The generalized system of preference (GSP) is a preferential
tariff system which provides for a formal system of exemption from the more
general rules of the World Trade Organization (WTO). Specifically, it's a
system of exemption from the most-favored-nation (MFN) principle that obliges
WTO member-countries to treat the imports of all other WTO members in the way
they treat the imports of their 'most-favored' trading partner. In essence, MFN
requires WTO member-countries to treat imports coming from all other members
equally, that is, by imposing equal tariffs on them, etc. GSP exempts WTO
member-countries from MFN status for the purpose of lowering tariffs for the
least developed countries (LDCs), without also lowering tariffs for the rich
countries. The GSP was established to promote exports of low-income countries
to industrialized ones in order to support their economic growth and
development. However, the designs of these schemes are rather complex and the
aspect of GSP has been found to be controversial.
US GSP promotes sustainable development in beneficiary countries by helping
these to increase and diversify their trade with the United States. The
programme provides additional benefits for products from least developed
countries. According to a US Chamber of Commerce study, moving GSP imports from
the docks to US consumers, farmers, and manufacturers supports tens of
thousands of jobs in the US. It also boosts American competitiveness by
reducing costs of imported inputs used by US companies to manufacture goods in
the country. GSP is especially important to US small businesses, many of
which rely on the programmer’s duty savings to be competitive. In addition to
promoting economic opportunity in developing countries, the GSP programme also
supports progress by beneficiary countries in affording workers' rights to
their people, in enforcing intellectual property rights, and in supporting the
rule of law.
The United States instituted GSP on January 01, 1976 as a means of promoting
growth in the developing countries through preferential access of their exports
to US market. It provides for duty-free entry into the US for some 5,000
products of 122 countries. The value of GSP exports stood at around $20 billion
in 2012. The largest beneficiaries are India, Thailand, Brazil and Indonesia.
The US administration has renewed the GSP facility for the developing and least
developed countries of the world after it suspended it for the last two years
on expiry of the earlier legislation. But surprisingly, Bangladesh is the only
country along with Russia which was excluded from the list of 122 beneficiary
countries for duty-free market access of their exports to the USA when the
announcement of its renewal hit the global capitals. The US Congress recently
made new legislation for GSP facility and the Obama administration has put it
back on track on July 29 with retrospective effect from the date of suspension
two years ago.
Bangladesh was entitled to enjoying GSP facility from 1980 although its major
exports to the USA, including ready-made garments, remained excluded from the
benefit, denying the real business opportunity that Bangladesh could
harvest under the concessional trade access. The US suspended GSP facility to
Bangladesh after the Rana Plaza disaster in 2013.
The exclusion of Bangladesh resulted mainly from its apparent failure to
fulfill all of the 16 conditions that the Obama administration had laid out
when it revoked the privilege two years ago on grounds of poor workplace safety
and labor rights
The beneficiaries of the new scheme include all South Asian countries such as
India, Pakistan, Nepal, Sri Lanka, Bhutan and Afghanistan. Only Bangladesh
remains excluded. It would pour in a damper on the country's attempts to
expand export basket and reduce its reliance on garments. Suspending Bangladesh
from the GSP programme would also increase US duties on an array of products
the country exports to the United States, such as tobacco, sporting equipment,
porcelain china, plastic products and a small quantity of textile products.
The negative impact of the US GSP removal is speculated to be a warning for
future trade between Bangladesh and the United States including the prospect of
retaining the MFN status which benefits Bangladesh's economic growth. According
to the Bangladesh Economic Review (2014), during the last three years there was
no significant foreign direct investment inflow from the US to Bangladesh. In
such circumstances, the repeated attempts of the Bangladesh government to
regain the US GSP are crucial for the country's continued economic growth.
Bangladesh cares deeply about retaining GSP benefit because of the country's
extremely narrow and fragile export basket, link between trade performance and
human development and social stability, and most importantly seeking
negotiation as an early-stage industrializing nation. Bangladesh's export
sector is extremely narrow in terms of both size of market and diversity of
export items. The US is Bangladesh's single largest export
destination that accounts for more than a quarter of Bangladesh's exports. More
than 95 per cent of the export earnings from the US, worth more than$ 4.5
billion, come from just one single item which is garment. Given this excessive
dependence on one single item, Bangladesh remains extremely serious about
adding new items to its export basket. Herein lies the essentiality and
significance of the US GSP.
More importantly, Bangladesh's image as a trade partner of the US is tainted.
This may discourage US and other foreign investors, new and old, from venturing
into Bangladesh, which may have a moderate effect on the prospect of future
export growth of the country, particularly in US market.
The biggest short-run fear for the country is a similar action adopted by the
European Union (EU). The EU had previously threatened to remove preferential
access of Bangladeshi RMG products in EU market if the government did not take
measures to improve the working condition in factories. Bangladesh RMG export
to EU grew to about $11.37 billion as of June 2012. Hence, such an action will
be devastating for the country's RMG sector which exported products worth $19
billion dollar in the last fiscal year and employs about 4.5 million people at
the bottom of the population pyramid, 80 per cent of whom are women.
Thus, there will be increasing pressure on the government to improve working
conditions as the EU will be closely observing Bangladesh. Several European
importers have already come forward to help the country in improving safety
features of RMG factories, which is a good sign for the country.
The protection of workers' interest is not just a GSP issue. This is essential
for modernizing employment practices in Bangladesh in line with good
international practices; the convergence of interests with the GSP is a win-win
situation.
Some economists advised the government to improve the political-level
understanding with the US, avoid games of blaming others, integrated
inter-ministerial coordination efforts, direct and continuous contact with
the governments of Bangladesh and the US, as they take actions on
workers' rights and safety, implementing the commitments and
suggestions by the US, the EU and other development partners' action plan,
easing obstacles to investment, strengthening negotiation skills and
bargaining power and quality of economic diplomacy. The sooner the
country fulfills all the conditions, the better it is not only for gaining the
GSP but also for ensuring rights of the workers as well as image- building and
reputation of Bangladesh.
Looking forward, Bangladesh needs to develop strong policies to improve
domestic competitiveness. With highly favorable endowment of labor, Bangladesh
has a huge comparative advantage in labor-intensive manufacturing. Focusing on
investment, infrastructure, land availability and labor skills is the main
policy challenge. Apart from education and training, converting labor to a
productive and committed workforce will also require strong social policies to
protect the welfare of the workers. This long-term development challenge,
rather than access to GSP, provides the imperative for adopting appropriate
employment policies for workers.
Bangladesh as a small country cannot influence the political decision of the
US. The US GSP is not a political issue; it is an economic and technical
issue where Bangladesh's active participation along with good relations with
the US is more essential to retain the GSP benefits to become a middle income
country by 2021 as soon as possible and without delay.
