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UNIVERSITY OF DHAKA

DEPARTMENT OF INTERNATIONAL BUSINESS

COURSE CODE : EIB 534/532


COURSE NAME : BANGLADESH in INTERNATIONAL BUSINESS

TERM PAPER
ON

GSP EFFECT ON BANGLADESH

SUBMITTED BY
NAME : SALEH RAFIQ CHOUDHURY
STUDENT ID : 801310016

SUBMITTED TO
Dr. Md. Mozibur Rahman
DATE OF SUBMISSION
DECEMBER 08, 2015

LETTER OF TRANSMITTAL

Date: 01 December, 2015


Dr. Md. Mozibur Rahman,

Subject: Submission of Term Paper.

Dear Sir
Greetings,
I would at first like to acknowledge the outstanding support and help that the honorable
Course Teacher Dr. Md. Mozibur Rahman has provided throughout the whole venture
of completing this term paper. Without his superb supervision and indispensable
guidelines, carrying out this huge task would not have been possible. Without the
unbelievable help and support from the above person, completion of this venture would
never have been a reality. We are truly indebted to this extraordinary person.
I am submitting the term paper regarding the GSP EFFECT ON BANGLADESH.
While writing the term paper, i have gathered factual and statistical information,
analyzed them and expressed my own decisions, opinions and views based on those
information. During the term paper, i have learnt a great deal on world economics and
the related issues. Please forgive me if there is any mistake in this short endeavor of
analysis.
Thank you for your time and kindness.

Sincerely,
Saleh Rafiq Choudhury
Student Id : 801310016
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TABLE OF CONTENTS

TOPICS

PAGE NO.

Letter Of Transmittal

(i)

Table Of Contents

(ii)

Executive Summary

(iii)

CHAPTER 01 : INTRODUCTION
1.1

Statement Of The Research Problem

02

1.2

Scope & Objectives Of The Study

02

1.3

Methodology Of The Study

03

1.4

Limitation Of The Study

03

CHAPTER 02 : AN OVERVIEW OF GSP EFFECT


2.1

Overview Of GSP

05

2.2

RMG and GSP facility

06

2.3

GSP Facility Of Bangladesh

07

2.4

USA Suspended Bangladeshs GSP In June 2013

07

2.5

GSP Cut An Opportunity For Bangladesh

09

2.6

EU Continues GSP For Bangladesh

10

2.7

Slow Progress In Getting Back GSP Facility

11

2.8

Present Condition Of GSP

13

CHAPTER 03 : EFFECTS OF GSP


3.1

Effects Of GSP

14

3.2

Reasons for GSP Suspension

16

3.3

Real Scenario After GSP Suspension

16

3.4

Effects of RMG sectors Violence in EU GSP

17

CHAPTER 04 : RECOMMENDATION & CONCLUSIONS


4.1

Recommendations

19

4.2

Conclusions

21

Bibliography

22
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EXECUTIVE SUMMARY
The U.S. Generalized System of Preferences (GSP) program provides non-reciprocal,
duty-free tariff treatment to certain products imported from designated beneficiary
developing countries. The United States, the European Union, and other developed
countries have implemented similar programs since the 1970s. The U.S. program was
first authorized in Title V of the Trade Act of 1974, and is subject to periodic renewal
by Congress. The GSP program was most recently extended until July 31, 2013, in
Section 1 of P.L. 112-40, and has not been renewed.
The expiration of GSP means that renewal of the program may continue to be a
legislative issue in the 114th Congress. In recent years, GSP renewal has been somewhat
controversial. In the 113th Congress, controversy arose over the funding provisions in
Senate bill S. 1331 seeking to renew GSP. Other GSP legislation introduced in the 113th
Congress included H.R. 2709, H.R. 2139, and H.R. 1682.
U.S. implementation of GSP requires that developing countries meet certain criteria to
be eligible for the program. GSP rules of origin require that at least 35% of the appraised
value of the product be the growth, product, or manufacture of the BDC.
In Chapter 1, i have focused on the statement of the problem, objective, methodology
and limitations.
In Chapter 2, i have tried to focus on about GSP related topics. When it started and how
long it continued until the cancellation.
In Chapter 3, i have focused advantages and disadvantages of GSP effect in Bangladesh.
In Chapter 4, i have focused on how Bangladesh are trying to bring back GSP and
conclusion of the assignment.

