India wants to tweak the South Asian Free Trade Agreement to ensure that apparels exported to India from least developed countries in the region have their yarns and fibers sourced from India. The duty-free export facility given to Bangladesh under the LDC clause actually helps China increase its exports. This happens as Bangladesh does not impose import duty on Chinese fabrics as these raw materials are intended for export from the country. In sharp contrast Indian garment manufacturers are forced to pay 20 per cent import duty for using the same Chinese fabric.
Bangladesh imports Chinese fabrics and converts them into garments using its cheap labor. Without the need for paying any import duties, it exports these garments to India.
India permits duty free imports of readymade garments from Bangladesh. While in 2006 it was limited to eight million pieces, later India lifted the quantitative restriction. In the GST regime, the Indian industry has been under severe stress with increasing imports of garments from Bangladesh and other countries. In the pre-GST scenario, imports of garments from Bangladesh and other countries attracted a countervailing duty of 12.5 per cent and an education cess of three per cent. However, post-GST, there is no cost for import of garments from Bangladesh.