Impact of Quota Withdrawn on the Textile and Clothing Industry of Bangladesh

The textile and clothing industry plays a significant role in the economy of Bangladesh. It acts as a key player in the progress of the country. At present, the export performance of the readymade garment sector is more than 80% of total export and hence makes up about 12% of the Gross Domestic Product (GDP) in Bangladesh. Thus, the country’s development largely depends on this sector which is considered the backbone of Bangladesh. As the quota system under the Multi-Fiber Agreement (MFA) phase greatly impacted the development process of the readymade garment sector in Bangladesh, many researchers disputed that after the abolition of the quota system, the growth of this sector might be hampered. Therefore, this study aims to find out the impact of quota withdrawal on the readymade garment (RMG) sector and, thereby, the roles of this sector to the economy of Bangladesh. For this purpose, the research has covered a period of twenty years as sample size, where ten years has been considered as the pre-MFA period and ten years as the post-MFA period. Being a quantitative study, comparative statements and descriptive statistics techniques have been used to determine the impact of quota withdrawal on the export performance of Bangladesh's textile and clothing sector. The evidence shows a smooth upward trend of textile and clothing exports towards the ten major countries in the world following the post-MFA period, and Bangladesh is registered as a significant export growth country following the withdrawal of MFA. Consequently, the arguments about the RMG sector concerning the textile and clothing industry that Bangladesh might not be able to compete in the global market during post-MFA periods proved wrong; thereby, this sector’s contribution to the economy is increasing progressively.

Bangladesh is a globally recognized name for a significant textiles and clothing (T&C) export industry. Like this, the readymade garment industry has turned into the lifeline of the Bangladesh economy. Consequently, the T&C sector has been an enormous component of global trade, and along these lines, the trade in this industry is led to a gigantic scope. Having said this, the Multi- Fiber Arrangement (MFA) in the global textile and clothing trade set out an intense opportunity for Bangladesh to take advantage of its comparative advantage in the labour-intensive garment industry. As the quota system under the Multi-Fiber Agreement (MFA) phase greatly impacted the development process of the readymade garment sector in Bangladesh, many researchers disputed that after the abolition of the quota system, the growth of this sector might be hampered. Therefore, this study strives to find out the impact of quota withdrawal on the readymade garment (RMG) sector and, thereby, the roles of this sector to the economy of Bangladesh. While the World Trade Organization (WTO) was formed in 1995, it was assumed that the MFA arrangement of controlled trade would be deliberately staged out by January 1, 2005. At the beginning of 2005, the export from China and India hopped in the first 50% of the year. As China was the biggest exporter of garments to the US and the growth rate in the worth of export from China was very high. Consequently, the US government genuinely thought to be engaging protections to place brakes on garment imports from China. Besides, The European Union (EU) additionally confronted an overflowing in garment imports from China. Therefore, the EU and China agreed on a three-year "temporary game plan" on June 10, 2005, that set roofs on development paces of exports of the major types from China and cutoff the yearly expansion in Chinese garments imports to around 10% until the trade was changed in 2008. Moreover, the US and China settled on a comparable understanding in November 2005, which set quotas to cover almost 50% of China's garments imports into the US before the finish of 2008. Subsequently, the controlled trade system was made-up until 2008.