iii

CHAPTER 01
INTRODUCTION

1.1 STATEMENT OF THE RESEARCH PROBLEM


Now the most pertinent question in the economic arena is suspension of GSP
program. Why did the USA suspend GSP program from June 27, 2013? Bangladesh
had been enjoying GSP into the US market, excluding Ready-made garments. She
has to face an export fall of about $40 million in the US market. However, the direct
impact would not be much less than 1% of Bangladeshs $5 billion of annual export
(mostly RMG products) to the US which falls under Washingtons GSP program
(The Wall Street Journal, 2013). This 40 million export loss goes on the shoulders of
some small industries in the country, namely ceramic products, tobacco etc. These
industries export a very small amount in comparison to that of RMG sector. So
suspension of US GSP will account for a fall in export of about 1.0%. However, due
to this suspension the small scale enterprises are affected badly on one hand and the
image of Bangladesh is at stake in the world, on the other. Bangladesh should
remember that GSP cut hampered the prestige of the country and she lost the
credibility of being a business partner. The image of Bangladesh as a trading partner
of the USA is already questioned. These GSP incidents may discourage US and other
investors, new and old. This may have a long term effect on the prospect of future
export growth of the country. The great anxiety of the country will be to see a similar
action adopted by the European Union. The EU gave a stricture previously to remove
preferential access to Bangladesh RMG products in the EU market if the government
did not take measures to improve the working conditions in Bangladeshi factories.
The EU is a great buyer of Bangladeshi garments worth around 11.37 billion dollars
as of June 2012; out of the total export of this sector is about 19 billion dollars in the
last fiscal year (Fattah, 2013).

1.2 SCOPE & OBJECTIVES OF THE STUDY


The scope of this assignment is to cover how our country effected due to the GSP
effect and what is the effect on of it on our economy and how our country faced this
issue.

The primary objective of this report is to use the theoretical concepts, gained in the
classroom situations, in analyzing real life scenarios. This is also a partial
requirement of the MBA program. In case of this report, the objectives are:

1. To be familiar with the term GSP.

2. To know how much effective GSP in our RMG industry.


3. To know the suspension reason in GSP in Bangladesh.
4. To know the solution how our country faced it.

1.3 METHODOLOGY OF THE STUDY


The study has been conducted to evaluate the effect of GSP cancellation on the
garments sector in Bangladesh. Research area has been selected on the basis of
previous research work. Secondary data have been collected to conduct the study.
The sources of data are relevant journals, news papers, reports and so on. The study
will be helpful for the readers and researchers.

1.4 LIMITATION OF THE STUDY


One of the main limitation in preparing this assignment is that, the time frame that
we have been given, is very limited. Most of the group members are full time
employee. As a result it was hard to sit out with everyone. Because of the time frame,
we were able to meet up with RMG sector officials and in the same time our others
courses final examination is going on.

