Apparel makers’ LC woes

Country's apparel manufacturers and exporters, mainly the ones using local raw materials, are facing difficulties in procurement of inputs due to complexities in opening back-to-back letter of credit (LCs), industry insiders said.
They alleged that a number of banks have recently declined some exporters in this regard for not having their valid bond licence - a mandatory document to open the LCs.
However, few banks were still managing the issue through 'special' arrangements for the interest of their clients in cases the validity of the bond licences expired or of other problems, said a senior executive of a private commercial bank.
"In fact, procurement of raw materials from local factories does not require bond facilities as the materials are directly shipped from one factory to another within the country. So, the bond licence is not also required in these cases," he explained to the FE on Tuesday, requesting anonymity.
He, however, pointed out that the bond licence is a mandatory document under Bangladesh Bank rules to open a back-to-back LCs with foreign currencies against master export LCs for procurement of law materials even from the local sources.
The customs bond commissionerate under the National Board of Revenue (NBR) issues licence for the exporters to avail bonded warehouse facilities to import raw materials without duty and taxes.
As the exporters were facing the difficulties, the country's apparel sector trade bodies in a joint letter have recently urged Bangladesh Bank governor Fazle Kabir to relax the rules to remove the complexities.
The trade bodies are: Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Bangladesh Textile Mills Association (BTMA) and Bangladesh Terry Towel and Linen Manufacturers and Exporters Association (BTTLMEA).
BGMEA president Dr Rubana Huq, BTMA president Mohammad Ali Khokon and BTTLMEA chairman M Shahadat Hossain signed the letter that also sought an appointment of the governor to meet and discuss the problems.
BTMA president Mohammad Ali Khokon said the requirement of bond licence has slowed down the export process. "We want to get rid of these legal complexities."
Under the Foreign Exchange Rule and Regulation-2018, Chapter-7, section-III, Para-4- (a), the exporters required having a bond licence for opening local back-to-back L/Cs in foreign currencies against export L/Cs.
The apparel exporters argued that perhaps there is no need to have bond licence to ensure whether the exporters procure and preserve raw materials under special arrangement and use those following the proper procedure.
"Currently, some 40 per cent woven exporters, 60 per cent of knitwear exporters, 70 per cent of home textiles exporters and 95 per cent of terry towel exporters procure 100 per cent of their raw materials from local sources," the apparel exporters said in the letter.
The industry insiders alleged that the exporters have to face unusual harassment in obtaining the bond licence from the customs as they have to bribe the officials a significant amount of money for the licences.
The NBR introduced the bond licence for facilitating export-oriented industries to import raw materials for manufacturing products under duty-free facility and export it.
"We think, the bond licence is necessary against export L/C for the importers of raw materials to ensure preservation of those under special arrangement, proper use and monitoring, and re-export," the letter reads.
Many of the apparel exporters did not obtain bond licence as they do not need to import raw materials, it said.
The apparel exporters said the country's backward linkage industry is strong enough now to supply raw materials for the apparel sector.
Faisal Samad, senior vice president of BGMEA, said many of the industries are procuring yarn and other raw materials from local sources now.
The banks might have taken extra-cautious measures and strictly impose the requirement as the exporters open back to back L/C under Utilization Declaration (UD), he added.
BTTLMEA chairman M Shahadat Hossain said the exporters have been using local raw materials for the last 10-15 years. "We have written the joint letter to the governor requesting relaxation of the policy," he said. As per the BB rules, the exporters will be able to claim cash incentives for using local raw materials, he said.
As per section 40, subsection (a) of the Foreign exchange regulation, the exporters having bonded warehouse licence can procure raw materials against their master L/C from local manufacturers-cum-exporters in foreign currency through opening local back-to-back L/Cs.
Under subsection (b), the local manufacturers-cum-exporters having bond licence can procure raw materials against their local back-to-back L/C, if needed against foreign back-to-back L/C, under certain conditions.
As per the regulations, a manufacturer-cum-exporter can procure packaging, hanger, plastic products against export order by opening usance LCs and sight LCs in foreign currency.
Under the policy, 100 per cent export-oriented industries or direct exporters can procure raw materials from local manufacturers-cum-exporters by opening back to back L/C in foreign currencies. However, they will have to use local currency for procuring raw materials from local suppliers or businessmen.

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