Bangladesh needs to get back US-GSP facility

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BY MD ABDUS SOBHAN


 

Bangladesh is a developing country that is classified as a next eleven emerging market and one of the frontier five. According to a recent opinion poll, Bangladesh has the second most pro-capitalist population in the developing world.


Between 2004 and 2014, Bangladesh has averaged a GDP growth rate of 6%. The economy is increasingly led by export-oriented industrialization. The Bangladesh textile industry is the second largest in the world. Other key sectors include pharmaceuticals, shipbuilding, ceramics, leather goods and electronics. Being situated in one of the most fertile regions on Earth, agriculture plays a crucial role, with the principal cash crops including rice, jute, tea, wheat, cotton and sugarcane. Bangladesh ranks fourth in the global production of fish and seafood. Remittances from the Bangladeshi Diaspora provide vital foreign exchange for the country. The Bangladesh telecom industry has witnessed rapid growth over the years and is mainly dominated by foreign investors. The government has emphasized the development of software services and hi-tech industries under the Digital Bangladesh scheme. Bangladesh has substantial reserves of natural gas and coal; and many international oil companies are involved in production and exploration activities in Bay of Bengal shore area. Regional neighbors are keen to use Bangladeshi ports and railways for transshipment. Located at the crossroads of SAARC, the ASEAN+3, BIMSTEC, and the Indian Ocean, Bangladesh has the potential to emerge as a regional economic and logistics hub. In 2015, per capita income stood at USD 1,314. While achieving significant macroeconomic stability, Bangladesh continues to face challenges such as infrastructure deficits and energy shortages. As a development partner, USA is helping our country in different ways. But as a developing nation, Bangladesh currently is facing a trade barrier problem with USA-GSP facility where most of the countries are enjoying this facility. It is mentioned that generalized system of preference, (GSP) is a preferential tariff system which provides a formal system of exemption from more general rules of the World Trade Organization (WTO). Specifically, it's a system of exemption from the most-favored-nation (MFN) principle that obliges WTO member-countries to treat the imports of all other WTO members in the way they treat the imports of their 'most-favored' trading partner. In essence, MFN requires WTO member-countries to treat imports coming from all other members equally, that is, by imposing equal tariffs on them, etc. GSP exempts WTO member-countries from MFN status for the purpose of lowering tariffs for the least developed countries (LDCs), without also lowering tariffs for the rich countries. The GSP was established to promote exports of low-income countries to industrialized ones in order to support their economic growth and development. However, the design of these schemes are rather complex and aspect of GSP has been found to be controversial.


US GSP promotes sustainable development in beneficiary countries to increase and diversify their trade with the United States. The program provides additional benefits for products from least developed countries. According to a US Chamber of Commerce study, it shows moving GSP imports from the docks of country of origin to USA consumers, farmers, and manufacturers supports tens of thousands of jobs in USA. It also boosts American competitiveness by reducing costs of imported inputs used by USA companies to manufacture goods in the country. GSP is especially important to USA small businesses, many of which rely on the programmer's duty savings to be competitive. In addition to promote economic opportunity in developing countries, the GSP program also supports progress by beneficiary countries by affording workers' rights, in enforcing intellectual property rights, and in supporting the rule of law.


The United States instituted GSP on January 01, 1976 as a means of promoting growth in developing countries through preferential access of their exports to USA market. It provides for duty-free entry into USA for some 5,000 products of 122 countries. The value of GSP exports stood at around $20 billion in 2012. The largest beneficiaries are India, Thailand, Brazil and Indonesia.


The USA administration has renewed GSP facility for the developing and least developed countries of the world after it suspended it for the last two years on expiry of earlier legislation. But surprisingly, Bangladesh is only country along with Russia which was excluded from the list of 122 beneficiary countries for duty-free market access of their exports to the USA when the announcement of its renewal hit the global capitals. The US Congress recently made new legislation for GSP facility and Obama administration has put it back on track on July 29 with retrospective effect from date of suspension two years ago.


Bangladesh was entitled to enjoying GSP facility from 1980 although its major exports to the USA, including ready-made garments, remained excluded from the benefit, denying the real business opportunity Bangladesh could harvest under the concessional trade access. USA suspended GSP facility to Bangladesh after the Rana Plaza disaster in 2013.


