Cablegate: Post Mfa Update - Garment Prices and Orders Drop
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 DHAKA 002366
STATE PASS TO USTR
E.O. 12958: N/A
TAGS: ECON ETRD PGOV ELAB BG
SUBJECT: POST MFA UPDATE - GARMENT PRICES AND ORDERS DROP
BY 20 PERCENT
1. Summary: Garment orders from the U.S. to Bangladesh
have dropped by around 20 percent following the end of MFA
quotas. The full impact, however, has not yet been felt as
the industry finishes production of orders placed last fall.
BGMEA projects a further drop in prices and orders if
Bangladesh fails to get duty-free access to the U.S. market.
2. EconOff met with the Bangladesh Garment Manufacturers
and Exporters Association (BGMEA), Bangladesh's principal
garment export association, the Bangladesh Textile Mills
Association (BTMA), the Bangladesh Knitwear Manufacturers and
Exporters Associations (BKMEA) and individual garment
exporters in early May to discuss the impact of the end of
quotas under the Multi-fiber Arrangement (MFA). BGMEA Vice
President Anwarul Alam Chowdhury confirmed reports from
exporters that orders for summer and fall deliveries
(normally placed during March and April) have been slow and
significantly fewer than 2004. Although firm numbers will
not be available until late July, BGMEA predicts a minimum
20% drop in overall orders in this cycle compared to the same
cycle in 2004. One of the largest garment exporters, Hameem
Garments, reports a 20% drop in their orders already.
Favorite Garments, a small exporter that works on wholesale
contracts, said that his production has fallen to 80% of
capacity due to a drop in orders.
3. The Managing Director of Hameem Garments Group, Mr.
A.K. Azad, told us that orders were slow this year because
buyers are shopping around for the cheapest sellers in China
and India. Exporters have noticed a significant drop in
price as well due to competition from China. BGMEA numbers
indicate an 18 percent drop in overall prices. Hameem Group,
which has a well-established client base, has experienced a
15 percent reduction in prices this year. The President of
the smaller Favorite Garments said that he has noticed a 20
percent drop in prices since the MFA phase-out.
4. In the overall RMG sector, knitwear has done relatively
well, while woven garments have taken the biggest hit.
Knitwear has grown substantially in the past year, even after
the MFA phase-out. BGMEA credits this to the quality of
knitwear produced here that meets the needs of a higher
priced client base. BKMEA notes that more than 85% of
Bangladesh knitwear exports go to Europe. (Bangladesh did
not have sufficient knitwear quotas to penetrate the U.S.
market.) Duty-free treatment in Europe and Canada post MFA
is seen as a key factor enabling companies to retain, and
even expand, market share.
5. In the woven sector, where price is the most important
factor, Bangladesh cannot compete with larger countries like
China and India. BGMEA and the exporters fear that they will
lose most of their share of the U.S. woven garments market as
buyers turn to cheaper sources in China. Lack of backward
linkages, especially in woven garments, and longer lead-times
due to geographic location, inadequate infrastructure, and an
inefficient and corrupt port, substantially undermine the
industry's competitive advantage in quality and labor costs.
Manufacturers have little room to cut costs in the face of
sharp price drops for finished goods, as 85% of the input
fabrics are imported. As a result, profit margins will
shrink, leaving less capital available for investment to
modernize aging plant and equipment.
6. BGMEA President Annisul Haque, however, is optimistic
that the Bangladesh garment sector would recover from this
downward slide if the U.S. passed the Trade Act of 2005,
which would give Bangladesh duty-free access to the U.S.
market. Ever the optimist, Haque points to the association's
recent "successful" visit to Washington, where they persuaded
Hillary Clinton and John McCain to back the bill, and to
assurances the association received that the bill will pass
in September. BGMEA also welcomes U.S. and European
safeguard actions on select Chinese garment products,
believing Bangladesh can compete as a substitute source of
7. BTMA and large exporters expressed interest in
establishing relationships with U.S. cotton exporters for
Bangladesh garment export market. They propose duty free
access for garments produced from U.S. cotton in exchange for
an exclusive cotton import agreement with the U.S. They see
this as a realistic alternative to the more general duty-free
8. Comment: Despite BGMEA's confident prediction that the
Trade Act of 2005 will become law in September, most
exporters are more realistic about its prospects and remain
concerned over the industry's future. They recognize that
chronic problems of infrastructure and governance
significantly hurt the industry's global competitiveness, yet
remain largely outside industry's control. Although these
problems were apparent long before quotas ended, successive
governments have failed to address them, and there is little
evidence to suggest they will do so now. As a result,
Bangladesh's RMG industry will find it increasingly difficult
to compete in a quota free world. End comment.