US bill for RMG market access needs govt engagement

NewAge, October 28, 2007. Dhaka, Bangladesh

The current military-driven interim government has yet to take up any visible initiative to back the new bill placed in the US Congress to provide more access to Bangladeshi garment products, which it must. The congressmen and senators in favour of the least developed countries would be able to make a better case if the authorities in Bangladesh as well as other concerned quarters, provide them with solid data and research, writes Tanim Ahmed*

Fully free market access of garment products to the developed world has been a consistent and long standing demand of Bangladesh as far as trade is concerned. Every mini ministerial meeting of the least developed countries, typically preceding a full blown ministerial summit of the World Trade Organisation, since 2000 has concluded with this demand in the very first paragraph.

The full ministerial summits have also acknowledged the demand as justified and have typically promised as much in their declarations. As of the last ministerial meet, held in Hong Kong in 2005, 97 per cent of products from least developed countries will enjoy preferential market access in the developed countries as soon as the current round of trade negotiations are concluded, subject to a number of other conditions. More often than not, these conditions dilute the concession to such a degree so as to render it almost useless.

Having already secured reasonable access to Europe and Canada, Bangladesh has been desperate for similar access to the lucrative American market for garment products. The ready made garment sector, accounting for over three-fourths of Bangladesh’s export earnings, is naturally of utmost concern for the government as well as the business groups. The garment exporters have also been lobbying the United States establishment to enact a bill that allows duty-free import of garment products from all least developed countries. Although many of the poorest countries are allowed preferential access to the US market, only a handful are left and not given this preference, which incidentally includes Cambodia and Bangladesh

A new bill styled ‘New Partnership for Development Act 2007’ that was introduced in the House of Representatives of the US Congress on October 18, by Congressman Jim McDermott among others, strives to provide all least developed countries with such access. Quite understandably the duty-free and quota-free access is limited to a certain extent to apparently provide African countries with some leverage and advantage over Cambodia and Bangladesh that happen to be the most competitive apparel manufacturers among the least developed countries. These two countries have been referred to as ‘significant apparel supplier’ in this bill and are subject to more restrictive provisions than the other LDCs.

It has been a matter of concern that countries in sub-Saharan Africa, especially those covered under the African Growth and Opportunity Act which was also authored by Congressman McDermott, and other countries that currently enjoy concessions under the generalised system of preferences would see their margins completely eroded faced with the stiff competition from Bangladesh and Cambodia.

Quarters have it that the US textile lobby, the National Council of Textile Organisations, and the trade union body, the American Federation of Labour and Congress of Industrial Organisations, are actually playing the Africa card to ensure protection of the local textile industry in the US. There have been attempts previously as well to prevent the US giving fully free market access to Bangladeshi apparel items with scores of senators and congressmen writing to the US president to block any agreement that provides duty and quota free access of Bangladeshi apparels to the US. Only last month, there was a hearing at the United States Trade Representatives office initiated by the American trade union body, regarding alleged labour rights violations in Bangladesh with a petition to cancel Bangladesh’s preferential access facilities.

The bill striving towards a duty-free access for all least developed countries puts a cap on the volume of exports made to the US from Bangladesh and Cambodia during the calendar year of 2007 for eight types of products— trousers, slacks, breeches, shorts, knit shirts and blouses, non-knit shirts and coats—that would be eligible for duty-free treatment from 2009 to 2019. It means that the duty-free facility for these products will be limited to the volume of their exports made to the US during the current year for 10 years beginning 2009. The quantitative restriction may increase a maximum of 15 per cent every year provided that the ‘significant apparel supplier’ meets certain labour standards and upon consultations and approval of certain officials and congressmen.

It has already been pointed out that these categories of clothing items that face quantitative restrictions account for about 65 per cent of Bangladesh’s exports to the United States, which are also presumably of importance to the United States itself for the sake of its own political interest to protect the local industries. Quantitative restrictions should not apply to any other garment product. On the other hand, with China entering the US market in 2009 when the currently imposed emergency safeguard expires and faces quantitative restrictions, Bangladesh will apparently have a rather hard time to even retain the market share it currently does, let alone grow at the phenomenal rate of over 20 per cent that has been the case for the last few years. Thus, the provision of 15 per cent increase every year with this year’s export volume set as the base year might turn out to be reasonable.

However, the main point of concern is the rules of origin stipulating 35 per cent value addition in case of Bangladesh and Cambodia, while it would be 25 per cent for other countries covered by the act. According to garment manufacturers, most of the exports to the US market are woven items in which case value addition is hardly between 20 and 25 per cent. Thus 35 per cent would indeed be too steep a requirement for it to be meaningful. It might be argued that value addition requirement be decreased by equal percentage points for both the significant apparel suppliers and other countries so as to make it less steep and more meaningful.

