INTRODUCTION

The shift from a rural, agrarian economy to an urban, industrial economy is integral to the process of economic development (Kaldor, 1966, 1967). Although policymakers in the least developed countries (LDCs) have, at various times, attempted to make agriculture the primary engine of economic growth and employment generation, this approach has not worked, not least because of the contributions of the Green Revolution, which has had the dual effect of increasing agricultural productivity in the LDCs and displacing the rural labour force at the same time. Led by the example of the East Asian economies, most LDCs now accept the need for greater industrialization as the fastest path to economic growth. In particular, countries such as Japan, Taiwan and South Korea have demonstrated that an export-oriented industrial strategy can not only raise per capita income and living standards in a relatively short time; it can also play a vital role in modernizing the economy and integrating it with the global economic system. Bangladesh, one of the archetypal LDCs, has also been following the same route for the last 25 years. Once derided as a “basket-case” by Henry Kissinger (The Economist, 1996), the country stumbled across an economic opportunity in the late 1970s. New rules had come to govern the international trade in textiles and apparel, allowing low-cost suppliers to gain a foothold in American and European markets. Assisted by foreign partners, and largely unaided by the government, entrepreneurs seized the opportunity and exploited it to the fullest. Over a period of 25 years, the garments export sector has grown into a $6 billion industry that employs over a million people. In the process, it has boosted the overall economic growth of the country and raised the viability of other export-oriented sectors.

This essay analyzes the processes by which global trading rules came to help out a poor country like Bangladesh. It demonstrates the impact of the rule changes on the garments sector, and the response of the sector to multiple challenges and obstacles. It also discusses what steps Bangladesh should take in order to deal with the full liberalization of the international garments trade, which occurred in January 2005 and which could potentially threaten the country’s growth prospects. Finally, it details some of the recent developments that have occurred since liberalization took effect

HISTORY OF RMG INDUSTRY IN BANGLADESH

In the 1950s, labors in the Western World became highly organized; forming trade unions. This and other changes provided workers greater rights including higher pay; which resulted in higher cost of production. Retailers started searching for places where the cost of production was cheaper. Developing economies like Hong Kong, Taiwan and South Korea presented themselves as good destinations for relocations because they had open economic policies and had non-unionized and highly disciplined labor force that could produce high quality products at much cheaper costs. In order to control the level of imported RMG products from developing countries into developed countries, Multi Fiber Agreement (MFA) was made in 1974. The MFA agreement imposed an export rate 6 percent increase every year from a developing country to a developed country.

It also allowed developed countries to impose quotas on countries that exported at a higher rate than the bilateral agreements. In the face of such restrictions, producers started searching for countries that were outside the umbrella of quotas and had cheap labor. This is when Bangladesh started receiving investment in the RMG sector. In the early 1980s, some Bangladeshis received free training from Korean Daewoo Company. After these workers came back to Bangladesh, many of them broke ties with the factory they were working for and started their own factories.The hundred percent export-oriented RMG industry experienced phenomenal growth during the last 15 or so years. In 1978, there were only 9 export-oriented garment manufacturing units, which generated export earnings of hardly one million dollar. Some of these units were very small and produced garments for both domestic and export markets. Four such small and old units were Reaz Garments, Paris Garments, Jewel Garments and Baishakhi Garments. Reaz Garments, the pioneer, was established in 1960 as a small tailoring outfit, named Reaz Store inDhaka. It served only domestic markets for about 15 years. In 1973 it changed its name to M/s Reaz Garments Ltd. and expanded its operations into export market by selling 10,000 pieces of men's shirts worth French Franc 13 million to a Paris-based firm in 1978. It was the first direct exporter of garments from Bangladesh. Desh Garments Ltd, the first non-equity joint-venture in the garment industry was established in 1979. Desh had technical and marketing collaboration with Daewoo Corporation of South Korea. It was also the first hundred percent export-oriented company. It had about 120 operators including 3 women trained in South Korea, and with these trained workers it started its production in early 1980. Another South Korean Firm, Youngones Corporation formed the first equity joint- venture garment factory with a Bangladeshi firm, Trexim Ltd. in 1980. Bangladeshi partners contributed 51% of the equity of the new firm, named Youngones Bangladesh. It exported its first consignment of padded and non-padded jackets to Sweden in December 1980.

