Last month, a fire in a Tazreen Fashion factory in Bangladesh left 112 workers dead and a host of U.S. lawmakers questioning whether Bangladesh should continue to enjoy preferential treatment under the Generalized System of Preferences (GSP). The United States Trade Representative (USTR) is now seeking commentary on the effects of removing Bangladesh from the list of GSP beneficiaries after lawmakers sent the USTR a letter expressing grave concern over the “deterioration of working conditions and workers’ rights in Bangladesh.”
Many of Bangladesh’s products enjoy duty-free entry under GSP, a program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 5,000 products when imported from one of 128 designated countries and territories. Of the $18.5 billion worth of products imported under the GSP program, products from Bangladesh make up only $26 million, or .54 percent of the $4.87 billion worth of products imported from Bangladesh in 2011.
In seeking to maintain and extend Bangladesh’s benefits under GSP, Bangladesh has run up against a number of organizations that are challenging it on worker’s rights and working conditions in the country. The move to remove Bangladesh from the list of GSP beneficiaries began in 2007 at the behest of the American Federation of Laborers and the Congress of Industrial Organizations, who alleged that the Bangladeshi government had been seriously falling short of meeting GSP eligibility criteria in relation to workers’ rights. Since then, the USTR has been conducting a slow and ongoing investigation into labor rights in Bangladesh.
However, the Tazreen Fashion tragedy has spurred U.S. lawmakers such as Representative Joe Crowley, founder of the congressional caucus on Bangladesh, to pressure the USTR to complete their review. The recent move by the USTR to seek comments on the effect of withdrawal of GSP for Bangladesh seems to indicate that the USTR is positively responding to pressure from lawmakers. In the meantime, the Bangladesh chapter of Transparency International (TIB), a non-governmental organization that monitors and publicizes corporate and political corruption in international development, has issued a statement asking the U.S. to not take measures that might negatively impact Bangladesh’s exports, stating that such a move would only further compromise working conditions in the country.
Despite the fact that Bangladesh currently derives few benefits from the GSP program due to the small number of Bangladesh’s products that qualify, a total withdrawal of GSP benefits for Bangladesh may result in negative publicity and may derail some of Bangladesh’s long term objectives. Namely, such a withdrawal may prevent Bangladesh from obtaining GSP benefits on Bangladesh’s apparel, which currently does not benefit under GSP and would signal to investors around the world that Bangladesh is not a good country to source garments. The apparel industry represents $4.37 billion of Bangladesh’s total exports making them the second largest exporter of apparel in the world. Obtaining GSP benefits for apparel would make Bangladesh much more competitive, as importers of apparel from Bangladesh pay a total of $720 million in garment duties each year.
In short, Bangladesh has the potential to become the largest exporter of apparel in the world. Although they enjoy few benefits under the current GSP arrangement with the U.S., an extension of the GSP to apparel would bestow a significant competitive advantage to Bangladesh. A total withdrawal of GSP benefits will frustrate Bangladesh’s ability to extend this arrangement to their most vital industry while discouraging investors around the world from setting up shop in Bangladesh.
Written by Adrienne Braumiller, Partner