Bangladesh's textile industry has become a mentionable part of the world's garment trade. The consolation of the garment industry of Bangladesh as an open trade system is professed to be a substantially more viable type of assistance than foreign help. In this manner, instruments like quota through the WTO, Agreement on Textile and Clothing (AT&C) and Everything but Arms (EBA), and the US 2009 Tariff Relief Support in the comprehensive apparel market have advanced business people in Bangladesh's readymade garments (RMG) industry. In 2012, the garments business represented 45% of all industrial workers and contributed 5% of Bangladesh's all-out public pay. The abrogation of MFA occurred in December 2004 under the Uruguay Round Agreement in three phases. Any place the agreement on textile and clothing (ATC) suggests the stage out of import quotas and calls attention to the plan between which global exchange in textile and clothing will be continually brought together into the GATT/WTO erection somewhere in the range of 1995 and 2005. Therefore, the finish of MFA on January 1, 2005, has undoubtedly changed the approaches of trade in the garments industry. Subsequently, as the global rivalry expanded under the new quota-free trading arrangements, nations worldwide are getting ready to drive advancements in finding and supplying clothing from around the world. Subsequently, the nations like China, India and Mexico and so on with consistent inventory organisations and grounded limits will profit from the evacuation of quotas. It likewise saw that albeit numerous troubles challenged by the RMG business over the earlier years, it supported showing its substantial exhibition and competitive strength. The adaptability and fearless pattern in this MFA deliberately phase-out period to some degree uncovers the inconvenience of 'safeguard quotas' by the US and similar limitations by EU organisations on China up to 2008, which has been the biggest provider of textile and clothing to the USA. Until recently, Academics and Researchers have generally ascribed the significant development of RMG export from Bangladesh to the Multi-Fiber Arrangement (MFA), which is a respective quota arrangement forced by advanced nations and low wages in Bangladesh [1,2]. Whereas the inception of the industry began with the Korean and Hong Kong ventures to infiltrate the market of the advanced nation via diverting their production through Bangladesh's allowed quota access, and in 2002, Bangladesh relied upon quota-limited markets for around 94% of its RMG export among the most elevated proportions on the globe. Such high thoughts of market access through quota promptly pose worry for her likely susceptibility to the enormous scope shock because of the elimination of quota among strategy organisers’ scientists and academicians. In this way, the principal concern was connected with the competitiveness of Bangladesh's garment industry and its improvement in the quota-liberated world that may thusly crumble the nation's balance of payment results and business concerning, generally speaking, macroeconomic equilibriums of our country.

Conducted a study on WTO, Post MFA era and the Bangladesh RMG sector [3]. The fundamental goal of this study was to find out the future effects of WTO and post- MFA times on the RMG of Bangladesh. In so doing, the study revealed that Bangladesh is confronting tough rivalry in the worldwide market, particularly rival nations like China and others. In their research work on RMG export performance following two years from the MFA phase-out exposed that the strong growth rate of Bangladesh’s exports mainly depends on the safeguard measures imposed on China both by the US and EU [4]. In addition, the actual situation will be visible from the beginning of 2009, when all sorts of restrictions will be removed. Revealed in their review of the post-MFA performance of the Bangladesh Apparel Sector that the evacuation of all quotas in 2005 has made gainers and failures among the emerging nation suppliers [5]. It has been seen that the expiration of MFA prompted a change in the national pattern of trade, which produced the two champions and failures among significant exporters. Albeit the low work cost, nations have arisen as gainers; the predicted significant changes underway have not happened. In their investigation “Export Performance of Bangladesh: Global Recession and after” indicated that world trade was harshly upset by the overall slump of 2008- 09, with exports of most countries declining powerfully [6]. In addition, conferring to this study, Bangladesh is yet a provider of cheap fundamental attire things that can be cost-effectively delivered by incompetent and semi-gifted labourers. Furthermore, it also revealed that to climb the worth chain as new open doors arise in the post–downturn worldwide market, Bangladesh should work on the quality of its labour force and executives. In his study “Performance of Indian Textile & Clothing Industry in the United State Market: A Post ATC Analysis”, found that in 2004-05, when the quota was nullified, India’s textile export reduced, which was not usual [7]. This was the vital sign India was not about to seek after on this open entryway. It also exposed that India’s export of textiles and clothing could not battle China in the United States market. In their review of “Export Performance and Competitiveness of Indian Textile Industry” analyzed the export competitiveness and export performance of Indian textiles as to the rest of the world and revealed that there is still opportunity for Indian Textile items on the global market and exports are expanding from US$ 3.5 billion out of 2004-2005 to DSD 24.47 billion of every 2010-11 [8].

