1.

Introduction to Report

In 2012-13, total export in Bangladesh was 23757.6 US Dollar (including EPZ) and
export of RMG is 16068 US dollar. The percent of RMG in total export is 80.6%
(Excluding EPZ). In 2011-12 and 2011-10 the percentage were 78.4 and 77.1
respectively. Readymade garments or RMG industry rapidly became important in terms
of employment, foreign exchange earnings and its contribution to GDP. But poor working
conditions in the factories and a lack of Social compliance are serious concerns, which
have, since 2006, led to labor unrest and damage to institutions and property. As a result,
there is a rising fear in Bangladesh that the readymade garments sector may face a decline
in demand in global markets especially in USA and EU who are main buyers of RMG.
We are exporting RMG in USA and EU within the facility of GSP but recent negative
events in RMG sector rise the concern in getting GSP in future. As GSP is very important
for Bangladesh, Govt. should try to do everything ASAP to regain position which is in
threat. Considering RMG industry is the most important sector in Bangladesh this report
has done on the RMG Industry and Effect of GSP in USA and EU.
1.1
Report Background
As a coursework of the course titled by International Business in MBA Program, we are
assigned to do a report within the scope of international business on the perspective
Bangladesh. The topic is RMG industry in Bangladesh: Effect of GSP facility in
USA and EU.
1.2
Questions to Answer
When going to start this report work we set up some questions to be answered after
completing the full report. Our report questions are:
Trend of RMG industry in Bangladesh upward or downward?
Factors behind RMG industry expansion to global markets?
Effects of GSP facility on RMG given by USA and EU
What opportunities are waiting for Bangladesh?
What are the challenges need to be overcome in coming days to use opportunities?
1.3
Scope of the Report
In the report we have included three main topics of RMG:
Trend of Export in RMG sector
Effect of GSP facility given by USA and EU (European Union)
Opportunities available and Challenges to overcome
1.4
Methodology and Data Analysis
Descriptive research design is obtained to present this report. Only secondary data
sources used. Online article, report, research, Export and Economic Data from website of
Bangladesh Bank (www.bangladesh-bank.org), news from The Daily Star
(www.thedailystar.net) are main source of data used in the report. Simple time-series
analysis in graph and chart are used to describe the overall conditions and effect of GSP
in RMG Sector through MS Excel 2013.
1.5
Limitations
There is only one limitation we face which is time we have given only 6 days to
complete the report with available resources and information. But for a group work this
limitation did not become severe in time of completion.

Page 1 of 17

2.0
RMG Industry in Bangladesh
Today RMG (Readymade Garments) industry is the most contributing sector in the
amount of export that Bangladesh do. In recent years percentage of RMG in total export
is rising from 75% to 80%. In 2012-13 the percentage was 80.6%. Thus RMG industry
dominating in export and also contributing in GDP growth and overall economy.
But all these expansion and global demands started after the failure of Jute export (which
was the big item in export in the past). From World War II to 1970s Jute was contributing
70%-80% of total export from Bangladesh. The share of the jute sector in foreign
exchange earnings started to decline due to various synthetic substitutes and artificial
fibres entering the market since the 1980s. Between 1980/81 and 1999/00, exports of both
raw jute and jute products started to decline and in 2004, this had decreased to 3%.With
the significant decrease in world demand for jute fibre leading to declining prices,
together with the constant threat of flooding, the contribution of the jute sector to the
countrys economy declined. The focus soon shifted to the production sector, especially
garments industry. And now RMG became the biggest contributing sector in export of
Bangladesh.
2.1
History of Development, Expansion and Success
The first consignment of RMG export from Bangladesh was made with Knitwear items in
the late 1970s. But it was the woven sector which flourished significantly by the middle
of 80s and holds the rank of the largest export earning sector for the last 3 decades. The
dynamic growth of RMG industry (especially knitwear sector) has been started with the
beginning of new millennium and has been the largest export earning sector of
Bangladesh since 2008. At present Bangladesh RMG industry (Knitwear sector) is the
second largest supplier in the world.
After the declining of Jute exporting in the global market, Bangladesh started to rely on
RMG Export. The Evolution of RMG can be seen through this chart:
From chart it is clear about
failing of Jute export and rise
of RMG export in period of
1970-2008. At present (201213) percentage goes to 80.6%
for RMG and 3.8% for Jute.
Actually RMG is taking the
right place of Jute which
dominated in the past, though
to this day, jute is the second
highest contributor in the
export earnings of Bangladesh.
The garments industries, in particular the readymade garments sector, developed quickly,
owing to global market economic restructuring, global relocation, low cost of labor, tax
breaks, trade preferences and a supportive government policy. Although two-thirds of
Bangladeshis are farmers, about 80.6% of Bangladeshs total export earning comes from
the garments industry, which began attracting foreign investors in the 1980s.

