Import on “FOC” or “No Cost Basis” by Export-Oriented Industries in Bangladesh

FOC sounds like the Incoterms, FOB. However, it is a trade term not a recognized Incoterms. People dealing with import business may have seen various types of imports. In most of the cases payments must be made for the items imported. In some cases no payment is made.

Every country has its own import policies and guiding rules for international trade. Procedures for import on FOC basis also differs based on those policies and rules. In Bangladesh this procedure is guided by the Import Policy Order (in force) from Ministry of Finance. It is also termed as Import on “No Cost Basis”.

What is FOC or Free of Cost Import

FOC or Free of Cost import means the process of importing goods for which no payment has to be made from the importing country. When goods are sent from abroad as a gift, free sample, replacement or raw materials for producing the ordered produce in the receiving country, no payment is required to be made by the importer.

There are some limits for maximum amount of such import specified by the import policy in force.

We will focus on the import under FOC facility allowed to the garments manufacturer exporter of Bangladesh in this article.

How Much a Local Garment Manufacturer Can Import on FOC Basis

Under the FOC facility, a garment manufacturer of Bangladesh can import raw materials equivalent to one third (1/3) of its export earnings in the previous fiscal year. For this they do not need to pay any tax.

But the firm has to meet a condition that it must export finished garment items made using those raw materials to a certain foreign company which pays for the raw materials imported under FOC facility.

The local firm has no right to sell the materials in the local market. It can use those raw materials only for producing finished goods for export foreign buyer who had sent those raw materials or had paid for it.

There is no need to open a Letter of Credit (LC), making payment against documentary collection, advance payment through TT/MT for import. The importer has to submit a certificate issued by the bank concerned to the customs authorities.

Who Can Import Through FOC Facility

Eligibility for import under FOC facility or import on No Cost Basis is described in the Import Policy Order 2015-2018 (9)(f), Import Policy Order 2021-2024, (Chapter-4), 21(8)(Cha), Page 7756. As per the policy order, to avail this facility the importer must be –

1. A recognized readymade garment industry in Bangladesh and
2. Operating under Bonded Warehouse System

Conditions for Import under FOC facility

As described in Import Policy Order 2015-2018 (9)(f), and Import Policy Order 2021-2024, (Chapter-4), 21(8)(Cha), Page 7756, recognized readymade garment industries operating under the bonded warehouse system are allowed to  import  raw  materials  on  `No  Cost  Basis' for execution of export orders on following conditions. Those are :

1. Each case shall be handled on consignment basis against UD issued by the BGMEA.
2. For this import no foreign currency shall be remitted outward from Bangladesh.
3. Pre-shipment inspection (PSI) certificate regarding finished products, where required, shall have to be produced at buyer's expense during execution of export.
4. Readymade garments made for export will not be rejected.
5. The entire value added amount with respect to readymade garments will be repatriated to Bangladesh.
6. The lowest percentage of value addition will be as under ***
7. Quantity, price as well as description of the materials imported on consignment basis must be stated in the invoice.
8. Through inter-bond transfer imported raw and packing  materials may  be transferred 
9. Imported gray fabrics, knit fabrics and white fabrics may be transferred to various dyeing, printing, or processing units. 

Sector/Field of Export	***Minimum Rate Of Value Addition
Knit Garments	20%
Non-quota -  Woven garments	20%
Quota- Woven garments <=$40 FOB /dozen	20%
Quota- Woven garments  > $40 FOB /dozen	20% & Value Addition must be >$12/dz
Higher Price (>=$60FOB/dozen)	15% for both quota & non-quota
Sweater	20%
Baby Garments	15%

Abuse of FOC facility

Some firms imported raw materials under the facility even though it didn't export any finished garment items in the previous two fiscal years. Besides, some firms import goods more than the permissible limit for FOC (Ref. The Daily Star February 02, 2018, Bangladesh).

There are some evidences of misuse of the FOC facility by a good number of business organizations. Result of misuse –

· These industrial units sold imported raw materials in local market, violating the condition of producing finished goods with those.

· Unfair competition among the producers or importers who paid taxes for import of raw materials.

· Tax evasion by these firms.

What penalty can the customs authority impose

According to the law, the customs can cancel the license of a C&F agent. They can also bar any firm from importing and exporting goods locking its Business Identification Number on charge of misusing the FOC facility. They can also file a criminal case against the agent and the firm.

Conclusion

Import on FOC Basis or on No Cost Basis is a time demanded import procedures. As discussed earlier it has many shortcomings. To facilitate the export oriented readymade garments industry, it is very important to formulate a strong procedure. For this, a Guideline should be developed prescribing –

• Uniform format for Bank certificates
• Numbering system just as LCs
• Reporting system for FOC import
• Developing shared/distributed database to cross check the amount of FOC facilities availed by each industrial unit
• Procedures to confirm the usage of imported goods under FOC
• Responsibilities of each of the parties involved.

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