CHAPTER 02
DISCUSSION : AN
OVERVIEW OF
GSP EFFECT

2.1

OVERVIEW OF GSP

The Generalized System of Preferences, or GSP, is a formal system of exemption


from the more general rules of the World Trade Organization (WTO), (formerly, the
General Agreement on Tariffs and Trade or GATT). Specifically, it's a system of
exemption from the most favored nation principle (MFN) that obliges WTO member
countries to treat the imports of all other WTO member countries no worse than they
treat the imports of their "most favored" trading partner. In essence, MFN requires
WTO member countries to treat imports coming from all other WTO member
countries equally, that is, by imposing equal tariffs on them, etc.
The U.S. Generalized System of Preferences (GSP) is a program designed to promote
economic growth in the developing world by providing preferential duty-free entry
for up to 5,000 products when imported from one of 126 designated beneficiary
countries and territories. The GSP program also supports U.S. jobs. U.S. businesses
imported $19.9billion worth of products under the GSP program in 2012, including
many inputs used in U.S. manufacturing. According to a 2005 U.S. Chamber of
Commerce study, over 80,000 American jobs are associated with moving GSP
imports from the docks to farmers, manufacturers, and retail shelves. GSP was
instituted on January 1, 1976, by the Trade Act of 1974.
Products that are eligible for duty-free treatment under GSP include: most
manufactured items; many types of chemicals, minerals and building stone; jewelry;
many types of carpets; and certain agricultural and fishery products. Among the
products that are not eligible for GSP duty-free treatment is: most textiles and
apparel; watches; and most footwear, handbags, and luggage products.
From the perspective of developing countries as a group, GSP programs have been a
mixed success. On one hand, most rich countries have complied with the obligation
to generalize their programs by offering benefits to a large swath of beneficiaries,
generally including nearly every non-OECD member state. Certainly, every GSP
program imposes some restrictions. The United States, for instance, has excluded
countries from GSP coverage for reasons such as being communist (Vietnam), being
placed on the U.S. State Department's list of countries that support terrorism (Libya),
and failing to respect U.S. intellectual property laws.
Criticism has been leveled noting that most GSP programs are not completely
generalized with respect to products, and this is by design. That is, they don't cover
products of greatest export interest to low-income developing countries lacking
natural resources. In the United States and many other rich countries, domestic
producers of "simple" manufactured goods, such as textiles, leather goods, ceramics,
glass and steel, have long claimed that they could not compete with large quantities
of imports. Thus, such products have been categorically excluded from GSP
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coverage under the U.S. and many other GSP programs. Critics assert that these
excluded products are precisely the kinds of manufactures that most developing
countries are able to export, the argument being that developing countries may not
be able to efficiently produce things like locomotives or telecommunications
satellites, but they can make shirts.
Supporters note that even in the face of its limitations, it would not be accurate to
conclude that GSP has failed to benefit developing countries, though some concede
GSP has benefited developing countries unevenly. Some assert that, for most of its
history, GSP has benefited "richer developing" countries - in early years Mexico,
Taiwan, Hong Kong,Singapore, and Malaysia, more recently Brazil and India - while
providing virtually no assistance to the world's least developed countries, such as
Haiti, Nepal, and most countries insub-Saharan Africa. The U.S., however, has
closed some of these gaps through supplemental preference programs like the
African Growth and Opportunity Act and a newer program for Haiti, and Europe has
done the same with everything but Arms.

2.2 RMG AND GSP FACILITY


Readymade Garments Industry and GSP (Generalized System of Preferences) is one
of the hot topic in the exporting sector of Bangladesh. Everywhere anxious is
spreading as quickly as air can goes. But actually what happening? The real thing is
that we didnt get much benefit in USA GSP system in terms of RMG exports. The
percentage of benefit is less than 1% of total RMG exports. But suspension of GSP
in USA could influence the EU GSP system for Bangladesh from where we get more
benefits of duty-free trade. So having or not having GSP situation, how they
influence or contribute to economy of Bangladesh is necessary to know. In this part
we are going to details of GSP in USA and EU; its effect on Bangladesh in Future.

2.3 GSP FACILITY OF BANGLADESH


Bangladesh RMG export availed the generalized system of privilege (GSP) in the
EU countries as a member of leastdeveloping country (LDC); this was not given
to its nearest core competitors such as India, Pakistan, or Sri Lanka. Quota facility in
USA market was enjoyed, although that was reducing year after year. Rules of origin
also favoured Bangladesh in developing own backward linkage industry. (Winsome)

2.4 USA SUSPENDED BANGLADESHS GSP IN


JUNE 2013
The US has suspended Generalized System of Preferences (GSP) for Bangladesh on
2013 because of concerns over labor rights and worker safety that intensified after
hundreds died there in the global garment industry's worst accident. GSP is a special
trade privilege under which nearly 5000 categories of products can enter into the US
market duty-free.
However, The GSP facilities provided by the US do not cover the countrys most
revenue generating industry, the ready-made garments (RMG). In a proclamation,
US President Barack Obama said Bangladesh was not taking steps to afford
internationally recognized worker rights to employees, especially engaged in the
RMG sector. US Trade Representative Mike Froman said his country will, however,
start new discussions with Dhaka on improving workers' conditions so the duty-free
benefits can be restored. This announcement was the culmination of a yearlong
review of labor conditions in Bangladesh.
House Democrats had been pushing for the step since the April 24 collapse of Rana
Plaza in capital Dhakas outskirt Savar that killed 1,129 people. While the GSP
covered less than 1% of Bangladesh's nearly $5bn in exports to the US and doesn't
include the lucrative garment sector, it could deter American companies from
investing in Bangladesh. The immediate economic costs may not be significant, it
carries reputational costs and may sway a decision by the European Union, which
also is considering withdrawing GSP privileges.
EU action could have a much bigger economic impact, as its duty-free privileges
cover garments. The US Trade Representative review of labor conditions in
Bangladesh follows a petition filed in 2007 by the American Federation of Labor and
Congress of Industrial Organizations (AFLCIO) seeking withdrawal of the GSP
benefits. The review was expedited late last year amid concern from US lawmakers
over deadly industrial accidents, deteriorating labor rights and the killing of
prominent labor activist Aminul Islam last year a case is yet to be solved. Calls
for the benefits to be curtailed had multiplied since the Rana Plaza disaster.
25 House Democrats wrote to PM Sheikh Hasina calling for comprehensive action
to improve worker safety, and this week, nine Democratic senators urged US
President Barack Obama to suspend trade privileges but also establish a roadmap and
schedule for reinstating them to Bangladesh based on improvements in worker safety
and related labor law reforms. Lawmakers also have criticised US retailers that
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source garments from Bangladesh for not joining the more than 40 mostly European
companies that have adopted a five-year, legally binding contract that requires them
to help pay for fire safety and building improvements. The Bangladeshi garment
manufacturers' association, BGMEA, said it is stepping up inspections and had
already closed more than 20 factories so far. (AP)

