UNIVERSITY OF DHAKA DEPARTMENT OF INTERNATIONAL BUSINESS COURSE CODE : EIB 534/532 COURSE NAME : BANGLADESH in INTERNATIONAL BUSINESS TERM PAPER ON GSP EFFECT ON BANGLADESH SUBMITTED BY NAME : SALEH RAFIQ CHOUDHURY STUDENT ID : 801310016 SUBMITTED TO Dr. Md. Mozibur Rahman DATE OF SUBMISSION DECEMBER 08, 2015
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UNIVERSITY OF DHAKA DEPARTMENT OF INTERNATIONAL BUSINESS
COURSE CODE : EIB 534/532
COURSE NAME : BANGLADESH in INTERNATIONAL BUSINESS
TERM PAPER
ON
GSP EFFECT ON BANGLADESH
SUBMITTED BY
NAME : SALEH RAFIQ CHOUDHURY
STUDENT ID : 801310016
SUBMITTED TO
Dr. Md. Mozibur Rahman
DATE OF SUBMISSION
DECEMBER 08, 2015
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LETTER OF TRANSMITTAL
Date: 01 December, 2015
Dr. Md. Mozibur Rahman,
Subject: Submission of Term Paper.
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
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TABLE OF CONTENTS
TOPICS PAGE NO.
Letter Of Transmittal (i)
Table Of Contents (ii)
Executive Summary (iii)
CHAPTER 01 : INTRODUCTION
1.1 Statement Of The Research Problem 02
1.2 Scope & Objectives Of The Study 02
1.3 Methodology Of The Study 03
1.4 Limitation Of The Study 03
CHAPTER 02 : AN OVERVIEW OF GSP EFFECT
2.1 Overview Of GSP 05
2.2 RMG and GSP facility 06
2.3 GSP Facility Of Bangladesh 07
2.4 USA Suspended Bangladesh’s GSP In June 2013 07
2.5 GSP Cut An Opportunity For Bangladesh 09
2.6 EU Continues GSP For Bangladesh 10
2.7 Slow Progress In Getting Back GSP Facility 11
2.8 Present Condition Of GSP 13
CHAPTER 03 : EFFECTS OF GSP
3.1 Effects Of GSP 14
3.2 Reasons for GSP Suspension 16
3.3 Real Scenario After GSP Suspension 16
3.4 Effects of RMG sectors Violence in EU GSP 17
CHAPTER 04 : RECOMMENDATION & CONCLUSIONS
4.1 Recommendations 19
4.2 Conclusions 21
Bibliography 22
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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.
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CHAPTER 01
INTRODUCTION
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1.1 STATEMENT OF THE RESEARCH PROBLEM
Now the most pertinent question in the economic arena is suspension of GSP
program. Why did the USA suspend GSP program from June 27, 2013? Bangladesh
had been enjoying GSP into the US market, excluding Ready-made garments. She
has to face an export fall of about $40 million in the US market. However, the direct
impact would not be much less than 1% of Bangladesh’s $5 billion of annual export
(mostly RMG products) to the US which falls under Washington’s GSP program
(The Wall Street Journal, 2013). This 40 million export loss goes on the shoulders of
some small industries in the country, namely ceramic products, tobacco etc. These
industries export a very small amount in comparison to that of RMG sector. So
suspension of US GSP will account for a fall in export of about 1.0%. However, due
to this suspension the small scale enterprises are affected badly on one hand and the
image of Bangladesh is at stake in the world, on the other. Bangladesh should
remember that GSP cut hampered the prestige of the country and she lost the
credibility of being a business partner. The image of Bangladesh as a trading partner
of the USA is already questioned. These GSP incidents may discourage US and other
investors, new and old. This may have a long term effect on the prospect of future
export growth of the country. The great anxiety of the country will be to see a similar
action adopted by the European Union. The EU gave a stricture previously to remove
preferential access to Bangladesh RMG products in the EU market if the government
did not take measures to improve the working conditions in Bangladeshi factories.