Page 2 of 17

Now Bangladesh garments export market was concentrated in USA and EU. Export Data
of last 10-15 years indicating that Bangladesh had successfully established a remarkable
position in the world markets. The year 2005-06 proved a successful turnaround in
exports to third countries, which was about 16.57 percent of total export market compared
to only 1.90 percent in 2001-2002 (B.B., 2007). In 2012-13, $3487 million of RMG
products exported to USA (21.70%) and $9299 million to EU (57.87%) and 20.43% to
other countries all those statistics indicates that Bangladesh has established itself
strongly in global market of RMG products.
2.2
Factors of Success in RMG
Bangladesh is experiencing a boom in World RMG market from 1980s. There are various
factors behind the success and expansion story. The major factors are given below:
Strong & Expanding Backward Linkage especially in Cotton items
90% of Domestic Supply Meet Total Fabric Requirement and 75% of the total
Yarn Requirement
Lower labor and production cost.
Easy and Abundant Access to Skilled Labor Force
Flexible Labor Market Laws and Regulations
Price Competitiveness
Improved Product Diversification and Upgrading
Meeting World Standard on Social Compliance Issues
Pull of Courageous and Intelligent Entrepreneurs
Export Friendly Policy, Govt. Support and Flexible Financial Market
Continuous Effort for Image Building and Market Promotion
2.3
RMG Export (Year Basis)
Every year value of total RMG export is increasing from Bangladesh. From the figure
below, it shows the increasing trend of value export in RMG sector dividing into main
parts Knitwear & Woven. In 2012-13 total RMG export was 21,515.73 million US dollar
including 10.475.88million knitwear and 11, 039.85million woven and growth rate was
10.43%, 14.96% and 12.71% in knitwear, Woven and total RMG export respectively.

Knitwear

2013-Feb'14

2012-13

2011-12

2010-11

2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

2003-04

2002-03

2001-02

2000-01

1999-00

1998-99

1997-98

1996-97

1995-96

12000.00
10000.00
8000.00
6000.00
4000.00
2000.00
0.00

1994-95

US Dollar (Million)

RMG: Knitwear & Woven Export (Year Basis)

Woven

In current FY2013-14 up to February the total export value is 16,120.63 million dollar
including 7,892.28 knitwear and 16,120.63 woven with growth rate of 17.50%, 15.92%,
and 16.67% for Knitwear, Woven and RMG respectively.
Page 3 of 17

Also a noticeable thing is that Woven is gaining its high position in RMG Export in
recent years which was lost after 2007-08. But overall growth is positive for Bangladesh.
We are saying that despite violence in RMG sector the overall growth rate of RMG sector
is positive. In the last 20 years, Bangladesh have experienced only 3 times extreme lower
growth rate than average growth rate 20.45% of Knitwear, 10.97% of Woven and 13.79%
of RMG in 2001-02, 2009-10, 2011-12 (except woven).
In FY2013-14 Export Target for Knitwear 11,575.85 million dollar and Woven 12,571.46
million dollar. Within February, 2014 real export value goes up to 7,910.28 (Knitwear)
and 8,228.35 (Woven) million dollar. A little short in woven target but good in knitwear.

Growth Rate in RMG Export

Percentage

60.00
40.00
20.00
0.00
-20.00

Knitwear Growth

Woven Growth

Total RMG Growth

As year passing, RMG is contributing highly in the total export of Bangladesh. In current
FY2013-14 81.39% of total export is from RMG sector. In past 15 years 75% of total
Bangladesh export came from RMG sector. The only change is that Woven is
contributing more than Knitwear in recent years like the years in beginning.

% SHARE IN TOTAL BD EXPORT

PERCENTAGE

Knitwear

Woven

RMG

70.00
50.00
30.00
10.00

2.4
RMG Export (Country/Group/Regional Basis)
Which are the biggest market for Bangladesh RMG industry. From the below table we
see combination European nations EU is the biggest importer of RMG Products. USA is
the second in import position. Among EU zone Germany and UK are biggest importer of
Bangladesh.