In his research study “The Competitiveness of Ready-Made Garment Industry of Bangladesh in Post MFA era: How does the industry behave to face the competitive challenge?” exposed that the gradual step out of MFA and evolving of new contenders could not confine the continuous development of Bangladesh RMG industry [9]. He also stated that it was too early to comment on the competitiveness of the Bangladesh RMG industry because the industry had only gone through seven years after the abolition of the quota. In their analysis titled “Comparative Advantage of Textile and Clothing: Evidence for Bangladesh, China, Germany and Turkey” denoted that Bangladesh, China and Turkey partake in a solid comparative benefit in both the textile and clothing business sectors of the world while Germany partakes in no remarkable comparative benefit in any of these business sectors [10]. Thus, the general postulation was that the share of textile and clothing industries in the economies of lower-income nations is higher than those of higher-income nations. In his study of “Export Performance of Indian Textile Industry in the Post multi- fibre Agreement Regime” signified that India could not acquire much from the abolition of quota restrictions which was expected as per the past research studies [11]. Moreover, at the hour of contrasting the performance of Indian textiles and China, it was extremely evident that India could not acquire much compared with China. In their research titled “Export Trend of Bangladesh the Dominance of Readymade Garments Industry” stated that regardless of the worldwide economic downturn, the garment role in the development of the export area [12]. As well, export has expanded in the United States, European Union and Canada sometimes, as this has contributed through tax-exempt benefits. The study also suggested that for the sustainability and headway of the RMG industry, the industrialist of this sector should push toward high-esteem items. In the investigation titled “Effect of Post multi-fibre Agreement- A blessing for Bangladesh: Study of Survival Strategy” discovered that the evacuation of quota in 2005 had brought economic rise for a few emerging nations and misfortune for certain economies [13]. In addition, among the South Asian nations, the post-MFA execution of India and Pakistan has been sensibly amazing. In his study titled “Garment Industry of India- a Comparison of Pre- and Post- Liberalization Performance” revealed what is happening to win in India [14]. Nonetheless, remember that comparable conditions get in different nations, especially developing nations. The review was close, remembering that global trade situations concerning garments export sine have altered over the post-MFA period, with Bangladesh evolving as the fundamental exporter of readymade garments.

The objective of this study is to analyze the export performance of Bangladesh's textile and clothing industry. So, as to investigate the impact of quota withdrawal on the growth of this sector and thereby expose the real prevailing status of the textile & clothing industry in Bangladesh.

Hypothesis of the Study

Ho – There is no significant impact of quota withdrawal on the export performance of Bangladesh textile and clothing industry.

H1 – There is a significant impact of quota withdrawal on the export performance of Bangladesh textile and clothing industry.

The study is quantitative in nature and aims to assess the export performance of Bangladesh’s textile and clothing industry during the pre- and post-multi fiber agreement period. For this analysis, this study has covered a period of 20 years, that is, ten years before the MFA and ten years after the MFA periods, since the quota was abolished in 2005. The top ten importing countries have also been taken as sample sizes where Bangladesh makes its export of garments products. This study is based on secondary data and carried out comparative statements and descriptive statistical techniques for data analysis.

The average values of Bangladesh’s textile and clothing exports towards the above selected countries have significantly increased from pre to post MFA period not including the country Canada, which is a good sign. Additionally, the standard deviations of these countries have also increased during post MFA periods as compared to pre-MFA periods excluding the countries; Canada and Denmark. Furthermore, the CAGR of these countries have increased to the post MFA period as compared to the pre-MFA period except the country Spain, as this country shows a negative trend in post MFA periods. Still, among these ten countries, The CAGR of France was highest, 36.39% in the post MFA period. Therefore, the inconsistency of textile and clothing export concerning Bangladesh have also increased from pre to post MFA period. Consequently, the variability of textile and clothing export concerning Bangladesh towards the selected countries have increased a lot in the post MFA periods as the standard deviations of these countries have increased. But there were exceptions about Canada and Denmark as these two countries show negative trend in standard deviations. Moreover, as the CAGR and coefficient of variation rate have simultaneously increased concerning Bangladesh textile and clothing exports during the post agreement periods as compared to pre agreement periods with the exception of Spain, as a result, they are representing increased variability about the textile and clothing exports of Bangladesh during post agreement periods towards these above selected countries.

