Professional Documents
Culture Documents
TERM PAPER
ON
SUBMITTED BY
NAME : SALEH RAFIQ CHOUDHURY
STUDENT ID : 801310016
SUBMITTED TO
Dr. Md. Mozibur Rahman
DATE OF SUBMISSION
DECEMBER 08, 2015
LETTER OF TRANSMITTAL
Dear Sir
Greetings,
I would at first like to acknowledge the outstanding support and help that the honorable
Course Teacher Dr. Md. Mozibur Rahman has provided throughout the whole venture
of completing this term paper. Without his superb supervision and indispensable
guidelines, carrying out this huge task would not have been possible. Without the
unbelievable help and support from the above person, completion of this venture would
never have been a reality. We are truly indebted to this extraordinary person.
I am submitting the term paper regarding the GSP EFFECT ON BANGLADESH.
While writing the term paper, i have gathered factual and statistical information,
analyzed them and expressed my own decisions, opinions and views based on those
information. During the term paper, i have learnt a great deal on world economics and
the related issues. Please forgive me if there is any mistake in this short endeavor of
analysis.
Thank you for your time and kindness.
Sincerely,
Saleh Rafiq Choudhury
Student Id : 801310016
i
TABLE OF CONTENTS
TOPICS
PAGE NO.
Letter Of Transmittal
(i)
Table Of Contents
(ii)
Executive Summary
(iii)
CHAPTER 01 : INTRODUCTION
1.1
02
1.2
02
1.3
03
1.4
03
Overview Of GSP
05
2.2
06
2.3
07
2.4
07
2.5
09
2.6
10
2.7
11
2.8
13
Effects Of GSP
14
3.2
16
3.3
16
3.4
17
Recommendations
19
4.2
Conclusions
21
Bibliography
22
ii
EXECUTIVE SUMMARY
The U.S. Generalized System of Preferences (GSP) program provides non-reciprocal,
duty-free tariff treatment to certain products imported from designated beneficiary
developing countries. The United States, the European Union, and other developed
countries have implemented similar programs since the 1970s. The U.S. program was
first authorized in Title V of the Trade Act of 1974, and is subject to periodic renewal
by Congress. The GSP program was most recently extended until July 31, 2013, in
Section 1 of P.L. 112-40, and has not been renewed.
The expiration of GSP means that renewal of the program may continue to be a
legislative issue in the 114th Congress. In recent years, GSP renewal has been somewhat
controversial. In the 113th Congress, controversy arose over the funding provisions in
Senate bill S. 1331 seeking to renew GSP. Other GSP legislation introduced in the 113th
Congress included H.R. 2709, H.R. 2139, and H.R. 1682.
U.S. implementation of GSP requires that developing countries meet certain criteria to
be eligible for the program. GSP rules of origin require that at least 35% of the appraised
value of the product be the growth, product, or manufacture of the BDC.
In Chapter 1, i have focused on the statement of the problem, objective, methodology
and limitations.
In Chapter 2, i have tried to focus on about GSP related topics. When it started and how
long it continued until the cancellation.
In Chapter 3, i have focused advantages and disadvantages of GSP effect in Bangladesh.
In Chapter 4, i have focused on how Bangladesh are trying to bring back GSP and
conclusion of the assignment.
iii
CHAPTER 01
INTRODUCTION
The primary objective of this report is to use the theoretical concepts, gained in the
classroom situations, in analyzing real life scenarios. This is also a partial
requirement of the MBA program. In case of this report, the objectives are:
CHAPTER 02
DISCUSSION : AN
OVERVIEW OF
GSP EFFECT
2.1
OVERVIEW OF GSP
coverage under the U.S. and many other GSP programs. Critics assert that these
excluded products are precisely the kinds of manufactures that most developing
countries are able to export, the argument being that developing countries may not
be able to efficiently produce things like locomotives or telecommunications
satellites, but they can make shirts.
Supporters note that even in the face of its limitations, it would not be accurate to
conclude that GSP has failed to benefit developing countries, though some concede
GSP has benefited developing countries unevenly. Some assert that, for most of its
history, GSP has benefited "richer developing" countries - in early years Mexico,
Taiwan, Hong Kong,Singapore, and Malaysia, more recently Brazil and India - while
providing virtually no assistance to the world's least developed countries, such as
Haiti, Nepal, and most countries insub-Saharan Africa. The U.S., however, has
closed some of these gaps through supplemental preference programs like the
African Growth and Opportunity Act and a newer program for Haiti, and Europe has
done the same with everything but Arms.
source garments from Bangladesh for not joining the more than 40 mostly European
companies that have adopted a five-year, legally binding contract that requires them
to help pay for fire safety and building improvements. The Bangladeshi garment
manufacturers' association, BGMEA, said it is stepping up inspections and had
already closed more than 20 factories so far. (AP)
2.5
The US believes the move represents an opportunity for Bangladesh to take action
for improving labour and safety standards, said State Department spokesman
Patrick Ventrell. The US will work with Bangladesh to restore its GSP privileges,
but that requires going through a process that can make improvements in the working
conditions there, he said, one day after the suspension of GSP facilities to
Bangladesh. The GSP is a 37-year-old trade preference program under which the
United States provides duty-free treatment to many imports from developing
countries. The suspension became effective 60 days after the publication of the
presidential proclamation in the Federal Register. We will continue to work with
them for taking additional substantive actions to improve workers safety.
