New EU Rules of Origin may be mixed blessing for Bangladesh

The new EU Rules of Origin should, from January 1, make it easier for garment-makers in Bangladesh, Cambodia, Laos and Nepal to achieve duty-free status for their garments when exporting to the EU. But that won't necessarily make them popular with everyone in those countries – or with outside lobbyists who purport to speak for their interests. And, at least in one important case, the rules might not be effective as quickly as the EU intends.

As far as the apparel and textile industry is concerned, the most immediate effect of the new rules is to eliminate, for all Least Developed Countries (LDCs) the need to use locally-sourced raw materials to qualify for duty-free access. Till now, the only LDCs with this privilege had been those who had signed Economic Partnership Agreements wit the EU: virtually none of whom are really capable of being commercial apparel suppliers to Europe.

Cambodia, Laos and Nepal have no local spinners or weavers operating on a scale to supply their garment industries, so being able to use imported fabric and yarn is an unmixed benefit for those countries' industries. Bangladesh currently has limited weaving capability, and lacks enough local spinners to meet all its knitwear factories' needs. But those Bangladeshi spinners are a serious political force, and it's undoubtedly not in their interest for Bangladeshi garment makers to be able to import Chinese yarns to knit into garments for the EU market.

The problem's been simmering for some years in a different guise. Bangladeshi garment makers may use Indian yarns and fabric and still get duty free access to the EU: but pressure from the local spinning lobby has forced the government to make importing from India difficult: for most of the past few years insisting on all yarn being imported by sea, adding considerable time and cost to the process.

So far, the problem's not been raised with the government by Bangladeshi spinners, who are currently preoccupied with the problems of cotton prices and cotton shortages. But those problems, together with India's restrictions on cotton exports, will actually make the prospect of facing direct competition from China even more or a concern when they do latch on. Which, in our view, will almost certainly provoke anger, threats and some kind of government obstacle to yarn imports.

Whether, as the issue is noisily and messily argued over, woven fabric imports will also be caught in the debate is completely uncertain. If logic alone were the only criterion, woven fabric should be left alone. The real risk posed by the new rules isn't to existing weaving mills, but to the business models of a few new mills either in construction or currently being proposed. But those developments represent real jobs and real business interests – and their instigators might well feel forced to lobby for restrictions on imports as well.

It might not, though, be as easy for Bangladesh to impose restrictions on Chinese textiles as it has been to hit imports from India: many Bangladeshi garment factories see their country's new duty-free access to China as a real new business opportunity, and would oppose any barriers against China as an invitation for reciprocal barriers that would hurt them.

Until the spinners and weavers wake up and notice, none of this will be predictable. But if we were a European importer, we'd expect any Bangladeshi factory thinking of using raw materials imported from anywhere but India or Pakistan to be clearly responsible for any consequential loss if Bangladesh's import rules changed.