10 years after GSP suspension, TICFA signing

Asjadul Kibria | Published: October 28, 2023 19:53:01

This year marks the tenth anniversary of two important issues in bilateral economic relations between Bangladesh and the United States of America (USA). First, the US suspended the Generalised System of Preference (GSP) programme for Bangladesh on June 27, 2013. Second, both countries signed a Trade and Investment Cooperation Framework Agreement (TICFA) on November 25, 2013. These two episodes are not necessarily interrelated as there was a prolonged talk since 2003 to sign the bilateral framework agreement on trade and investment. Nevertheless, many observers opined that the suspension of GSP had prompted Bangladesh to sign the TICFA agreement.
For the last few years, Bangladesh has tried to convince the US to withdraw the suspended GSP. It has also taken a series of measures to improve the working conditions of the factory workers and ensure labour rights. The suspension of GSP was clearly linked to the issue of the safety issue of workers. The Rana Plaza disaster in April 2022, which killed over 1,100 ready-made garments (RMG) industry workers and left many handicapped for the rest of their lives, sparked worldwide outrage. Global buyers of Bangladesh-made clothing also came under fire for ignoring the safety and security of the poor workers. All these played a critical role in the suspension of the GSP programme for Bangladesh in the following year.
The overall economic impact of the GSP suspension was minimal, as less than one per cent of the total imports of the US from Bangladesh were under the GSP scheme. However, it sends a strong message to the government, factory owners, and global brands to take steps to end labour abuses and protect workers' rights.
In the last ten years, the United States Trade Representative (USTR) conducted several reviews regarding the progress of the GSP Action Plan. Each review recognised that some progress had been made, along with the assertion that more must be done. Nevertheless, the GSP is yet to be reinstated, and there is little chance that Bangladesh will see the restoration of the trade benefit any time soon.
Statistics showed that the suspension of GSP had little impact on the bilateral trade, which continued to grow annually in the last decade by 10.80 per cent on average. In 2013, bilateral trade in goods was US$6.06 billion, which increased to US$14.10 billion in 2022, with the trade balance heavily tilted to Bangladesh. The country's exports to the US market reached $11.53 billion last year from $5.36 billion in 2013.
The US is the largest destination of Bangladesh's clothing exports, followed by Germany. Last year, export earnings of clothing stood at $8.52 billion from the US market, which was around 19 per cent of the total exports of Bangladesh's RMG industry during that year. Bilateral trade in services is, however, thin or almost nil. The US has also been collecting high tariffs on imports from Bangladesh, 15 per cent on average, as there is no duty-free quota-free (DFQF) market access for Bangladeshi products.
The suspension, however, acts as a pressure to improve the RMG factory conditions in Bangladesh to some extent, which is reflected in various steps and events. Global brands and Bangladeshi producers and exporters of clothing join hands to make some positive efforts so that factories become safer for most workers. The development took place in the first five years of the decade under review. In the latter half of the decade, there was more concentration on maintaining the progress without any additional move to extend it. Instead, in some cases, the intimidation of the workers has increased as it becomes clear that the restoration of GSP is not in sight.
Many argued that Bangladesh needs to sign a bilateral free trade agreement (BFTA) with the US instead of putting effort into regaining the GSP. The highly ambitious idea of a BFTA with the USA was mooted in 2016, immediately after Donald Trump won the US presidential elections. Bangladesh Enterprise Institute (BEI), in a policy advocacy paper, argued in favour of reaching the BFTAs with the US and other trading partners. In 2018, the then commerce minister also said that the country needed to think of signing BFTA with the US as a strategy to cope with the challenges in the post-LDC era. Things did not move ahead for obvious reasons, and the country has yet to sign any FTA with any of its leading trade partners.
Moreover, the structure of the US FTA goes beyond trade in goods and services and extensively covers investment, intellectual property rights (IPR) and standards on labour and environment. And BFTA with the US is a comprehensive agreement that requires economic and political reforms in partner countries.
The issue of BFTA was also never on the agenda of the TICFA meeting. Since the signing of the framework agreement, seven meetings have been held under the forum so far. The two parties discussed several issues including trade and economic cooperation, labour rights and standards, investment climates and IPRs. New topics like the country's data protection act were also tabled in the latest meeting in Dhaka. What is evident from the subsequent TICFA meetings is thatthe US is continuing to put pressure on Bangladesh in critical areas which include new issues. And the trend is likely to continue in the future.
Now, ten years after the US suspendedthe GSP and signedTICFA with Bangladesh,bilateral relations between the two countriesstill seem to have some complexities, even though economic ties between them are deepening. It is reflected in the much-discussed restrictive visa policy and the US's persistent call to address human rights and election-centric political issues. Against the backdrop, the direction of US trade policy concerning Bangladesh deserves a review. This column will focus on the subject in the next week.
asjadulk@gmail.com