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Viewing cable 05DHAKA2366, POST MFA UPDATE - GARMENT PRICES AND ORDERS DROP

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Reference ID Created Released Classification Origin
05DHAKA2366 2005-05-19 08:16 2011-08-25 00:00 UNCLASSIFIED Embassy Dhaka
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 
 
SIPDIS 
 
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. 
End Summary. 
 
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 
supply. 
 
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 
access bill. 
 
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. 
THOMAS