Published in The Daily Star on Monday, 17 August 2015.
MACRO MIRROR
USA should do more for Bangladesh
Dr Fahmida Khatun
The Trade Preferences Extension Act of 2015 signed by US President Barack Obama on June 29, 2015, brings afresh the concerns and frustrations of Bangladesh. The Act authorises the Generalised System of Preference (GSP) through December 31, 2017 and makes GSP retroactive from 31 July 2013. It provides duty free treatment of imports from 122 countries and territories effective from July 29, 2015. Unfortunately, Bangladesh is not on the list, though its South Asian neighbours such as Afghanistan, Bhutan, India, Nepal, Pakistan and Sri Lanka are among the GSP beneficiaries.
The USA suspended GSP for Bangladesh on June 27, 2013, effective from September 1, 2013, following labour rights and safety issues after the collapse of Rana Plaza on April 24, 2013. Since then, Bangladesh has made significant improvements towards meeting the 16 compliance related issues in the readymade garments sector. The National Tripartite Plan of Action on Fire Safety and Structural Integrity, along with two global buyers’ groups namely, Alliance of North American buyers and Accord of the European buyers inspected over 2000 factories and closed the vulnerable ones (only 1.78 percent of total factories). The labour law of the country has been amended and the right to form trade unions in factories, including in the special economic zones, has been approved. The minimum wage of RMG workers has been raised to $69 in November 2013, in an attempt to make it comparable to other competing countries and to allow a decent life to workers. The new wage is close to that of India where RMG workers’ minimum wage is $71.
Bangladesh also signed the Trade and Investment Cooperation Framework Agreement (TICFA) to improve bilateral trade relations through a platform, and in the hope that TICFA could be a vehicle for GSP retention. The US Trade Representative Ambassador Michael Froman, during the signing of TICFA, assured that TICFA “will provide a formal mechanism for Bangladesh and the USA to engage in regular discussions on trade and labour issues like the GSP action plan and enable countries to work together to improve labour conditions and workers’ rights in Bangladesh.” (www.bdembassyusa.com)
Sadly, Bangladesh has been deprived of various trade facilities which the USA offers to other countries. GSP was granted to Bangladesh for only less than 1 percent of its total exports. But its major export item, readymade garments, which is about 92 percent of total exports to the USA, is outside GSP. As a result, Bangladesh currently pays 15.61 percent as duty for exporting RMG to the USA. In 2005, at the WTO ministerial meeting in Hong Kong, RMG was on the “3 percent exclusion list” of the USA, as they agreed to provide duty-free, quota-free access (DFQF) to 97 percent tariff lines, keeping RMG outside of it. Then in 2013, at the ninth WTO ministerial conference in Bali, the development package stipulated that developed countries, which are yet to provide DFQF to least developed countries, would do so for more than 97 percent tariff lines before the tenth WTO ministerial conference. The progress is depressing. Ironically, GSP is offered to many countries whose political system is not particularly favoured by the USA.
GSP is the largest and oldest US trade preference programme that promotes economic development of countries through elimination of duties on up to 5,000 types of products. This also aims to provide opportunities for many of the world’s poorest countries to use trade to grow their economies and climb out of poverty.
If that is so, then Bangladesh very much falls into the recipient category. Though recently Bangladesh has graduated from a low income country to a lower middle income country, it still falls under the category of the Least Developed Countries (LDC). A large number of its population lives below the poverty line. To lift these people out of poverty, the government has to generate adequate employment through higher investment and trade. The country is vulnerable to the impact of climate change for no fault of its own. Without international cooperation, these challenges will continue to obstruct the development of Bangladesh. Attaining the newly promised Sustainable Development Goals of the United Nations by 2030 will also be difficult.
Bangladesh’s resilience through tough times – both natural and manmade – has been astonishing. Despite the suspension of GSP, export of non-RMG products to the USA has increased in 2014 and 2015, implying that it could be even higher in a duty-free regime.
GSP is of course not the end of the world. But what matters is the attitude of the USA towards Bangladesh. As the Bangladesh government now prepares to send its delegation to urge the USTR for reviewing GSP, it should also look beyond the GSP. We have to come to terms with the fact that compliance is the name of the game to survive in the export market in the present day context. Unmet conditions such as formulation of rules under the labour law, amendment of law for workers in the EPZs and the end of violence and harassment of workers’ representatives will have to be addressed to improve compliance.
Compliance is also a moving goalpost. There will always be new requirements from buyers and buying country regulators. We have little choice but to accept them. Diagnosis of underlying reasons and smelling politics in this decision will not take us anywhere. Economic decisions, in the end, are also political decisions. Otherwise, countries with far less compliance wouldn’t be enjoying GSP facilities.
On the part of the USA, it can’t shrug off its responsibilities from a plethora of issues. US aid flow to Bangladesh remains low, even though high tariff is paid by ‘Made in Bangladesh’ exports to the USA. A simple move to reduce tariff will allow Bangladeshi exporters to export more and invest on productivity improvement and workers’ welfare.
We would also like to see more concrete support for trade promotion and poverty alleviation of Bangladesh as promised. The USA could invest in improving the supply side capacity of Bangladesh. Providing aid for trade towards technological upgradation, capacity development of workers and mid-level managers, and exposures of entrepreneurs in various US centres of excellence on business are some of the areas where the United States could contribute. Programmes similar to ‘JOBS’ of the USAID should be re-launched for the development of export oriented sectors of Bangladesh, as these schemes also create employment opportunities for the poor.
And as for the GSP facility, Bangladesh deserves a fair and pragmatic treatment from the US government.
The writer is Research Director at the Centre for Policy Dialogue, currently a Visiting Scholar at the Centre for Study of Science, Technology & Policy, India.