For a pro-poor budget measure to save the garment sector

Garment manufacturers may have rejoiced at the news, with the promise of less taxes and more profits. But how long will it be before ruthless undercutting sees these profits simply passed along to the international buyers? A year from now will the owners be looking at their balance sheets and wondering how much they've really gained? Some may say that these price cuts will help make the sector more competitive, but when cost is just one of several critical factors affecting Bangladesh's competitiveness, it is a narrow and insufficient strategy. Others may claim that it will result in greater investment and backward linkages, but there is no guarantee that extra profits will be reinvested in the garment sector. When leaders of the industry are predicting gloom and doom after the end of the MFA, will they want to reinvest in the development of the sector or just maximise their profits while the going is good?

The government should instead use this budget to lay out a winning strategy for the industry, for the workers, and for the country.

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A vital component of the industry's competitiveness is

the skill and productivity of its workers. Regrettably, over the last two decades of the garment sector's growth, the welfare and development of the workers has been last on the list of priorities. What is particularly striking about this budget is that while four of its five official strategies are to generate employment for the poor, provide access to education and vocational training, ensure women's advancement, and ensure economic and social security for the poor, it offers nothing but new taxes for the 18 lakh garment workers. In fact, the proposed corporate tax cut will only increase the incentive for owners to further reduce their workers' salaries.

Before passing the new budget, the parliament should give serious consideration to a pro-poor alternative that would at the same time serve the long-term interests of the industry. Let the corporate tax rate be reduced for the RMG sector, but let the new rate be 20 per cent, in line with that proposed for the textile sector. The 10 per cent difference from what the government has now budgeted for should go directly into a special fund dedicated to the welfare and development of the country's garment workers. This would be a vital sign of support for the brave women and men whose tireless efforts have been the backbone of the industry and the foundation of the country's growing wealth.

This fund would have a mandate to undertake measures for the direct benefit of the workers. The fund could support, for example, providing basic literacy classes for workers who missed their chance for schooling, expanding the coverage of the workers' health care centres, or offering technical training courses for the workers' professional development. These are in fact measures which even most garment owners recognise as beneficial, but for firms busy with the day-to-day pressure of completing orders, there are limits to what they can do. As well, on an individual firm basis, the benefits of providing advanced training to workers are offset by the risk that trained workers will run off to jobs in other firms. For the industry as a whole, however, transfers between firms is not a loss, which highlights the need for such an initiative to be undertaken and financed at the industry-level. If sufficient investment is made for their development, the skills of the country's garment workers could become a key comparative advantage for the industry in the coming years.

It is worth noting that this fund could also do wonders for Bangladesh's business image. Already the reputation and reality of poor labour standards in the RMG sector is costing the industry hundreds of millions of dollars in lost potential orders each year. Why should we keep suffering this loss? Let us do something that will benefit the workers, improve the competitiveness of the industry, and show that Bangladesh is a place to do good business.

All this said, whatever the rational arguments for this proposal, is the government ready to risk irritating a powerful constituency after raising their hopes with the promise of a 10 per cent tax rate? Certainly most owners would see the proposal as doubling their taxes, instead of meaning they keep 80 per cent of their profits instead of 90 per cent. As a solution, the government could both appease the garment owners and further promote the sector's growth with a pledge to invest the remaining tax it collects back into the garment sector. Presently the government is doing only a fraction of what it could and should do for the industry. Much more can be done to aggressively promote Bangladeshi exports in new markets, to streamline the procedures for businesses, to help factories meet international quality assurance standards, and to create a leading brand image for garments from Bangladesh.

The government, though, may still prefer to charge ahead with its tax cut now and leave plans for the workers and the industry until later. But if it does, it will all too likely become yet another tale of too little, too late. The end of the MFA quotas should have been the impetus for a concerted industry development plan over the last few years. Now, with 18 months left, the deadline is just around the corner. If this budget fixes the RMG corporate tax rate at 10 per cent, the owners will insist on it staying there, and it is not realistic for the rate to bounce up and down each year. But if the government agrees on the need for investing in the women and men who have been the engine of the industry, where will it find the funds to do so? We shouldn't hold our breath waiting for the arrival of aid from developed countries to help us out-compete their own industries. If the government decides to fund such efforts from its regular budget, it will likely only be a token gesture to show that they are doing something even if it is nowhere close to enough. The garment industry is a large and crucially important sector and any serious measure to develop its workforce will need a substantial investment. With a reasonable revision in the proposed tax structure, the government can finance this urgently needed investment and help secure the future of the garment industry and its workers.

Alam Rahman is a researcher and development activist