The graphical presentations of RMG exports concerning the selected ten countries for the duration of both time periods that means pre and post MFA periods represent that there is an upwards trends of export line throughout the post MFA periods exports as compared to the pre-MFA periods for most of the selected countries generally. Excluding the country Canada, where it detected that after the year 2012, there cause a downward trend in export. Furthermore, for the country, Denmark, there cause a major decline in the export amount in the year 2000 and this deterioration continued for some years but after the year 2008, it again began to increase and therefore causes an upward trend in export amount from Bangladesh. In this examination, it noticed that in USA, Bangladesh made the highest export of RMG as compared to other countries. It means, USA was the highest importer of RMG from Bangladesh all through both time periods among these selected ten countries. At this point, for the countries; Germany, UK and USA we find that there was an upward trend of export amount during these time periods, moreover the growth of post MFA period was greater as compared to pre-MFA time period. But in the year 2012, there causes a fall in RMG export as compared to previous year for these countries. Likewise, the graphical presentations of France, Canada and Netherland exposed a decline in RMG export amount from Bangladesh in the year 2012. However, for Spain, Italy and Belgium we observed a smooth upward trend that confirmation a better growth in post MFA periods as compared to pre time periods. At this point in time, among the ten selected countries, though most of the countries’ graphs showed an upwards trend in their export amount through these time periods but a fundamental change of RMG export in the year 2011 was observed, for the countries: Germany, UK, USA and Netherlands. Whereas for the countries; France, Spain, Canada, Netherlands, and Denmark a drop in export amounts in the years 2006-07 was found, but after that it again began to increase gradually throughout the post MFA periods (Figure 1).

From the study, it is detected that though the Readymade Garments industry was introduced in western world during 1950’s but Bangladesh started receiving investment in Readymade Garments sector in the early 1980’s under the multi-fibber agreement, which was introduced in 1974 to control the level of imported RMG products from developing countries into developed countries. Thus, the Multi-fiber agreement was regulated in Bangladesh up to December 2004, as the agreement was withdrawn from 1st January 2005. And so, after the abolition of this quota system it was expected that Bangladesh would lose its competiveness, and accordingly lose the market share in the global market. For that reason, we have observed the growth of RMG sector which has a crucial contribution to the Bangladesh economy through this study, where 20 years has been considered as the study period [15-25]. At this point, the relationship between Bangladesh textile and clothing export with its ten major importing countries during these periods has been reflected and it detected that:

• The exports of Bangladesh textile and clothing to the major ten importing countries in the world have increased a lot in the Post MFA periods as compared to the Pre MFA period. Additionally, the growth was more than 100% for the countries Spain, Germany, UK, Netherlands, Belgium and Italy in the Post MFA period excluding the country Canada that shows a negative growth in Post MFA periods.
• Though the average values of Bangladesh textile and clothing Exports towards the selected ten countries have significantly increased from Pre to Post MFA period but the standard deviation of Canada and Denmark have decreased in the post MFA period. Moreover, the Cumulative average growth rate (CAGR) of these countries except Spain have also increased during this period which indicate that the inconsistency of Bangladesh textile and clothing exports towards these countries have also increased from Pre to Post MFA period.
• The graphical presentation of Bangladesh textile and clothing export concerning the selected ten countries over the study period of twenty years (Pre and Post MFA periods) shows that there is a smooth upwards trend of export line for most of the selected countries generally. Excluding the country Canada, where we find that after the year 2012, there cause a downward trend in export. Furthermore, for the country Denmark we observed that in the year 2000, there cause a major decline in the export amount and this declaration continued for some years but after the year 2008, it again began to increase (Table 3).
  

Considering all the necessary data and findings of our study it observed that the contribution of Textile and Clothing exports to our economy continue to improve even after the withdrawn of Multi-fiber Agreement. Consequently, the arguments about the RMG sector concerning the Textile and clothing industry that Bangladesh might not be able to compete in the Global market during post multi-fiber periods proved wrong. Moreover, it observed that there is a smooth upward trend of textile and clothing export amount towards the ten major countries in the world where Bangladesh has made its significant export throughout the study periods. Therefore, still, Bangladesh has become as one of the largest exporters of Ready-made Garments concerning the Textile and clothing industry in the world and thereby the contribution of this sector to our economy is increasing progressively. So, for the long run sustainability in the competitive world this sector must meet the challenges facing in the post MFA periods. Thus, Bangladesh may possibly be achieve the core competencies in the global dimension to make a positive response for strengthen foreign exchange reserve and hence be able to achieve a favourable balance of trade.

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