Alternatively, it could also be argued, based on rigorous research of course, that products not in competition with those from other countries, especially those from sub-Saharan Africa, may be allowed a lower value addition requirement or that equal to the other least developed countries. The argument would be further strengthened if it could be demonstrated convincingly the extent of poverty reduction that such benefit might result in or how much more it means in increased wages for the garment factory workers in Bangladesh.

According to a newsletter titled ‘Trade Fact of the Week’, dated February 21, 2007, published by the US based Progressive Policy Institute, Bangladeshi exports to the United States worth $3.3 billion in 2006 faced tariffs of $496 million and Cambodian products worth $2.2 billion faced tariffs of $367 million. The same year British exports worth $53.5 billion faced tariffs of $430 million and French products worth $36.8 billion faced tariffs of only $367 million, the same amount as that of Cambodia.

In 2006, France’s per capita income was $34,810, 74 times that of Bangladesh with $470 and 91 times that of Cambodia with $380. The United Kingdom’s per capita income was $37,600 in 2006—80 times that of Bangladesh and 99 times that of Cambodia.

Another point of serious concern is the requirement to accord foreign and local investment equal treatment. While the requirement to implement intellectual property rights takes into cognisance the benefits and concessions accorded under the World Trade Organisation rules, meaning an exemption till 2016 for essential drugs and 2013 for everything else, the demand for a similar provision, accommodating the WTO concessions accorded to least developed countries in case of investment should be made rather strongly or it would compromise national interests severely.

It is presumed that the preference scheme will expire at the end of 2019 but there are no directions regarding its renewal even if it is subjected to further review before approval in the Congress. One of the main problems with the current GSP programmes of the United States is that they expire every few years and have to go through a long tortuous process, while a case of renewal might lessen the amount of energy and time to have a new bill written and enacted afresh.

The bill notes rightly that advanced developing countries such as India or China and other Organisation for Economic Cooperation and Development members could greatly help reduce poverty in the least developed countries if they provided similar benefits. The bill also directs the US president to take up such an initiative with these countries.

This bill has the provision of spending $250 million every from 2009 through 2018 on such development projects as capacity increasing for small and medium enterprises, agriculture, financial institutions and investment promotion as assistance to leverage trade preferences. Under aid for trade the bill stipulates expenditure of another $250 million per year between 2009 and 2019 for financing economic diversification and infrastructure projects, improvement in the transport of goods and services, improves distribution of electricity, food and water and improves the provision of education and healthcare.

It is understandable that these funds will be used with the intention of eventually benefiting US interests, either commercial or political. But it is the contention of certain quarters that countries like Bangladesh could benefit from these projects if the proposals are well thought out and appropriate in the local context.

The law, if enacted, will apparently set up appropriate offices that will produce a report card every three years based on which it would be decided if certain countries are eligible for the benefit. The requirements are largely core labour standards, such as freedom of association and recognition of collective bargaining, that are well justified. There would also be a mechanism to consider public petitions and examine them regarding observance of labour standards and working environment in the industries.

Although the government asks the garment manufacturers every few months to implement the minimum wage along with the 10-point agreement signed last year, the manufacturers hardly pay heed and continue to violate those stipulations as reports in the media testify. The foreign pressure, especially from the United States, might in fact spur them to action and compel them to strive towards better standards in exchange for the benefits. According to insiders, such pressure from the foreign quarters is often more effective than relentless requests of the local authorities.

It is obvious that the new bill is rather progressive and barring a few provisions, would be beneficial to the poorest countries of the world as it stands at the moment. But it is still at the most primary stage. Currently, as of October 18, it has been referred to the House Financial Services Committee, and will subsequently be referred to the committees on Ways and Means and Foreign Affairs before coming up for debate and hopefully approval at lower house of the Congress. A similar process will be in place at the upper house, the Senate. If approved at both houses the bill will be referred to a Conference Committee in order to make sure that the bills that the House and the Senate enacts are identical, where it would be subjected to further scrutiny and editing. There is a great likelihood that the bill would be diluted further and further at every stage of editing and scrutiny.

The different stages of the passage of the bills are evidently where lobbyists will be in action to further their own interests. A delegation of the Bangladesh Garment Manufacturers and Exporters Association has already left for the United States where it will meet different quarters including the congressmen and senators who might be in favour of the bill.

The current military-driven interim government has yet to take up any visible initiative in this regard, which it must. The congressmen and senators in favour of the least developed countries would be able to make a better case if the authorities in Bangladesh as well as other concerned quarters provide them with solid data and research. It would also be of great benefit if the African and Asian countries lobby Washington together. While private quarters and non-government elements, the Centre for Policy Dialogue, Oxfam, and the chambers of commerce for instance, are upbeat and active about the fate of the new bill, it remains for the government join hands with their efforts. The government’s presences would quite understandably lend these efforts a higher degree of credence and acceptability.

*Tanim Ahmed works for NewAge, a leading English newspaper in Bangladesh. He can be reached at: tanimahmed@gmail.com

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