2.5

GSP CUT AN OPPORTUNITY FOR BANGLADESH

The United States suspension of Generalized System of Preference (GSP) privileges


provided an opportunity to Bangladesh for development towards labor reforms and
improving the working environment, according to a PTI report.

The US believes the move represents an opportunity for Bangladesh to take action
for improving labour and safety standards, said State Department spokesman
Patrick Ventrell. The US will work with Bangladesh to restore its GSP privileges,
but that requires going through a process that can make improvements in the working
conditions there, he said, one day after the suspension of GSP facilities to
Bangladesh. The GSP is a 37-year-old trade preference program under which the
United States provides duty-free treatment to many imports from developing
countries. The suspension became effective 60 days after the publication of the
presidential proclamation in the Federal Register. We will continue to work with
them for taking additional substantive actions to improve workers safety.
Addressing these underlying labor rights and workplace safety issues will help ensure
that theres never again another fire or collapse like we saw in some of these
incidents, Ventrell said.

The country is working with Bangladesh to revoke the suspension as the latter is
taking a series of measures to bring its labor laws on par with international standards.
Our goal, of course, is not only to see the restoration of GSP benefits, but to see
Bangladeshi workers in safe and appropriate working situations, US Trade
Representative Mike Froman previously said. He said the passage of labor laws
would be an important step for Bangladesh to restore its GSP benefits. We are
discussing a number of other actions with them that they can take to enhance
workers rights and safety. We will provide support and assistance as they need, he
said. Froman said the United States is in a continued dialogue with Bangladesh to
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see the necessary actions it takes to protect its workers, and ultimately reinstate the
GSP programm. He believed that while GSP covers only a small portion of the US
imports from Bangladesh, the GSP issue has a greater impact than the numbers
suggest, given the public attention that GSP has received in Bangladesh, and the
importance it attributes to it. (Report, 2013)

2.6 EU CONTINUES GSP FOR BANGLADESH


Disapproving fear and speculation about European Unions suspension of GSP
benefit for Bangladesh, the EU said it wished to remain engaged with Bangladesh so
that it can preserve the preferential access to the EU market. The GSP provided by
the EU benefits all products from Bangladesh under its Everything but Arms (EBA)
scheme. This means that a decision to withdraw the EU GSP for Bangladesh must be
avoided, as it would have far-reaching consequences for jobs and for the economy,
a statement by the European Union said.

The EU statement came two days after the US decision to suspend Bangladeshs GSP
facility to put pressure on the country to improve working conditions and safety in
the garment industry following killing of more than 1,200 workers in factory
disasters in the last one year. The readymade garment, a major export product of
Bangladesh, had not enjoyed the GSP facility in the United States when it took the
decision to suspend GSP for a few products, but Bangladesh gets GSP facility for
RMG products in the EU market.

Following the US move, businesses in Bangladesh became worried that any move of
EU, the largest trading partner of Bangladesh, suspending GSP would hurt the RMG
industry. The EU said the ILO would monitor progress in the joint efforts by
stakeholders in improving the labor conditions in Bangladesh this year and
throughout 2014. The EU will follow this process closely, the statement said. EU
Trade Commissioner De Gucht hosted a meeting in July 2013 which was attended
by a high-level representation from the Bangladesh government, the ILO, and the US
government. There were also representatives from the RMG exporters association,
from some leading buyers, as well as from the trade unions. The meeting titled
Staying Engaged A Sustainability Compact with Bangladesh focuses on agreeing
on labor rights, safety and health at work, and responsible business conduct.
Following the recent factory disasters in Bangladesh, Commissioner De Gucht met
foreign minister on May to shape a response which would address the problems in
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the country, while avoiding hardship for its citizens. The statement said both sides
agreed that the key to a lasting improvement lies in the engagement of all actors in
the supply chain, and of international support for work at a multilateral level which
can effect change in the most efficient and comprehensive manner.

