Friday, January 25, 2013

Tough times ahead for the RMG sector on issues of politics and foreign policy

Financial Express
Anniversary issue
December 23, 2012
M. Serajul Islam

The country is passing through a very uncertain period; both politically and economically. In politics, the dreaded hartal is all set again to turn our lives upside down and bring miseries and misfortunes as the two mainstream parties fight it out on who will be in Government for another five years. Just when the people were about to thank their stars that hartal had been condemned in the dustbin of history following  4 years when the BNP refrained from indulging too much with it for its political gains, it is coming back with a vengeance. As far as politics is concerned, to use a cliche, we are just seeing the beginning of what is going to be a long winter of discontent unless the politicians regain their senses.

There are dark clouds in the economic horizon as well. For one, the deteriorating political situation is certain to take the economy in its path. Bangladesh, a resource poor country, depends on its economic well being to a large extent on how well it does in its export business as well as in attracting foreign direct investment to the country. Political disturbances such a hartal and conflicts between the two mainstream parties are certain to lead to a slow down of economic production. In case of the RMG business that contributes 60% of the exports, slow down could lead to cancellation of orders from clients in USA and Europe and eventually to a breakdown of the industry.

The political situation is also going to add to the already huge stack of negatives about how the country is perceived abroad. The poor image and political instability is a dangerous mix for a country like Bangladesh so dependent on external factors for its well being. Going by common sense, there is little reason for foreign investors to risk their money into such a dangerous mix. The recent fire in Tazreen has contributed to create more apprehensions about the economy. It received coverage as“breaking news” in the media all over the world. People in countries that can make or break Bangladesh’s export and foreign investment potentials saw graphic details of how over 112 workers were burnt alive under circumstances that helped establish their apprehension that workers’ working conditions in industries in Bangladesh are sub-standard and left a lot to be desired.

The adverse effects of the Tazreen tragedy are far from over. Unfortunately, the factory was making garments for US armed forces as an outsourcing agent of a licensed outfitter for the US Army, Air Force, Navy and the Marine. A number of US Senators and Congressmen led by Senator Tom Harkin have already addressed a letter to President Barak Obama on burnt garments with US marine logos found inside Tazreen. The letter was very strongly worded. It urged President Obama to “..use all tools at your disposal that the federal government does not pursue or continue contracts or licensing agreements with prime contractors, sub-contractors, or licensees that fail to guarantee basic and fundamental rights for their workers and throughout their supply chains, including the right to a safe workplace.”

The contents of the letter together with the circumstances under which it has been written are going to be taken seriously at the White House. The fire at Tazreen killed 112 workers in circumstances that are horrifying to say the latest. The letter of the US Congressmen to their President mentioned among other things, facts such as workers being trapped inside when the fire was raging because exit doors were locked; workers being forced to remain inside even after the fire alarms started ringing, and fire extinguishers inside the factory not working. There is no doubt that the letter is going to start a process under which the US Government will seriously review the export of RMG from Bangladesh to the United States.

Readers may be aware that Senator Harkin is the same Senator who had some years ago introduced the Harkins Bill in the Congress under which the Bangladesh RMG industry came under serious trouble on the issue of child labour. At that time, human rights groups also became involved in the demand of freeing the Bangladeshi RMG industry of child labour in order to get the benefits that it was receiving to export RMG products to the United States. This letter that Senator Harkin has initiated could have serious damaging consequences because the Congressmen have linked the horrendous state of affairs inside Tazreen linked to institutions that are linked to their national pride.

The news of the letter of the Congressmen to the President is the sound of a threatening cloud for the RMG sector and Bangladesh economy gathering at a distance. There is equally disturbing news for the sector coming closer from home. The BATEXPO, 2012, that just concluded in Dhaka brought more depressing news for the sector. The response of foreign buyers to the fair has been poor. Sources close to the organizers of the Fair have revealed that “20% of listed foreign buyers did not attend the exposition because of deteriorating political conditions.” Nevertheless, BGMEA and BATEXPO officials were optimistic that despite the worldwide negative publicity that the industry received worldwide and economic recession in the importing countries, the exposition this year has attracted more foreign buyers and that the outcome will be positive.  Their optimism notwithstanding, in the plea that businessmen made to the BNP against hartal, the mentioned that foreign buyers have started cancelling orders for RMG products from Bangladesh apprehending political disturbances in the coming days, weeks and months and in the wake of negative impact of the Tazreen tragedy.

