Bangladesh being denied the GSP still makes no sense. This is the first part of a two-part op-ed
A year has passed since the former commerce minister Tofail Ahmed announced: “I don't see any possibility of the revival of the GSP for Bangladesh by the US government. We won't demand the restoration of the GSP to the US anymore.”
Bangladesh lost its preferential market access in 2013, in the aftermath of Rana Plaza and, subsequently, went through a series of reforms in labour laws. Regrettably, the US rejected the appeal every time, asking for “further improvement” in reform. This epitomizes the real-world challenge of preferential market access and leads us to question the fundamental pillars of such a scheme.
In an attempt to analyze this trading system, few questions naturally follow up. Is it delivering sustainable economic growth it promised to the developing world? Within the realm of its design, are participant countries playing by the rules? How did the incentives of such a program take effect in the real world and what does it say about the design itself? And, finally, the most audacious question, is GSP even justifiable?
Generalized System of Preferences is a staple of the commercial relationship between the developing and the developed world. This idea of giving preferential access to poorer countries emerged from the cauldron of the first United Nations Conference on Trade and Development (UNCTAD). Later, in 1971, WTO issued a waiver to exempt member countries from the most favoured nation (MFN) obligation. General Agreements on Tariffs and Trade (GATT) of WTO establishes an MFN arrangement among its member countries to reduce tariff and other trade barriers with a reciprocal basis.
What lies at the heart GSP is the partially amended GATT contract to recognize “the special economic need of developing countries” and promote their export earnings by giving them non-reciprocal market access. So, by design, GSP is a violation of the MFN treatment. Started as a temporary program, GSP became permanent in 1979 with the introduction of the “Enabling Clause.”
Now, this clause is extremely vague and gives preference-granting countries significant leeway to discriminate across products and countries. On top of that, GSP can be changed and withdrawn at the will of the granting country. This results in donor countries demanding non-trade reciprocity from the so-called beneficiary countries and exposing poorer countries to an uncertain investment opportunity that depends on the political whim of donor country legislators.
This is extremely relevant to the Bangladesh case, because “the standard required labour law” changes with the administration change in the US. What is utterly preposterous is that Rana Plaza produced RMG, which is not even in the product coverage due to the domestic lobbying pressure from that industry in the US.
Essentially, all the preference-recipient products lost market access due to an accident in an industry that was not even part of the program to begin with.This illustrates the type of policy overreach these developed countries try to achieve through the program in a sovereign state.
Obviously, labour laws in Bangladesh, or any other developing countries as a matter of fact, are in its infancy and need reform. But the process needs to be heavily bottom-up, because of the unique structure in each of these countries’ economy and production system of industries. It is incredibly presumptuous and brazenly self-congratulatory to think that legislators influenced by rent-seeking lobbyist of a foreign developed land -- placed on exactly the other side of the globe -- would have any context of the problems these industries and their workers face every day to suggest any amount of reform.
Even then, what are the incentives for these legislators to worry about a small, poor country when they are overwhelmed with domestic problems of their own?
Since 2013, Bangladesh has repeatedly been denied duty-free access to the US market for eligible products. The industries that depended on the scale economy of the US market suffered and, finally, the tantalizing promise of alleviating factory workers out of poverty was unmet.
Although prima facie taking away GSP seems like punishing legislators of the poor country, it actually translates into job loss for factory workers.
The concluding part of this article will be published tomorrow.
Revana Sharfuddin studies Economics at George Mason University