Tariffs undercut apparel earnings

Bangladesh’s apparel exporters receive, on average, around 10 per cent lower prices in the United States market compared with the European Union, according to a recent study.

The report attributes much of this gap to the absence of duty-free access to the US market.

The findings were presented on 14 March at a consultation event held in the conference room of the Department of Development Studies.

The study also indicates that large exporting firms obtain more than 30 per cent higher prices than small exporters in both the US and EU markets, largely due to stronger bargaining power and higher product quality.

The research organisation Research and Policy Integration for Development (RAPID) analysed approximately 25 million export data entries from the Customs ASYCUDA World system covering the period from 2010 to 2023.

Presenting the keynote, Jillur Rahman, deputy director of RAPID, said that firms typically charge over 10 per cent lower prices in the US market than in the EU.

He explained that relatively high tariffs in the US force exporters without preferential access to absorb a significant share of the tariff burden within their profit margins in order to remain price-competitive.

He added that more favourable trade arrangements could enable firms to realise better prices for their products.

Based on an analysis of 10 apparel products, the study found that prices in the EU market were between 5 per cent and 18 per cent higher than those in the United States.

For example, exporters receive around 20 per cent to 27 per cent higher prices for T-shirts in Germany compared with the US market, while trousers fetch about 9 per cent to 15 per cent higher prices in the German market.

Bangladesh benefits from duty-free access to the EU under the Everything But Arms (EBA) initiative, which applies to least developed countries.

The EU also provides relatively flexible rules of origin, including single-stage transformation requirements for garments.

In contrast, Bangladeshi apparel exports to the United States are subject to tariffs ranging from 12 per cent to 15 per cent.

Together, the markets of the 27 EU member states and the United States account for roughly 66 per cent of Bangladesh’s total apparel exports.

The report further notes that large firms typically set prices 30 per cent to 35 per cent higher than small and medium-sized exporters in both markets, reflecting stronger negotiating power, better product quality and access to more profitable buyers.

It also observes that firm size appears to confer a greater pricing advantage in the US market than in the EU.

Additionally, companies specialising in knitwear exports tend to receive 10 per cent to 13 per cent lower average prices, suggesting comparatively lower price levels for knitwear products.