It said the EU aims to uphold fundamental human rights, of which adhering to core
labor standards is an intrinsic part. This is why the EU is lending maximum support
to the ILO process. The EU will also act in full respect of its WTO commitment to
avoid discrimination. (Correspondent, 2013)

2.7

SLOW PROGRESS IN GETTING BACK GSP FACILITY

According to the US authorities, the major causes behind the cancellation of GSP
were mainly the incidents in garment factories; the increasing number of deaths of
garment workers; unsafe working conditions; human rights violation; harassment of
labor organizers; poor salary etc. Immediately after the decision, the US added some
preconditions for the revival of GSP facility.

The new terms and conditions were improvement of labor situation; safety standards
for garment factory workers; assurance of security in the workplace; formulation of
comprehensive, concrete and coordinated plan to ensure workers safety and secure
workers rights, etc. The authority also added that it would analyse the situation again
after six months, following which the GSP suspension would be reviewed. However,
the US gave an Action Plan citing the measures for protecting workers rights and
fulfilling preconditions for getting back the GSP facility. The Action Plan calls on
Bangladesh to significantly increase the number of labor, fire and building inspectors
and to improve their training. It also recommends imposition of stiffer penalties for
the violation of labour law, with particular focus on building safety standards.
In order to regain GSP facility, the government has already taken some initiatives.
For example, Bangladesh has adopted the Labour Law 2013 in order to protect the
rights of the workers. The government has also initiated an attempt for the
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appointment of as many as 200 workers and the setting up of 7 fire fighting stations
to improve the safety of factories. Moreover, the government has also amended the
2006 Labour Act to ease the conditions of trade union in the garment sector, though
it has not yet been passed.
Despite all these initiatives, the recent unrest in garment industries due to low wage
and unsafe working conditions, confrontation between owners and workers may
bring about severe challenges for the country in getting back the GSP facility.
Bangladesh has not yet been successful in ensuring safe working environment and
human rights in garment factories. The wage board fixed an amount of Tk.3,500 for
garment workers on November 21, 2013. The workers were not satisfied with this
scale, and demanded Tk.8,000 as the minimum wage. The International Labor
Organization (ILO) report titled Bangladesh: Seeking better employment conditions
for better socioeconomic outcomes expressed grave concern about the human rights
of the workers. The report said that Bangladeshi garment workers earn less than
workers in Vietnam, India or Pakistan. (Yesmin, 2013)
Will Bangladesh be able to fulfill the preconditions for the revival of GSP facility?
How can the country restore its preferential access to the worlds largest single
market? Though many experts and policy makers have reaffirmed the chances of
getting back the facility, it cannot be surely said that it would be easy for Bangladesh
to get back the opportunity very soon. In a hearing titled Bangladesh in Turmoil: A
Nation on the Brink held on November 20, 2013 in Washington D.C., and arranged
by Committee on Foreign Affairs and Subcommittee on Asia and the Pacific, John
Stifton, Asia Advocacy Director of Human Rights Watch said: Worker rights and
worker safety have been in the spotlight in the aftermath of the Rana Plaza factory
collapse and Tazreen factory fire, and small improvements have been observed in the
ability of workers to organise.
Cancellation of GSP will damage United States-Bangladesh bilateral trade relations.
Bangladesh may also lose foreign investment in the long run. Many experts also warn
that if Bangladesh failed to satisfy the US, it may also face losing the same kind of
preference from the European Union (EU) as well, which still provides huge support
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to Bangladeshi apparel products. The other possible challenges might be the loss of
Bangladeshs competiveness in the world market, rise of duty in exports, reduction
of bilateral trade, and so on. Bangladesh still has the chance to regain the GSP facility
as the US has given six months for making visible improvements in the garment
sectors and has also added some preconditions for the revival of GSP facility. The
government should immediately take necessary attempts for sustaining the countrys
economic privileges in the world market. The government should formulate safety
codes, stop harassment and arrest of workers, improve working conditions, and
ensure non-discriminatory treatment under the World Trade Organization (WTO) as
soon as possible.
Unless Bangladesh is able to fulfill the requirements of getting back the GSP, the
future of its garment sector along with all other industrial products will suffer in the
long run. The latest report of the International Labour Organisation (ILO) warned:
Unless a comprehensive set of labour market and social policies are introduced,
Bangladesh will be unable to maintain its economic momentum and improve living
standards in a sustainable way.

