA period as compared to the Pre-MFA period. Descriptive Statistics of Bangladesh Garments Exports towards the Major Ten Importing Countries in the World. The four indicators, namely Mean, S.D., C.V. and CAGR, are presented here to show the picture of Bangladesh RMG exports towards the major ten importing countries in the world during the pre and post-MFA periods. The analysis is based on table 2 below (Table 2).
The average values of Bangladesh’s textile and
clothing exports towards the above selected countries have significantly
increased from pre to post MFA period not including the country Canada, which
is a good sign. Additionally, the standard deviations of these countries have
also increased during post MFA periods as compared to pre-MFA periods excluding
the countries; Canada and Denmark. Furthermore, the CAGR of these countries
have increased to the post MFA period as compared to the pre-MFA period except
the country Spain, as this country shows a negative trend in post MFA periods.
Still, among these ten countries, The CAGR of France was highest, 36.39% in the
post MFA period. Therefore, the inconsistency of textile and clothing export
concerning Bangladesh have also increased from pre to post MFA period.
Consequently, the variability of textile and clothing export concerning
Bangladesh towards the selected countries have increased a lot in the post MFA
periods as the standard deviations of these countries have increased. But there
were exceptions about Canada and Denmark as these two countries show negative
trend in standard deviations. Moreover, as the CAGR and coefficient of
variation rate have simultaneously increased concerning Bangladesh textile and
clothing exports during the post agreement periods as compared to pre agreement
periods with the exception of Spain, as a result, they are representing
increased variability about the textile and clothing exports of Bangladesh
during post agreement periods towards these above selected countries.
The graphical presentations of RMG exports concerning
the selected ten countries for the duration of both time periods that means pre
and post MFA periods represent that there is an upwards trends of export line
throughout the post MFA periods exports as compared to the pre-MFA periods for
most of the selected countries generally. Excluding the country Canada, where
it detected that after the year 2012, there cause a downward trend in export.
Furthermore, for the country, Denmark, there cause a major decline in the
export amount in the year 2000 and this deterioration continued for some years
but after the year 2008, it again began to increase and therefore causes an
upward trend in export amount from Bangladesh. In this examination, it noticed
that in USA, Bangladesh made the highest export of RMG as compared to other
countries. It means, USA was the highest importer of RMG from Bangladesh all
through both time periods among these selected ten countries. At this point,
for the countries; Germany, UK and USA we find that there was an upward trend
of export amount during these time periods, moreover the growth of post MFA
period was greater as compared to pre-MFA time period. But in the year 2012,
there causes a fall in RMG export as compared to previous year for these
countries. Likewise, the graphical presentations of France, Canada and
Netherland exposed a decline in RMG export amount from Bangladesh in the year
2012. However, for Spain, Italy and Belgium we observed a smooth upward trend
that confirmation a better growth in post MFA periods as compared to pre time
periods. At this point in time, among the ten selected countries, though most
of the countries’ graphs showed an upwards trend in their export amount through
these time periods but a fundamental change of RMG export in the year 2011 was
observed, for the countries: Germany, UK, USA and Netherlands. Whereas for the
countries; France, Spain, Canada, Netherlands, and Denmark a drop in export
amounts in the years 2006-07 was found, but after that it again began to
increase gradually throughout the post MFA periods (Figure 1).
From the study, it is detected that though the Readymade Garments industry was introduced in western world during 1950’s but Bangladesh started receiving investment in Readymade Garments sector in the early 1980’s under the multi-fibber agreement, which was introduced in 1974 to control the level of imported RMG products from developing countries into developed countries. Thus, the Multi-fiber agreement was regulated in Bangladesh up to December 2004, as the agreement was withdrawn from 1st January 2005. And so, after the abolition of this quota system it was expected that Bangladesh would lose its competiveness, and accordingly lose the market share in the global market. For that reason, we have observed the growth of RMG sector which has a crucial contribution to the Bangladesh economy through this study, where 20 years has been considered as the study period [15-25]. At this point, the relationship between Bangladesh textile and clothing export with its ten major importing countries during these periods has been reflected and it detected that:
Considering all the necessary data and findings of our
study it observed that the contribution of Textile and Clothing exports to our
economy continue to improve even after the withdrawn of Multi-fiber Agreement.
Consequently, the arguments about the RMG sector concerning the Textile and
clothing industry that Bangladesh might not be able to compete in the Global
market during post multi-fiber periods proved wrong. Moreover, it observed that
there is a smooth upward trend of textile and clothing export amount towards
the ten major countries in the world where Bangladesh has made its significant
export throughout the study periods. Therefore, still, Bangladesh has become as
one of the largest exporters of Ready-made Garments concerning the Textile and
clothing industry in the world and thereby the contribution of this sector to
our economy is increasing progressively. So, for the long run sustainability in
the competitive world this sector must meet the challenges facing in the post
MFA periods. Thus, Bangladesh may possibly be achieve the core competencies in
the global dimension to make a positive response for strengthen foreign
exchange reserve and hence be able to achieve a favourable balance of trade.