Bangladesh’s garment industry, valued at $47 billion, faces a significant challenge within the intricate details of the recent trade agreement with the US. The trade deal, signed on February 9 between Dhaka and Washington, initially hailed as a diplomatic triumph, has now sparked confusion due to the “cotton clause.” This clause stipulates that reciprocal tariffs will only be waived for garments produced using American cotton.
With 86 percent of its merchandise exports to the US comprising garments, Bangladesh is grappling with uncertainty surrounding the deal’s implications and potential consequences.
The primary issue revolves around the new tariff structure. According to the agreement, Bangladesh is subject to a 19 percent reciprocal tariff on top of the existing most-favored-nation (MFN) duty of approximately 16.50 percent. This results in a substantial total tax of 35.5 percent on Bangladeshi garments entering the US market.
While Commerce Adviser Sk Bashir Uddin sought to allay industry concerns during a press conference on February 10 by indicating that the reciprocal tariff would be waived for garments made with US cotton, industry leaders caution that this does not equate to duty-free status for the products.
President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Mahmud Hasan Khan, emphasized that the US will not eliminate the previous duty that existed pre-deal. Even if the 19 percent reciprocal tariff is waived for garments using US cotton, the basic 16.50 percent duty would still apply, maintaining a high cost of entry into the US market.
Another issue of contention is the ambiguous language of the concession. The agreement’s Article 5.3 outlines the creation of a system for “zero reciprocal tariffs,” but this benefit is limited to a specified volume of imports dependent on Bangladesh’s purchases of US cotton and man-made fiber.
Essentially, for every tariff dollar removed by the US, the benefit primarily accrues to American cotton producers.
Chairman of the think-tank RAPID, Mohammad Abdur Razzaque, criticized the agreement for its ambiguity and perceived unequal terms. He highlighted that Bangladesh must utilize American raw materials to receive tariff relief, raising concerns about whether the waiver extends to garment accessories and potential separate tariffs on those items.
Geopolitically, analysts warn that if India secures similar “cotton clause” advantages, Bangladesh’s competitive edge in the US market could diminish. The uncertainty surrounding the interpretation and implementation of the textile clause poses a significant challenge for Bangladesh’s garment industry.
The outcome hinges on the government’s ability to clarify the terms of the agreement. While there is potential for benefits if the textile clause is clearly defined, complexities in the system or parity in terms with competing nations could undermine the trade deal’s safeguarding of Bangladesh’s garment industry, experts caution.
