With US review threat looming, Bangladesh scrambles to explain alleged export of knock-off brand garments

If the allegations are proven in the review, Bangladesh’s garment industry may face action

Two Western trade associations have claimed that Bangladesh and some other countries export counterfeit or knock-off garments bearing designs similar to those of famous apparel brands. 

The United State Trade Representative or USTR has started reviewing the Intellectual Property Rights issue in the readymade garments sector in Bangladesh following the American Apparel and Footwear Association or AAFA complaint. 

The French Union des Fabricants, or UNIFAB, made similar allegations against Bangladeshi apparel exporters.  

If the allegations are proven in the review, Bangladesh’s garment industry may face additional tariffs, quotas or even sanctions by the US, the single largest market of clothing from the South Asian nation.  

The commerce ministry of Bangladesh has objected to the US decision to review the apparel industry. It has sought more time to explain the issue. 

The Bangladeshi entrepreneurs will cooperate with the government to examine the issue and accept any decisions, said Mohammad Hatem, a leader of the Bangladesh Knitwear Manufacturers and Exporters Association. 

Bangladesh exported readymade garments worth over Tk 2.82 trillion in the 2021-22 fiscal year, including nearly Tk 596.25 billion to the US, which was 21 percent of the total apparel exports, according to the Bangladesh Bank. 

THE COMPLAINTS 

The Western trade associations complained that some Bangladeshi companies have been copying the designs and logos of the garment samples given by the US and French buyers in their work orders and selling them to other countries and businesses, which violates intellectual property rights. 

The AAFA filed the complaint in January 2022 with the USTR seeking a public hearing. The USTR later informed the commerce ministry of Bangladesh about the issue. 

“While being an important, legitimate sourcing country for the industry, counterfeits from Bangladesh are being seized at an increasing rate globally as counterfeit production is growing. As one member shared, ‘… It remains impossible to conduct any form of IP enforcement in Bangladesh due to zero established IP policies’, with high levels of corruption exacerbating the situation. Thus, AAFA recommends that Bangladesh be listed on USTR’s Priority Watch List,” AAFA President and CEO Steve Lamar said in the submission. 

The Organization for Economic Co-operation and Development or OECD ranked Bangladesh as one of the top five provenance economies for exporting counterfeit clothing, after China, Turkey, Hong Kong, and Vietnam, according to the AAFA’s submission to the USTR. 

It said Bangladesh is among the top counterfeiters in other categories, including leather products, handbags, footwear, and jewellery. The European Union Intellectual Property Office describes Bangladesh as the third biggest source of counterfeit clothing (ready-to-wear), following China and Turkey. 

In 2022, this group conducted 56 global seizures that contained counterfeit goods manufactured in Bangladesh, a 50 percent increase from 2021, according to the submission. 

“Given that Bangladesh is a Least Developed Country (LDC) by the United Nations, we understand that Bangladesh is allowed ‘international support measures in the areas of development assistance and trade.’ But allowing Bangladesh to grow as a global counterfeit source will make residual impacts harder to undo on a grander scale. 

“Working with leadership in Bangladesh to address problems and build a foundation of best IP practices will bring sustainable development for legitimate businesses with more jobs to the region as companies see that opportunities outweigh the risks of doing business in the country. Addressing these core business issues will help the country move forward on a smooth transition path toward graduation from LDC status.” 

In an email to bdnews24.com queries, the UNIFAB said it needed more time to discuss the issue. 

WHAT BANGLADESH IS DOING 

The USTR said it would review the Intellectual Property Rights issue in the readymade garments sector in Bangladesh and asked Bangladesh for an explanation by Feb 13 as they planned to hold the public hearing soon. 

After receiving the letter late, the commerce ministry held a meeting on Feb 13 with the law enforcement agencies, the Bangladesh Garment Manufacturers and Exporters Association or BGMEA, the BKMEA, the foreign ministry, the National Board of Revenue and Customs and Excise Department. 

