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

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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 Bangladesh’s 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.

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CHAPTER 01

INTRODUCTION

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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 Bangladesh’s $5 billion of annual export

(mostly RMG products) to the US which falls under Washington’s 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.

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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.

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CHAPTER 02

DISCUSSION : AN

OVERVIEW OF

GSP EFFECT

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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 didn’t 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 least�developing 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)

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2.4 USA SUSPENDED BANGLADESH’S 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 country’s 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 Dhaka’s 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 (AFL–CIO) 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 there’s 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 Union’s 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 Bangladesh’s 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 worker’s 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 world’s 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

Bangladesh’s 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 country’s

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

.

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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 Bangladesh’s 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 Union’s 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, Bangladesh’s 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 country’s 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 America’s lack of effort in coming

forward to help Bangladesh to improve its working conditions since April’s 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

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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 worker’s 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 world’s 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

Bangladesh’s 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 country’s 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 world’s 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 year’s 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, Government’s 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

women’s 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

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32e8&nttl=20072013868

http://news.priyo.com/2013/07/21/gsp-facility-us-shows-ways-regain-it-back-

81508.html

http://bdnews24.com/business/2013/06/27/bangladesh-to-lose-gsp-facility

http://www.thefinancialexpress-bd.com/2013/11/11/3342

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http://www.textiletoday.com.bd/weekly-analysis/26

http://www.bdchronicle.com/detail/news/32/1337