US-Bangladesh Trade Deal's "Cotton Clause" Sparks Industry Alarm

"The real problem for Bangladesh's $47 billion garment industry lies deep in the technical details of the new trade deal with the US. When Dhaka and Washington signed the reciprocal trade agreement on February 9, it was celebrated as a diplomatic success," the analysis by The Daily Star said.

"But that early optimism has now turned into confusion over the 'cotton clause' - a vague rule that waives 'reciprocal tariffs' only if garments are made with American cotton," it added.

The article argued that the main concern is how the new tariff system works.

Because, under the bilateral trade deal, Bangladesh faces a 19 per cent reciprocal tariff on top of the existing most-favoured-nation (MFN) duty of about 16.50 per cent.

Thus, it warned that without concessions, the total tax on Bangladeshi garments entering the American market would face a combined duty of about 35.5 per cent.

Then came the usual comparison with its immediate neighbour, where it quoted experts warning that if India receives the same "cotton clause" benefits, Bangladesh could lose its competitive advantage in the US market.

Further, as the report stated, relief applies only to a limited "to-be-specified volume" of imports, tied to how much raw material Bangladesh buys from the US.

According to the article, industry leaders argue that the text defining the deal is unclear, leaving exporters uncertain about how much benefit they'll actually get.

The report quoted trade analysts claiming "unclear wording of the concession".

They stressed that Article 5.3 of the agreement says the US will create a system for "zero reciprocal tariffs", but only for a "to-be-specified volume" of imports.

"This limit will depend directly on how much US cotton and man-made fibre Bangladesh imports. In simple terms, the duty benefit is not unlimited - it is tied to the amount of raw materials Bangladesh buys from the US," said the analysts.

This, they argued, effectively means that for every dollar of tariff the US removes, the benefit goes back to its own cotton producers, as per the report.

Overall, the deal is being seen as rushed, unequal, and risky - potentially benefiting US cotton producers more than Bangladesh's garment exporters.

"For a country where garments make up 86 per cent of total merchandise exports to the US, this deal has created uncertainty that threatens its expected benefits," the report opined.

"For Bangladesh, the path remains perilous. If the government can clarify the textile clause, the country may still benefit. But if the system proves too complicated, or if competing countries receive similar terms, the much-celebrated deal may offer little real protection for Bangladesh's garment industry, according to analysts," it added.

- IANS