US keen to ensure Bangladesh's economic growth post-LDC graduation
Brendan Lynch, the (acting) assistant US trade representative for South and Central Asia, is optimistic about the United States' support regarding Bangladesh's economic growth after its LDC graduation. In an interview with local media in Dhaka, he also spoke about the possibility of regaining GSP facilities, conducive investment climate, and more.
Bangladesh is scheduled to graduate from the LDC status in 2026. As one of the major trade partners, what kind of support Bangladesh can get from the US in addressing its post-LDC challenges?
Bangladesh’s potential graduation from LDC status in 2026 indicates how far the country has progressed in its economic development.
While this is positive news for Bangladesh, graduating from LDC status will require Bangladesh to make additional economic reforms in line with its international commitments.
One way to ensure that Bangladesh remains competitive even after graduating would be for Bangladesh to focus on labour law reform, especially with respect to freedom of association, collective bargaining, and unfair labor practices.
Aligning Bangladesh’s labor laws to internationally recognized labor standards would help ensure that Bangladesh can meet the eligibility criteria of the US Generalized System of Preferences (GSP) program.
Bangladesh is not without support after it graduates from LDC status.
The United States sees itself as a partner in our trade relationship with Bangladesh and remains committed to assisting Bangladesh continue to reform.
The United States wants to ensure that Bangladesh’s economy can continue to grow rapidly after LDC graduation.
Bangladesh is working to get GSP+ facilities from the EU and DCTS facilities from the UK. But still, Bangladesh has to pay an average 15% tariff while exporting to the US. Has the US any plan to resume GSP facilities again for Bangladesh?
As of now, the GSP program has lapsed and Congress has the legal authority to reauthorize the program, but has not yet done so.
The Biden Administration supports Congressional efforts to reauthorize the program and when it does get reauthorized, the key for Bangladesh to regaining GSP eligibility will be in its ability to show that it can meet the eligibility criteria established by the US Congress, including providing internationally recognized labor standards and worker rights.
Back in 2013, Bangladesh was removed from eligibility from the GSP program for failing to meet its worker safety standards and worker rights obligations after the Rana Plaza collapse.
If GSP eligibility criteria were met and Bangladesh was reinstated in the program, Bangladesh can benefit greatly from GSP.
In 2022, Bangladesh exported $11 billion of goods to the United States; $210 million of these would have been eligible to be imported tariff-free through the GSP program.
Bangladesh is the second-largest apparel exporter in the world and the largest cotton importer. The US is one of the major sources of raw cotton and also, the single largest destination for Bangladesh’s apparel exports. Recently, in line with US interests, Bangladesh removed the double fumigation on-arrival requirement for US cotton. Now Bangladeshi manufacturers are demanding duty-free access to apparel items made from US cotton. What’s the US position regarding this?
We appreciate that the Bangladesh government removed the fumigation on-arrival requirement for US cotton imports.
This action benefits both US cotton exporters and Bangladeshi apparel producers who utilize US cotton to produce readymade garments.
The removal of the cotton fumigation reduces production costs for Bangladesh’s garment producers and allows products to be exported to the United States in a timelier manner.
Granting Bangladesh duty-free access to apparel items made from US cotton is at the discretion of the US Congress.
The Office of the US Trade Representative does not have authority to grant tariff preferences.
I want to highlight though that even without preferences, Bangladesh is the third largest supplier of apparel to the US market and its reputation as a competitive supplier remains solid.
According to recent Otexa data, apparel import from Bangladesh is declining. What’s your point of view in this regard? Is it just due to global economic turmoil brought on by the Russian invasion of Ukraine, or is the US thinking about nearshoring?
Declining apparel exports to the United States can be attributed to the reduced consumer spending and the increase in US inflation that have negatively affected demand.
Despite these factors, Otexa data indicates that Bangladesh supplied a record $9.7 billion in apparel exports in 2022, as compared to $7.1 billion in 2021.
While monthly import data through July 2023 does show a decline compared to the same period in 2022, apparel imports from Bangladesh have actually declined less than overall US apparel imports from the rest of the world.
Currently Bangladesh is the third largest apparel exporter to the US. How can Bangladesh increase its market share in the US? What other opportunities do you see for Bangladeshi exports to the US?
Bangladesh’s garment sector is globally competitive due to its vertically integrated supply chain, strong fabric production base within Bangladesh due to the investment of textile mills, and more automated production processes which lead to efficient garment production.
One opportunity for Bangladesh would be to diversify its textile and apparel offerings to the United States in order to increase its market share.
In your point of view, what are the significant challenges for the US firms investing in Bangladesh? How can Bangladesh address those challenges?
The challenges for US investors -- who are currently in the market or are considering investing in Bangladesh -- center on both current economic conditions and the regulatory framework.
For example, foreign currency reserves have been dropping in the last two years, which puts pressure on exchange rates and affects businesses currently operating in Bangladesh ability to repatriate profits.
Bangladesh should also ensure that it has a strong legal and judicial framework that is fair, efficient, and contains anti-corruption measures to promote a sound investment climate.
Often, US companies note that it can take many years to resolve contract disputes through the judicial system.
Lastly, US stakeholders have noted concerns with the lack of adequate protection and enforcement of intellectual property.
Despite these challenges, the United State remains the largest source of foreign direct investment in Bangladesh and US investors remain excited about the Bangladeshi market.
For US investors, what Bangladeshi industries seem most promising?
Bangladesh has the potential to become a regional leader in digital trade, which is what I see as one of the most promising sectors for Bangladesh.
Recent government policies such as the draft Data Protection Act (DPA) have assured investors that the government wants to maintain a business environment for the ICT sector that incentivizes investment and facilitates digital trade.
We appreciate the Bangladesh government’s close engagement on the draft DPA and particularly the ICT Division’s receptivity to input from the US Government and US stakeholders throughout the drafting process.
This collaboration between our two countries shows to investors that Bangladesh’s approach to adopt a transparent regulatory environment with respect to digital policies supports its thriving ICT sector.
Do you think the US brands and buyers are paying fair prices to the Bangladeshi textile manufacturers and are they conducting ethical sourcing? If not, isn’t it high time?
Certain US brands, trade associations, and stakeholders have been calling on the Bangladesh government to address existing gaps in fair wages for garment workers.
Increasing minimum wages for garment workers will help to ensure that buyers are paying fair prices for Bangladeshi apparel.
Wages for garment workers in Bangladesh have stagnated as a result of the Covid-19 pandemic and its resulting supply chain crisis, and the current state of Bangladesh’s economy.
Bangladesh ranks near the bottom-quarter globally for wages paid to garment workers.
I understand that Bangladesh’s Wage Board Committee is actively reviewing minimum wages for the apparel sector, and I encourage the committee to raise wages so that workers receive fair pay.
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