As the world awaits US President-elect Joe Biden's formal inauguration in January 2021, discussions on the implications of his domestic and international policies are mounting. In Bangladesh too, there are many predictions. Needless to say, expecting any Bangladesh specific measure is a bit far-fetched. Bangladesh is unlikely to be on the radar of the new US administration as it has already a crowded agenda to fulfil. However, a number of global policies, which may be dealt with differently by the Biden administration, will have implications for Bangladesh.
The first one is the decision on the Generalised System of Preference (GSP), under which countries are granted duty free access to the exporting country. GSP is the largest and oldest US trade preference programme that promotes economic development of countries through elimination of duties on various products. This also aims to provide opportunities for many of the world's poorest countries to use trade to grow their economies and come out of poverty.
From this perspective, Bangladesh has been a well-deserved candidate for the US GSP facility. Bangladesh is currently a lower middle-income country by the World Bank's category and a least developed country (LDC) according to the United Nation's classification. It will graduate from the LDC category by 2024 with a grace period of three more years. After 2027, Bangladesh will cease to enjoy the privileges provided to the LDCs. So, trade preferences will be extremely useful for Bangladesh to prepare itself for a smooth graduation. Since the US is the largest export destination of Bangladesh, such facilities would be quite useful for Bangladesh. At present, the European Union provides GSP facility to Bangladesh's export under its "Everything But Arms" initiative.
Unfortunately, the US suspended GSP for Bangladesh on June 27, 2013, effective from September 1, 2013. The decision was based on labour rights and safety issues following the collapse of the Rana Plaza building on April 24, 2013 where several readymade garments (RMG) factories were located. Since the Rana Plaza tragedy, Bangladesh has made significant improvements towards meeting several compliance related issues in the RMG sector. However, Bangladesh could not make it to the list of GSP beneficiary countries when President Barack Obama signed the Trade Preferences Extension Act of 2015. The Act, signed on June 29, 2015, authorised the GSP through December 31, 2017 and made GSP retroactive from July 31, 2013. Bangladesh's South Asian neighbours Afghanistan, Bhutan, India, Nepal, Pakistan and Sri Lanka were among the GSP beneficiaries. In June 2019, India's GSP benefits were terminated by the US.
Of course, the US granted GSP to Bangladesh for only less than one percent of its total exports. RMG, which is Bangladesh's major export to the US, is not covered under GSP. Therefore, Bangladesh has to pay approximately 15.6 percent as duty for exporting RMG to the US. In 2005, at the ministerial meeting of the World Trade Organisation (WTO) in Hong Kong, the US agreed to provide duty-free, quota-free access (DFQF) to 97 percent tariff lines. However, RMG was on the "three percent exclusion list" of the US. Then in 2013, at the ninth WTO ministerial conference in Bali, the development package stipulated that developed countries, which were yet to provide DFQF to the LDCs, would do so for more than 97 percent tariff lines before the tenth WTO ministerial conference. Sadly, the Doha Round discussion has gradually lost its momentum, with major players such as the US withdrawing itself from multilateral trade negotiations under the Trump administration.
In order to improve bilateral trade relations, Bangladesh signed the Trade and Investment Cooperation Framework Agreement (TICFA) with the US, hoping that the TICFA could be a vehicle for GSP retention. Bangladesh and the US were to engage in discussion on trade and labour related issues including the GSP plan. However, not much progress has been made in this case also.
Meanwhile, between 2015 and 2020, Bangladesh has further strengthened its compliances in the RMG sector. Buyers have been working with RMG manufacturers to improve compliance. A number of measures have been undertaken through collaboration with Bangladeshi entrepreneurs, for example, the Accord on Fire and Building Safety, the Alliance of Bangladesh Worker Safety and the Partnership for Cleaner Textile. Major compliance measures have been undertaken to ensure the safety of factories and workers. The labour laws of the country have been amended and the right to form trade unions in factories, including in the special economic zones, has been approved. The minimum wage of RMG workers has been raised in an attempt to make it comparable to other competing countries. Since compliance is not a one-off measure, this work still continues.
The other policy that will have impacts on Bangladesh is the revival of the US-led mega trade deal, the Trans-Pacific Partnership (TPP), which was drafted on 5 October 2015 and signed on 4 February 2016. This trade deal was abandoned by the Trump administration in January 2017. Twelve members of the deal— Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the USA —cover about 40 percent of global trade and one-third of the global economy. TPP was the largest ever trade agreement among countries after the Uruguay Round of the WTO.
By integrating trade among themselves, TPP signatory countries expected to enhance their economic growth and create jobs in their respective countries. It was estimated that the TPP could expand the economies of TPP members by USD 285 billion by 2025. Among them Vietnam, Malaysia and New Zealand would have benefitted the most in terms of GDP growth. Production and export of electrical equipment, textiles, construction and machinery in Vietnam and Malaysia and transport equipment in Japan would have been increased due to this deal.
Bangladesh will be worried of prospective trade diversion due to the TPP. Through extensive tariff elimination amongst themselves, the TPP countries will have an advantage over non-TPP countries. RMG exports are feared to be the direct victims of this. With TPP in place, Vietnam will have greater preference in the US market compared to Bangladesh. This is also true for other export items of Bangladesh, such as frozen food and agricultural products.
Another area of loss is foreign investment. For investors, it will be profitable to invest in TPP member countries, since they can have preferential access to export products to these countries. For example, if investors wanted to invest in pharmaceuticals in Bangladesh to export to the global market, they will not find it attractive to invest.
Two other areas where Bangladesh expects US leadership and commitment is investment in vaccine innovation and its availability for overcoming the Covid-19 pandemic, and a return to the Paris Climate Agreement. To control the outbreak of the pandemic effectively, Bangladeshi people need access to vaccines free of cost. Incoming President Biden has announced his plan for dealing with the pandemic. Hopefully, something good will come out of his commitments. In the same tune, US commitment towards the Paris Agreement is crucial for climate vulnerable countries such as Bangladesh.
On the whole, expectations from the Biden government are high, but only time can tell how far they will be materialised. Clearly, Bangladesh has no reason to expect too much since policies are not taken in isolation—they are taken keeping in mind the global geo-political balance.
Dr Fahmida Khatun is the Executive Director at the Centre for Policy Dialogue. Views expressed in this article are those of the author and do not necessarily reflect the position of her organisation.