Shunning the GSP lure

| Updated: October 24, 2017 14:25:20

Shunning the GSP lure

Global trade is now in for harsh realities in view of long-standing recession in the developed countries where consumer demand has been squeezed. It is against this backdrop that Prime Minister Sheikh Hasina the other day gave a clear sense of direction to the country's exporters: don't go after the generalised system of preference (GSP). While opening the Dhaka International Trade Fair 2017, she advised Bangladeshi exporters not to run after a few countries for GSP facilities. "Better you should find market in another place and then they will try to get you," she said. Clearly, her remarks are based on feedback she regularly receives from the Commerce Ministry, the Export Promotion Bureau (EPB) and the countries' embassies abroad.
The prime minister hit the right chord when she urged business persons and exporters to remain careful about the changing global trade regime. She pointed out that rules of the World Trade Organisation are making global trade more liberal. So, Bangladeshi products should maintain global standard to sustain in the world market. While her plea to go without GSP are indicative of rules like workplace safety and labour rights for trade unions the developed countries usually set for enjoying the duty-free or preferential facilities, it is also true that the US suspension of the trade facility for Bangladesh was indeed a blessing in disguise. Thanks to Western retailers, today the readymade garment (RMG) industry is not where it had been at the time of the Rana Plaza collapse and the Tazreen Fashions fire that hit the headlines of the world press.    
Just before the two powerful groups Alliance and Accord intervened to improve workplace safety and trade union rights in Bangladesh, RMG factories in the country were in a very bad shape. Narrow and dangerous buildings were chosen to accommodate such factories that resulted in hazardous fires and collapses. The entrepreneurs too did not take any care to set up modern-day factories having all safety measures.   
Much of the progress that has now been made in Bangladesh toward ensuring fire and building safety has been due to these initiatives' considerable efforts and investments.  But their support is not without limits, and both of these initiatives have timelines for when their programmes in Bangladesh will end.  It will be critically important that the government is prepared to take on increased regulatory responsibilities when those two initiatives come to an end and so that the buyers know the safety they have helped guarantee continues.
Hafiz G. A. Siddiqi, Professor Emeritus, BRAC University, and former Vice Chancellor, North South University, is of the opinion that the crisis was caused by a combination of factors like non-compliant behaviour of some factory owners and unintended results of constructing factory buildings without proper approval. "There are buildings whose designs are structurally fragile and many of their walls and roofs are cracked and therefore prone to collapses. In some buildings electrical wirings are so poorly done that they are prone to short-circuit resulting in fire. In many buildings, fire escapes and fire-fighting equipment are not usable."
But did withdrawal of GSP facility harm Bangladesh's exports?  As Dr Sadique Ahmed of the Policy Research Institute of Bangladesh noted, despite high customs duties on garments (15-16 per cent as compared to average import duty of 9.0 per cent on total imports), Bangladesh's garment exports to the USA have grown at an impressive pace of 13 per cent per year over the 28 years. Because of this, its market share has steadily improved and it is now the third largest supplier of imported garments to the USA after China and Vietnam.
Despite this progress, Bangladesh is an insignificant player in the US market. The share of Bangladesh is a mere 0.2 percent of total US imports. Even with a five-fold increase in Bangladesh exports, the share will be around 1.0 per cent of total US imports. The five largest exporters to the USA are China, Canada, Mexico, Japan and Germany. Clearly, there is tremendous scope for Bangladesh to expand its exports to the USA.  
What is the relevance of GSP in such a scenario? Bangladesh exported a paltry $35 million worth goods under this facility. So, virtually all major exports to the USA were outside the GSP. That is exactly why the prime minister quite rightly called upon entrepreneurs to come forward with innovative ideas, knowledge and qualitative strategy to diversify their products of global demand. The exporters were urged to explore markets for commodities in different parts of the world and produce those items according to their needs.
As past records have shown, Bangladesh has miserably failed to take advantage of duty-free access provided by many countries of the world as there is no mechanism yet in the country to brief prospective exporters on goods that enjoy duty relief. It is against this backdrop that the prime minister urged the Federation of Bangladesh Chamber of Commerce and Industry (FBCCI) and other chambers to open cells to find out demands of the consumers in different countries, global quality specification and help the local industries to produce goods accordingly. Sadly, Bangladesh is still heavily reliant on RMG exports with no emphasis on diversification. Exporters have no reason to feel elated at the PM's remark as issues of safe workplaces and labour rights will continue to determine marketability of Bangladeshi goods among foreign consumers in the days ahead.
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