Page 4 of 17

Country wise RMG Export

(2008-09 2011-12)
(Amount in Million US dollar and Growth in Percentage)
Country/Group/Region 2008-09 2009-10 Growth 2010-11 Growth 2011-12 Growth
EU 15
188.32
173.38
-7.93
255.04
47.10
301.7
18.30
Belgium
252.54
243.57
-3.55
462.67
89.95
559.07
20.84
Denmark
155.17
211.75
36.46
306.75
44.86
405.51
32.20
France
969.8
952.92
-1.74 1405.69
47.51
1271.9
-9.52
Germany
2135.8 2000.08
-6.35 3130.97
56.54
3396.3
8.47
Italy
522.28
540.38
3.47
761.93
41.00
862.62
13.22
Ireland
94.05
134.3
42.80
159.87
19.04
186.95
16.94
Netherlands
907.8
917.36
1.05
965.2
5.21
552.04
-42.81
Spain
545.89
521.54
-4.46
849.41
62.87 1071.12
26.10
Sweden
174.92
184.86
5.68
300.78
62.71
312.94
4.04
UK
1222.92 1260.02
3.03 1759.87
39.67 2214.55
25.84
Poland
49.06
50.59
3.12
161.67
219.57
322.74
99.63
EU 26
7218.55 7190.75
-0.39 10519.85
46.30 11457.44
8.91
USA
3693.4 3628.05
-1.77 4625.16
27.48
4529.4
-2.07
Canada
587.05
595.55
1.45
894.67
50.23
874.85
-2.22
Australia
49.29
85.56
73.58
192.9
125.46
307.54
59.43
Brazil
39.57
45.17
14.15
94.64
109.52
127.78
35.02
Chile
6.41
8.09
26.21
12.93
59.83
16.93
30.94
China
9.49
18.95
99.68
52.81
178.68
104.52
97.92
India
10.94
12.53
14.53
35.94
186.83
55.02
53.09
Japan
74.33
173.32
133.18
247.51
42.81
403.65
63.08
Korea Republic
5.42
22.36
312.55
47.21
111.14
80.14
69.75
Mexico
81.88
61.41
-25.00
81.16
32.16
98.65
21.55
Russia
16.16
20.39
26.18
51.86
154.34
76.49
47.49
South Africa
42.51
36.26
-14.70
48.43
33.56
55.76
15.14
Turkey
239.54
306.57
27.98
518.32
69.07
355.93
-31.33
Others
273.54
292.06
6.77
491.57
68.31
545.61
10.99
Total
12348.08 12497.02
1.21 17914.96
43.35 19089.71
6.56

Though there negative and positive growth too like 2009-10 RMG export growth in EU
shows -0.39 growth rate but in 2010-11 the growth is 46.30%. But existence of potential
Market expansion is also there just need strict control of factors affects negatively.

3.0

RMG and GSP facility

Readymade Garments Industry and GSP (Generalized System of Preferences) is one of

the hot topic in the exporting sector of Bangladesh. Everywhere anxious is spreading as
quickly as air can goes. But actually what happening? The real thing is that we didnt get
much benefit in USA GSP system in terms of RMG exports. The percentage of benefit is
less than 1% of total RMG exports. But suspension of GSP in USA could influence the
EU GSP system for Bangladesh from where we get more benefits of duty-free trade. So
having or not having GSP situation, how they influence or contribute to economy of
Bangladesh is necessary to know. In this part we are going to details of GSP in USA and
EU; its effect on Bangladesh in Future.
Page 5 of 17

3.1
Generalized System of Preferences (GSP)
The Generalized System of Preferences, or GSP, is a preferential tariff system which
provides for a formal system of exception from the more general rules of the World Trade
Organization (WTO), (formerly, the General Agreement on Tariff 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. The
preferential access is in the form of lower tariff rates (or as in the U.S. case, duty-free) for
certain products that are determined not to be import sensitive in the receiving country
market. 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.
3.2
History of GSP in Action
The idea of tariff preferences for developing countries was the subject of considerable
discussion within the United Nations Conference on Trade and Development (UNCTAD)
in the 1960s. Among other concerns, developing countries claimed that MFN was
creating a disincentive for richer countries to reduce and eliminate tariffs and other trade
restrictions with enough speed to benefit developing countries.
In 1971, the GATT followed the lead of UNCTAD and enacted two waivers to the MFN
that permitted tariff preferences to be granted to developing country goods. Both these
waivers were limited in time to ten years. In 1979, the GATT established a permanent
exemption to the MFN obligation by way of the enabling clause. This immunity allowed
contracting parties to the GATT (the equivalent of today's WTO members) to establish
systems of trade preferences for other countries, with the caveat that these systems had to
be "generalized, non-discriminatory and non-reciprocal' with respect to the countries they
benefited (so-called "beneficiary" countries). Countries were not supposed to set up GSP
programs that benefited just a few of their "friends.'
Since the early 1990s, a historic change affecting developing countries has occurred
within the WTO. Namely, WTO rules have been extended to cover both textiles and
agricultural products. For nearly all of the WTO's (and GATT's) existence, which started
in 1948, textiles and agricultural products were excluded from WTO/GATT coverage
because they were so sensitive to GATT's primary promoters, the United States and
Europe. That situation has changed, and under new WTO rules, many textile tariffs and
quotas already have been eliminated, and liberalization of trade policy also is occurring
on the complex agricultural front. In many cases, textiles and agricultural products,
including value-added products like flour rather than raw agricultural goods like wheat,
are the main products that many of the world's least developed countries are able to
export competitively.
3.3
GSP in USA
The U.S. Generalized System of Preferences (GSP) program provides non-reciprocal,
duty-free tariff treatment to certain products imported from designated beneficiary
developing countries (BDCs).The GSP program is designed to promote economic growth
in the developing world by providing preferential duty-free entry for up to 5000 products
when imported from one of 123 designated beneficiary countries and territories. The GPS
program also supports U.S jobs. U.S. business imported $19.9 billion worth of products
Page 6 of 17

