There is an interesting debate-or should we say, war of words-going on between the US Ambassador, Dan W. Mozena and Commerce Minister Tofail Ahmed on the latter's claim that Bangladesh pays $800 million each year as tariff for export of apparel products to the US. To underscore their points they both chose two 'f' words of the innocuous type-the Ambassador's free…free…free-to emphasise his claim that entry of Bangladesh apparel to the US is free, and the Minister's denial with equal number of 'f' words-false..false..false. An amusing spat indeed that could well be part of a seriocomic soap opera complete with sharp twists and turns.
To be honest, both of them possess admirable qualities of head and heart. Tofail Ahmed, a trusted lieutenant of Bangabandhu Sheikh Muzibur Rahman, is a veteran politician who can keep the audience spellbound with a vast repertoire of his oratorical skills. Similarly, Ambassador Mozena has demonstrated a sincere love for Bangladesh and its people; no other envoy penetrated so deep into social and cultural milieu of this country with what looks like a genuine sympathy. He has, of course, a biased view of Bangladesh politics which is understandably shaped by the policy of his home office.
Would I sound too funny if I were to say that both are right and both are wrong? The paradox reminds me of a village chief who was trying to settle a dispute between two feuding neighbours. On hearing the arguments of the first neighbour, he opined, "You are right". When he heard the second neighbour he said, "You are right". His wife, who was listening from behind the screen, chided him, "How can both of them be right?" "You are right, too", was his final verdict.
Humour aside, I don't have the credential to play the role of an umpire for this shadow boxing between the two great souls but I spent long years-longer than anyone else in this country-trying to get a sense of the mystery and absorb the nuances of foreign exchange and international trade. I thought I too could throw my two pence in the fray for what it is worth.
The ambassador is right in saying that no tariff is paid by Bangladesh on apparel exports to the US. He is also right to throw a challenge that no cheque ('check', they say in the USA) could be produced to prove the point made by the Minister. Where he went wrong, however, is his inadequate appreciation of the economic consequences of suspension of the GSP (generalised system of preferences) facility. The facility was provided by the US to endow competitive advantage to Bangladesh vis-à-vis other apparel exporting countries via buyers' preference to import duty-free clothing items from Bangladesh. At the stroke of the pen by President Obama, the most powerful man on this planet, the competitive advantages of Bangladesh vanished, so to say, in thin air.
Had the US retailers been generous they could have absorbed this additional cost of tariff following the withdrawal of GSP facility. That could happen in a utopian world but not in this 'dog-eat-dog' world of fiercely cutthroat competition. In order to pass on the tax burden to the apparel exporters they simply asked the Bangladesh exporters "Lower your prices, or else…" I don't need to elaborate what this 'or else' means but the poor exporters, in their anxiety to secure export orders are forced to quote absurdly low prices and then set about to break even by choosing a potentially risky work environment and hire workers at equally absurd low wages. Thus what is seen as tariff paid by the American retailers is actually absorbed by the apparel exporters and the poor workers whose average monthly compensation package is equivalent to as low as a few hours wages of an ordinary worker in the Big Apple (New York). No one will ever get to see a cheque going from Bangladesh but these are issued by the American retailers to the US authorities and recouped through adjustment of prices of the merchandise.
That is where Minister Tofail Ahmed is right in saying what he said about Bangladesh paying tariff to the US on apparel exports. The Minister, however, is rather circumspect in regard to the costs-direct and indirect-Bangladesh incurs to clothe the rich in the wealthy nations in exchange for a mere pittance. All too often we hear about our export of apparel earning a colossal amount of foreign exchange for the country but, to use an oft-repeated phrase, there is more in it than meets the eye. Lost in this rhetoric is the enormous amount of foreign exchange spent on import of fabrics and other inputs.
My good old friend Dr. Forrest Cookson, a former President of American Chamber (Amcham), once tried to figure out the import-cost-adjusted value of export earnings from apparel exports. His exercise showed that the net value addition constituted a fraction of the gross export receipts from apparel items. So, the next time you hear about Bangladesh Bank scaling a new height in terms of foreign exchange reserve, please do not mistake it as an outcome of apparel exports.
Furthermore, the amount of tax payers' money spent on subsidy and other largesse and the amount of tax and duty lost by the government on account of leakage of fabric and other inputs from bonded warehouses would add up to a king's ransom. More importantly, readymade garment (RMG) industry imposes a heavy burden on the country's otherwise fragile infrastructure like road and port capacity, and gas and electricity which are scarce commodities in Bangladesh.
No doubt this sector generates a good number of jobs, though mostly low paid, but concentration of unwieldy number of workers chokes the city's lifelines, strains its capacity to supply utilities and spawns ghettos that turn into breeding grounds for criminals and anti-social elements.
When these economic and social costs are added the garment sector would come quite close to what the economists call a zero-sum game. If the present Government can sustain the momentum of success on the economic front, the country will soon or later shrug off the heavy burden of clothing the world at heavy costs-GSP or no GSP.
The writer, a retired central banker and author of a number of books on foreign exchange and banking, is a
free-lance columnist. [email protected]
© 2024 - All Rights with The Financial Express