2.8 PRESENT CONDITION OF GSP


US Ambassador in Bangladesh Marcia Stephens Bloom Bernicat expressed her hope
Monday that the USTR (United States Trade Representative) would recommend
restoration of Bangladesh's GSP (Generalised System of Preferences) facility as
sufficient progress is made in implementation of the action plan tagged by the US
administration.
The US envoy has expressed 'satisfaction' over Bangladesh's progress in
implementation of the action plan the US has tagged as a condition for restoring the
GSP facility for its exports to the US market.
She said: "USTR was very satisfied and is looking for further progress," the envoy
told reporters after a view-exchange meeting with Commerce Minister Tofail Ahmed
at his secretariat office.
After the Rana Plaza tragedy, the government of Bangladesh, manufacturers,
international community and buyers all are working together to address the issue to
improve the sector. There has been much progress but more progress is to be made
in the sector so that the USTR can recommend the restoration of GSP facility for
Bangladesh in the US markets, she said.
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CHAPTER 03
EFFECTS OF GSP
.

13

3.1 EFFECTS OF GSP


At first we should look at what Bangladesh was getting from GSP in USA. The benefits
or opportunities are:
Bangladesh can export nearly 5000 products duty-free to US. Golf
equipment, plastic bags, bone china, porcelain kitchenware, headgears,
spectacles and tents are on the list.
GSP covers less than 1% of Bangladeshs total exports to the US a year.
Bangladesh spared $2m in duties on $35m of exports to US under GSP in
2012.
US GSP program does not include garment from Bangladesh. The nation paid
$749.7m in duties at 15.3% on $4.9b of garment exports to American market
in 2012
Bangladesh enjoys trade benefits from US along with neighboring countries
India, Bhutan, Cambodia, Nepal, Indonesia, Sri Lanka, and Thailand
At a glance the major effects are:
Economic costs of GSP withdrawal may not seem significant, but it carries
reputation costs and can also influence European Unions decision to cancel
GSP privileges
EU action, if any, could have a much bigger economic impact as its duty-free
privileges cover garment
GSP loss may discourage American companies from investing in Bangladesh
Due to the suspension of the GSP, a duty waiver scheme adopted in 1976 by
the US government for more than 5,000 goods from least developed and
developing countries, Bangladesh will lose competitiveness in the US
market.
Although Bangladesh exports less than 1 percent of $5 billion annually under the GSP
to the US market, the impact of the withdrawal is significant. This is because some other
countries in the European Union, where the country enjoys duty waiver, might be
influenced by the US decision. The economic impact of the withdrawal could have been
much deeper if the garment products had been included in the GSP package. Since
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garments are not covered by the scheme, Bangladeshi apparel exporters have to pay
15.3 percent duty to enter the US market.
The probable financial loss in terms of falling export may be very small, at least in the
short run. As RMG products (which make up most of the US import from Bangladesh)
are not included in the list of duty-free products in GSP, there will an export fall of
about $40 million according to Charles Kernaghan, executive director of Institute for
Global Labor and Human Rights. At present, Bangladesh exports about $5 billion worth
of goods (mostly RMG products) to the USA every year and hence, the suspension from
US GSP will account for a fall in export of about 0.8%. Effect of GSP suspension and
bad coverage media can be viewed this below figure:

From the figure it is clear in every violence year in Politics and RMG sectors, exports
of RMG decreases by slight or big figure. As US importers try to avoid Bangladeshi
product during bad media coverage of political and RMG violence time.
However, this $40 million will translate to export loss for some small industries in the
country, namely, ceramic products, tobacco, etc. Since global export of products from
these industries are very small compared to that of RMG sector, this $40 million export
fall will make up a much larger proportion total export for these small industries.
More importantly, Bangladeshs image as a trade partner of the USA is tainted. This
may discourage US 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 US market.

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The biggest short-run fear for the country will be to see a similar action adopted by
European Union. 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 Bangladeshi 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 countrys RMG sector which exported about $19 billion dollar worth
of products in the last fiscal year and employs about 4.5 million people at the bottom of
the population pyramid, 80 % of whom are women.
Thus, there will be increasing pressure on the government to improve working condition
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.