under the GSP program in 2012, including many inputs used in U.S. manufacturing. The
United States, the European Union, and other developed countries have implemented
similar programs since the 1970s.The U.S. program was first authorized in Title V of the
Trade Act of 1974, and is subject to periodic renewal by Congress. According to a 2005
U.S. chamber of commerce study, over 80000 American jobs are associated with moving
GSP imports from the docks to farmers, manufacturer, and retail shelves. GSP was
instituted on January 1, 1976, by the Trade Act of 1774.
The U.S. program (as established by Title V of the Trade Act of 1974) is subject to
periodic renewal by Congress, and was last extended through July 31, 2013, in P.L. 11240. GSP expiration means that program renewal, and possible reform, may continue to be
a legislative issue in the second session of the 113th Congress.
Renewal of the GSP program has been somewhat controversial in recent years, and there
has been considerable discussion in Congress about GSP reform. For example, some in
Congress have asserted that certain more advanced developing countries (such as Brazil
and India) are receiving GSP benefits so that least-developed countries (LDCs) are not
receiving the maximum benefits and support possible.
GSP Contribution to LDC Countries:
More than two-third of all countries participate in GSP for 4800 products to
export duty free in USA market and earn foreign money for respective economy.

GSP helps developing countries compete against Chinas domination

GSP helps a diverse group of countries from developing and LDC group

GSP accounts for a large share of developing country exports: For example:
Paraguay (76% of total exports to the U.S.), Georgia (39%), Lebanon (49%).

GSP benefits women and the rural poor through increase share of export.

Recent Developments: On July 17, 2013, a GSP renewal bill was introduced in the
House, H.R. 2709, seeking to extend the preference until September 30, 2015. A related
bill, S. 1331, was introduced in the Senate on July 18. Controversy reportedly arose in the
Senate over funding of the GSP program, which was not resolved prior to the July 31
expiration date. Thus, the program expired and has not yet been renewed.
Countries Recently Suspended from or Included in GSP: On June 27, 2013, the
President announced the suspension of GSP benefits for Bangladesh on the grounds that
It has not taken or is not taking steps to afford internationally recognized worker rights
to workers in the country. On March 26, 2012, President Obama suspended GSP
benefits for Argentina included Republic of South Sudan and Senegal
3.4
Suspension of Bangladesh From GSP
Washington, D.C. United States Trade Representative Michael Froman issued the
following statement on to suspend the eligibility of Bangladesh for tariff benefits under
the Generalized System of Preferences (GSP) Program:
Our GSP statute requires certain basic standards for worker rights and worker safety as
a condition of eligibility. Over the past few years, the U.S. Government has worked
closely with the government of Bangladesh to encourage the reforms needed to meet
those basic standards. Despite our close engagement and our clear, repeated expressions
of concern, the U.S. Government has not seen sufficient progress towards those reforms.
Page 7 of 17

The recent tragedies that needless took the lives of over 1200 Bangladeshi garment
factory workers have served to highlight some of the serious shortcomings in workers
right and safety standards in Bangladesh. While taking this action today, the
Administration is also initiating new discussion with the government of Bangladesh
regarding steps to improve the workers right environment in Bangladesh so that GSP
benefits can be restored and tragedies like Rana Plaza building collapse and Tazreen
Fashion Factory fire can be prevented.

