The country’s knitwear exporters have called for resolving the complexities associated with the import of raw materials and the export of finished goods under the Free of Cost (FOC) facility.

They have also urged the government to extend the facility to all exporters by removing existing conditions, describing the FOC system as ‘risk-free’ and ‘beneficial’ for exporters, as it ensures full value addition.

The Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) made these requests in a recent letter to the National Board of Revenue (NBR).

The letter, signed by BKMEA president Mohammad Hatem last month, explained that, typically, export-oriented non-bonded ready-made garment factories procure yarn, fabric, and accessories locally through back-to-back letters of credit (L/C).

Bonded factories, on the other hand, import raw materials locally and from abroad through back-to-back L/Cs.

However, due to a policy change by the central bank, the import of raw materials has increased significantly, rather than sourcing them locally.

The import of raw materials under the FOC facility has also seen a rise, Hatem noted.

He explained that with the FOC system, the retention rate for such exports is 100 per cent, as buyers cover the costs of raw materials sourced from overseas.

Exporters only incur charges for cutting, making, and trimming, while the earned foreign currency remains within the country.

This system is considered ‘safe’ for exporters, as buyers bear all the raw material costs and exporters do not need to provide bank guarantees or mortgages for opening L/Cs.

As a result, exporters are shielded from risks like order cancellations, discounts, or air shipments.

However, they are now facing difficulties due to complexities in the rules set by the Ministry of Commerce and NBR, which have complicated the import and export of raw materials under the FOC system.

Exporters claim that these complexities are negatively impacting both the exporting companies and the country as a whole.

Therefore, they have demanded the removal of these complexities and the extension of the facility to all exporters.

Fazlee Shamim Ehsan, managing director of Fatullah Apparels Ltd, explained that exporters importing raw materials under both L/C and FOC systems have been facing difficulties.

They cannot fully benefit from the revolving FOC system, which is hampering exports and causing them to lose buyers.

Ehsan pointed out that exporters are allowed to import up to 50 per cent of raw materials under the FOC facility, based on the previous year’s exports.

Once finished goods made with these raw materials are shipped, exporters are allowed to use the revolving system to import raw materials again.

However, a recent circular from customs has created obstacles, stating that an exporter can only access the revolving facility if 80 per cent of their total raw materials were imported under the FOC and the charge for cutting, making, and trimming (CMT) was incurred.

‘We work with both types of buyers—those who cover all raw material costs and those who don’t. Manufacturers have to source materials either locally or from abroad,’ Ehsan said, adding that there are also new buyers who prefer the FOC system.

As the executive president of BKMEA, Ehsan stressed that they want no obstacles in importing raw materials and exporting finished goods under the FOC system.

He also called for the allowance of raw material imports under the revolving system for all exporters.