Trade, jobs and radical politics

Trade, jobs and radical politics

Bangladesh's apparel industry and economy face a grave danger. It comes from stiff U.S. tariffs on the South Asian country's garment production and from the expiration of the Multi-Fiber Agreement and its quota system, which gave poor nations easier access to the U.S. market. These developments could have far-reaching effects on Bangladesh's political environment.

U.S. importers of garments from Bangladesh paid 3 to 5 percent tariffs last year, totaling $306 million, according to the Center for Strategic and International Studies in Washington. If the U.S. exempted Bangladesh from tariffs, as it has done for 34 African na-tions, exports of Bangladesh garments to America would jump by up to $1 billion, estimates the Center for Policy Dialogue, a think tank in Bangladesh.

Unless Congress lifts the duties, Bangladesh could "face a crash in the textile industry in 2005, with widespread unemployment for women who have barely moved out of the subsistence economy," warns Teresita Schaffer, CSIS director of South Asia.

U.S. duties on garments imported from Bangladesh are designed to protect domestic garment producers and to pressure governments to improve working conditions or contract with U.S. companies. The duties are too stiff. Bangladesh paid about the same amount of duty on its garment exports of $2.4 billion to the U.S. in 2002 as France paid on all of its $24 billion in exports.

Garment exports constitute 75 percent of Bangladesh's total exports, and 94 percent of its ready-made garments are exported to the European Union and the U.S. The World Bank estimates that Bangladesh's gross domestic product this year will be 2.3 percent less than what it would have been if quotas had been in place.

The Multi-Fiber Agreement used import quotas to regulate the world garment trade. With its expiration in December, many less-developed countries that had been favored by quotas must compete against more-efficient producers. That may be more of a challenge than Bangladesh's budding garment sector can face.

According to the Asian Development Bank, Bangladesh's overall export growth would fall steeply after the quota system ends, probably by more than half, to 7 percent. Termination of the quotas, combined with damage from devastating floods, will reduce growth in the country's garment exports by nearly half, to 8.5 percent. Reduced garment exports mean fewer jobs. In Bangladesh, the garment industry is everything. Garment exports account for 80 percent of the nation's hard-currency earnings. Garment companies employ 1.8 million workers, half the nation's industrial work force.

In its outlook for 2005, the Asian Development Bank said the abolition of Multi-Fiber Agreement quotas is likely to affect many of the 1.8 million workers, mostly poor women. Experts estimate half of them will lose their jobs and another 15 million in allied fields - from button markers to truckers to insurance underwriters - also risk becoming unemployed. Unlike their U.S. counterparts, Bangladesh's workers receive no unemployment or social-security benefits. This bodes ill for the political and social future of the country.

"The social repercussion would leave it more vulnerable to fundamentalism, since extremist organizations have been quite effective at providing social services," cautions Schaffer, who recently co-authored a paper, "Bangladesh: Trouble Below the Radar Screen," in the South Asia Monitor, a CSIS publication.

Bangladesh, a moderate Muslim nation with a progressive intelligentsia, has seen a recent rise in religious politics, which had been quiescent for decades. Failure of nonreligious parties to improve lives of the masses has created public discontent toward mainstream parties. In 2001, pro-religious parties captured 20 seats in Parliament and an extremist Islamic party won two Cabinet posts in the current administration.

Hundreds of Bangladesh's garment factories have already been closed because of a slump in demand in the U.S. after the Sept. 11 attacks. Bangladesh is the fourth-largest U.S. garment supplier in terms of volume.

Millions of unemployed urban workers could be a recipe for unrest in Bangladesh. As the Bush administration wages its fight against religious extremism overseas, Congress can help by aiding nations to develop their economies and avoid socio-political turmoil, which creates a fertile environment for growth of fundamentalism.

The World Trade Organization, which decided to eliminate the MFA quotas in 1995, urges richer nations to give duty-free and quota-free access to goods made in poorer counties. By lifting the stiff duties on garment exports from Bangladesh, the U.S. can help discourage a rise in religious politics.

B.Z. Khasru, a Bangladesh native, is managing editor of the Business Journal in New York. He can be contacted at (914) 694-3600, ext. 3003, or via e-mail at bzk@westfairinc.com.