Importers warn of looming crisis over textiles tax

Date: 25/09/1997

By Mark Turner

EUROPEAN importers of Bangladeshi textiles are warning that an impending tax bill of 65 billion ecu will drive many small businesses into bankruptcy.

The warning follows a decision by Dhaka, in response to European Commission pressure, to cancel thousands of fraudulent import certificates which gave T-shirts and other items from the country tariff-free access to the EU.

Under normal import rules, textile importers have to pay a 15&percent; duty for access to European markets. But for poor countries such as Bangladesh, that tariff is waived where products are made entirely locally.

From 1994-1996, however, the Bangladeshi government issued thousands of tariff-free licences for clothes made with yarn from other countries, such as India and China, which do not benefit from such waivers - provoking complaints of unfair competition from EU textile manufacturers.

When the fraud was discovered, the Commission told Bangladesh it would not benefit from a new, more flexible system offered to Laos, Nepal and Cambodia until it revoked the certificates.

Following an earlier decision to annul 7,000 false documents issued over the same period, Bangladeshi Trade Minister Tofail Ahmed agreed this week to cancel almost 6,000 additional certificates of dubious origin and to pursue investigations into more than 2,000 others.

The decision means that EU governments will need to reclaim all the lost import duties from European businesses and, in many cases, impose substantial fines.

According to the retailers' lobby group EuroCommerce, this will hit enterprises in countries like Denmark and the Netherlands - which face bills of up to 8 and 16 billion ecu respectively - particularly hard.

“This is extremely unfair as most of these importers were acting in good faith when they bought the items and were unaware of any fraud,” said spokesman Philip von Schöppenthau. “In the Netherlands we know of 20 companies that will go bankrupt as a result of these moves.”

EuroCommerce also complains that the Commission only warned companies of the irregularities in April this year.

The group is pressing the Commission to allow the new flexible import regime - which would allow Bangladeshi products to be made with certain foreign cloths - to be applied retroactively. It has also received indications from Dhaka that Bangladesh could compensate European businesses.

The Commission is unlikely, however, to accede to EuroCommerce's demands as applying the new rules retroactively could open the door to thousands of similar claims in other sectors.

A spokesman for the Bangladeshi mission to the EU refused to comment on the case. Observers say that the country's government is afraid of taking any action which could threaten its relationship with the Union.