“As of now, we haven’t received any complaint from our buyers that Bangladeshi companies were producing garments with exact copies of famous brands’ logos and exporting them,” said BKMEA Executive President Hatem, who attended the meeting. 

The US trade body brought the allegation against a few countries, including Bangladesh, last year, Hatem said. Bangladesh is the only nation from the LDC bracket on the list. 

When asked what the consequences could be for Bangladesh in case the complaint is proven, Hatem said there could be three types of penalty. First, an increased tax for exporting garments made in Bangladesh to the US market; second, a quota imposed on Bangladeshi exports and finally, sanctions on garments made in Bangladesh, he said. 

Hatem, however, foresees little chance of Bangladesh facing such penalties. 

The AAFA also felt that Bangladesh needs assistance in development and trade. 

“Given that Bangladesh is a Least Developed Country (LDC) by the United Nations, we understand that Bangladesh is allowed ‘international support measures in the areas of development assistance and trade.’ But allowing Bangladesh to grow as a global counterfeit source will make residual impacts harder to undo on a grander scale,” said Steve Lamar, AAFA President and CEO. 

“Working with leadership in Bangladesh to address problems and build a foundation of best IP practices will bring sustainable development for legitimate businesses with more jobs to the region as companies see that opportunities outweigh the risks of doing business in the country.” 

Additional Commerce Secretary Hafizur Rahman said they sent a letter to the USTR on Feb 13, and due to the lack of time, they sought until Feb 28 to send the details. 

In the letter, the government summarised the laws on intellectual property, copyright and trade. “We’re implementing the laws but have not been able to enforce them fully because we are an LDC fully. We’ll do it gradually.” 

“The government has strengthened efforts at all levels, including the trade associations, to prevent any such issues from developing after 2026 [when Bangladesh graduates to a developing nation].” 

Hafizur said anyone could seek remedy in a court of the country, but no one has filed a case over the alleged export of knock-off or counterfeit brands. 

He said Bangladesh would participate in the USTR public hearing in Washington on Feb 22 if the government is allowed to participate. 

WHAT EXPORTERS SAY 

BGMEA Vice President Rakibul Alam Chowdhury, managing director of HKC Apparels Ltd, said: “The complaint is a matter of concern. The BGMEA will discuss it with its members and determine the next course. We’ll hold a meeting soon.” 

Bangladesh is a dependable source in the international market for readymade garments, said Abdus Salam Murshedy, president of the Exporters Association of Bangladesh. 

“Both parties -- one involved in placing orders and the other supplying products -- must follow the contract. If any such cases [of counterfeit garments] have happened, the buyers and the exporters can settle it,” he said.

 Murshedy, the managing director of Envoy Group, thinks producing or selling counterfeit garments is not profitable for business. 

“Some pieces of products may have flaws in them. That’s why factories produce an extra 3 percent of a product for quality control. No customer buys those extra pieces, and they can’t be exported to other countries for low quantities.” 

Now, a company will face financial losses if it copies an international logo for producing counterfeit garments and exports them because the buyers will never pay the original price, he explained. 

The extra production in the readymade garment sector is sold domestically in lots or bundles. But that, too, is sold at a price lower than the production cost. 

During the coronavirus pandemic, the readymade garments sector in Bangladesh had work orders worth $3.5 billion halted or cancelled as sales plunged in the West. Retailers, including H&M, Walmart, and GAP halted their work orders. 

Although the pandemic ebbed, many did not buy the garments they ordered. Some slashed the price, while others did not pay in full. 

Some traders believe there is a fair chance that garments not bought by these companies were exported to different countries.

 Businesses need not pay any tax for importing the raw materials used in export production. Still, they are legally bound to pay a maximum of 200 percent tax if those products are not exported.  

Traders said that some companies may have exported the garments to different countries despite the financial losses only to evade the taxes. 

[Writing in English by Sabrina Karim Mushed and Osham-ul-Sufian Talukder]