Within a short period, Bangladeshi entrepreneurs got familiar with the world apparel markets and marketing. They acquired the expertise of mobilizing resources to export-oriented RMG industries. Foreign buyers found Bangladesh an increasingly attractive sourcing place. To take advantage of this cheap source, foreign buyers extended, in many cases, suppliers' credit under special arrangements. In some cases, local banks provided part of the equity capital. The problem of working capital was greatly solved with the introduction of back-to-back letter of credit, which also facilitated import of quality fabric, the basic raw material of the industry. The government assigned high priority to the development of RMG industry.

 Till the end of 1982, there were only 47 garment manufacturing units. The breakthrough occurred in 1984-85, when the number of garment factories increased to 587. The number of RMG factories shot up to around 2,900 in 1999. Bangladesh is now one of the 12 largest apparel exporters of the world, the sixth largest supplier in the US market and the fifth largest supplier of T-shirts in the EU market. The industry has grown during the 1990s roughly at the rate of 22%. In the past, until 1980,jute and jute goods topped the list of merchandises exported from Bangladesh and contributed more than 50% of the total export earnings. By late 1980s, RMG exports replaced jute and jute goods and became the number one in terms of exports.

The history of the Readymade Garments Sector in Bangladesh is a fairly recent one. Nonetheless it is a rich and varied tale. The recent struggle to realize Workers' Rights adds an important episode to the story.

Below, we present a detailed narration of the evolution of the RMG sector from its humble origins to the present day.

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA)

Bangladesh Knitwear Manufacturers & Exporters Association (BKMEA) was formed in 1996 by the all out efforts of few knitwear manufacturers. Soon after the formation it undertook activities to look after the interest of the knitwear sector of the country. Today it is an association of about 1700 knitwear manufacturers and exporters that represent the largest export earning sector of the country.

BKMEA has grown enormous network in home and abroad. The members are the core strength and primary network of BKMEA. Besides, BKMEA works closely with national and International bodies and maintains close relationships with all stakeholders. On areas of common interest, it also works with similar organizations like, International Apparel Federation (IAF), Global Alliance for Fair Textile Trade (GAFTT) and American Manufacturing Trade Action Coalition (AMTAC). To boost up trade and to enhance cooperation between countries, BKMEA has signed agreement with concerned associations like China Yunnan Light & Textile Industry Association on June 10, 2005, Botswana Manufacturers & Exporters Association on October 8, 2009 etc.

Presently Bangladesh is the 3rd largest knitwear exporter in the world just after China and Turkey. To lead the world apparel market, BKMEA is putting diligent efforts to diversify export market, and ensure better market access of the country's knitwear products to EU, USA, China, South Africa, Japan and other countries.

To promote the sector, BKMEA is implementing development projects with German Technical Cooperation (GTZ) and other international organizations in this regard. The association has signed MoU with GTZ on March 16, 2005 and Metro Group, Germany on 26 April, 2010. The development works include: enhance productivity and improve social compliance status of its member factories, promote workers welfare through centralized day care centre health care centre, prepare sector related research and publication, organize trade promotion missions and fairs in home and aboard. BKMEA has strong relationship with Govt. to formulate strategies and national policies on sector related and other socio economic important issues.

BKMEA is run by a 27-member Board of Directors led by the President. The Board of Directors is elected for a 2-year period. To run the association efficiently, different committees are also working.