Addressing these underlying labor rights and workplace safety issues will help ensure
that theres never again another fire or collapse like we saw in some of these
incidents, Ventrell said.
The country is working with Bangladesh to revoke the suspension as the latter is
taking a series of measures to bring its labor laws on par with international standards.
Our goal, of course, is not only to see the restoration of GSP benefits, but to see
Bangladeshi workers in safe and appropriate working situations, US Trade
Representative Mike Froman previously said. He said the passage of labor laws
would be an important step for Bangladesh to restore its GSP benefits. We are
discussing a number of other actions with them that they can take to enhance
workers rights and safety. We will provide support and assistance as they need, he
said. Froman said the United States is in a continued dialogue with Bangladesh to
8
see the necessary actions it takes to protect its workers, and ultimately reinstate the
GSP programm. He believed that while GSP covers only a small portion of the US
imports from Bangladesh, the GSP issue has a greater impact than the numbers
suggest, given the public attention that GSP has received in Bangladesh, and the
importance it attributes to it. (Report, 2013)
The EU statement came two days after the US decision to suspend Bangladeshs GSP
facility to put pressure on the country to improve working conditions and safety in
the garment industry following killing of more than 1,200 workers in factory
disasters in the last one year. The readymade garment, a major export product of
Bangladesh, had not enjoyed the GSP facility in the United States when it took the
decision to suspend GSP for a few products, but Bangladesh gets GSP facility for
RMG products in the EU market.
Following the US move, businesses in Bangladesh became worried that any move of
EU, the largest trading partner of Bangladesh, suspending GSP would hurt the RMG
industry. The EU said the ILO would monitor progress in the joint efforts by
stakeholders in improving the labor conditions in Bangladesh this year and
throughout 2014. The EU will follow this process closely, the statement said. EU
Trade Commissioner De Gucht hosted a meeting in July 2013 which was attended
by a high-level representation from the Bangladesh government, the ILO, and the US
government. There were also representatives from the RMG exporters association,
from some leading buyers, as well as from the trade unions. The meeting titled
Staying Engaged A Sustainability Compact with Bangladesh focuses on agreeing
on labor rights, safety and health at work, and responsible business conduct.
Following the recent factory disasters in Bangladesh, Commissioner De Gucht met
foreign minister on May to shape a response which would address the problems in
9
the country, while avoiding hardship for its citizens. The statement said both sides
agreed that the key to a lasting improvement lies in the engagement of all actors in
the supply chain, and of international support for work at a multilateral level which
can effect change in the most efficient and comprehensive manner.
It said the EU aims to uphold fundamental human rights, of which adhering to core
labor standards is an intrinsic part. This is why the EU is lending maximum support
to the ILO process. The EU will also act in full respect of its WTO commitment to
avoid discrimination. (Correspondent, 2013)
2.7
According to the US authorities, the major causes behind the cancellation of GSP
were mainly the incidents in garment factories; the increasing number of deaths of
garment workers; unsafe working conditions; human rights violation; harassment of
labor organizers; poor salary etc. Immediately after the decision, the US added some
preconditions for the revival of GSP facility.
The new terms and conditions were improvement of labor situation; safety standards
for garment factory workers; assurance of security in the workplace; formulation of
comprehensive, concrete and coordinated plan to ensure workers safety and secure
workers rights, etc. The authority also added that it would analyse the situation again
after six months, following which the GSP suspension would be reviewed. However,
the US gave an Action Plan citing the measures for protecting workers rights and
fulfilling preconditions for getting back the GSP facility. The Action Plan calls on
Bangladesh to significantly increase the number of labor, fire and building inspectors
and to improve their training. It also recommends imposition of stiffer penalties for
the violation of labour law, with particular focus on building safety standards.
In order to regain GSP facility, the government has already taken some initiatives.
For example, Bangladesh has adopted the Labour Law 2013 in order to protect the
rights of the workers. The government has also initiated an attempt for the
10
appointment of as many as 200 workers and the setting up of 7 fire fighting stations
to improve the safety of factories. Moreover, the government has also amended the
2006 Labour Act to ease the conditions of trade union in the garment sector, though
it has not yet been passed.