3.2 REASONS FOR GSP SUSPENSION


No visible upgrade to factory conditions since 2007 AFI-CIO filed for GSP
review
Rana Plaza disaster intensified calls for trade benefits to be curtailed

Bangladesh is yet to pass new labor law in parliament

3.3 REAL SCENARIO AFTER GSP SUSPENSION


The interesting point to take into account here is Americas lack of effort in coming
forward to help Bangladesh to improve its working conditions since Aprils Rana Plaza
collapse. So far, main US importers like Walmart have not made any concrete
commitment to improve the working conditions of the factories from which they import
clothes for their outlets. Disney has terminated its RMG import from Bangladesh.
Interestingly, the US government has always charged a rather hefty tariff from
Bangladesh and other countries RMG export. In 2010, Bangladeshi RMG export faced
a tariff about $650 million (which was about 17% of the total 2010 RMG export value).
To conclude, this suspension from US GSP is little more than a symbolic action by the
US government to punish the factories concerned for the recent RMG factory tragedies.
All eyes are now on the Bangladeshi government and US importers that source apparel
16

from Bangladesh. So far, neither has taken any major initiative to address the poor
working conditions in Bangladeshi RMG sector.

3.4 EFFECTS OF RMG SECTORS VIOLENCE IN EU


GSP
Violence event in recent years like Crush of Rana Plaza, Fire accident in different
factories, wage demand could make Bangladesh to lose the GSP facility in EU market.
Though EU said that it will not decrease or suspend the GSP facility for Bangladesh,
but due to failure in securing safety of labor wage, human rights, working conditions
can see the suspension in future. Also EU monitoring team will come in July to monitor
and analyze the improvement made by Government of Bangladesh in RMG factors.
(Financial Express, June 22, 2014).

Moreover due to these causes if Bangladesh fails to grab the opportunities given by
USA then it will be like leaving a space for its competitor to become more competitive
and also decrease in FDI from EU.

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CHAPTER 04
RECOMMENDATION
&
CONCLUSIONS

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4.1 RECOMMENDATIONS
According to the US authorities, the major causes behind the cancellation of GSP were
mainly the incidents in garment factories; the increasing number of deaths of garment
workers; unsafe working conditions; human rights violation; harassment of labour
organisers; poor salary etc.

Immediately after the decision, the US added some preconditions for the revival of GSP
facility. The new terms and conditions were improvement of labour situation; safety
standards for garment factory workers; assurance of security in the workplace;
formulation of comprehensive, concrete and coordinated plan to ensure workers safety
and secure workers rights, etc. The authority also added that it would analyse the
situation again after six months, following which the GSP suspension would be
reviewed.

However, the US gave an Action Plan citing the measures for protecting workers rights
and fulfilling preconditions for getting back the GSP facility. The Action Plan calls on
Bangladesh to significantly increase the number of labour, fire and building inspectors
and to improve their training. It also recommends imposition of stiffer penalties for the
violation of labour law, with particular focus on building safety standards.

In response to this attempt, Prime Minister Sheikh Hasina urged the US to withdraw the
suspension of GSP. In order to regain GSP facility, the government has already taken
some initiatives. For example, Bangladesh has adopted the Labour Law 2013 in order
to protect the rights of the workers. The government has also initiated an attempt for the
appointment of as many as 200 workers and the setting up of 7 fire fighting stations to
improve the safety of factories. Moreover, the government has also amended the 2006
Labour Act to ease the conditions of trade union in the garment sector, though it has not
yet been passed.
Despite all these initiatives, the recent unrest in garment industries due to low wage and
unsafe working conditions, confrontation between owners and workers may bring about
severe challenges for the country in getting back the GSP facility. Bangladesh has not
yet been successful in ensuring safe working environment and human rights in garment
factories. The wage board fixed an amount of Tk.3,500 for garment workers on
November 21, 2013. The workers were not satisfied with this scale, and demanded
Tk.8,000 as the minimum wage. The International Labor Organization (ILO) report
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titled Bangladesh: Seeking better employment conditions for better socioeconomic


outcomes expressed grave concern about the human rights of the workers. The report
said that Bangladeshi garment workers earn less than workers in Vietnam, India or
Pakistan.
Will Bangladesh be able to fulfill the preconditions for the revival of GSP facility? How
can the country restore its preferential access to the worlds largest single market?
Though many experts and policy makers have reaffirmed the chances of getting back
the facility, it cannot be surely said that it would be easy for Bangladesh to get back the
opportunity very soon.

