Bangladesh garments: Crisis and challenges

Bangladesh garments, the US$20 billion industry and the largest export earning sector of the country, have gone through very difficult time in 2013. The year began with the wound of horrific fire on 23 November 2012, which turned more than one hundred workers along with the factory into ashes. The factory, owned by Tazreen Fashions Ltd., used to make clothing for several retailers around the globe including Wal-Mart, Sears and The Walt Disney Co. Although legal action by a group of activists brought the owner to the court, the owner of the factory has been kept free; and it is only on December 22, 2013 that he was formally charged. Moreover, things are not yet fully settled regarding the missing workers, payment of compensation to the victims' families and also medical treatment of the injured workers.
That the Tazreen fire could not wake up the owners, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) or the government, was manifest in their lethargic inaction or irresponsible indifference to fix the problems in the industry. Therefore, Bangladesh witnessed the worst industrial disaster on April 24, 2013, only five months after Tazreen fire, that killed more than 1100 workers, injured many more, and hundreds are still missing. Garment factories in Rana Plaza, Savar, suddenly turned into a mass grave. The multi-storied building was built on low land and housed at least five garment factories. From the grabbing of the land through every phase of construction, this building grew with irregularities and corruption.
Several studies show that, with some of the world's lowest wages and no job security for its workers, the industry maintains one of the highest profits. Inhuman working conditions, low wages, verbal and physical abuse, irregular or non-payment of dues and the inability to organize are common in many of the factories supplying world-class garments. Additionally, most of the so-called 'accidents' since 1990 reveal the faulty structure of factory buildings including weak electrical wiring, lack of fire exits and fire alarms, narrow stair and exit paths, poor foundation, and locked doors. These problems could continue for inadequate or non-existent regulation and lack of monitoring by the relevant government agencies.
Therefore if we want to determine the responsible parties for these death traps, then we find at least three groups from home and abroad. They include:
(i) Owners of factories, buildings and the BGMEA. No irresponsible owner has ever faced legal action for their wrong doings; it seems that they have a free hand to do whatever they like. As an umbrella organization of garment owners, BGMEA has the responsibility of monitoring compliance and advocating for high industrial standards. Instead, this organization appears as the collective muscle of owners to protect them from the law.
(ii) Relevant government agencies. There are ministries, directorates, and divisions within government those are supposed to monitor the industry, and to take action whenever necessary for the abuse and irregularities but their presence has been little felt. Even the number of factory inspectors shows the government's indifference. That has not changed even after the worst disaster. For example, budget of 2013-14 was declared within two months of Rana Plaza disaster, but no allocation was made for the appointment of necessary number of factory inspectors and/or strengthening rescue facilities. Instead 'industrial police' was mobilized to suppress workers agitation demanding wage and security.
(iii) International buyers and brand retailers. Things on the ground are not supposed to be unknown to them. Factories often accept abnormally low prices in an effort to attract buyers and grab orders. In turn, and in order to maintain a profit rate, low cost suppliers often avoid safety measures and reduce workers real wage (through increasing working hour, cutting their benefits, not spending on other facilities). This cost cutting behavior deepens the deprivation and vulnerability of workers.
Different sources show that, when a BD garment is sold at US$14 at a supermarket in NY, Toronto, Sydney or London, 60% of that value can be grabbed by international buyers and brand retailers. Governments of western importing countries also earn a significant cut as vat or sales tax. Out of the remaining 40%, the imported and local materials together with the establishment costs take nearly 35%. Finally, less than only 1% is left for workers.
US GSP: A case of blackmail
On 27 June 2013, President Obama declared the withdrawal of the GSP facility for Bangladesh and said that, 'I have determined that it is appropriate to suspend Bangladesh ... because it is not taking steps to afford internationally recognized worker rights to workers in the country.' It sounds worker-friendly, actually it is not. Although the US suspended GSP facility 'to punish' garment industry, but garments, the main export item from Bangladesh to the US, did never enjoy this facility! On the contrary it has been a victim of discriminatory and high tariff barrier from the US authority.
According to Oxfam USA, an average tariff rate on imports into the US is 1.7%. France, UK and Saudi Arabia pay less than 1%. But for Bangladesh it is on average 16%. Bangladesh pays nearly 60% of all the tariff revenue by the US collected from the LDCs. Even International Monetary Fund (IMF) admits that, 'poor countries like Bangladesh—face the highest effective tariffs, on average, four or five times those faced by the richest economies' in the USA.
The import duties on Bangladesh's apparel exported to the US in 2012 were equivalent to about $750 million (incidentally this is several times more than the US annual bilateral 'aid' to Bangladesh in many years).
Ambassador Terry Miller and Ryan Olson of the US correctly argued that, 'this move (to suspend GSP facility) is punitive and off-target. In reality, the GSP covered only 118 products and $34.7 million in imports from Bangladesh in 2012. This is less than 1 percent of the $5 billion in total imports that Bangladesh ships to the U.S. each year. In particular, it will have little effect on the garment industry, which is largely exempt from GSP duty-free status.'
Therefore, not only the action on GSP was misleading, it was fraudulent too. If the US accepts WTO principles and stop discrimination and protectionism, Bangladesh would have more leverage to incentivize change within the industry. Rather it has been used to pursue other agenda of the US. Later in the year, the governments of Bangladesh and the USA signed TICFA (Trade and Investment Cooperation Framework Agreement), 'to find a platform to negotiate for reinstating GSP facility'! It must be noted that, the US did nothing to 'punish' the brand and retailers in the US like Wal-Mart, who has the biggest shares of responsibility for workers vulnerability.
Therefore, the global net of injustice allows factories owners, BGMEA, and global retailers to avoid responsibility, even after the murder of thousands. This shows a failed system of accountability in global scale.
Minimum wage and compensation: still unresolved
New scale of wages was declared on November 21, 2013. Minimum wage was fixed at Tk 5300 against the demand of Tk 8000 in the new scale. Although new wage appears as an increase over the wage scale of 2010 in nominal terms, it remains the lowest in the world and below the poverty level of income of a single person and less than one third of that for three members' family. Nevertheless, owners are still opposing this scale; they are pushing for much lower.
After Rana Plaza disaster we have seen many conferences, seminars, consultations, meetings around the world. These were organized to find solutions regarding safety in Bangladesh garment industry and compensation of the families of the dead and the injured. But till the end of the year there was no declaration of compensation for the victims, not even any policy in this regard was formulated. There were series of workers protest rally demanding minimum wage and security, and for compensation over the year. Sporadic violence occurred between workers and police, at least two workers were killed by police in Savar industrial area in November.
In fact, to save the millions of workers and to capture the huge potential of the industry what we need is a comprehensive plan and effective agencies to implement it. That plan must include time bound necessary steps (1) to ensure payment of compensation to the families of the killed, not less than their lifetime possible earning, and to the injured to compensate their lifetime inability to earn; (2) to ensure exemplary punishment to those who are responsible for the disaster; (3) to ensure security of the work place and sustainability of the sector, to develop national capability; (4) to fix national minimum wage at living wage level (must be higher than the poverty level of income) and to work for establishing a global minimum wage. (5) to ensure the right to organize. (6) to constitute a regulatory body to monitor global chain so that trend of price cut and cost cut is removed

(January 01, 2014 Published by The Daily Star)

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Anu Muhammad
Professor of Economics
Jahangirnagar University

আনু মুহাম্মদ, Anu Muhammad

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