The Generalized System of Preferences

Topics: World Trade Organization, International trade, Cyprus Pages: 5 (1536 words) Published: April 14, 2013
The Generalized System of Preferences, or GSP, is a formal system of exemption from the more general rules of the World Trade Organization (WTO), (formerly, the General Agreement on Tariffs and Trade or GATT). Specifically, it’s a system of exemption from the most favored nation principle (MFN) that obliges WTO member countries to treat the imports of all other WTO member countries no worse than they treat the imports of their "most favored" trading partner. In essence, MFN requires WTO member countries to treat imports coming from all other WTO member countries equally, that is, by imposing equal tariffs on them, etc. GSP exempts WTO member countries from MFN for the purpose of lowering tariffs for the least developed countries, without also lowering tariffs for rich countries.

Many of Bangladesh’s products enjoy duty-free entry under GSP, a program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 5,000 products when imported from one of 128 designated countries and territories. Of the $18.5 billion worth of products imported under the GSP program, products from Bangladesh make up only $26 million, or .54 percent of the $4.87 billion worth of products imported from Bangladesh in 2011. But, in last December, a fire in a Tazreen Fashion factory in Bangladesh left 112 workers dead and a host of U.S. lawmakers questioning whether Bangladesh should continue to enjoy preferential treatment under the Generalized System of Preferences (GSP). The United States Trade Representative (USTR) is now seeking commentary on the effects of removing Bangladesh from the list of GSP beneficiaries after lawmakers sent the USTR a letter expressing grave concern over the “deterioration of working conditions and workers’ rights in Bangladesh.”

Thus, the country’s businesses, in recent days, have become immensely worried over the US threat of possible withdrawal, suspension or limitation of Bangladesh’s duty-free benefits under the Generalized System of Preferences (GSP), and the adverse impact it would most probably have on trade with the US. For this reason, businesses and even the government think withdrawal of GSP is likely to deliver a very harmful message about the country to the US buyers. The flurry of consumer concern and adverse media publicity might encourage them to think that Bangladesh is not the right place to source from. Top business leaders of the country have already voiced their deep concern over the matter and sought quick government initiatives to resolve the issue through bilateral discussions.

Bangladesh’s export to the global market will slide and its image in export destinations outside the USA will be affected if the US withdrawals Bangladesh’s duty-free benefits under the GSP, said President of Dhaka Chamber of Commerce and Industry (DCCI) M Sabur Khan. “At any cost, we’ll have to ensure the continuation of the facility through proper negotiations,” Khan said. He said Bangladesh’s export to other countries might slow down if the country’s image is harmed through cancellation of the GSP facility. “Even our longstanding demand to get duty-free access to the US market, especially for RMG, may die down.” Moreover, Bangladesh’s growing plastic industry will be hit hard if the US withdraws Bangladesh’s duty-free benefits under the GSP, said BPGMEA president M Jashim Uddin.

Experts have been saying that if the US cancels our GSP facilities, it will have following spillover effect on other market facilities we enjoy in the US and European markets.

First, this will transmit a negative signal about Bangladesh not being a reliable sourcing country. This could undermine the confidence of US importers of apparels from Bangladesh even though apparels enter the US market duty-paid. Cancellation of US-GSP will likely increase the pressure exerted on importers by US consumer groups which have in the past expressed their concern as regards workplace...
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