Subcontracting RMG makers to get export incentive

The government has decided to provide cash incentives to subcontracting apparel and textiles makers to help boost their exports to the USA market under the 'US first sale rule'.

However, the relevant facility factories have to comply with some conditions to obtain such facility.

On Thursday, Bangladesh Bank issued a circular in this regard.

The circular stated that factories with their own active production units will be eligible to receive export incentives on the net FOB value for apparel or textile products exported through subcontracting.

However, trading firms or companies not directly involved in production will not be entitled to this benefit.

In such cases, exporters must comply with the "Subcontracting Guidelines for the Readymade Garment Industry 2019" and the "Regulations for Export-Oriented Garment Industries under the Warehouse System 2024."

In the American customs law, the first-sale rule allows an importer to pay 15 to 20 per cent less amount of landed duty through declared lowered value of goods based on the manufacturer's price through a multi-tiered transaction -- such as manufacturer to middleman to US importer -- rather than the final price paid by the US buyer.

According to garment exporters, such a rule helps them avoid high tariffs.

The remaining amount of r price is paid as a research and development cost to the manufacturers, but this requires the involvement of another entity.

Earlier In a letter to the Ministry of Commerce, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) had noted that the first-sale method is becoming increasingly popular among US buyers.

Citing a recent survey, the letter also mentioned that major retail groups, such as PVH, VF, Kontoor Brands, AEO, Kohl's, and JCPenney, sourced a significant portion of their total purchases through this duty-deduction conduit.

All top American retailers are using this first-sale marketing programme, according to a source.

The retailers include Calvin Klein, GAP, Levi's, C&A, American Eagle, Ann Taylor, and so on. Walmart, Costco, and a few others also use it, they added.

Industry leaders mentioned that among the exporters of high-valued products to the US market, Sparrow Group, Hameem Group, Viyellatex Group and Standard Group were doing business under these rules.

Talking to FE, BKMEA President Mohammad Hatem said that this initiative will help the apparel exporters to get incentives.

Managing Director of Sparrow Group Shovon Islam said usually subcontracting factories do not get cash incentives as they are not the recipient of the orders and exporters.

However, when any factory has a tight schedule to produce goods, then they usually shift raw materials to their other factory to produce that goods under subcontracting and that goods are shipped in the name of the order recipient factories.

However, the US companies are required to mention the producing factories to maintain their supply chain traceability, he said.

The government's new initiative will help factories export in the name of subcontractors factories, he added.

Citing an example, he said if a manufacturer sells goods to a trading company at $10 per unit, and those goods are sent through another entity of the manufacturer, the US government allows them to reduce duties under the first-sale rule, which would be calculated on $8.0 instead of $10, said Shovon Islam.

The remaining $2.0 would be calculated and paid as a research and development cost, he mentioned, adding that it would help make US retail prices more competitive, improve importers' profit margins and free up working capital.

They, however, cautioned that the first-sale option came with strict requirements under US Customs and Border Protection (CBP) regulations.

According to the latest data from the Export Promotion Bureau (EPB), Bangladesh's total exports to the United States amounted to $8.69 billion during the past July-June period -- a notable increase from $7.60 billion a year earlier.

Apparel exports to the US were $7.54 billion in the last fiscal year, representing a 14-percent year-on-year growth.

The US market accounted for more than 18 per cent of Bangladesh's total export earnings of $48.28 billion in FY25.

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