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Reforming EU’s ‘trade not aid’ policies toward Bangladesh

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Hope has all but extinguished for the rescue of victims still buried under the rubble of the collapsed Dhaka sweatshop. In Bangladesh, attention has turned to the pursuit of those responsible, but in Europe and North America, the disaster is already becoming a pawn in the global politics of trade and aid.

The trail of cheap cotton clothing, splattered with blood and dust, extends as far as Brussels, Ottawa and Washington. Sensing that the links between the Dhaka factory and mass-market retailers – including Primark in Britain and Loblaws in Canada – will soon become a feeding ground for NGO outrage, officials at the European Commission have given warning about Bangladeshi obligations under EU trade agreements. Karel de Gucht, the EU trade commissioner and Baroness Ashton, EU high representative for foreign affairs, said on Tuesday that the Commisson "is presently considering appropriate action, including through the Generalised System of Preferences (GSP) – through which Bangladesh currently receives duty-free and quota-free access to the EU market under the 'Everything But Arms' scheme."

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Bangladesh's rag trade exporters benefit from a zero-tariff regime in Europe, due to the country's status as a least-developed country under the EU's GSP. To qualify for zero-tariffs, beneficiary countries must sign up to a swath of UN conventions on labour standards, the environment and human rights. According to the Commission: "Any of the GSP arrangements may be temporarily withdrawn for serious and systematic violations of core principles laid down in core human and labour rights conventions. "

It is unclear what the EU intends to do – banning imports of Bangladeshi clothing would throw hundreds of thousands out of work, adding poverty to injury. The EU Commission may decide to launch an investigation into Bangladeshi labour conditions and practices under powers available within the GSP arrangements. But we already know the outcome; labour conditions in Dhaka are appalling – we can see that on television. The question is not whether conditions are great for a Bangladeshi seamstress but whether they might be better or worse if the outflow of clothing and return flow of cash were to be significantly reduced, even temporarily.

Meanwhile, Bangladesh's troubled neighbour, Myanmar, may soon benefit from the same zero-tariff access to EU markets. The EU recently lifted trade sanctions against Myanmar, a sop to the regime for its recent liberalisation policy and the release of political prisoners, including the Nobel prize winner, Aung San Suu Kyi. Admission to the GSP regime could soon follow, even if the need to encourage Myanmar's generals requires that Brussels avert its eyes from the recent violent attacks by Buddhist monks against immigrant Muslims on the Myanmar-Bangladesh border.

Over the last decade, it has become fashionable for politicians to support "trade not aid." The principle is good because it speaks of self-help, encourages entrepreneurship and provides an incentive for poor countries to use their comparative advantage of low cost to create jobs and build their economies. For that reason, the EU and other countries have been at pains to abolish tariffs and encourage the import of cheaply manufactured products from Asia. If we don't like the sight of people crushed in the rubble of sweatshops, however, we now have to decide if there is a limit to "cheap" and where we draw the line. It is a thread that extends from Dhaka, to Djakarta, to Hanoi, Phnom Penh and, very soon, to Rangoon.

Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More

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