In 2012, the total value of imports that entered the United States duty-free under GSP was
$19.9 billion, including $34.7 million from Bangladesh. Top GSP imports from
Bangladesh in 2012 included tobacco, sports equipment, porcelain china, and plastic
products. The United States will continue to accept imports from Bangladesh following
this decision; however, none will be eligible for duty-free treatment under GSP while
Bangladeshs benefits remain suspended.
The move came after the US largest trade union, American Federation of Labor and
Congress of Industrial Organization (AFL-CIO), filed a petition with the USTR in 2007
questioning Bangladeshs eligibility for GSP. Celeste Drake, trade and globalization
policy specialist at the AFL-CIO, said in a statement.
The government of Bangladesh has been too neglectful for too long, shirking its
duty to protect the very workers who are the backbone of the Bangladeshi
economy and make it grow,
3.5
Effects of GSP Suspension in Bangladesh
At first we should look at what Bangladesh was getting from GSP in USA. The benefits
or opportunities are:
Bangladesh can export nearly 5000 products duty-free to US. Golf equipment,
plastic bags, bone china, porcelain kitchenware, headgears, spectacles and tents
are on the list.
GSP covers less than 1% of Bangladeshs total exports to the US a year.
Bangladesh spared $2m in duties on $35m of exports to US under GSP in 2012.
US GSP program does not include garment from Bangladesh. The nation paid
$749.7m in duties at 15.3% on $4.9b of garment exports to American market in
2012
Bangladesh enjoys trade benefits from US along with neighboring countries India,
Bhutan, Cambodia, Nepal, Indonesia, Sri Lanka, and Thailand
At a glance the major effects are:
Economic costs of GSP withdrawal may not seem significant, but it carries reputation
costs and can also influence European Unions decision to cancel GSP privileges
EU action, if any, could have a much bigger economic impact as its duty-free
privileges cover garment
GSP loss may discourage American companies from investing in Bangladesh
Due to the suspension of the GSP, a duty waiver scheme adopted in 1976 by the US
government for more than 5,000 goods from least developed and developing countries,
Bangladesh will lose competitiveness in the US market.
Although Bangladesh exports less than 1 percent of $5 billion annually under the GSP to
the US market, the impact of the withdrawal is significant. This is because some other
Page 8 of 17

countries in the European Union, where the country enjoys duty waiver, might be
influenced by the US decision. The economic impact of the withdrawal could have been
much deeper if the garment products had been included in the GSP package. Since
garments are not covered by the scheme, Bangladeshi apparel exporters have to pay 15.3
percent duty to enter the US market.
The probable financial loss in terms of falling export may be very small, at least in the
short run. As RMG products (which make up most of the US import from Bangladesh)
are not included in the list of duty-free products in GSP, there will an export fall of about
$40 million according to Charles Kernaghan, executive director of Institute for Global
Labor and Human Rights. At present, Bangladesh exports about $5 billion worth of goods
(mostly RMG products) to the USA every year and hence, the suspension from US GSP
will account for a fall in export of about 0.8%. Effect of GSP suspension and bad
coverage media can be viewed this below figure:

KNITWEAR EXPORT IN USA

1130.9

1119.04

1013.95
959.42
891.61

2008-09

2009-10

2010-11

2011-12

2012-13

From the figure it is clear in every violence year in Politics and RMG sectors, exports of
RMG decreases by slight or big figure. As US importers try to avoid Bangladeshi product
during bad media coverage of political and RMG violence time.
However, this $40 million will translate to export loss for some small industries in the
country, namely, ceramic products, tobacco, etc. Since global export of products from
these industries are very small compared to that of RMG sector, this $40 million export
fall will make up a much larger proportion total export for these small industries.
More importantly, Bangladeshs image as a trade partner of the USA is tainted. This may
discourage US and other foreign investors, new and old, from venturing into Bangladesh,
which may have a moderate effect on the prospect of future export growth of the country,
particularly in US market.
The biggest short-run fear for the country will be to see a similar action adopted by
European Union. EU had previously threatened to remove preferential access of
Bangladeshi RMG products in EU market if the government did not take measures to
improve the working condition in Bangladeshi factories. Bangladesh RMG export to EU

Page 9 of 17

grew to about $11.37 billion as of June 2012. Hence, such an action will be devastating
for the countrys RMG sector which exported about $19 billion dollar worth of products
in the last fiscal year and employs about 4.5 million people at the bottom of the
population pyramid, 80 % of whom are women.
Thus, there will be increasing pressure on the government to improve working condition
as EU will be closely observing Bangladesh. Several European importers have already
come forward to help the country in improving safety features of RMG factories, which is
a good sign for the country.
3.6
Reasons of GSP Suspension
No visible upgrade to factory conditions since 2007 AFI-CIO filed for GSP review
Rana Plaza disaster intensified calls for trade benefits to be curtailed
Bangladesh is yet to pass new labor law in parliament
3.7
Real Scenario After GSP Suspension
The interesting point to take into account here is Americas lack of effort in coming
forward to help Bangladesh to improve its working conditions since Aprils Rana Plaza
collapse. So far, main US importers like Walmart have not made any concrete
commitment to improve the working conditions of the factories from which they import
clothes for their outlets. Disney has terminated its RMG import from Bangladesh.
Interestingly, the US government has always charged a rather hefty tariff from
Bangladesh and other countries RMG export. In 2010, Bangladeshi RMG export faced a
tariff about $650 million (which was about 17% of the total 2010 RMG export value).
To conclude, this suspension from US GSP is little more than a symbolic action by the
US government to punish the factories concerned for the recent RMG factory tragedies.
All eyes are now on the Bangladeshi government and US importers that source apparel
from Bangladesh. So far, neither has taken any major initiative to address the poor
working conditions in Bangladeshi RMG sector.
3.8
GSP facility in European Union
Countries from Europe started GSP facilities for developing and least developed
Countries (LDCs) from 1971. After the formation EU in 1993, this became strong in
providing facilities through GSP. Bangladesh is one of the beneficiary nation of EU GSP
facility from the beginning. Using the GSP facilities Bangladesh exporting more than half
of its export to EU markets at duty-free or duty-less cost. The overall description of EU
GSP and the relation with RMG sector in Bangladesh is important to study and presented
here in details.
3.9
History of EU GSP in Action
Since 1971, the GSP (Generalized System of Preference) scheme by EU countries has
been put in place to allow advantageous treatment to exporting countries from the
developing and least developed countries (LDCs). The scheme was designed to facilitate
the growth of their economics along with fostering equitable share by providing a
privileged entry into global trade system. Though product coverage under standard GSP
is 66% of tariff line, the preferential treatment is given for approximately 7200 products
which are classified as being either sensitive or non-sensitive.
After the forming European union in 1993, the preferential treatment has been remained
applicable to 179 developing and least developed countries (LDCs) with several round of
Page 10 of 17

