7 Effects of the US Suspending Trade Privileges with Bangladesh

Posted by Ryan Robinson on Jul 28, 2013

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The Obama administration announced yesterday that effective in 60 days, the US will offically suspend all trade privileges with Bangladesh.

The US government is suspending trade privileges and duty-free policies on over 5,000 imports with Bangladesh in an attempt to place more urgency on the country's need for drastic improvements in working conditions, labor rights, and overall factory safety standards in the aftermath of the Rana Plaza incident that claimed over 1,100 lives a few months ago.

Since this tragedy, governments around the world have signed petitions, provided funds for repairs, and are assisting in developing a detailed plan for improving the country's growing infrastructure problems.

The US is the first to take serious action, and the trade suspension means that duty-free benefits that cover some 5,000 products the country exports will be taken offline until standards have been met. Bangladesh's garment exports don't currently receive duty-free status, so the trade suspension is largely symbolic as it does not have a direct effect on the garment industry, but the signals this action sends to other nations and businesses is very strong.

Officials within the Obama Administration have offered Bangladesh a road map for steps it needs to take in order to have trade privileges reinstated. Experts on international trade have said the administration’s decision is a substantial blow to Bangladesh’s reputation as a global apparel supplier. This will place significant pressure on the Bangladesh government to move more quickly to improve factory safety and fix what much of the world views as a violation of worker's rights.

An outright suspension of trade privileges, however brings on many different effects. Here are 10 that you need to be aware of, because they effect everyone both inside and outside of the apparel industry.

1. Bangladesh's reputation permanently damaged

As one of the world's leading global suppliers in many industries, the US suspending trade privileges signals to the rest of the world that these issues will not be taken lightly and serious change is needed in order to restore good relations.

2. Discouraged foreign investment

In the eyes of businesses, any trade suspension calls for a re-evaluation of priorities on where products are sourced from. A trade suspension today could mean further restrictions in the near future, and this has a serious effect on businesses engaged in international trade.

3. Other nations suspending trade

The actions of the US in the world forum often trigger similar responses from other nations. While the US trade suspension has little direct effect on the garment trade for Bangladesh, if the European Union were to follow suit, the suspension of their protective tariffs would be very detrimental to the Bangladesh economy. Europe’s duty-free privileges include Bangladeshi apparel, and Europe buys 60% of the country’s garment exports.

4. Bangladesh economy adversely effected

Lower purchasing levels from foreign companies means less income for Bangladeshi companies in all industries, lower government revenues in the form of taxes, and fewer opportunities for Bangladesh to sell the goods that it produces.

5. Workers in Bangladesh out of jobs

Many industries other than the garment industry will likely be hit with decreased demand for Bangladeshi goods, which may in turn put many people out of work.

6. Higher costs for businesses

With the elimination of protective trade tariffs comes higher costs for corporations that import Bangladeshi goods. Since consumers have very well-formed conceptions as to the value of certain goods, a dramatic increase in price due to a sudden tax increase means that businesses will have to try and absorb more costs.

7. Higher prices for consumers

Shoppers end up paying more for what they want. Think high gas price hikes during the summer. When the cost of goods for a business spikes, these costs are typically passed on to consumers in some form, resulting in higher retail prices.

The actions of the US in suspending the protective trade agreements with Bangladesh is very explicitly intended to warrant swift response from the Bangladeshi government in addressing the alarming concerns within their production facilities. The international community wants working conditions to change for the Bangladesh people. The Bangladesh government claims it is working dilligently to address these concerns and is working with the US and other nations to do so quickly before a landslide effect begins to take place and their status as a global supplier is tarnished forever.

How do you see this playing out in coming months?

Topics: apparel industry, Pricing, Garments, Factories, global apparel supplier