Despite all these initiatives, the recent unrest in garment industries due to low wage
and unsafe working conditions, confrontation between owners and workers may
bring about severe challenges for the country in getting back the GSP facility.
Bangladesh has not yet been successful in ensuring safe working environment and
human rights in garment factories. The wage board fixed an amount of Tk.3,500 for
garment workers on November 21, 2013. The workers were not satisfied with this
scale, and demanded Tk.8,000 as the minimum wage. The International Labor
Organization (ILO) report titled Bangladesh: Seeking better employment conditions
for better socioeconomic outcomes expressed grave concern about the human rights
of the workers. The report said that Bangladeshi garment workers earn less than
workers in Vietnam, India or Pakistan. (Yesmin, 2013)
Will Bangladesh be able to fulfill the preconditions for the revival of GSP facility?
How can the country restore its preferential access to the worlds largest single
market? Though many experts and policy makers have reaffirmed the chances of
getting back the facility, it cannot be surely said that it would be easy for Bangladesh
to get back the opportunity very soon. In a hearing titled Bangladesh in Turmoil: A
Nation on the Brink held on November 20, 2013 in Washington D.C., and arranged
by Committee on Foreign Affairs and Subcommittee on Asia and the Pacific, John
Stifton, Asia Advocacy Director of Human Rights Watch said: Worker rights and
worker safety have been in the spotlight in the aftermath of the Rana Plaza factory
collapse and Tazreen factory fire, and small improvements have been observed in the
ability of workers to organise.
Cancellation of GSP will damage United States-Bangladesh bilateral trade relations.
Bangladesh may also lose foreign investment in the long run. Many experts also warn
that if Bangladesh failed to satisfy the US, it may also face losing the same kind of
preference from the European Union (EU) as well, which still provides huge support
11
to Bangladeshi apparel products. The other possible challenges might be the loss of
Bangladeshs competiveness in the world market, rise of duty in exports, reduction
of bilateral trade, and so on. Bangladesh still has the chance to regain the GSP facility
as the US has given six months for making visible improvements in the garment
sectors and has also added some preconditions for the revival of GSP facility. The
government should immediately take necessary attempts for sustaining the countrys
economic privileges in the world market. The government should formulate safety
codes, stop harassment and arrest of workers, improve working conditions, and
ensure non-discriminatory treatment under the World Trade Organization (WTO) as
soon as possible.
Unless Bangladesh is able to fulfill the requirements of getting back the GSP, the
future of its garment sector along with all other industrial products will suffer in the
long run. The latest report of the International Labour Organisation (ILO) warned:
Unless a comprehensive set of labour market and social policies are introduced,
Bangladesh will be unable to maintain its economic momentum and improve living
standards in a sustainable way.
CHAPTER 03
EFFECTS OF GSP
.
13
garments are not covered by the scheme, Bangladeshi apparel exporters have to pay
15.3 percent duty to enter the US market.
The probable financial loss in terms of falling export may be very small, at least in the
short run. As RMG products (which make up most of the US import from Bangladesh)
are not included in the list of duty-free products in GSP, there will an export fall of
about $40 million according to Charles Kernaghan, executive director of Institute for
Global Labor and Human Rights. At present, Bangladesh exports about $5 billion worth
of goods (mostly RMG products) to the USA every year and hence, the suspension from
US GSP will account for a fall in export of about 0.8%. Effect of GSP suspension and
bad coverage media can be viewed this below figure:
From the figure it is clear in every violence year in Politics and RMG sectors, exports
of RMG decreases by slight or big figure. As US importers try to avoid Bangladeshi
product during bad media coverage of political and RMG violence time.
However, this $40 million will translate to export loss for some small industries in the
country, namely, ceramic products, tobacco, etc. Since global export of products from
these industries are very small compared to that of RMG sector, this $40 million export
fall will make up a much larger proportion total export for these small industries.
More importantly, Bangladeshs image as a trade partner of the USA 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.
15
The biggest short-run fear for the country will be to see a similar action adopted by
European Union. 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 Bangladeshi 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 countrys RMG sector which exported about $19 billion dollar worth
of products in the last fiscal year and employs about 4.5 million people at the bottom of
the population pyramid, 80 % of whom are women.
Thus, there will be increasing pressure on the government to improve working condition
as 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.
from Bangladesh. So far, neither has taken any major initiative to address the poor
working conditions in Bangladeshi RMG sector.
Moreover due to these causes if Bangladesh fails to grab the opportunities given by
USA then it will be like leaving a space for its competitor to become more competitive
and also decrease in FDI from EU.
