The issue of US Generalised System of Preference (GSP) is back again to stimulate some more debate. The US government has renewed the scheme, after two years of interval, for almost all countries except for few like Bangladesh and Russia. Leaving Bangladesh out of the renewed preferential scheme has shocked many in the country. The commerce minister has categorically said that the government wouldn’t take any more initiative to regain US GSP.
The trade preference was suspended in June 2013 following the Rana Plaza disaster that killed more than 1,000 garment workers and sparked global outcry. To pressurise the government of Bangladesh to improve labour safety and factory-working condition, the US announced the suspension which became effective from September 2013. The US GSP scheme needed to be renewed as it was expiring. So, all GSP beneficiary countries were in wait to regain the preference which they eventually got. As for Bangladesh, the big difference is that the US government had set 16 conditions for Bangladesh pertaining to workplace safety and labour rights. No other country has been given any such condition to regain the trade preference. On June 25, 2015, US Congress passed the Trade Preferences Extension Act, and subsequently on June 29, 2015, President Obama signed it into law. Tariff-free treatment of GSP-eligible imports becomes effective 30 days after enactment of the act, July 29, 2015. The beneficiary countries will enjoy the preference till December 31, 2017. It is to be noted that GSP is the largest and oldest U.S. trade preference programme established by the Trade Act of 1974.
LOWER PRODUCT COVERAGE: There were some 243 tariff-lines of Bangladesh eligible for US GSP, until suspended in 2013. It was below one per cent of the Bangladesh’s exportable items. The country’s lead export item, ready-made garments (RMG), was not covered under the scheme.
Although the suspension of GSP was affected in last four months of 2013, it had negative impact on exports of GSP-beneficiary products for the whole year. Statistics available with the US Department of Commerce revealed that total export earnings of GSP-benefited products from Bangladesh declined by 37.8 per cent in 2013 from 2012. The export earnings of GSP-benefited products declined to $21.5 million in 2013 which was $34.6 million in 2012 and the amount was $27 million in 2011. Impact on overall exports is, however, minimal. In fact, total exports to the US market increased by 8.7 per cent from $4879 million in 2012 to $5303.5 million in 2013 but marginally dropped to $5276.5 million in 2014.
Bangladeshi products that enjoyed GSP included, among others, plastic, ceramic, gulf shafts and carpet items. After suspension of the GSP, all these products became subject to import tariffs in the USA. Due to higher tariff, export of most of these products declined. Manufacturers of these products expressed their disappointment saying, they were being unjustly penalised for misdeeds of other sectors, RMG in particular. How important is US GSP?
CONDITION UNFULFILLED: Following the Rana Plaza tragedy, both the government and the RMG manufacturers did not act as quickly and as decisively to improve work place conditions and the quality of labour standard in the factories. Rana Plaza disaster and death tolls brought severe criticism from across the world. Global community mounted pressure on buyers and retailers as well as governments of developed countries which are the major importer of Bangladeshi garments. Suspension of the US GSP and tough conditions to regain it came as an outcome of the global pressure.
However in the last two years, Bangladesh government has taken a series of measures on labour welfare and workplace improvement. The country amended its labour law to strengthen issues such as freedom of association, collective bargaining and also to address occupational health and safety aspects. Factory inspectors were recruited and trained and fire and structural safety assessments were undertaken along with installing factory safety information online. A hotline to report labour concerns has also been established. Some 300 new trade unions have been registered during this time. Accord and the Alliance, the two coalitions of North American and European buyers respectively, assessed the structural and fire safety of over 2,000 garment factories.
All these may be considered as significant progress. In reality, these are some of the fundamental initiatives that should have been in place in the country. In addition to these, some critical areas need to be addressed to comply with the conditions fully. For example, the country has to implement rules under the new labour law in line with international standards. Law on export processing zones need to be reformed in order to ensure that workers inside the zones enjoy rights commensurate with those outside the zones. The government also needs to respond promptly to cases of unfair labour practices, violence, and harassment against trade unions and workers’ representatives.
LEGITIMACY ASPECT: An important thing is missing in the GSP debate. GSP is a rule-based trade preference programme and has to follow the non-discrimination principle of the World Trade Organisation (WTO). It is also authorised by the ‘Enabling Clause’ of the General Agreement on Tariffs and Trade (GATT). Thus, any decision regarding GSP needs to be compliant with WTO rules. Here lies the complexity of legal procedures.
Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the apex trade body, in a submission to US hearing on GSP in 2013, before announcement of the suspension, raised the issue. FBCCI argued that labour related issues shouldn’t be tagged with trade preference scheme like GSP. In support of the argument, FBCCI mentioned that the WTO mandate as adopted in Singapore and Doha Ministerial Declarations has entrusted all dealings regarding labour issues on the International Labour Organisation (ILO). The core argument, as implied in the FBCCI’s submission, is that GSP suspension for violating labour rights is an unjust action. But, there is flaw with the argument. The Enabling Clause allows GSP ‘preference-giving countries to unilaterally determine which countries and which products are included in their schemes.’ Moreover, it doesn’t restrict ‘conditionality relating to labour standards and preferential treatment.’
It is true that the US GSP scheme has little importance for Bangladesh both in terms of trade volume and future multilateral trade negotiations. According to the Bali Ministerial declaration of the WTO, the USA has to extend duty-free coverage above 97 per cent for the LDCs prior to the next upcoming Ministerial meeting, to be held in Kenya. So, it is time to keep pressure on USA to abide by the WTO decision for getting effective market access so that the RMG can enjoy tariff-free access.
On the other hand, as Bangladesh has graduated to a lower middle-income country (LMIC) from lower-income country status, addressing the labour issue with more care is important for future growth and sustainable development. Regaining the US GSP should not be the only driver for improving labour standards.
