Use rewards not punishments to help BD workers

Bloomberg Editorial

DHAKA: The U.S. is about to reimpose tariffs on Bangladesh in response to the country’s failure to improve safety in its factories. The European Union has threatened to follow the U.S.’s lead -- a move that would hit Bangladesh much harder. This punitive strategy is understandable, but there’s a better way to advance a worthy cause.

More than 1,000 people died when a garment factory near Dhaka collapsed in April; a few months before, a factory fire killed more than 100. Safety standards in Bangladeshi factories are dire, and government efforts to effect improvements have been paltry.

Under the Generalized System of Preferences, a global program that cuts or lowers tariffs on imports from developing countries, the U.S. requires compliance with certain labor standards. Bangladesh has failed to meet them, trade officials in Washington say, and that’s why tariffs are being restored.

The announcement is little more than a symbolic gesture because the U.S. doesn’t apply the GSP to many imports from Bangladesh in the first place. In 2012, the program gave tariff-free access to just $35 million in imports, out of a total of almost $4.5 billion. After the suspension of trade preferences, nothing will change for garment imports: They already face tariffs.

That’s not true of the EU. All imports from Bangladesh currently enter Europe duty-free under Europe’s Everything But Arms initiative. At a meeting July 8, Bangladesh dodged the immediate prospect of losing those privileges by promising to strengthen labor rights and hire additional workplace inspectors. EU officials said the country could still lose its GSP treatment if improvements were insufficient. If it does, the blow will be serious.

So much the better, you might think. But if the goal is to advance the welfare of Bangladeshi workers, let’s ask if there’s a better way than threatening to destroy their jobs and collapse their economy.

There is: The U.S. should sweeten the deal. As well as promising to restore limited GSP coverage if Bangladesh improves its safety record, the U.S. should promise to apply GSP to all the country’s exports -- as Europe has for years -- as long as there is measurable progress on safety.

Congress would have to go along, so this is no easy option politically. In fact, the entire GSP will expire automatically at the end of this month unless Congress finds time to renew it, as the U.S. Chamber of Commerce and others are urging. Given the will, though, the U.S. could be dangling an irresistible carrot in front of Bangladesh rather than just waving a flimsy stick. Meanwhile, the EU should refrain from withdrawing its duty-free access.

In addition, U.S. companies should be doing more on their own account. The Accord on Fire and Building Safety in Bangladesh, which took effect July 8, binds 70 retailers to maintain or increase their current orders with their main Bangladeshi factories for the next two years -- provided the factories make safety improvements called for by independent inspectors. (The retailers agreed to pay prices that enable the producers to comply.) Many big EU companies, including Hennes & Mauritz AB, Inditex SA and Tesco Plc, have signed; with the exceptions of PVH Corp. and Abercrombie & Fitch Co., no U.S. retailer has.

A group including Wal-Mart Stores Inc. and Gap Inc. is drafting an alternative safety program. If it contains the funding and enforcement mechanisms of the existing plan, it will be redundant. If it doesn’t, it will be inadequate. A word of support for the accord from a high-level U.S. government official -- say, Commerce Secretary Penny Pritzker -- could be helpful in nudging them to sign.

There’s another reason, by the way, to favor the carrot over the stick: Duty-free access is good for American and European consumers. It makes things cheaper. And all countries gain from a bias to expand rather than reduce trade. Unions in rich countries sure don’t see it that way -- and it’s worth bearing in mind that the petition to deny Bangladesh and its U.S. customers GSP benefits was first lodged by the AFL-CIO. Trade policy is always liable to be captured by groups that have an interest in restricting competition.

It’s a tendency governments have an obligation to lean against; in this case, they can do it by preferring rewards to punishments.