There has been a lot of media discussion after the Tazreen. The BGMEA officials have spoken defending the state of affairs in the RMG sector in the context of compliance. When it became apparent due to the media’s investigative reporting that the compliance at Tazreen was far from what the stated immediately after the tragedy had occurred; that the industry was being run in violation of the major issues of compliance, the BGMEA has said nothing substantive in what they proposed to do in future.  Some of them continued to stress that for them compliance was not an issue; that their industries are even better on compliance and quality than such industries in other countries.

Not one BGMEA official came forward to mention that while some of the RMG industries are doing excellent; the sector is carrying a very large number of sick industries that like bad apples in a sack have the potential of destroying the smaller number of RMG industries that are excellent and perhaps even world standard. The BGMEA has also not responded to what they and the government should do to deal with the threatening prospects of the letter that the Congressmen wrote to President Barak Obama. Instead they have demanded of the Government the creation of a Ministry for the RMG sector!

The Government on its part also does not seem to have the right perspective to deal with the threatening clouds that are descending on the RM sector in particular and the economy in general. The major problem is of course political. The way the government is dealing with politics is going to increase political instability instead of lessening. Thus the government’s current mode is set to add more problems to those that have descended rather than in any way helping the economy out of its current predicament. In fact, the way the government is conducting politics; it is not just the RMG sector and the economy but the country that could very well fall into a quicksand that could destroy it unless corrective measure are taken immediately to ensure that the next general elections for a peaceful transfer of power is held with participation of all the major political parties and most definitely of the BNP.

Then there is the problem with the conduct of the country’s foreign policy that is directly related to economic development of Bangladesh, a co-relation that for some strange reason is not even considered in Bangladesh to be a serious issue. Clearly, the future of Bangladesh is directly dependent of increasing exports led by the RMG sector; sending more people abroad to increase foreign remittance; and finally creating a favourable image for bringing more FDI to the country. Yet for again for reasons that do not stand to serious reasoning, the government chose to rub the United States Government the wrong way; particularly its powerful Secretary of State on the issue of Dr. Mohammad Yunus. It is the same US on which our RMG industry depends on its future and future of Bangladesh. It is the same United States whose President will now be obliged to take action on the letter of Senator Harkin.  Simple common sense should tell us that the chances of response helpful to Bangladesh’s interests where we are at fault would be unreasonable to expect.

The United States is also still the world’s only Super Power. Its power to help or harm a country like Bangladesh is unlimited and not just restricted to the RMG sector. Somehow our foreign policy managers give the impression that they do not believe that the US has any such power. Unfortunately, by such a mindset, they are harming the country’s interests as well and in a major way. The complications that have occurred with the WB funding of the Padma Bridge have been based on a conspiracy for corruption between the officials of the Bangladesh Ministry of Communications and the Canadian company, Lavalin. The WB put a spanner over funding the mega project so crucial to the socio-economic future of millions of people in southern Bangladesh even before it had released a dollar where the case of corruption against Lavalin officials in a Canadian court is still being heard.

Bangladesh government’s negotiations with WB on the Padma Bridge funding after the latter brought to its attention the Lavalin corruption conspiracy have been grossly mishandled. Nevertheless, the attitude of the World Bank has also been uncompromising and tough. Although the WB is an inter-governmental international financial institution established for assisting the economic development of the developing countries, the influence of the United States over this institution is well acknowledged. The post of the President of the WB has by convention gone to the United States. The US Secretary of State whom Bangladesh has annoyed over Dr. Yunus had considerable input in the choice of the current President. Therefore there it may be reasonable to consider that the WB’s tough stand on the PB loan could be a payback for the way the Bangladesh Government reacted to the request of the US Secretary of State for Dr. Mohammad Yunus. That request for a fair treatment to Dr. Yunus and the Grameen Bank also came from the President of the United States and leading members of the Congress that the Bangladesh Government turned down.  It is same President Obama to which the Congressmen have written for tough measures on issues of workers’ conditions and other issues of compliance. Therefore, there is every reason to expect that the letter will lead to some tough measures on the Bangladesh RMG sector.

