GSP cut and its fallout
All eyes had been on the issue of generalised system of preferences (GSP) in Bangladesh, following the Rana Plaza tragedy in April. While the country has managed to cling to the GSP privileges provided by the European Union, it has not been lucky in the case of USA.
A petition for withdrawal of GSP was filed by the American Federation of Labour and Congress of Industrial Organisation (AFL-CIO) in 2007 when it called for improving worker rights.
Bangladesh had six years to be in accord with the needs of the US; however, the last straw came after the Rana Plaza building collapse and within two months of the incident, the trade waiver scheme was suspended.
Now there arrives a new line of thought sated with optimism that the suspension can actually act as a catalyst to improve labour rights and safety conditions of factories.
Undeniably this issue needs to be dealt with immediately starting foremost with the garment sector as this is a major lifeline to the economy and naturally attracts a lot of global attention in the face of an accident or mismanagement. But will suspension of the US GSP actually improve safety conditions in the crucial garments sector?
Putting things in perspective, the exportable products under the GSP coverage only accounted for 0.7 percent of the country's total exports to the US.
The US GSP scheme did not include the country's garment sector which possibly could have maximised the benefits of this facility in terms of fostering trade and industrialisation being the largest contributor to the export industry.
That being said, if there is an anticipation of improvement of working conditions in apparel factories which closely work with US buyers, then this is unlikely to materialise, as this sector was not covered by the US GSP scheme to begin with.
The prime verity of the cancellation is that this GSP facility acted more like a signal than a quantitative measure of trade promotion in Bangladesh. This kind of step can also influence the European Union to reconsider its current GSP programme for the country.
The EU's cancellation can be a devastating blow to the garment sector, as it will not only decrease export orders from the EU (thus reducing foreign exchange earnings), but will also directly affect much of the 3.5 million workers engaged in the garment sector.
In the case of such a situation, safety conditions are likely to deteriorate rather than improve, and wages to workers would not increase either. In addition, foreign investors may be discouraged to invest in the country as a result of the GSP suspension. In a country where economic growth largely hinges on investment, this can be a setback especially since FDI levels are already low.
As far as individual factory owners are concerned, improving worker rights and safety conditions in apparel factories translates into additional investments for them which does not bring about any marginal financial gain against their investments.
While it can be said that fear of GSP cancellation by the European Union can urge some factories to improve compliance however, it is unlikely that factory owners will take an inter-temporal decision, which involves expending a substantial amount of money.
In the absence of strong government intercession, bringing about this change will be difficult. The government can provide reduced-tax incentives to those factories which comply with the safety rules. The alliance of the government, industrialists, NGOs and human rights organisations is necessary to resume the GSP facility.
Welcoming news is that the country's cabinet recently approved a proposal to sign the much-awaited Trade and Investment Cooperation Framework Agreement with the US. This can provide a platform for the two countries to discuss matters before the US gives its verdict on whether or not to resume the facility six months after.
The writer is the head of research at The Daily Star and can be reached at email@example.com