Representatives from Bangladesh’s foremost garment industry trade group met with a U.S. delegation helmed by Brendan Lynch, the assistant U.S. trade representative for South and Central Asia, in the country’s capital of Dhaka on Monday to discuss reducing the additional 20 percent “reciprocal” tariff that the United States charges Bangladeshi exports.
Discussions, according to the Bangladesh Garment Manufacturers and Exporters Association, or BGMEA, were “fruitful” and focused on improving bilateral trade cooperation in a bid to lower what is being characterized as an onerous cost. The Trump administration had previously imposed a “Liberation Day” rate of 37 percent, which then fell to 35 percent in the following months.
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While the final 20 percent figure gave Bangladesh’s garment industry, which generates nearly 85 percent of the nation’s exports and counts the United States as its largest single market, no small gasp of relief, it remains a financial burden that could see brands doing a double take, particularly if it’s compounded with other import levies, the organization said.
“We have already secured a 20 percent tariff, which is a positive step,” Mahmud Hasan Khan, the trade group’s president, said in a statement. “However, the average MFN or Most Favored Nation tariff on apparel exports from Bangladesh to the U.S. stands at 16.5 percent, and with the additional 20 percent reciprocal duty, the total tariff burden becomes approximately 36.5 percent. This creates significant challenges for our exports to the U.S. market.”
At the meeting, Khan appealed to Lynch to consider further lowering the so-called “reciprocal” tariff, which the White House said is meant to reduce trade imbalances and create a fairer global playing field, to preserve the growth of what is Bangladesh’s largest private-sector employer with a workforce of 4.1 million across some 4,000 factories. Khan proposed limiting the tariff “stacking” to alleviate excessive duties.
Both sides also talked about an executive order that could waive reciprocal tariffs if the foreign goods in question contain at least 20 percent raw materials that originated in the United States. The Bangladeshi government has expressed a desire to export more U.S. cotton—among other things—to blunt its $6.2 billion trade deficit and mollify its American counterpart.
After Lynch recommended that Bangladesh amend its 2006 labor law in line with the International Labour Organization’s guidelines, Khan said he moved to reassure the industry’s commitment to reform, saying that the BGMEA has already submitted “specific proposals for amendments aimed at protecting both the industry and employment,” though he didn’t provide details.
Bangladesh continues to grapple with worker discontent over insufficient wages, excessive working hours and other exploitative behaviors that have spurred mass protests that led to a flurry of criminal complaints by suppliers. It was following the 2013 collapse of Rana Plaza, which killed more than 1,130 workers, that the U.S. government under President Barack Obama froze Bangladesh’s trade benefits under the Generalized System of Preferences, noting that the “certain basic standards for worker rights and worker safety” are conditions of eligibility. While the program has expired for all countries, Bangladesh’s benefits remain unrestored. The Office of the U.S. Trade Representative did not return a request for comment.
But tariffs aren’t the only problem dogging Bangladesh. Banking woes have forced as many as 400 garment factories to suspend production, the BGMEA told local media. It’s an issue that involves several “troubled” banks, including Exim Bank and Social Islami Bank, The Business Standard reported in late August, hampering factories’ ability to pay their workers. More than 250 exporters trade through Exim Bank alone, and “almost all of them are in trouble,” the outlet said.
“More than 200 garment exporters are facing problems because the troubled banks are unable to make payments,” Khan told The Business Standard. “Their back-to-back [letter of credit] dues are not being settled, and exporters are not receiving their proceeds either.”
One underlying problem is the spate of bad loans that Bangladeshi banks have been saddled with, many of them allegedly due to politically driven fraudulent activity when former prime minister Sheikh Hasina’s Awami League government was still in power. Bangladesh Bank, the country’s central bank, said that the non-performing loans have ballooned to 4.2 lakh crore Bangladeshi taka, or more than $34 billion, creating major liquidity shortages and threatening labor unrest.
At a meeting last week, the BGMEA called for improved policy support that would enable impacted factories to resume production and reemploy 100,000 workers. Access to funds aside, members suggested extending the term for default loans from three to 10 years because the current economic crunch is making short-term repayment a challenge. Another proposal was a more tolerant exit policy that allows affected entrepreneurs to “leave the business with dignity.”