The Prime Minister appears to have sensed these tough times ahead for the RMG sector. In an address at the BAPTEX Fair, she urged the RMG leaders to seek out new markets perhaps apprehending tough actions on the sector by the authorities in the USA. She also asked the RMG sector to pay more to their workers according to their abilities no doubt in acknowledgement of the regular acts of violence of the workers on issues of pay and perks. The Prime Minister also stated many times in public that there is a deep rooted conspiracy against the successful RMG sector from both within the country and abroad. The Prime Minister’s public statements on the RMG sector reflect correctly about its current predicament; that there are dark clouds hanging over it.

However, her apprehensions of conspiracy to explain the regular acts of vandalism in the RMG sector may be a bit farfetched. Nevertheless, there are countries that will benefit if the Bangladesh RMG sector fails in the US market. For these countries, the much easier way to damage the RMG sector in Bangladesh would be to work through lobbyists in Washington. In this context, Bangladesh has given countries interested to damage the RMG sector in Bangladesh enough ammunition. For instance, these countries just need to activate their lobbyists and if they do not have, engage lobbyists in Washington to ensure that the letter of the Congressmen to the President is acted upon that will create serious obstacles to the RMG sector in Bangladesh and blunt  a great deal of its competitiveness.

The way out is not what the RMG sector has suggested. Creating a new Ministry for the RMG sector will be on no real benefit. Instead such a Ministry will only create new obstacles because the success of the RMG sector has come to a large extent in spite of the Government. Instead, the need of the hour is to appoint a lobbyist in Washington not just for the RMG sector but also for the overall improvement of Bangladesh-USA relations because the bilateral relations between the two countries are now in an undesirable state and without improving it, the environment for Bangladesh exports to reach their potentials in the US market and removing existing and new obstacles will not be possible.

Such a lobbyist will also be able to advise what the government should do when faced with new threats that have emerged for the RMG sector in the USA following the Tazreen incident. In fact, a good lobbyist could advise even on how Bangladesh could turn the Tazreen disaster to its benefit instead of being threatened with new obstacles as a consequence of the fire. Sachinta  Saxena wrote  in New York Times after the Tazreen tragedy that it is because high tariffs imposed by the US Government that factories such as Tazreen are forced to cut corners on compliance and unable to pay adequate wages to the workers. The writer said that in 2011, Bangladesh exported US 5.10 billion in goods to the United States of which only 10% were eligible to exemption from import duties and for the rest paid 15.7% in tariff and in the current year, Bangladesh will pay US$ 600 million in import duties. She felt that Bangladesh could make out a strong case for duty free access like one given to Mexico to be able to be 100% compliant and stop cutting corners that affect adversely working conditions. Congressman Jim McDermott had introduced such a bill for benefit of Bangladesh, Cambodia, Nepal, and Pakistan, Laos and Sri Lanka in 2009 but the bill never made it to the Committee. This is where two things would be necessary to disperse the threatening clouds over the RMG sector and its assured and better access to the US market. First, Bangladesh will need the best lobbyist in Washington for such benefits. Second, it will need to have excellent bilateral relations with USA.

To make matters worse, the concerns on which Bangladesh’s RMG could face threats in market access in the USA also apply in the other major markets. Any adverse impact that could come upon the RMG sector in USA as a consequence of new focus after the Tazreen tragedy could also adversely impact the other markets as well. The leaders of the RMG sector should put their heads together and take lessons from the Tazreen on compliance. Instead of making unrealistic demands such as asking for a separate Ministry, they should put pressure on the government to seriously consider foreign policy issues in pursuing Bangladesh’s economic interests that is not happening at all now. The clouds over Bangladesh’s economic future including the RMG sector would dissipate leading to a bright new dawn only when bipartisanship returns to Bangladesh politics and the government starts to deal with foreign policy issues professionally. On both, the outlook is bleak.

Meanwhile, the RMG sector and the Government should use the lessons from the Tazreen tragedy to take serious actions and resolve compliance issues that have come to light as a consequence of it. It was good to read in the media that BGMEA would take action to close down about 800 sick RMG units. It is time for them to look seriously at whether they could do more as the Prime Minister has suggested for the betterment of the working conditions of the workers.

The writer is a retired career Ambassador

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