The exclusion of Bangladesh resulted mainly from its apparent failure to fulfill all of 16 conditions that the Obama administration had laid out when it revoked the privilege two years ago on grounds of poor workplace safety and labor rights. But Bangladesh government claims that it has fulfilled many of the including occupational safety & workers right's. It is unfair for USA to single out Bangladeshi businesses and workers for exclusion from GSP, when it maintains these privileges for over one hundred twenty two different countries, many of which hold similar concerns about labor conditions. Bangladesh deserves USA support to build a stable economy. It is unjust that USA as a major export destination not to recognize the progress Bangladesh has been making. This is particularly not favorable for Bangladesh at a time when other nations like Vietnam are benefitting are benefitting from new trade deals with the US such as Trans-Pacific trade partnership and EU maintains duty and quota-free access for Bangladeshi goods. USA should move forward on restoring GSP and improving trade privileges for Bangladesh to give our exporters an opportunity to compete fairly with comparable nations. The beneficiaries of the new scheme include all South Asian countries such as India, Pakistan, Nepal, Sri Lanka, Bhutan and Afghanistan. Only Bangladesh remains excluded. It would pour in a damper on the country's attempts to expand export basket and reduce its reliance on garments. Suspending Bangladesh from the GSP program would also increase US duties on an array of products the country exports to the United States, such as tobacco, sporting equipment, porcelain china, plastic products and a small quantity of textile products.


The negative impact of the USA's GSP removal is speculated to be a warning for future trade between Bangladesh and United States including the prospect of retaining the MFN status which benefits Bangladesh's economic growth. According to the Bangladesh Economic Review (2014), during last three years, there was no significant foreign direct investment inflow from USA to Bangladesh. In such circumstances, the repeated attempts of the Bangladesh government to regain the US GSP are crucial for the country's continued economic growth.


Bangladesh cares deeply about retaining GSP benefit because of the countries extremely narrow and fragile export basket, link between trade performance and human development and social stability, and most importantly seeking negotiation as an early-stage industrializing nation. Bangladesh's export sector is extremely narrow in terms of both size of market and diversity of export items. USA is Bangladesh's single largest export destination that accounts for more than a quarter of Bangladesh's exports. More than 95 per cent of the export earnings are coming from USA, worth more than $4.5 billion, come from just one single item which is garment. Given this excessive dependence on one single item, Bangladesh remains extremely serious about adding new items to its export basket. Herein lies the essentiality and significance of the USA GSP. More importantly, Bangladesh's image as a trade partner of USA is tainted. This may discourage USA and other foreign investors, new and old, from venturing into Bangladesh, which may have a moderate effect on the prospect of future export growth of the country, particularly in USA market.


The biggest short-run fear for the country is a similar action adopted by European Union (EU). The EU had previously threatened to remove preferential access of Bangladeshi RMG products in EU market if the government did not take measures to improve the working condition in factories. Bangladesh RMG export to EU grew to about $11.37 billion as of June 2012. Hence, such an action will be devastating for the country's RMG sector which exported products worth $19 billion dollar in the last fiscal year and employs about 4.5 million people at the bottom of the population pyramid, 80 per cent of whom are women.


Thus, there will be increasing pressure on the government to improve working conditions as EU will be closely observing Bangladesh. Several European importers have already come forward to help the country in improving safety features of RMG factories, which is a good sign for the country.


The protection of workers' interest is not just a GSP issue. This is essential for modernizing employment practices in Bangladesh in line with good international practices; the convergence of interests with the GSP is a win-win situation.
Some economists advised the government to improve the political-level understanding with the US, avoid games of blaming others, establishing a strong base corporate governance, some areas that need to be improved where required, integrated inter-ministerial coordination efforts, direct and continuous contact with the governments of Bangladesh and USA, as they take actions on workers' rights and safety, implementing the commitments and suggestions by USA, EU and other development partners' action plan, easing obstacles to investment, strengthening negotiation skills and bargaining power and quality of economic diplomacy.


The sooner the country fulfils all the conditions, the better it is not only for gaining the GSP but also for ensuring rights of the workers as well as image- building and reputation of Bangladesh.


Looking forward, Bangladesh needs to develop strong policies to improve domestic competitiveness. With highly favorable endowment of labor, Bangladesh has a huge comparative advantage in labor-intensive manufacturing. Focusing on investment, infrastructure, land availability and labor skills is the main policy challenge. Apart from education and training, converting labor to a productive and committed workforce will also require strong social policies to protect the welfare of the workers. This long-term development challenge, rather than access to GSP, provides the imperative for adopting appropriate employment policies for workers.


The United States has long-standing supportive relations with Bangladesh & is a long trusted development partner. Bangladesh as a small country cannot influence the political decision of the US. The US GSP is not a political issue; it is an economic and technical issue where Bangladesh's active participation along with good relations with the US is more need's to get back US-GSP facility and retain the GSP benefits to become a middle income country by 2021 as soon as possible and without delay. 

 


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