Ø       BKMEA Was Formed To Address the Following Agenda

·         Protect the Interest of the Sector

·         Promotion & Development of the Market

·         Promotion & Development of the Sector

·         Capacity Building of the Sector

·         Social Compliance Status Enhancement

·         Basic Rights Education and Awareness Rising

Ø       BKMEA's Services to the Member Units

·         Product & Market Promotion

·         Social Compliance

·         Research & Development

·         Productivity Improvement

·         Arbitration

·         One stop service point regarding UD/UP

·         Other necessary services at the shortest possible time

History of Development of Knitwear OF BANGLADESH

The RMG business started in Bangladesh in the 70s but it was then merely a casual effort. The first consignment of knitwear export was made in 1973 and the first consignment of woven garments was made in 1977. In 1981-82 the contribution of Woven garments in the total export was 1.10%. Afterwards it is a story of sustained success for the Bangladesh RMG sector. The knitwear sector has grown over the years in geometric progression and become the prime driving force of Bangladesh’s export earnings. Within a decade the contribution of Woven to the export basket became 42.83% (1990-91) and the knitwear sector’s contribution was 7.64% (1990-91). Now Knitwear has become the largest export earning sector of Bangladesh contributing 40.01% to national export earnings at the end of FY 2009-10 (July-April).

Export Performance of Bangladesh RMG Sector

The entrepreneurs of the knit sector stepped forward with their expertise in the late 80's. With their earnest efforts they were able to export US$ 14.84 million in 1989-90. Out of this, US$ 12.22 million was exported to EU and US$ 2.02 million was exported to US. The trend continued in the knit sector because of the market access opportunities provided to the LDCs under the Generalized Systems of Preference (GSP) benefit.

This is the rejuvenated beginning of the epic story of Bangladeshi knitwear sector that in true sense has been possible due to massive industrialization in a sustainable way with effect on all probable human development aspects which is the encouraging part of the story.

The growth of knitwear sector is increasing at an increasing rate. The cumulative average growth rate of the sector is 20%. And it is continuously grabbing more portions in the export pie of Bangladesh. This is mainly attributed to the facilities provided under the EC GSP and ROO. The knitwear sector is heavily driven by the favorable policies and took the opportunity to develop a strong backward linkage for the sector.

The EU is the main export region of Bangladeshi Knitwear constituting 72.68% (US$ 4.71 billion) of total knitwear export followed by the USA (13.75%, i.e. US$ 891.61 million) in the year 2009-10. This is mainly attributed to the facilities provided under the EC GSP and favorable ROO. The knitwear sector is heavily driven by these favorable policies and took the opportunity to develop a strong backward linkage for the sector where the value addition is about 75%. The two-stage transformation requirement of ROO in 1999 boosted market penetration in the EU further; it contributed a growth of 101.19% since 2000-2001.

Knitwear Export to Major Markets

Bangladesh RMG sector has successfully passed some critical tests and is now sailing with two masts: knit and woven. The sub-sectors are now in healthy competition among themselves to take the role of leadership within the country. In FY 2003-04, knitwear for the first time exceeded woven wear and became the leader in terms of both quantity exported and value with 91.6 million dozens and 2148.02 million USD. Knitwear is still leading in terms of quantity exported and is widening the gap day by day. Export quantity of knitwear items.

Increased to 292.70 million dozens this is 219% higher than the year 2003-04 to 2009-10.

Comparison of Export Quantity

Bangladesh knitwear is performing a well increase in terms of quantity which is a clear indication of increase of capacity in this sector. In the year 2009-10, the contribution of Woven wear to the export earning was 37.11% and in Knitwear was 40.01%.

Contribution in National Export Share

In the current year, the performance of both the sectors is as follows:

• Knitwear Export US$ 6,483.29 million FY 2009-10 (July -June)
• Woven Export US$ 6,013.43 million FY 2009-10 (July -June)

Therefore the contribution of knitwear in national export increase is 43%

The tremendous success of readymade garment exports from Bangladesh over the last two decades has surpassed the most optimistic expectations.  Today the apparel export sector is a multi-billion-dollar manufacturing and export industry in the country. The overall impact of the readymade garment exports is certainly one of the most significant social and economic developments in contemporary Bangladesh. With over one and a half million women workers employed in semi-skilled and skilled jobs producing clothing for exports, the development of the apparel export industry has had far-reaching implications for the society and economy of Bangladesh.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA)

The BGMEA commenced activities in the late 1970s when the Bangladeshi readymade garments (RMG) industry was a negligible non-traditional sector with a narrow export base. Since its inception, the BGMEA has been working to promote and protect the interests of the RMG sector - it has helped boost RMG exports by 500%, allowing Bangladesh to become one of the chief RMG exporters worldwide.