revisions for several times. Lately, the (revised GSP module has been adopted by the EU
on 31, 2012 which is expected to come into effect from January 01, 2014 to focus on
those countries which are most in need of it.
Changes introduced by the new regulation can divided into five main areas:
1. Country Coverage: countries are not eligible for the GSP anymore if
- According to the World Bank, these have more than a certain minimum income
per head of the population
- Already entitled to preferential EU market access on the basis of a free trade
agreement with the EU; or
- Qualified as Overseas Countries and Territories, which are already eligible for
preferential EU market access
This means only 89 out of 179 countries will be entitled to enjoy the revised GSP
facilities under the new scheme.
1. Preference margins and product coverage: Certain products covered in the scheme
and preferences may no longer be eligible for a preferential duty rate under the new
regulation. In the new scheme, preferential duty rate may still apply but the actual rate
may be changed.
2. Product graduation: Under the new regulation, the thresholds for graduation will
raise to 17.5% from 15% (14.5% from 12.5% for textiles). This means that a country
may account for a larger share of all imports from beneficiary countries in the new
scheme before EU market access of that particular product is revoked. As the number
of beneficiary countries is substantially reduced in the new scheme, this does not
mean that a country may now account for more imports of that product in quantities.
3. GSP+: a country may now request for GSP+ at all times instead of only once in 1.5
years under the current regulation. Also, the conditions to be eligible for GSP+ will
be relaxed enabling more countries to meet the criteria to qualify as vulnerable, which
is one of the conditions in this regard. The burden of proof for compliance with the
GSP+ conditions, however, will be on the side of the GSP+ beneficiary countries
instead of the Generalized Preferences Committee of the EU.
4. Special safeguards: special safeguards have now been introduced for the textile,
agriculture and fisheries sectors. This means that the EU at its own initiative may
suspend the preferential arrangements in respect of products from these sectors when
it judges this appropriately.
3.10 Changes in GSP and Effect on RMG Export
Since Bangladesh is one of the major apparel producers, its main concern is to look for
how many apparel producers are still covered under the new scheme. Interestingly,
Brazil-one of the major RMG producers has not been allowed to enjoy GSP facilities any
further. So there is a real chance for other apparel producers to boost their RMG (Ready
Made Garments) export. We can see the effect of change in previous.
In 2003, EU first started to revise its GSP facilities towards beneficiary countries. In the
context of the revised preferential treatment (EU revised GSP scheme 2003) for LDCs,
Bhattacharya et al. 2004 opined that LDCs would have now an opportunity to
Page 11 of 17

substantively increase their exports to the EU market now secured under more favorable
terms. The effect can be seen in the growth rate of RMG export to EU:
Knitwear
Export
Growth
Value
Rate
3963.87
2007
4671.28
17.85
2008
4782.22
2.37
2009
6464.34
35.17
2010
6629.21
2.55
2011
Average Growth
14.48
Year

Year
2007
2008
2009
2010
2011

Knitwear
Market
Position
Share (%)
3.07
4
2.17
3
2.79
3
2.18
3
1.41
2
Average Growth
14.48

Woven
Export
Growth
Value
Rate
2062.83
2234.84
9.36
2334.48
24.72
2911.5
4.46
3184.16
8.34
11.72

Total RMG
Export
Growth
Value
Rate
6026.7
6906.12
14.59
7116.7
3.05
9375.84
31.74
9813.36
4.67
13.51

