Gaining duty free access to the US market
For many years the holy grail of Bangladesh trade policy has been to achieve duty free access to the United States apparel market. The attempts go back a decade but have not been successful. Now there is bill in the House of Representatives that, if passed, would provide considerable relief for Bangladesh apparel exports. This bill is called the "New Partnership for Development Act" and provides a partial solution for Bangladesh, improving competitiveness by avoiding some of the duties charged on apparel. (In the language of the American Congress a bill is a piece of legislation that has not yet been passed by the Congress; an act is legislation that has been passed.) While the draft of the bill in its present form has several points that reduce its useful impact for Bangladesh, there is room for negotiation and for adjustment of policies in Bangladesh. First, consider how Bangladesh might approach obtaining legislation that helps the exports to the United States. Then some of the technical issues of the draft bill will be discussed.
The draft bill is in the committee responsible for approval. As such, there is plenty of room but not much time to argue for changes in the draft. Bangladesh should not be shy in pushing its own agenda with American Congressmen. But this cannot be done only by a lobbyist. The lead has to be taken by the Bangladesh government and, in particular, by the ambassador and the embassy in the United States. Ministries in Dhaka, BGMEA, friends of Bangladesh in the United States, and professional lobbyists can all support, but the main effort has to come from the Bangladesh Embassy in Washington. Why? In dealing with Congressmen and their staff, it is essential to have regular contact and discussions. Furthermore, the ambassador must be able to negotiate; it is no use having a rigid position from which one does not deviate, it is necessary to make compromises and to suggest alternatives. While some of this can be prepared in advanced, much has to be done on the spot. It is, of course, necessary to have general direction from Dhaka, but it is impossible for the Dhaka authorities to deal with the day to day flow and feel of the discussions.
Naturally, there must be a great deal of support. Apart from the government's own directions to the embassy, valuable guidance can come from BGMEA and from the lobbyist. The lobbyist can help to frame the arguments and to gain access, but cannot define the policy -- that is the details of the duty free access. This is the responsibility of the Bangladesh government. The Bangladeshis resident in the United States can communicate with their Congressmen to vote for the bill, but one must first get legislation that is really helpful to Bangladesh. The government needs to aggressively negotiate with the authors of the bill to seek adjustments to achieve Bangladesh's purpose. It is essential to undertake this immediately. The policy with respect to the draft bill must be faced squarely, and decisions made on what are feasible to try to change and if the rest can be managed.
What are the issues in the draft bill?
What does this draft bill say about duty free access? The bill provides for duty free entry of garments at the same level as in 2007. Any imports above that level will pay the duties; further, this limit can increase at a rate of 15% per annum, starting in 2009. (The calculations are on square meters, not value) Bangladesh qualifies here as an LDC. It would be advantageous to persuade the US drafters of the bill that, once established as an eligible country, that eligibility remains for ten years. The argument for this is that investments will be encouraged by the bill, so that time should be allowed for investors to recover their investments. For Bangladesh, it may be possible to use 2006 rather than 2007 as the base; this may be more favourable as there is apparently a decline in exports to the US this year. One difficulty that will appear immediately is that the growth potential to the US is much more than 15%, so Bangladesh will have to find a way to distribute the duty free access benefits in an equitable way among exports that encourages the growth and improvement of the industry. This is a complex problem that BGMEA needs to work with government to solve. Labour issues: The draft bill calls for the countries that benefit to conform to ILO labour agreements with respect to freedom of association, collective bargaining, and child labour. The beneficiary must have these factors in law, have a mechanism to correct problems, and allow the US government to verify that these conditions have been properly handled according to the draft bill's requirements. On the one hand this is very intrusive, on the other, all of these labour conditions conform in principle with Bangladesh law and are supported by civil society. These matters are ones that should be followed according to Bangladesh law and the social vision. Value added: The most important area to negotiate is the condition to allow duty free access. This is the value added by Bangladesh to the garment. For knitted garments, this is no problem since the yarn is largely produced domestically and meeting the value added rule is straightforward. For products using imported fabric, the present definitions in the bill will make it difficult to meet the value added rule. There is some room for negotiation, and this is an area where the Bangladesh government should negotiate hard. Even if the bill is passed with the current value added rules, major investments in the textile sector will become more profitable and the value added rules can probably be met within a few years. The draft bill provides substantial benefits for Bangladesh, making its competitive position in the apparel sector much stronger with respect to exporters such as Vietnam, India and China. It also provides duty free entry for other products exported to the United States. It is worth negotiating and fighting to have passed. Forrest Cookson is an economist.
What does this draft bill say about duty free access? The bill provides for duty free entry of garments at the same level as in 2007. Any imports above that level will pay the duties; further, this limit can increase at a rate of 15% per annum, starting in 2009. (The calculations are on square meters, not value) Bangladesh qualifies here as an LDC. It would be advantageous to persuade the US drafters of the bill that, once established as an eligible country, that eligibility remains for ten years. The argument for this is that investments will be encouraged by the bill, so that time should be allowed for investors to recover their investments. For Bangladesh, it may be possible to use 2006 rather than 2007 as the base; this may be more favourable as there is apparently a decline in exports to the US this year. One difficulty that will appear immediately is that the growth potential to the US is much more than 15%, so Bangladesh will have to find a way to distribute the duty free access benefits in an equitable way among exports that encourages the growth and improvement of the industry. This is a complex problem that BGMEA needs to work with government to solve. Labour issues: The draft bill calls for the countries that benefit to conform to ILO labour agreements with respect to freedom of association, collective bargaining, and child labour. The beneficiary must have these factors in law, have a mechanism to correct problems, and allow the US government to verify that these conditions have been properly handled according to the draft bill's requirements. On the one hand this is very intrusive, on the other, all of these labour conditions conform in principle with Bangladesh law and are supported by civil society. These matters are ones that should be followed according to Bangladesh law and the social vision. Value added: The most important area to negotiate is the condition to allow duty free access. This is the value added by Bangladesh to the garment. For knitted garments, this is no problem since the yarn is largely produced domestically and meeting the value added rule is straightforward. For products using imported fabric, the present definitions in the bill will make it difficult to meet the value added rule. There is some room for negotiation, and this is an area where the Bangladesh government should negotiate hard. Even if the bill is passed with the current value added rules, major investments in the textile sector will become more profitable and the value added rules can probably be met within a few years. The draft bill provides substantial benefits for Bangladesh, making its competitive position in the apparel sector much stronger with respect to exporters such as Vietnam, India and China. It also provides duty free entry for other products exported to the United States. It is worth negotiating and fighting to have passed. Forrest Cookson is an economist.
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