In a hearing titled Bangladesh in Turmoil: A Nation on the Brink held on November


20, 2013 in Washington D.C., and arranged by Committee on Foreign Affairs and
Subcommittee on Asia and the Pacific, John Stifton, Asia Advocacy Director of Human
Rights Watch said: Worker rights and worker safety have been in the spotlight in the
aftermath of the Rana Plaza factory collapse and Tazreen factory fire, and small
improvements have been observed in the ability of workers to organise.

Cancellation of GSP will damage United States-Bangladesh bilateral trade relations.


Bangladesh may also lose foreign investment in the long run. Many experts also warn
that if Bangladesh failed to satisfy the US, it may also face losing the same kind of
preference from the European Union (EU) as well, which still provides huge support to
Bangladeshi apparel products. The other possible challenges might be the loss of
Bangladeshs competiveness in the world market, rise of duty in exports, reduction of
bilateral trade, and so on.
Bangladesh still has the chance to regain the GSP facility as the US has given six months
for making visible improvements in the garment sectors and has also added some
preconditions for the revival of GSP facility. The government should immediately take
necessary attempts for sustaining the countrys economic privileges in the world
market. The government should formulate safety codes, stop harassment and arrest of
workers, improve working conditions, and ensure non-discriminatory treatment under
the World Trade Organisation (WTO) as soon as possible.

Unless Bangladesh is able to fulfil the requirements of getting back the GSP, the future
of its garment sector along with all other industrial products will suffer in the long run.
The latest report of the International Labour Organisation (ILO) warned: Unless a
comprehensive set of labour market and social policies are introduced, Bangladesh will
be unable to maintain its economic momentum and improve living standards in a
sustainable way.

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GSP is a tool for providing economic privilege to most-favoured nation in order to


promote economic growth around the globe. The worlds poorest countries are getting
economic privileges from developed countries from 1976. Under the GSP program, 127
beneficiary developing countries, including 44 least-developed countries get duty-free
treatment up to 5,000 types of products during the export to the US. The major
objectives of GSP are to advance international economic development by lowering the
costs of imported goods and reducing the tariffs of exported goods.

The GSP facilities allow duty-free access for some 5,000 products to enter the US
market from least developed countries. LDCs are benefited as they can export up to
5,000 types of products free of duty to the US. Bangladesh, among more than 125
countries, receives economic privileges on United States tariffs under a World Trade
Organization (WTO) program. Bangladesh gets preferences from the US on tobacco,
sports equipment, porcelain china and plastic products. Around 5,000 Bangladeshi
products are accorded as duty-free access to the US market.

4.2 CONCLUSION
Despite restoration and improvement of workers rights and better working conditions,
there is no way of restoration of GSP advantage suspended by the US. Rather, there is
a fear of loosing GSP advantage in the EU. Last years fire at Tazeen Fashion limited
wherein over 110 workers were killed mercilessly and the April, 2013 collapse of the
Rana Plaza near Dhaka leaving over 1100 dead expedited withdrawal of GSP benefit.
From the above two incidents, victims were mostly from RMG workers. Management
or owners were almost directly responsible for these miserable incidents. They were
trying to escape responsibility, but could not due to electronic and print media. These
types of indifferent attitude of management/owners jeopardized our prestige all over the
world. Moreover, Governments attitude was not also sufficient to get hold of these
miscreants who should be dealt with in a strong hand. Lastly, we should remember that
development of the garment industry of our country is directly related to the
development of the economy and the development of women folk as well, especially in
the rural areas. More than 80% garment workers are female who are mostly having a
village background. So this industry is playing a vital role in poverty alleviation and
womens employment and empowerment in rural Bangladesh (Tasin, 2013). In this
backdrop USA should reconsider its decision regarding the cancellation of GSP in
Bangladesh.

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BIBLIOGRAPHY
http://bgmea.com.bd/home/pages/TradeInformation#.Urhd2NIW2gw
http://www.tradingeconomics.com/bangladesh/exports
http://www.uns24.com/detailsnews.php?nssl=dd45045f8c68db9f54e70c67048d
32e8&nttl=20072013868
http://news.priyo.com/2013/07/21/gsp-facility-us-shows-ways-regain-it-back81508.html
http://bdnews24.com/business/2013/06/27/bangladesh-to-lose-gsp-facility
http://www.thefinancialexpress-bd.com/2013/11/11/3342
http://bdnews24.com/business/2013/06/27/bangladesh-loses-gsp-facility-in-us
http://www.textiletoday.com.bd/weekly-analysis/26
http://www.bdchronicle.com/detail/news/32/1337

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