The BGMEA set up its regional office in Chittagong in 1985. Chittagong is a strategically important commercial port and the gateway for all RMG exports.

Mission

The BGMEA has a two-fold mission in its efforts to strengthen and promote the readymade garments (RMG) sector and the economy of Bangladesh. The primary mission objective of the BGMEA is to “Establish a healthy a business environment for a close and mutually beneficial relationships among the manufacturers, exporters and importers in the process ensuring a steady growth in the foreign exchange earnings of the country” The BGMEA secondary mission objective is to “Implement all legitimate rights and privileges of garment workers regarding Health, Welfare and Safety” The BGMEA also “stands to ensure child labor-free factories, women empowerment, gender equality and other social standards” and “seeks to keep the environment clean and unaffected.”

Excellent standards in training and education in the RMG sector is also a long term goal of the BGMEA.

BGMEA AT A GLANCE

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) is the apex trade body that represents the export oriented woven knit and sweater garment manufacturers and exporters of the country. Readymade Garment (RMG) is the leading sector of Bangladesh in terms of employment, production and foreign exchange earning. Readymade garment (RMG) alone earned about 78% of the yearly foreign exchange earning of the country. About 3.5 million people are employed in the garment - manufacturing sector. The growth rate of RMG export was over 20% per over the last two decades

OVERVIEW OF THE BANGLADESHI ECONOMY

Bangladesh is a tropical country in South Asia that is situated in the delta of two major rivers that flow down from the Himalayas (the Ganges and the Jamuna). The country’s land surface is therefore largely composed of alluvial silt, rendering the soil highly fertile. Historically, this has made Bangladesh an agricultural nation; although agriculture contributes only about a fifth of the national GDP, it employs three-fifths of the labor force (ADB, 2005). Bangladesh has an estimated population of 140 million (circa 2005), living in an area of about 55,000 square miles. It thus has the unwanted distinction of being the world’s most densely populated country, and this overpopulation is at the root of many of Bangladesh’s socioeconomic problems. However, the population is largely homogeneous in terms of ethnicity, language, and religion, and this provides a valuable element of national cohesion. In spite of numerous constraints, the economy has been on a steady growth path for the last 15 years, mainly due to private sector dynamism. The constraints include pervasive political instability and violence, endemic corruption and disregard for the law, frequent natural disasters, inefficient state-owned enterprises that are hotbeds of trade unionism, lack of political will to carry through necessary economic reform, inadequate infrastructure at all levels (power generation, roads and highways, port facilities), etc. Nevertheless, the economy has proved to be resilient. Since 1990, it has grown at an average rate of 5% per year. The Asian Development Bank projects that real GDP growth will increase to 6% in 2006 and 2007 (ADB, 2005). Bangladesh’s total GDP stood at $275 billion in 2004, and per capita GDP was $2,000 (adjusted for purchasing power).

Sectorally, services constitute the largest portion of GDP with 51.7%. Industry accounts for 27.1% and agriculture 21.2%. However, the distribution of the labour force is reversed, with most people still working in agriculture (61%), and followed by services (27%) and finally industry (12%). This imbalance between output and employment is indicative of a large amount of “disguised” unemployment and underemployment. Unemployment (including underemployment) is estimated to be about 40%. The poverty rate, as of 2004, is about 45%. As shown by the above table, merchandise exports have been growing strongly in recent years and this trend is set to continue. While imports also exhibit strong growth, it should be noted that the bulk of imports consists of inputs into  