The EU is a great buyer of Bangladeshi garments worth around 11.37 billion dollars
as of June 2012; out of the total export of this sector is about 19 billion dollars in the
last fiscal year (Fattah, 2013).
1.2 SCOPE & OBJECTIVES OF THE STUDY
The scope of this assignment is to cover how our country effected due to the GSP
effect and what is the effect on of it on our economy and how our country faced this
issue.
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:
1. To be familiar with the term GSP.
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2. To know how much effective GSP in our RMG industry.
3. To know the suspension reason in GSP in Bangladesh.
4. To know the solution how our country faced it.
1.3 METHODOLOGY OF THE STUDY
The study has been conducted to evaluate the effect of GSP cancellation on the
garments sector in Bangladesh. Research area has been selected on the basis of
previous research work. Secondary data have been collected to conduct the study.
The sources of data are relevant journals, news papers, reports and so on. The study
will be helpful for the readers and researchers.
1.4 LIMITATION OF THE STUDY
One of the main limitation in preparing this assignment is that, the time frame that
we have been given, is very limited. Most of the group members are full time
employee. As a result it was hard to sit out with everyone. Because of the time frame,
we were able to meet up with RMG sector officials and in the same time our others
courses final examination is going on.
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CHAPTER 02
DISCUSSION : AN
OVERVIEW OF
GSP EFFECT
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2.1 OVERVIEW OF GSP
The Generalized System of Preferences, or GSP, is a formal system of exemption
from the more general rules of the World Trade Organization (WTO), (formerly, the
General Agreement on Tariffs and Trade or GATT). Specifically, it's a system of
exemption from the most favored nation principle (MFN) that obliges WTO member
countries to treat the imports of all other WTO member countries no worse than they
treat the imports of their "most favored" trading partner. In essence, MFN requires
WTO member countries to treat imports coming from all other WTO member
countries equally, that is, by imposing equal tariffs on them, etc.
The U.S. Generalized System of Preferences (GSP) is a program designed to promote
economic growth in the developing world by providing preferential duty-free entry
for up to 5,000 products when imported from one of 126 designated beneficiary
countries and territories. The GSP program also supports U.S. jobs. U.S. businesses
imported $19.9billion worth of products under the GSP program in 2012, including
many inputs used in U.S. manufacturing. According to a 2005 U.S. Chamber of
Commerce study, over 80,000 American jobs are associated with moving GSP
imports from the docks to farmers, manufacturers, and retail shelves. GSP was
instituted on January 1, 1976, by the Trade Act of 1974.
Products that are eligible for duty-free treatment under GSP include: most
manufactured items; many types of chemicals, minerals and building stone; jewelry;
many types of carpets; and certain agricultural and fishery products. Among the
products that are not eligible for GSP duty-free treatment is: most textiles and
apparel; watches; and most footwear, handbags, and luggage products.
From the perspective of developing countries as a group, GSP programs have been a
mixed success. On one hand, most rich countries have complied with the obligation
to generalize their programs by offering benefits to a large swath of beneficiaries,
generally including nearly every non-OECD member state. Certainly, every GSP
program imposes some restrictions. The United States, for instance, has excluded
countries from GSP coverage for reasons such as being communist (Vietnam), being
placed on the U.S. State Department's list of countries that support terrorism (Libya),
and failing to respect U.S. intellectual property laws.
Criticism has been leveled noting that most GSP programs are not completely
generalized with respect to products, and this is by design. That is, they don't cover
products of greatest export interest to low-income developing countries lacking
natural resources. In the United States and many other rich countries, domestic
producers of "simple" manufactured goods, such as textiles, leather goods, ceramics,
glass and steel, have long claimed that they could not compete with large quantities
of imports. Thus, such products have been categorically excluded from GSP
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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.
