How important is GSP status?
What makes Bangladeshi readymade garments so attractive to the Western countries? The EU alone is gobbling up 60 percent of our garment exports and the US comes in second with 26 percent. Are our products made with a magical concoction that makes it irresistible to the Westerners? The answer is yes. For any good creation, we need an impeccable mix of fine ingredients. Our ingredients in this case are price, capacity and the EU's GSP status.
Price is a key element which draws buyers closer. Since wages are low, it gives the country a competitive edge in low costs of production. Capacity is our second ingredient and a total of 5,400 factories make the country's capacity higher than that of rivals like Indonesia and Vietnam.
However, the final ingredient which gives our garments that extra zing is GSP status. GSP is an instrument by which developed nations help the poorer countries foster more trade. For instance, with the EU's GSP status, Bangladeshi garment products can enter the European market duty free; in its absence, it has to pay 12 percent import duties for most products. This status helps decrease the cost per unit of garments, causing the demand to rise. This not only helps the garment industry but also the entire economy. Increased trade means higher export earnings which help promote further industrialisation, leading to higher economic growth.
Now let us look at a more concrete example. Bangladesh's apparel exports to the EU made a leap since January 2011 when it allowed GSP for Bangladeshi garments made from imported fabrics. Previously, Bangladesh used to enjoy the GSP benefit only for those garments made from local fabrics.
There is a 46 percent rise in apparel exports between a year without and with GSP, indicating the importance of this status in the country's apparel industry.
The Eurozone debt crisis has affected the garment industry in recent times and we need its GSP status more than ever. Without it, the price per unit of garment will rise and this may lead to many European buyers turning their backs on our products. Losing this status will lead to the loss of an essential ingredient in our brew. Without a proper mix of all our ingredients, we cannot present an irresistible product to our buyers.
The writer is the head of research at The Daily Star.