Woven
Market
Position
Share (%)
6.37
10
7.09
9
7.91
7
8.69
6
9.95
5
11.72

Total RMG
Market
Position
Share (%)
5.6
6
5.39
6
5.25
5
4.5
3
4.62
3
13.51

Move over, regarding EU revised GSP scheme 2012, it is commonly said that Some
limited drops in exports (typically in the 1% range) of a country are expected to raise
export for many of those partners. Even marginal drops in exports by more advanced,
bigger economies, can potentially provide significantly opportunities for the poorest,
whose experts are very small in comparison (EC 2012).
Bangladesh is experiencing highest RCA (Relative Comparative Advantage) in 2007 &
2011 which increases potential export value in EU in future after change of GPS scheme.
Table: Revealed Comparative Advantage of Major Players in the EU Apparel Market
2007
2011
Rank Country
RCA
Rank Country
RCA
1
Bangladesh
17.17
1
Bangladesh
20.6
2
Sri Lanka
7.49
2
Sri Lanka
8.84
3
Cambodia
6.45
3
Cambodia
7.65
4
Turkey
4.14
4
Turkey
3.6
5
Portugal
2.47
5
Portugal
2.27
6
India
1.23
6
Vietnam
1.13
7
Vietnam
1.2
7
Italy
0.98
8
Hong Kong
1.08
8
India
0.94
9
Italy
1.06
9
China
0.91
10
Belgium
0.71
10
Spain
0.88
11
Spain
0.65
11
Hong Kong
0.75
12
China
0.64
12
Belgium
0.74
13
Netherlands
0.42
13
Netherlands
0.64
14
United Kingdom
0.38
14
Germany
0.45
15
Germany
0.29
15
United Kingdom
0.44

Page 12 of 17

Therefore, it is clear that the remaining apparel exporters would get an advantage to
increase clothing export to the EU apparel market. Bangladesh will be benefited both
directly and indirectly by the reduction of beneficiary countries from GSP facilities in EU
Market as some of the excluded countries were in the list of Bangladeshs competitors
e.g. Brazil etc. Bangladesh will get benefit due to:

The implementation of the revised GSP scheme will not allow excluded countries
to export at zero or at lower tariff, so the price of their exported goods will
certainly increase. It will restrict their competitiveness to those countries which
will still be able to continue export under GSP like Bangladesh.
Importing countries always seeks cheaper sources to import. To exploit the
opportunity, Bangladesh has got to act upon utilizing the dormant capacity of its
industry.
Depending on supply shortage in EU apparel markets and increase productive
capacity of Bangladesh, will bring 0.47 percent increase in value for Bangladesh.

3.11 Effects of RMG sectors Violence in EU GSP

Violence event in recent years like Crush of Rana Plaza, Fire accident in different
factories, wage demand could make Bangladesh to lose the GSP facility in EU market.
Though EU said that it will not decrease or suspend the GSP facility for Bangladesh, but
due to failure in securing safety of labor wage, human rights, working conditions can see
the suspension in future. Also EU monitoring team will come in July to monitor and
analyze the improvement made by Government of Bangladesh in RMG factors. (Financial
Express, June 22, 2014).
Moreover due to these causes if Bangladesh fails to grab the opportunities given by USA
then it will be like leaving a space for its competitor to become more competitive and also
decrease in FDI from EU.

4.0

Conclusion

In conclusion of discussion we can conclude that RMG Sector is the most important
exporting sector for the sustainability of Bangladesh Economy, to welfare of Social
development and to the potential inflows of Foreign Direct investment. So RMG sector
should be given more and foremost importance from Govt. to achieve continuous goals
and to keep flow of foreign reserves, FDI and Foreign Aid in RMG and related in other
fields. In conclusion we have done critical Evaluation of Bangladesh RMG Sector, future
opportunities for RMG sector and Bangladesh and the challenges to overcome in order to
get the most of opportunities.
4.1
Critical Evaluation
If we have to critical evaluate the overall condition of RMG sector, main points are:
1. RMG sector is the most important sector in Bangladesh, with the increasing value
of export in global markets, and the impact of RMG sector in social-developments
like socio-economic development of stakeholders.
2. Both Government of Bangladesh and Owners of RMG companies see the overall
from the business viewpoint, it seems that they dont think about wages, working
conditions in the factories and reputation in global markets.

Page 13 of 17

3. Bangladesh is enjoying clear advantage in pricing of RMG products as cost of

production is very low compare to other exporting countries like India, China,
Vietnam, and Turkey. A slight investment in the improvement can be enhance the
working conditions and wages of labor but they dont.
4. Continuous violence in RMG sector is hampering the overall growth of RMG
exports, decreasing the future potentially through GSP suspension and bad
reputation in world media as what Western Media says, is the opinion of whole
world.
5. Poor labor policy and regulations makes all the export sector vulnerable after
every explosion of rage of workers and also there is no strict rule on Union
registration when Bangladesh is experiencing a weak monitoring in the
improvements of Human rights.
6. Bangladesh did not get any GSP facilities from USA market so it will affect the
export growth but due to western importers and media concern there may be
decrease of import. But they sure import from Bangladesh as our country offer the
lowest priced products than any others and also they will not develop the working
partners factories working conditions in their own concerns for benefit.
4.2
Opportunities in Global Markets for RMG Industry
As a developing country, Bangladesh has number of opportunities in most of product and
services sectors. And the opportunities for RMG is much higher than any other sector.
The big opportunities are:
1. Price Competitiveness: Bangladesh experiencing a clear competitive advantage in
the price of Knitwear and Woven products in USA, EU and Japan markets which
ultimately attract importers to buy products Bangladesh high and high ultimately the
export sales increases.

