The outcome of the recent visit to Dhaka by the Assistant US Trade Representative Mr. Michael Delaney was a disappointment for the Government, especially the Ministry of Commerce. Given the mood and direction of US policy, the outcome should not have been surprising. Mr. Delaney simply restated the US position that there would be no reinstatement of Bangladesh in the list of Generalized System of Preferences (GSP) beneficiary countries until the objectives of its 16-point Action Plan set out in July 2013 are fully achieved. He also emphasised that the decision not to restore GSP for Bangladesh was not political as asserted by ‘some’ in Bangladesh, but rather a consequence of the failure to achieve the objectives of the Action Plan.
That ‘some’ obviously included the Commerce Minister who had been striving to lay the blame for the loss of the GSP benefits on the political machinations of USA, and not on any failing of his Ministry or the Government. But he overlooked that the very acceptance of the 16-point Action Plan suggested that there were many failings on the part of the Government in respect of oversight of labour safety and labour rights. The Minister repeatedly claimed that all the requirements of the plan had been met. The US side disagreed; it did appreciate that much had been achieved, but crucially added that more remained to be done to implement the Action Plan fully. Shorn of diplomatic niceties, USA simply rejected the Minister’s claim of achieving all the objectives set out in the Action Plan.
Most curiously, the International Affairs Adviser to the Prime Minister took the side of USA in this controversy. He publicly contradicted the Commerce Minister, and endorsed Ambassador Bernicat’s explanation of the reason for the US action (or for that matter, inaction) on GSP. That left the nation wondering which was really the official position of the Government? When two functionaries of the Government at the highest level differ so sharply on a controversial bilateral issue what message does it send to the other side and how does that impact on future negotiations?
It has now dawned upon the Commerce Minister that Trade and Investment Cooperation Framework Agreement (TICFA) would not be meaningful without GSP. The Minister had signed TICFA without any discussion with the public who came to know about its content only when the USTR put the text of the agreement on its website immediately after it came into force. Nonetheless there were some discussions among the civil society since the general structure of the agreement was known from earlier negotiations and the texts of similar agreements with other countries were readily available. Occasional statements of relevant officials also gave some indications regarding the sticking points of the proposed agreement.
The Commerce Minister had initially assumed that the signing of TICFA would ensure that GSP would not be suspended. The basis of such an assumption was not clear. However, some people suspected that this was an erroneous assumption, and the Ministry was forewarned about the dangers of working on such an assumption. (See for example, TICFA and GSP: A tenuous link, bdnews24.com, February 3, 2013). Even though the Ministry might have regarded it expedient to disregard the concerns of ‘outsiders’, the suspension of GSP by the US President on 27th June 2013 should have driven home that the Ministry’s assumption was not realistic. Unfortunately the ministry disregarded the signs writ large, and signed the TICFA on 25th November 2013. Coming so soon after the GSP suspension and a lot of bravado by top functionaries of the Government, this appeared to be a capitulation to appease USA in order to regain GSP. The assumed link between GSP and TICFA either did not exist or was rather weak. TICFA was unlikely to have undue influence on the US decision on GSP. The Assistant USTR made it very clear in his speech in Dhaka on 23rd September what USA expected of Bangladesh in order to reverse the decision on its GSP eligibility.
However, any clause of an agreement can be interpreted either rigidly or flexibly. Whether a contracting party would take a tough or soft attitude depends to a large extent on its overall ambition or strategy in respect of the other party. Hence, if the Minister wants to regain GSP for the country’s exports quickly he has to figure out, if it is not known to him already, what USA might expect of the Government. Once that has been established he has to work out if it is feasible or profitable for the country to yield to US expectations. If so, he has to ensure that credible steps for necessary reforms or changes are taken before he raises the issue in a forthcoming TICFA meeting. Otherwise he will be disappointed again.
It should be noted that TICFA is a discussion forum for all trade and investment related issues; GSP is just one of these issues. Many other issues, such as standards and Intellectual Property Rights (IPR), will assume great importance in our trade relation with USA in the near future. It will not be wise to neglect to use TICFA to our benefit just because GSP issue has not been resolved in our favour.
What softens the blow of the suspension of GSP is that it actually applies to a very small part of our exports to USA, and hence has minimal impact on US-Bangladesh trade and investment in the short to medium term. Even if the GSP is never restored there is a silver lining to it. It is preparing the country to trade without GSP. One should learn to convert an adversity into an advantage.
If the Prime Minister succeeds in keeping her repeatedly given promise to the nation that it will be a middle income country (read developing country) by 2021, it will lose duty-free quota-free access to a host of countries including EU, Canada, Australia and Norway, and preferential access to some other countries that it has on account of being a least developed country. When this happens most of our exports that enjoy duty-free quota-free access will be hit by the same tariff wall as faced by other developing countries such as India and Vietnam. The price advantage that our exporters enjoy against non-LDC developing countries will disappear.
Bangladesh needs to prepare itself for this eventuality. When it is graduated to a developing country, its exporters to USA will be the least affected because they do not get GSP benefits in any case. They are already competing with other countries in the US market at par or below par, and hence the transition from LDC to a developing country will not pose much difficulty for them. But exporters who have become accustomed to duty-free access in other countries will have to learn to compete at reduced profits when this privilege, which has been a major force in the country’s export growth during the last two decades, is withdrawn. There will have to be some restructuring of the export industries in order to flourish in the new trade regime. The Commerce Minister would do well to expend some efforts in order to minimise the pain of the future restructuring.
M. A. Taslim is a Professor of Economics of the Department of Economics, University of Dhaka, and a former Chairman of Bangladesh Tariff Commission and was a government negotiator at WTO talks.