“Reaz Garments” the very 1st RMG industry in Bangladesh

The hundred percent export-oriented RMG industry experienced phenomenal growth during the last 15 or so years. In 1978, there were only 9 export-oriented garment manufacturing units, which generated export earnings of hardly one million dollar. Some of these units were very small and produced garments for both domestic and export markets. Four such small and old units were Reaz Garments, Paris Garments, Jewel Garments and Baishakhi Garments. Reaz Garments, the pioneer, was established in 1960 as a small tailoring outfit, named Reaz Store in Dhaka. It served only domestic markets for about 15 years. In 1973 it changed its name to M/s Reaz Garments Ltd. and expanded its operations into export market by selling 10,000 pieces of men's shirts worth French Franc 13 million to a Paris-based firm in 1978. It was the first direct exporter of garments from Bangladesh. Desh Garments Ltd, the first non-equity joint-venture in the garment industry was established in 1979. Desh had technical and marketing collaboration with Daewoo Corporation of South Korea. It was also the first hundred percent export-oriented company. It had about 120 operators including 3 women trained in South Korea, and with these trained workers it started its production in early 1980. Another South Korean Firm, Youngones Corporation formed the first equity joint-venture garment factory with a Bangladeshi firm, Trexim Ltd. in 1980. Bangladeshi partners contributed 51% of the equity of thee new firm, named Youngones Bangladesh. It exported its first consignment of padded and non-padded jackets to Sweden in December 1980.

Main Functions of BGMEA

BGMEA is being run by a 27-member elected Board of Directors. Four Vice Presidents having important portfolios, along with a secretariat of experienced officials, assists the Board in formulating and executing vital policies and programs of the organization. The President is the highest executive authority of the BGMEA.

The fundamental objective of BGMEA is to establish a healthy business environment for a close and mutually beneficial relationship between the manufacturers, exporters and importers in the process ensuring a steady growth in the foreign exchange earnings of the country. BGMEA issues UD to its exporters thereby monitors export as well. BGMEA plays a very strong role to lead the industry in concurrence with the government. The following are the regular activities of BGMEA for its members, apparel buyers and other partners.

To Protect and uphold the interest of the industry by aiding the formulation of government policies consistent with a congenial growth of the sector.

•    Committed to protect the interests of its members and their employees by implementing legitimate rights and privileges for garments workers.

•    To negotiate and consult with foreign and local agencies to promote the garments sector in every possible fields.

•    To maintain liaisons with foreign buyers, business associations and chambers.

•    To provide foreign buyers with all necessary information regarding all issues concerned with the RMG sector.

•    BGMEA brings the opportunities for local manufacturers to interact with foreign buyers and form new rapport by arranging different apparel fairs at home and abroad.

•    To keep the BGMEA factories child labor free through continued monitoring.

•    Continue and expand collaboration with relevant Ministries of the Governments.

•    Continue educational support to workers’ children and make a provision for skill training for children removed from the BGMEA’s member factories.

•    Provides information services to its members by publishing monthly newsletters, issuance of circulars and through Dhaka's first B2B web portal which directly links exporters and buyers around the world.

•    BGMEA also established its own Institute called "BGMEA Institute of Fashion & Technology (BIFT)" in 1999. Till the day BIFT is continuously developing professionals for this sector through the courses of Fashion Designing and Garment Merchandising; and other certificate, diploma and short courses. Transforming it into University is under process.

•    Promotes computer oriented solutions for better management to its member units.

•    Participates actively in all trade negotiations for the sector in order to get easier market access and GSP benefits.

•    BGMEA's appointed lobbyist firm has been working to get duty free access in the US market. The New Partnership for Development Act (NPDA)of 2007 was introduced in the US House of Representatives by Congressman McDermott and our lobbyist is working to get the bill passed.

•    BGMEA has introduced Service Books for each and every workers employed in the factories.

•    BGMEA is going to launch a workers welfare committee in the factories.

•    BGMEA has ensured the minimum wage implementation to the tune of 99.49% of all factories.

•    BMGEA has set up a Crisis Management Committee for emergencies.

•    BGMEA regularly helps out the victims of natural calamity by providing relief, rehabilitation and other support. BGMEA stood beside the SIDR affected people with huge relief and support. BGMEA also rehabilitated 100 families by establishing a weaver's village (Taath Palli) in Manikgonj.

