All-clear on UD for foreign investment in RMG

EPB to issue such certificate for FDI in garment industry outside EPZs

Syful Islam | Published: September 13, 2017 00:18:21

The last barrier to foreign direct investment (FDI) in apparel sector beyond the export processing zones (EPZs) is now removed as the Export Promotion Bureau (EPB) has expressed its readiness to issue utilisation declaration (UD) certificates in favour of externally-financed garment units, if necessary.
Earlier, the government had decided that the two garment-industry associations -- BGMEA and BKMEA -- will issue UD certificates in favour of foreign-funded garment factories if any of them enlists as their member.
However, if any foreign factory does not take membership of either, the EPB will issue UD certificates for them since the certificate is mandatory to export apparel from Bangladesh to the rest of the world, a top official said.
"We have issued UD certificate in the past before the responsibility was vested in the BGMEA and the BKMEA. We don't need additional preparation to do it again," EPB vice-chairman Bijoy Bhattacharjee told the FE.
"If anyone approaches us, we will issue the certificate. But we will encourage foreign-funded factories first to get membership of BGMEA or BKMEA and take UD certificate from them," he said.
A senior official at the ministry of commerce (MoC) said at the first stage customs department had issued UD certificates.
Later, the responsibility was vested in the EPB and thereafter in the BGMEA and the BKMEA as demanded by the association members.
He said UD certificate is necessary to avail bonded-warehouse facility for export-oriented industries. Under bonded-warehouse system, 100 per cent export-oriented factories bring in raw materials from abroad without paying import duty. The UD is being used to keep count of the use of raw materials imported duty-free by the factories.
The official said local apparel makers recently agreed to remove obstacles to providing membership to foreign-funded factories. The hurdles had stood as a big hindrance to FDI (foreign direct investment) in readymade garment (RMG) industry outside the EPZs.
They also agreed that membership procedure of BGMEA will be made complication-free so that the FDI-funded factories can avail it easily.
Local apparel makers had long expressed reservation over allowing foreign-funded factories in basic garments. The foreign investors also agreed that they will only produce high-end fashion garments instead of basic one, he noted.
Another concern of theirs is foreign-funded factories may lure workers with high pay compared to the minimum wage set by the government. That may create skilled labour shortage in the country's main export sector.
Besides, as already joint-venture companies inside the EPZs are paying high salary, when they set up factories outside the EPZs, workers of local factories also may demand similar wages, which may create chaos.
Vice-president of Bangladesh Garment Manufacturers and Exporters Association Faruque Hassan told the FE earlier allowing FDI in apparel sector outside the EPZs could create chaos in the industry if foreign companies try to lure workers to make basic garments by paying extra sums.
So, they should only be allowed in high-end fashion garments, he said. "We have no capacity to compete with them in terms of wages."
Usually a joint-venture factory offers Tk 8,000 per month to a low-skilled worker against Tk 5,000 set as minimum wage for this category of workers. Local factories cannot afford such high wage -- and denial may lead to labour unrest.
Over 300 foreign-funded apparel factories operate inside the EPZs. Some joint-venture factories also operate outside the EPZs, according to officials.
According to a MoC official Japan is particularly interested to invest in Bangladesh's apparel sector both in high-end and basic garments. Some other countries have also expressed interest in investing in this field on different occasions.
syful-islam@outlook.com