The charade and bluster over GSP
THE Rana Plaza disaster killed 1,100 garment workers, a tragedy that was the product of a long period of policy paralysis and neglect. It has finally led to some soul searching and a glimmer of hope for a better future for that vital industry has appeared. But we have a long way to go and one should have thought this is where policy makers would devote their energy.
It looks as if there are far more important matters that have been occupying the policy maker's minds instead: things like the Generalised System of Preferences (GSP) of the US, and the alleged discriminatory policies of the country towards Bangladesh exports. For their part, US policy makers, so keen on making policy for Bangladesh, wish the country to pay more attention to workers' rights, especially their right to form unions.
There is, however, no GSP on offer from the US. The System simply does not exist. It expired in 2013, on July 31 of the year, to be more exact. The country could not possibly offer something that it does not have. The GSP, begun in 1976 in the US, is given for a certain period of time, ten years at the start of the scheme, and periodically renewed. Not much before its latest expiration, the US suspended Preference for Bangladesh, citing the country's failure to take steps to offer “internationally recognised workers' rights to workers in the country” in the words of the US president. One can question the sincerity of the US in promoting formation of workers unions, given the abysmally low proportion of unionised labour in the total work force of the country and the open hostility to unionisation in some of its states. To scupper the Preference scheme for Bangladesh on that count alone looks suspiciously insincere, if not hypocritical. Not that Bangladesh can or should escape the responsibility to actively promote healthy trade unionism on its own.
But could the US give Bangladesh its Preferences back quickly if Bangladesh takes some bold and credible step on the workers' rights front? No. It will take a while for US Congress to extend the GSP beyond its last expiration date. In fact, given its recent record as a legislative body -- its performance is said to be among the worst in its history -- it will be quite a while.
On the other hand, should Bangladesh continue to bemoan the loss of its GSP eligibility? How important is it for the country? Exports of the country to the US under the expired GSP were a tiny fraction of its total exports to the US. The figure perhaps works out at under 2% of the total. That makes the fuss around it such a charade. Bangladesh's most important item of exports, garments, does not come under GSP at all
And yet the ghost of GSP of the US kind (there are other, living ones, see below) stalks thinking. Hence we hear from the minister concerned that, far from getting a GSP-like near-zero tariff treatment, Bangladesh, a Least Developed Country, is being grossly discriminated against by the western world, especially the US. There can be little doubt that there are many things in international trade relations that can be considered unfair. But pointing to the average rate of import duty on Bangladeshi products in the US and comparing them with duties charged by the country on imports from other sources is not meaningful. (China and India are brought in from comparison, along with, strangely, Germany. [Data from Bangladesh Ministry of Commerce, reported in The Daily Star, April 29]) Imports from Bangladesh are taxed on average at 16% in the US, according to government data, while a country like China gets away with only 3%, India just over 2% and Germany a mere 1%.
Do these numbers suggest gross discrimination against Bangladesh? Not really. The relatively high import duty paid by Bangladesh is a reflection of the very high proportion, perhaps about 95%, of the total exports that is accounted for by garments. These items of import generally get clamped with higher taxes, often much higher than do other manufactured imports. Countries heavily dependent on garments exports thus end up with high taxes. (Note that Germany does not export too many shirts to America.) Exports of shirts from Bangladesh are not generally discriminated against: Just about the same duty is imposed on Bangladesh-produced shirts as on shirts of the same quality coming from, say, Indonesia. There may be exceptions.
The loss of GSP status with the US and the apparent high rates of duties on the country's exports seem to have so unsettled people in high policy circles that they have started to say things which are untrue and misleading. Concerned ministers have said that Bangladesh pays huge amounts in taxes to the US on its exports of garments to that destination. Figures quoted include $828 million in taxes paid to US customs last year and $3.38 billion over the last five years since 2009. (The Daily Star, April 29). Actually Bangladesh does not “pay taxes” to the US; it is the US importers, and in the final analysis, US consumers, who pay the taxes. That is how, as all students of elementary economics know, governments imposing an import duty discourage consumption of the item taxed, often in favour of domestically produced items.
Bangladesh should take heart that the European Union, the other big export market of the country has quietly renewed its own GSP in January this year. The country should be diversifying its exports to take full advantage of that preference scheme. And the EU's GSP covers just about all exports from Least Developed Countries like Bangladesh -- all except arms -- including (unlike in its US counterpart) ready-made garments.
Our policy makers should really be going back to Rana Plaza and start building a healthy and enduring garments industry, rather than moaning about discrimination and loss of a defunct, tiny, preference system.
The writer is a former United Nations economist.
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