17
CHAPTER 04
RECOMMENDATION
&
CONCLUSIONS
18
4.1 RECOMMENDATIONS
According to the US authorities, the major causes behind the cancellation of GSP were
mainly the incidents in garment factories; the increasing number of deaths of garment
workers; unsafe working conditions; human rights violation; harassment of labour
organisers; poor salary etc.
Immediately after the decision, the US added some preconditions for the revival of GSP
facility. The new terms and conditions were improvement of labour situation; safety
standards for garment factory workers; assurance of security in the workplace;
formulation of comprehensive, concrete and coordinated plan to ensure workers safety
and secure workers rights, etc. The authority also added that it would analyse the
situation again after six months, following which the GSP suspension would be
reviewed.
However, the US gave an Action Plan citing the measures for protecting workers rights
and fulfilling preconditions for getting back the GSP facility. The Action Plan calls on
Bangladesh to significantly increase the number of labour, fire and building inspectors
and to improve their training. It also recommends imposition of stiffer penalties for the
violation of labour law, with particular focus on building safety standards.
In response to this attempt, Prime Minister Sheikh Hasina urged the US to withdraw the
suspension of GSP. In order to regain GSP facility, the government has already taken
some initiatives. For example, Bangladesh has adopted the Labour Law 2013 in order
to protect the rights of the workers. The government has also initiated an attempt for the
appointment of as many as 200 workers and the setting up of 7 fire fighting stations to
improve the safety of factories. Moreover, the government has also amended the 2006
Labour Act to ease the conditions of trade union in the garment sector, though it has not
yet been passed.
Despite all these initiatives, the recent unrest in garment industries due to low wage and
unsafe working conditions, confrontation between owners and workers may bring about
severe challenges for the country in getting back the GSP facility. Bangladesh has not
yet been successful in ensuring safe working environment and human rights in garment
factories. The wage board fixed an amount of Tk.3,500 for garment workers on
November 21, 2013. The workers were not satisfied with this scale, and demanded
Tk.8,000 as the minimum wage. The International Labor Organization (ILO) report
19
Unless Bangladesh is able to fulfil the requirements of getting back the GSP, the future
of its garment sector along with all other industrial products will suffer in the long run.
The latest report of the International Labour Organisation (ILO) warned: Unless a
comprehensive set of labour market and social policies are introduced, Bangladesh will
be unable to maintain its economic momentum and improve living standards in a
sustainable way.
20
The GSP facilities allow duty-free access for some 5,000 products to enter the US
market from least developed countries. LDCs are benefited as they can export up to
5,000 types of products free of duty to the US. Bangladesh, among more than 125
countries, receives economic privileges on United States tariffs under a World Trade
Organization (WTO) program. Bangladesh gets preferences from the US on tobacco,
sports equipment, porcelain china and plastic products. Around 5,000 Bangladeshi
products are accorded as duty-free access to the US market.
4.2 CONCLUSION
Despite restoration and improvement of workers rights and better working conditions,
there is no way of restoration of GSP advantage suspended by the US. Rather, there is
a fear of loosing GSP advantage in the EU. Last years fire at Tazeen Fashion limited
wherein over 110 workers were killed mercilessly and the April, 2013 collapse of the
Rana Plaza near Dhaka leaving over 1100 dead expedited withdrawal of GSP benefit.
From the above two incidents, victims were mostly from RMG workers. Management
or owners were almost directly responsible for these miserable incidents. They were
trying to escape responsibility, but could not due to electronic and print media. These
types of indifferent attitude of management/owners jeopardized our prestige all over the
world. Moreover, Governments attitude was not also sufficient to get hold of these
miscreants who should be dealt with in a strong hand. Lastly, we should remember that
development of the garment industry of our country is directly related to the
development of the economy and the development of women folk as well, especially in
the rural areas. More than 80% garment workers are female who are mostly having a
village background. So this industry is playing a vital role in poverty alleviation and
womens employment and empowerment in rural Bangladesh (Tasin, 2013). In this
backdrop USA should reconsider its decision regarding the cancellation of GSP in
Bangladesh.
21
BIBLIOGRAPHY
http://bgmea.com.bd/home/pages/TradeInformation#.Urhd2NIW2gw
http://www.tradingeconomics.com/bangladesh/exports
http://www.uns24.com/detailsnews.php?nssl=dd45045f8c68db9f54e70c67048d
32e8&nttl=20072013868
http://news.priyo.com/2013/07/21/gsp-facility-us-shows-ways-regain-it-back81508.html
http://bdnews24.com/business/2013/06/27/bangladesh-to-lose-gsp-facility
http://www.thefinancialexpress-bd.com/2013/11/11/3342
http://bdnews24.com/business/2013/06/27/bangladesh-loses-gsp-facility-in-us
http://www.textiletoday.com.bd/weekly-analysis/26
http://www.bdchronicle.com/detail/news/32/1337
22