Top Export Countries' Average Price in Top Markets

14.4

US Dollar

12.4
10.4
8.4
6.4
4.4
2.4
Knitwear in EU
Bangladesh

Woven in EU
China

Knitwear in US
Indonesia

Woven in US
India

Knitwear in
Japan
Vietnam

Woven in Japan
Cambodia

From the graph we see except Woven market in Japan, Bangladesh is experiencing price
advantage in US, EU and Japan markets and it is the scenario of whole market.
2. Expansion of Markets: In recent years Bangladesh is exporting 80% percent of its
total RMG exports to USA and EU markets. But there are real potentially to expand
the markets all over the world due to quality and price.

Page 14 of 17

3. Increase of Sales: A good reputation in RMG sector in global market could make
Bangladesh to see the increase of other products which are lower in export value. It is
the influence of Good Reputation of RMG products.
4. Inflows of FDI: Growing reputation in RMG sectors will make the increase in
inflows of FDI (Foreign Direct Investment) in our country.
5. Development of Other Sectors: using FDI Bangladesh can develop the promising
sector like IT, seafood etc. to order earn more foreign earrings.
4.3
Challenges
Opportunities are high in numbers and values but there are challenges, need to be
overcome by Bangladesh Government and BKMEA (Bangladesh Knitwear Manufactures
and Exporters Association).
USA has already mentioned what Bangladesh have to do to regain the GSP back.
Actually these points are the Challenges in overall to increase potentially. Bangladesh
will have to follow a 5-poin roadmap to regain GSP. The 5-points roadmap is:
1. Enforcement of fire and building safely code
2. End to harassment and arrest leaders and activists
3. Labor law reforms
4. Union Registration
5. Upgrading law of EPZs

Challenge of Minimum Wage: Additionally Bangladesh have increase the wage of

workers as Bangladesh is giving the lowest wage rate the RMG workers the world.
From below chart we can Bangladesh is giving only $0.15/hour to the labors. But our
near competitors India is giving $0.35/hour. Increase of Wage up to 2 times will not
affect much but it will increase the productivity of labor and decrease the violence for
wage demand and more.

WAGE/HOUR
25.00
25.00

DOLLAR

20.00

16.00

15.00
10.00

7.30
5.00

5.00

2.40 1.75 1.40

0.85 0.50 0.45 0.41 0.40 0.35 0.32 0.30 0.15

0.00

Productivity Challenge
Productivity Challenge is important in order to increase production within given time for
the demand of important. It is also increase the possibility of higher export capability

Page 15 of 17

when other export countries cannot fulfill their demand in the global market. The per hour
productivity level for Bangladeshi workers comparing with others given below:
Hourly Minimum Wage and Labor Productivity of Garments Worker in 2011
Country
Bangladesh
Cambodia
China
France
Hong Kong
India
Netherlands
Spain
Sri Lanka
United Kingdom
Vietnam

Labor Productivity ($/ Hour)

1.50
1.34
1.97
15.48
1.39
1.41
16.18
9.94
1.09
12.61
1.07

Table shows that Bangladesh have lower productivity than its main competitors china
but than other developing nations. Moreover from the viewpoint of developed nation,
there is potentially that Bangladesh could increase it productivity at highest level like
Spain, Netherlands, UK, France etc. So, steps should be taken to increase productivity.

Keep Reputation Good: Keeping Good reputation is all Bangladesh have to do,
because if western media publish bad news about Bangladesh then it will ultimately
cause bad effect on our economy which is greater than GSP suspension.

5.4
Recommendations
A series of recommendations have been drawn in different papers, website and news in
order regain GSP in USA, to sustain GSP in EU markets and in order to increase the
overall export value in the global markets. The gist of the recommendations given below:
Basic Improvement
1. Right to association
2. Freedom from
compulsory labor
3. Minimum wage for
employing children
4. Work condition,
occupational safety

For Government
1. Enforcement of Strict RMG
operational law
2. Protection of Workers rights
at EPZ
3. Establishments of Minimum
Wage compare to living cost
4. Assurance of Security and
conducive
5. Fire Safety Law
6. Punishment for accused
factories owners

For Owners
1. Assurance of Fire Safety
2. Healthcare initiatives
3. Nutrition and lodging
4. Skill enhancement
5. Recreation

Page 16 of 17

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