IT is January 2020 and the mood in the country is euphoric. Bangladesh's ready-made garments industry had a banner year in 2019, reaching the target of $50 billion dollars export level. What is even more remarkable about reaching this economic milestone is that Bangladesh was able to reach the export target against all odds, given that the American government had for years refused to lower the tariff on Bangladesh garments imports, and there was constant pressure from international quarters to strictly enforce labor laws, tighten safety rules, and raise minimum wages even higher. On the positive side, last year there were no labor deaths, industrial incidents were down 15% from the previous year reaching the lowest level since the birth of RMG industry in 1972, and labor unions and management were working hand-in-hand to reduce tensions and increase productivity.
Some of my readers will question this scenario and wonder if all this is really a mid-summer night's dream. But, I must reassure them that this is a very plausible scenario that emerged from the recently concluded conference at Harvard University on “Globalization and Sustainability of Bangladesh Garments Industry”. The conference, organized by International Sustainable Development Institute (ISDI) on June 14, 2014, listed thirty six presentations at six different sessions, and was attended by representatives from GOB, BGMEA, AFL-CIO, ILO, and Office of US Trade Representative, and Congressman George Miller, Ambassador Dan Mozena, and Tofail Ahmed, Commerce Minister of Bangladesh. As expected, in the aftermath of Tazreen and Rana Plaza incidents, the debates and fireworks centered around the situation on the ground and the role of international community, market forces, and US trade sanctions.
In our opening presentation titled “RMG industry in Bangladesh: Some Preliminary Discussions”, my coauthors Profs. Syed Mushtaque Ahmed and Anisul Islam, and I argued that Bangladesh's garments industry will benefit from lower import taxes on factory equipment and stricter enforcement of labor laws in the books. Subsequent presentations revealed some general areas of agreement as well as other issues that needed more work.
Contentious as the discussions were, highlights of the day included:
1. The Bangladesh Government and BGMEA both made a strong case for the reduction of tariffs on garments imports from Bangladesh.
2. All stakeholders, including BGMEA, GOB, and the international community represented at the conference agreed that workers safety, working conditions, and labor unrest, if any, must be addressed for Bangladesh to continue its market penetration.
3. While there are strong indications that garments exports from Bangladesh have not been affected, or shown any sign that it was negatively impacted by the international pressure mounted since the Rana Plaza incident, market conditions are such that it might change based on sourcing decisions by the big chains. It was noted India has already replaced Bangladesh as the number two exporter, even though Bangladesh's export volume has been growing, and that the adverse publicity brought about by recent industrial accidents might lead to a change in loyalty to brand “Bangladesh”.
4. Bangladesh still retains a strong competitive advantage in terms of production costs, real wages, share of labor in total cost, and quality.
On the other hand, the various speakers pointed to evidence that Bangladesh's garment industry had a long way to go in terms of improving working conditions particularly for women, inspections and certifications of factories, and guaranteeing workers the right to unionize. Ambassador Mozena, Congressman Miller, and Ms. Celeste Drake of AFL-CIO voiced their concern about the slow progress on these fronts and urged the Commerce Minister to lend his support to speeding up unionization, safety of union organizers, and regular inspections of industrial premises. BMGEA representatives including Mr. Atiqul Islam and Dr. Towfiq Ali highlighted the concrete steps taken by the industry, including formation of over 150 labor unions, increase in minimum wage to Taka 9000, and disbursement of compensation to families of victims of industrial accidents. However, they and the Commerce Minster voiced their concerns about Bangladesh's market share in the face of rising wages, new industrial safety regulations, and increase in fixed cost.
The most animated discussion at the Conference took place between the US and Bangladesh government representatives. There were three sticking points:
Have the Bangladesh government and BGMEA been able to address the concerns relating to working conditions and labor unrest?
Is the US Congress likely to restore GSP for Bangladesh in the immediate future?
Who is paying for the higher taxes imposed by US, the buyers or the sellers? Is BD export hurt by higher taxes?
The answer to the first question can be summed up as follows: It all depends on whether one considers the glass half-empty or half-full. Those who were in the half-full camp are Srinivas Reddy Baki, Country Director, Bangladesh, ILO, Rabin Mesbah, Alliance for Bangladesh Worker Safety, and most of the participants from Bangladesh.
The answer to the second question appears to be a guarded no. While the various international agencies presented data indicating that conditions on the ground have improved in the last two years, ironically none of them came forward to advocate for Bangladesh government and BGMEA. There were several voices against reinstatement of GSP, and they emanate from American labor, Congress, media, and other trade groups. In a very strongly worded message to the Conference, Senator Robert Menendez, Chairman of the US Senate Foreign Relations Committee, voiced his concern regarding “violence against labor organizers and the harassment and intimidation of union leaders in factories.”
While there was a significant degree of debate on the third question, there was more smoke than fire, to use the old cliché. According to Mara Burr, Deputy Assistant, Office of US Trade Representative, it is the US consumers who really are paying the higher tariff on Bangladesh garments. She argued that since Bangladesh garments industry is not paying the higher tariff (an average of 16%), there is no question of the RMG workers being hurt by the US government measure.
Thus, there remains one puzzle that never got answered, i.e., if GSP is not hurting the Bangladesh RMG industry, and higher import tariffs seems to be making no impact on US consumer appetite for Bangladesh garments, are market forces really working in the market for garments? Are text book economics not relevant in this segment of the world market? Time for economists to go back to their research labs and figure out the answer!
The writetr is an economist. He lives and works in Boston, USA.