Suspension of GSP: its impact and possible deeper reasons

Suspension of GSP: its impact and possible deeper reasons

On June 27th, the US suspended Generalized System of Preferences (GSP) for Bangladesh. It will be effective after 60 days. It seems it was a “bolt from the blue” for the Bangladesh government.

On June 4, Foreign minister Dr Dipu Moni had told a press briefing: “The review of the GSP facility for Bangladesh in the US market is continuing. The hearing on it has concluded. A Bangladeshi team comprising officials from the foreign ministry, labour and employment ministry, and commerce ministry have discussed the issue with the US authorities. I am hopeful that the USTR will take a positive decision on this.”

The US Secretary of State John Kerry was scheduled to visit for six hours in Dhaka while visiting New Delhi from 24th June for three days. The visit to Dhaka was cancelled abruptly without any reasons. There was a premonition in many quarters that that GSP would be suspended for which Kerry’s visit was cancelled.

Suspension of GSP and a road map to restore it:

Announcing the suspension of the trade benefits, US president Barack Obama said, “I have determined that it is appropriate to suspend (GSP facility for) Bangladesh because it’s not taking steps to offer internationally-recognised rights to workers in the country.”

The decision also puts American companies on notice as they must take meaningful steps to improve conditions for Bangladeshi factory workers, Senate Foreign Relations Committee Chairman Robert Menendez said in a statement.

“No one will want to wear clothing that is ‘Made in Bangladesh’ if it is made with the blood of workers. It’s time for the American industrialists to show leadership and work with their European counterparts on a global standard for safety,” he stated.

The AFL-CIO labour federation had filed the petition in 2007 with the US Congress to withdraw the facility for Bangladesh. Federation president Richard Trumka said the decision was an important message for countries that receive duty-free access to the US market under the generalized system of preferences (GSP) programme.

It is reported that the US has provided a “roadmap” to regain the GSP for which Bangladesh has to the following steps: (a) enforcement of building code, (b) labour law reform, (c) upgrading law for EPZs, (d) union registration and (e) end to harassment and arrest of labour leaders and workers and activists.

Bangladesh government described it as “unfortunate” and “harsh” calling it an outcome of a protracted negative campaign. The Foreign Office statement stated “Indeed a section of people, inside both Bangladesh and the USA, had long been campaigning to this effect. Bangladesh was absolutely “respectful of a trading partner’s choice of decisions” but “expresses its deep concern that this harsh measure may bring in fresh obstacles in an otherwise flourishing bilateral trade”.


The suspension does not directly affect the country’s multi-billion-dollar clothing exports to the US, because they do not come under GSP. However it affects nearly other 5,000 products which Bangladesh can export to the US without duties, such as golf equipment, plastic bags, bone china, porcelain kitchenware, headgears, spectacles and tents. Bangladesh earned from such exports $35 million in 2012.

The suspension is not so much of an adverse effect on Bangladesh total exports which stands at about $25 billion. It is less than 1% of Bangladesh’s exports to the US ($4.9 billion). However it is the image of Bangladesh to international community which is being damaged.

Although EU has expressed that it may not follow the US, the EU Trade Commissioner has convened a meeting in Geneva on 8th July to know what steps Bangladesh government and other stakeholders (BGMEA & BKMEA) will take to take care of safety and improved working conditions of workers. It is noted the garment industry employs some 4 million people in Bangladesh, 80 percent of them women, thus empowering young women in the country.

However other countries such as, Canada and Australia did not take such harsh action against Bangladesh, rather their garment buyers are cooperating with the owners of garment factories in Bangladesh in their efforts in improving safety and working conditions of workers.

Analysts say the suspension of GSP does not affect the export of garments to the US market as it is not covered by GSP. The garments can continue to be exported to the US by paying duties of 15.3% and in 2012 it is reported the US earned $749.7 millions on export of $4.9 billion of garment exports from Bangladesh.

Why did the US suspend the GSP for Bangladesh?

It seems obvious that under pressure from AFL-CIO, the US administration found a loophole in the safety and working conditions of workers and the deaths of thousands of workers following the collapse of Rana Plaza and fire at Tazrin garment factory have highlighted the poor safety record and working conditions of workers all over the world.

The powerful trade union of the US– AFL-CIO –favours protectionism in trade. Since US products cannot compete with products from abroad, they want to protect the jobs in US factories for members of the trade unions by restricting the entry of foreign products in the American market. The stance of AFL-CIO is against the trade policy under WTO. As a result they deny the American consumers the best and cheapest foreign goods as they are generally unconcerned where they come from when they buy products.

