Crazy Backward Policy Toward Bangladesh

It is widely expected that the Obama Administration will act today to suspend Bangladesh from the Generalized System of Preferences (GSP) program in response to a complaint from U.S. labor unions. Under the GSP program, some imports from some low-income countries can enter the U.S. market without paying tariffs. (Sallie James has done excellent work describing the pros and cons of this policy from a free trade perspective). Supporters of the suspension point to recent deadly industrial accidents to argue that Bangladesh needs stronger labor laws before being allowed to benefit from GSP tariff rates. In truth though, suspending Bangladesh from the program has zero chance of improving working conditions or wages in Bangladesh.

First off, less than 1 percent of Bangladesh exports to the United States currently enjoy low tariff treatment under the program. The vast majority of the $5 billion worth of Bangladeshi goods entering the United States every year are apparel products, which are exempt from GSP and have always faced steep tariffs. In other words, revoking GSP access is not a very big stick to use to get Bangladesh to change its labor laws.

Second, if access to the U.S market through the GSP program is meant to help Bangladesh, wouldn’t revoking that access harm Bangladesh? Indeed, the success of the suspension depends on it. Proponents of the suspension claim that increasing tariffs will prompt the Bangladeshi government to change its laws. This logic depends on the premise that policymakers in Dhaka are less attached to their domestic labor laws than they are to preferential access to the U.S. market. Considering how small of an impact the suspension will have on the Bangladesh economy, this premise is highly questionable. In the meantime, U.S. trade barriers will be working to prevent the development of more industries in Bangladesh.

Finally, even if the suspension is only temporary and successfully meets its goals of encouraging new labor laws, the fact remains that most people in Bangladesh will not benefit from more restrictive labor policies. Sweatshop conditions in the developing world are often shocking to Western consumers, but employment in the garment industry offers an unprecedented level of opportunity for millions of people. This is especially true for women looking for personal independence and wealth they could never find in traditional, agricultural society. Approximately 80 percent of Bangladesh’s four million garment workers are women.

Raising tariffs to promote labor restrictions is exactly the opposite of a good policy. Employment restrictions increase the cost of hiring labor. In doing so they are sure to decrease investment. Access to foreign capital and global consumer markets, on the other hand, increases the value of Bangladeshi labor.  Greater productivity per capita will empower workers to demand higher wages and better working conditions. Removing the bottom rungs is not going to help anyone climb a ladder, but open trade and investment will give more people in Bangladesh the strength to pull themselves out of poverty.