•    BGMEA provides scholarship to meritorious children of the garments workers. Each year 2000 students are getting the scholarships at Dhaka and Chittagong.

•    BGMEA runs training programs through 27 Technical Training Centers and 3 other centers with the objective of producing skilled workers for the RMG sector. More than 15000 trainees will be shaped up through this program and BGMEA will appoint them in the factories. BGMEA has trained and employed 10,000 people till the date.

•    BGMEA is in the process of taking over 34 vocational training centers to provide various skill sets to the unemployed.

•    BGMEA regularly conducts fire drills and fire safety program at the member factories. Although 18 fire incidents took place in 2007 and 2008, there were no casualties.

•    BGMEA runs 10 medical centers for its workers and provides HIV/AIDS awareness. Around 4.5 million workers have already received medical treatment and 55,000 workers have been made aware of HIV/AIDS and reproductive health.

•    BGMEA is going to develop a central database system for the garment workers, which will cover all workers' information of the readymade garment sector.

•    BGMEA is going to start a UD automation system to speed up custom procedures. Such online system will bring dynamism in a way that reduces lengthiness in custom procedures.

•    BGMEA has distributed essential food items among workers at subsidized price during the last Ramadan through 12 centers at Dhaka and Chittagong.

•    A Memorandum of Understanding (MoU) has been signed between BGMEA and IFC-SEDF on 17th June 2008 to monitor occupational safety and health status of the workers employed in the member factories of BGMEA operating at Dhaka. Under this program all the running factories at Dhaka have already been audited by the social compliance monitors of BGMEA and a database in being prepared.

A Success Story of RMG Sector

The importance of RMG sector can hardly be over emphasized. There has been a steady growth in the field of RMG during last two decades. The RMG industry enjoyed a meteoric rise from 30 enterprises in 1980 increased to about 4825 in 2007-08 fiscal year.Out of 3.1 million manpower employed in BGMEA member factories, 2.38 million are women (85%), majorities of them are disadvantaged and economically poverty stricken women folk. The country's RMG sector, to a creditable level has relieved Bangladesh from over populous unemployment burden through providing the largest employment next to agriculture, transport, trade and industry sector. This sector has uplifted the neglected section of the population, thus radically transforming the socio-economic condition of the country. Such empowerment and employment raised awareness regarding children education, health safety, population control disaster management only so for. It is an epoch making event in the history of Bangladesh.
Facts and Figures 


In the 1980s, there were only 50 factories employing only a few thousand people. Currently, there are 4490 manufacturing units. The RMG sector contributes around 75 percent to the total export earnings. In 2007 it earned $9.35 billion. This sector also contributes around 13 percent to the GDP, which was only around 3 percent in 1991. Of the estimated 4.2 million people employed in this sector, about 50 percent of them are women from rural areas. USA is the largest importer of Bangladeshi RMG products, followed by Germany, UK, France and other E.U countries.

Women in the Garment Industry

Garment sector is the largest employer of women in Bangladesh. The garment sector has provided employment opportunities to women from the rural areas that previously did not have any opportunity to be part of the formal workforce. This has given women the chance to be financially independent and have a voice in the family because now they contribute financially.

However, the women workers are facing many problems. Most women come from low income families. Low wage of women workers and their compliance have enabled the industry to compete with the world market. Women are paid far less than men mainly due to their lack education. Women are reluctant to unionize because factory owners threaten to fire them. Even though trade unionization is banned inside the Export processing Zones (EPZ), the working environment is better than that of the majority of garment factories that operate outside the EPZs. But, pressure from buyers to abide by labor codes has enabled factories to maintain satisfactory working conditions.

 In recent times, garment workers have protested against their low wages. The first protests broke out in 2006, and since then, there have been periodic protests by the workers. This has forced the government to increase minimum wages of workers. 

 The future

The RMG sector is expected to grow despite the global financial crisis of 2009.[9] As China is finding it challenging to make textile and foot wear items at cheap price, due to rising labor costs, many foreign investors, are coming to Bangladesh to take advantage of the low labor cos