Focusing not on GSP but on building export capacities (The Financial Express (Bangladesh))

The issue of restoring generalised system of preference (GSP), i.e., duty-free access, by the USA to Bangladesh’s export has been a much-talked-about subject for quite some time now. Bangladesh was the beneficiary of this preference until June 2013 but only in the case of a very limited number of items which accounted for an insignificant part of the country’s total export. Bangladeshi products such as tobacco, plastic bags and articles, golf equipment, sleeping bags, bone china and porcelain kitchen/tableware, cereal-based prepared foods, hand-loomed woven cotton carpets and other textile floor coverings, spectacles and goggles, headgear other than rubber and plastics, etc., were eligible to enter the US market duty-free under GSP.

These products do not represent Bangladesh’s main export competitiveness. Thus the US GSP to Bangladesh was more of a good gesture rather than a real contribution to Bangladesh’s export competitiveness in the US market. But when the USA suspended GSP to Bangladesh, it made big news in the media portraying it as a huge economic loss to the country. Experts and analysts became busy with explanations about how this suspension was going to hurt the overall growth of Bangladesh economy in future. How much justified are these fears?

Let us see what the number says. Internationally accepted trade statistics are provided by the International Trade Centre (ITC) in a web portal named ‘Trade Map’. Let us analyse the example of plastic bags and articles which used to enjoy US-GSP until June 2013 by using the numbers from the Trade Map. Unfortunately, we do not have the data for Bangladesh for 2012 and 2013 but we have the data for 2010, 2011 and 2014. In 2010, the value of Bangladesh’s export of plastic bags and articles to the USA was US$ 1.51 million, which declined to US$ 1.47 million in 2011. During the same years Bangladesh’s overall export of these items increased from US$ 58.37 to US$ 79.32 million. The decline of exports to USA market even in the presence of GSP, the increase of overall export of these items implies an adjustment in destination markets. A country will export an item more to the country where it gets high price. Thus change in relative importance of different destination market is quite normal in international trade. There is no reason to worry about it.

With the suspension of US-GSP in 2013, the equivalent ad valorem tariff applied by the USA on the plastic bags and articles exported from Bangladesh is 4.4 per cent. Those who believe that suspension of US-GSP hurts Bangladesh would think that export of these items to the USA will decline in 2014. But in reality, export of plastic bags and articles to the USA in 2014 was US$ 14.28 million while the amount was US$ 1.51 million in 2010. Therefore, the negative impact of suspension of US-GSP on Bangladesh’s export is not quite obvious. In fact, total export of these items to the global market increased from US$ 58.37 million in 2010 to US$ 99.30 million in 2014 which indicates an increase of Bangladesh’s economic ability in this sector.

Focusing not on GSP but on building export capacities

Despite the small impact US-GSP had in our export performance, many people appear to give undue importance to the restoration of the facility in its old form. However, if the US-GSP can be expanded to our main exports like readymade garments, the economic benefit of it would be significant. But one should bear in mind that most of our main competitors in US apparel markets are thriving without any duty-free access to that country. The countries which are allowed duty-free access to US market are either their North America and South American neighbours or small developing countries. No matter whatever the United States say officially, it seems that the implicit policy pursued by the country is not to allow duty-free access of apparel products to its market to any country outside the above group.

According to the latest data provided by the International Trade Centre (ITC), China is by far the largest exporter of apparel items to the USA, followed by Vietnam, Indonesia, Bangladesh, Mexico, India, Honduras, Cambodia, Pakistan and Nicaragua. Out of these 10 countries, Mexico, Honduras, and Nicaragua are beneficiaries of GSP of US. Among the rest seven countries which do not enjoy any duty-free access of their apparel exports to the USA, Bangladesh enjoys the lowest tariff rates and Cambodia is subject to the highest tariff (Table 1).

In case of knit items, Bangladesh is the 9th largest exporter to the US market. Like the other exporting countries which are not allowed GSP by the USA, Bangladeshi exports of knit items are also subject to 14.4 per cent tariff (Table 2). In case on non-knit items, Bangladesh was the 4th largest exporter to the US market in 2014 and its exports were subject to 10.8 per cent tariff like any other exporters which are not allowed GSP by the USA (Table 3).

It is evident that the decision of the US government to allow duty-free access of apparels to its market is not entirely driven by the factors they mention officially. There are countries which are not ‘guilty’ of not doing enough to improve the labour standard, yet they do not get duty-free access to the USA. For example, Sri Lanka is known worldwide for their good working environment and labour standard. Following the phasing out of the Multi-Fibre Arrangement (MFA), Sri Lanka’s Joint Apparel Association Forum (JAAF) adopted the “Garments without Guilt” initiative as a business strategy to face new global competition. The codes of garments without guilt were developed after consultation with different stakeholders and these include: (i) free of child labour, (ii) free of forced labour, (iii) free of discrimination, and (iv) free of sweatshop practices including providing limits on working hours within those prescribed in law, guaranteeing workers the right to freedom of association, requiring that workers receive all legally required pay and benefits, and ensuring that the workplace is safe, with specific requirement for the management of the workplace. These efforts are applauded by the rest of the world; yet Sri Lanka did not get duty-free access to the US market. All this means provision of duty-free access of apparel exports to the US market is a political decision of the government of that country, in which economic factors play little role.

Bangladesh, as a small country, cannot influence the political decision of the USA. Bangladesh’s active participation in the emerging international financial organisations like the Asian Infrastructure Investment Bank (AIIB) may even make it more difficult to get duty-free access of its exports to the US market. Therefore, Bangladesh should not cry anymore for GSP facilities from the USA. Instead, accepting the impossibility of getting it, the country should rather focus on the internal problems to build additional economic capacity. Recently, the country has graduated to the status of ‘low middle-income country’. This accomplishment is meaningless if the workers of the country are deprived of its benefit, suffer from lack of safety and security at the workplace, and left at the whims of the employers what and when to be paid. Getting GSP from the USA should not be the reason for looking at these issues; rather the officially accepted development vision of promoting ‘inclusive growth’ should suffice to take these issues seriously and work hard to solve them. With these our exports will become more attractive to the conscious consumers abroad and our workers will have a better life.