Symbolic Bangladesh GSP Removal May Force Some Importer Adaptations

While the decision to rescind General System of Preferences (GSP) status for Bangladesh is considered to be largely symbolic, the change is expected to reverberate among the U.S. business community, observers say. Although individual U.S. interests vary depending on scope and scale of specific relationships with Bangladeshi manufacturers, some U.S. importers will likely be forced to foster different manufacturing sources in the coming months. The United States Trade Representative (USTR) decided in late June to rescind GSP status for the South Asian nation (see 13062820) following a series of labor disasters in Bangladesh over the past year, culminating in the April 24 Rana Plaza factory fire that claimed nearly 1,200 lives

Considered a significant economic partner in the manufacturing sector, Bangladesh provides almost $5 billion worth of goods to the U.S. on an annual basis. But roughly 99 percent of U.S. imports from Bangladesh do not reap GSP benefits, so observers interpret the administration’s move as a nominal punitive measure. The Bangladeshi government responded to the USTR move with disapproval and regret, while vowing to enforce labor condition changes in the immediate future aimed at GSP status restoration.

“The USTR has a long list of, I should say, actions that are required to be taken to get this distinction…We are initiating those necessary actions, not because of slapping the suspension on us, but because of the need that we, ourselves, realized,” said Bangladeshi Ambassador to the U.S. Akramul Qadar on July 10 at the Bipartisan Policy Center in Washington, noting the country hopes to restore GSP status in six months. “We are looking into the details of everything. And we hope very soon we will get back our GSP. These are matters that can be taken care of.”

Bangladesh exported nearly $35 million of GSP-eligible tobacco, sports equipment, porcelain china and plastic products in 2012 that spared U.S. importers $2 million in tariffs. That duty-free access will be rescinded on September 3, 60 days after the USTR decision to remove Bangladesh, and tariff rates could skyrocket. USTR has also vowed to work in conjunction with Bangladesh to implement the necessary labor condition changes. The administration and the Bangladeshi government, some GSP experts say, share a similar vision for the future. U.S. importers, the direct beneficiaries of the program, saved nearly $750 million in GSP duties in 2012 from $19.9 billion in goods that entered the U.S, according to the USTR.

“There’s not a divergence between the two governments on the way it ought to be,” said National Foreign Trade Council (NFTC) President Bill Reinsch at a roundtable discussion with reporters on July 12. “With Argentina, and Ecuador being another example, there is serious policy differences and the countries are going in different directions. That’s a lot harder to resolve.” Argentina was dropped from GSP in 2012 over arbitration disputes. Prominent U.S. lawmakers over recent weeks have called for the administration to withdraw trade benefits to Ecuador, due, in part, to a diplomatic furor over asylum requests from American intelligence leaker Edward Snowden (see 13062727).

Building on the administration support, private industry is also, at least ostensibly, laying the groundwork for a safer industry future in Bangladesh. In the past few months, some of the leading global apparel manufacturers and distributors have formed two separate alliances that authorize binding, labor condition improvement agreements. Swedish retailer H&M spearheaded the Accord on Fire and Building Safety in Bangladesh. The deadline for signatories to endorse that accord passed in May. Despite a hail of criticism from labor rights groups, Wal-Mart and the Gap, among other corporations, launched the Bangladesh Worker Safety Initiative in early July.

“We focus on common building and fire safety standards. We focus on training. So does the accord,” said Senior Vice President of Jay Jorgensen Wal-Mart Stores, Inc., at the July 10, Bipartisan Policy Center-hosted launch. “We focus on audits…auditing 100 percent of the factories. So does the accord. We focus on worker empowerment.”

Should the two agreements bring the pledged, positive change in Bangladeshi industry, they will conceivably assist the country in its bid to restore GSP status. The USTR issued a “plan of action” to outline the measures Bangladesh needs to implement in order to meet that goal. The plan has not been made public. In an email to International Trade Today, a USTR official did say, however, Bangladesh is required to strengthen fire and building safety standards, improve freedom of association and collective bargaining capabilities, cease harassment of and violence against labor activists and enable union growth.

Ambassador Qadar on July 10 expressed hope that the Bangladeshi parliament will pass union-strengthening amendments to the country’s 2006 labor laws. Qadar also vowed to ramp up factory inspections. Some industry players, however, are skeptical of Bangladesh’s capacity to affect the needed change. Although the Rana Plaza catastrophe captured worldwide attention, Bangladesh has long grappled with dire worker conditions and violence targeting activism. In 2012, a prominent labor rights activist was murdered in Dhaka, the Bangladeshi capital.

An Ambitious Timetable

“I would think [the six month projection] is a very ambitious timetable because these are big structural problems that Bangladesh has. Just getting an inventory in terms of what needs to be done to increase safety is a mammoth task,” National Council of Textile Organizations (NCTO) President Cass Johnson said. The NCTO has for years denounced efforts to include Bangladesh’s garment industry, a critical part of the country’s export economy, in the GSP system. Johnson says Bangladesh’s industry track record has repeatedly dissuaded lawmakers from bringing textiles under GSP. “If Bangladesh can move forward and be able to fix these abuses -- they’ve been part and parcel of the garment production system over 20 years -- that would be a wonderful thing,” Johnson added. “But people have to monitor that very closely to ensure that they do. Bangladesh has been the problem child for the apparel industry for a long time.”

Regardless of prospective Bangladeshi labor improvements and the GSP revocation, the impact on U.S. importers will not be seismic. Because the GSP-eligible products are such a marginal part of Bangladesh’s export economy, U.S.-Bangladeshi commerce will likely continue in a similar fashion. However, some U.S. importers will be forced to seek sourcing alternatives.

“We actually do have one of our members that imports non-apparel from Bangladesh. They’re bringing in certain porcelain, dinnerware, flatware…that they then turn around and sell to hotels and major distributors,” said Daniel S. Anthony, Director of Research and Government Relations for the Coalition for GSP, an arm of Trade Partnership Worldwide, at the NFTC roundtable discussion. “Customers are not going to say you can raise your low cost dinnerware by 25%. They’re not going to accept it…he’ll likely go to Sri Lanka or China.” -- Brian Dabbs