At the hearings at the office of the US Trade Representative concluded in early June, Bangladesh government senior officials stated that the government was taking all appropriate steps including a new labour law to address all the issues relating to workers. Given this back ground, many analysts question whether the poor safety record of workers appears to be the real reason for the suspension of GSP by the US.

What could be the other reasons?

Many analysts argue there are some strains visible in Bangladesh-US relations, despite the bilateral partnership- talks at the top officials-level. For example, during the tenure of four and half years, Bangladesh Prime Minister Sheikh Hasina could not make a bilateral visit to the US to meet with President Obama, while she was able to pay an official bilateral visit and meet with Russian President Putin this January.

They further argue the suspension of GSP is only a manifestation of its displeasure with the Bangladesh government and some of the reasons could be as follows:

• The US attaches great importance to good governance, rule of law and makes great efforts against corruption. It seems on these issues, the US is disappointed with the current government in Bangladesh. The cancellation of the World Bank’s loan for Padma Bridge on the allegation of “conspiracy of corruption” is not gone unnoticed by the US.
• Democracy is more than just elections. It’s about ensuring that people can have their voices heard peacefully. The mass arrests of top leaders of BNP without bail for some weeks are seen contrary to the spirit of multi-party democracy and did not help the democratic image of the government.

• US Secretary of State Hilary Clinton during her visit to Dhaka in May 2012 reportedly expressed concerns on “disappearances” of citizens and on “violent demonstrations which “exacted a heavy toll on poorest people”. She urged “all political actors to work together for good of this country.” Violence on the streets and political instability in the country provide an opportunity for extremist elements exploit the situation and they may raise again their ugly heads, according to the US.

• The US wants an inclusive, fair and credible 10th parliamentary election (to be held on any date between 26th October and 24th January next year) and the failure of the government to resolve as yet this issue with the BNP through political process does not augur well for democracy, according to the US. The US may have found streak of authoritarianism of the government in dealing with major opposition parties and with some media.

• The government’s treatment with Professor Yunus who received the highest honour from the US President and the US Congress, to put it mildly, has not gone down well with the US administration.

• The failure of prosecution of the alleged murderer of labour leader Aminul Islam has infuriated the AFL-CIO and the US Ambassador several times urged for thorough investigation leading to detection and punishment of the culprit.

The US has only suspended (not cancelled) the GSP facilities and put a road map to get it restored. US ambassador Dan Mozena reportedly mentioned that the suspension would be withdrawn if the labour environment improved. “Bangladesh has to show that incidents like Rana Plaza and Tazrin Fashions would never happen again,” Mozena told reporters after a function at a city hotel.

The suspension appears to be signal to the government to lift up their game consistent with democratic principles and practices.

Why Bangladesh is important to the US?

Despite the suspension of GSP, the US has been appreciative of this government’s strong action to root out the terrorist elements from the soil of Bangladesh and as part of the effort, the government has continued to address the problems of money laundering and weak border- controls to ensure that Bangladesh does not become a terrorist safe-haven. Its normalization of relations and connectivity with India is fully supported by the US.

Which ever government is elected in Bangladesh, the country is strategically important for the US because of its geographical position. Bangladesh shares borders with India and a rising reformist Myanmar and is close to China. The country stands as a bridge between South Asia and South East Asia.

Furthermore Bangladesh has access to the Indian Ocean through the Bay of Bengal which is commercially and strategically important. The US companies are interested in exploring the off-shore blocks in the Bay of Bengal.

Bangladesh is a good market for American goods and 60% of its economy is connected with global economy. In recent years there has been the convergence in broad economic policies, namely encouragement of private sectors and de-regulation, among major political parties.

Bangladesh nationals have settled in America in thousands and as of 2012 there are about 150,000 Bangladeshi-Americans in the US and most of them are skilled and professionals. In Michigan State one Bangladeshi-American was elected in the State Assembly.

Bangladesh provides the largest peacekeeping personnel at the UN conflict zones and is well appreciated internationally for their performance.

Many strategists suggest that the US is interested to constitute a kind of security (not military) alliance to confront North East Asia’s instability and China’s supremacy in the Asia-Pacific region with India, Australia, Philippines and Japan. Bangladesh and Myanmar could also be included in the loop.

Therefore for all these reasons, it is not difficult to see why the US will seek a partnership with Bangladesh now and in future.

By Barrister Harun ur Rashid
Former Bangladesh Ambassador to the UN, Geneva

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