2.2 RMG AND GSP FACILITY
Readymade Garments Industry and GSP (Generalized System of Preferences) is one
of the hot topic in the exporting sector of Bangladesh. Everywhere anxious is
spreading as quickly as air can goes. But actually what happening? The real thing is
that we didn’t get much benefit in USA GSP system in terms of RMG exports. The
percentage of benefit is less than 1% of total RMG exports. But suspension of GSP
in USA could influence the EU GSP system for Bangladesh from where we get more
benefits of duty-free trade. So having or not having GSP situation, how they
influence or contribute to economy of Bangladesh is necessary to know. In this part
we are going to details of GSP in USA and EU; its effect on Bangladesh in Future.
2.3 GSP FACILITY OF BANGLADESH
Bangladesh RMG export availed the generalized system of privilege (GSP) in the
EU countries as a member of least�developing country (LDC); this was not given
to its nearest core competitors such as India, Pakistan, or Sri Lanka. Quota facility in
USA market was enjoyed, although that was reducing year after year. Rules of origin
also favoured Bangladesh in developing own backward linkage industry. (Winsome)
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2.4 USA SUSPENDED BANGLADESH’S GSP IN
JUNE 2013
The US has suspended Generalized System of Preferences (GSP) for Bangladesh on
2013 because of concerns over labor rights and worker safety that intensified after
hundreds died there in the global garment industry's worst accident. GSP is a special
trade privilege under which nearly 5000 categories of products can enter into the US
market duty-free.
However, The GSP facilities provided by the US do not cover the country’s most
revenue generating industry, the ready-made garments (RMG). In a proclamation,
US President Barack Obama said Bangladesh was not taking steps to afford
internationally recognized worker rights to employees, especially engaged in the
RMG sector. US Trade Representative Mike Froman said his country will, however,
start new discussions with Dhaka on improving workers' conditions so the duty-free
benefits can be restored. This announcement was the culmination of a yearlong
review of labor conditions in Bangladesh.
House Democrats had been pushing for the step since the April 24 collapse of Rana
Plaza in capital Dhaka’s outskirt Savar that killed 1,129 people. While the GSP
covered less than 1% of Bangladesh's nearly $5bn in exports to the US and doesn't
include the lucrative garment sector, it could deter American companies from
investing in Bangladesh. The immediate economic costs may not be significant, it
carries reputational costs and may sway a decision by the European Union, which
also is considering withdrawing GSP privileges.
EU action could have a much bigger economic impact, as its duty-free privileges
cover garments. The US Trade Representative review of labor conditions in
Bangladesh follows a petition filed in 2007 by the American Federation of Labor and
Congress of Industrial Organizations (AFL–CIO) seeking withdrawal of the GSP
benefits. The review was expedited late last year amid concern from US lawmakers
over deadly industrial accidents, deteriorating labor rights and the killing of
prominent labor activist Aminul Islam last year — a case is yet to be solved. Calls
for the benefits to be curtailed had multiplied since the Rana Plaza disaster.
25 House Democrats wrote to PM Sheikh Hasina calling for comprehensive action
to improve worker safety, and this week, nine Democratic senators urged US
President Barack Obama to suspend trade privileges but also establish a roadmap and
schedule for reinstating them to Bangladesh based on improvements in worker safety
and related labor law reforms. Lawmakers also have criticised US retailers that
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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 GSP CUT AN OPPORTUNITY FOR BANGLADESH
The United States’ suspension of Generalized System of Preference (GSP) privileges
provided an opportunity to Bangladesh for development towards labor reforms and
improving the working environment, according to a PTI report.
“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 there’s 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
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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)
2.6 EU CONTINUES GSP FOR BANGLADESH
Disapproving fear and speculation about European Union’s suspension of GSP
benefit for Bangladesh, the EU said it wished to remain engaged with Bangladesh so
that it can preserve the preferential access to the EU market. ‘The GSP provided by
the EU benefits all products from Bangladesh under its Everything but Arms (EBA)
scheme. This means that a decision to withdraw the EU GSP for Bangladesh must be
avoided, as it would have far-reaching consequences for jobs and for the economy,’
a statement by the European Union said.
The EU statement came two days after the US decision to suspend Bangladesh’s 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
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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 SLOW PROGRESS IN GETTING BACK GSP FACILITY
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 worker’s 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
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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