In a proclamation, Obama said Bangladesh was not taking steps to afford internationally recognized worker rights to employees in that country.
Suspending the benefits developing countries receive as part of the Generalized System of Preferences program (GSP) for Bangladesh is a highly symbolic move. As Bangladesh’s biggest trading partner after the European Union, the United States hopes it can exert significant pressure on authorities to reform labor practices and ensure workers’ rights in a country where factory accidents have been common and the minimum wage is just $38 per month.
Recent deadly industrial accidents “caused everyone to grieve but underscored problems we have seen in Bangladesh for some time,” U.S. Trade Representative Michael Froman said in a conference call with reporters after the announcement. “Our goal is to see Bangladesh restore its eligibility, but to see workers in safe conditions.”
He said the administration has no timetable in mind for restoring Bangladesh’s tariff breaks, noting that doing so will depend on the progress made in improving conditions for workers.
The United States expects Bangladesh to follow through on approving a new labor law and take a series of other steps being negotiated with the U.S. Labor Department, unions, civic groups and others. The suspension will become effective in 60 days — after publication in the Federal Register.
The Bangladeshi Foreign Affairs Ministry called the suspension “unfortunate” and “harsh” in a statement Thursday night. “It cannot be more shocking for the factory workers of Bangladesh that the decision to suspend GSP comes at a time when the Government of Bangladesh has taken concrete and visible measures to improve factory safety and protect workers’ rights,” it said.
The suspension abolishes tariff breaks granted to about $35 million worth of imports annually. The breaks cover a variety of goods that the United States imports free of tax. However, they do not apply to Bangladesh’s textile industry, which sells more than $4.5 billion worth of goods to the United States each year and in 2010 accounted for 90 percent of Bangladeshi exports to the country.
Though the GSP tariff breaks apply to only a small percentage of the country’s exports, Froman said the suspension “has greater impact than the numbers themselves suggest, given the public attention and the importance the government attaches.”
Labor unions and Democrats on Capitol Hill have been pressing the Obama administration to take this step. “Bangladesh’s labor laws must be dramatically improved, and suspending GSP benefits will hopefully help kick-start these overdue reforms,” said Sen. Robert Menendez (D-N.J.), chairman of the Foreign Relations Committee.
Trade advocacy groups generally argue against trade-disrupting measures on the grounds that workers experience the brunt of the pain they cause.
Kimberly Elliott, a trade specialist at the Center for Global Development who has been following issues in Bangladesh, said the administration is taking the wrong tack if it wants to change the country’s behavior. She believes that offering tariff breaks to textiles — and the prospect of a boost in Bangladesh’s already massive exports to the United States — would be a more effective strategy. That move would be controversial, however, among U.S. textile companies and poor countries such as Haiti and Kenya, which benefit from U.S. trade preferences.
“It is pressure from buyers that is going to get Bangladesh to change,” she said. “This case has been dragging on for six years, and it took a building collapse and a thousand people dying for the U.S. government to get to this point. It is not clear to me that it sends that much of a signal.”
Another option would be to increase tariffs on textiles directly, a move that also would hurt the dozens of U.S. companies that rely on Bangladeshi garment factories for their production. The United States purchases about 25 percent of the country’s $18 billion in annual apparel exports.
U.S. retailers Wal-Mart and the Gap have resisted participating in an international, legally binding industry agreement to improve safety conditions in Bangladeshi factories signed last month by mostly European companies. Instead, they are close to committing to an initiative of their own.
The European Union, which imported about $12 billion of goods from Bangladesh last year, also is contemplating whether to suspend trade benefits for Bangladesh. Such a decision would have far more impact, because Bangladesh’s clothing and textiles exports receive duty-free treatment there.
However, Lilianne Ploumen, the Netherlands’ minister for foreign trade and development, said that it shouldn’t get to that point, because the authorities in Bangladesh will yield to the pressure. “I cannot imagine them not acting to address these issues,” she said.