CPD Occasional Paper Series 6

CPD Policy Brief on
Bangladesh's Response to the US Trade and Development Act 2000

The Trade and Development Act of 2000 (TDA2000) was initiated on January 24 by the United States Congress and was signed into law by the US President Bill Clinton on May 19, 2000. US TDA2000 includes the African Growth and Opportunity Act and the United States-Caribbean Basin Trade Partnership Act as well as other trade measures. The TDA2000 provides duty-free and quota-free access to 48 African countries and 24 countries of the Caribbean Basin for exporting textile and apparel products to the US market, provided they meet certain eligibility criteria. The significance of US TDA2000 lies in the fact that some of the beneficiary countries are Bangladesh's close competitors in the US apparel market. As a matter of fact the TDA2000 extends preferential treatment to countries, a majority of which belongs to the group of Least Developed Countries (LDCs). The TDA2000 comes at a time when Bangladesh is pursuing the USA for expansion of quotas at a rate (30%) faster than is stipulated under the integration plan of the Multi-Fibre Arrangement (MFA) as envisaged by the Agreement on Textile and Clothing (ATC). Under these circumstances, Bangladesh needs to assess the emerging situation subsequent to the enactment of TDA2000 and respond with appropriate policy and institutional measures.

Under the TDA2000, a total of 72 countries (of which 48 countries belong to Sub-Saharan Africa and the rest from the Caribbean Basin) are likely to receive duty-free and quota-free access for textile and apparel products to the US market. The Act will be effective for eight years, i.e. between October 2000 and September 2008. The treatment under TDA2000 provides the beneficiary countries a virtual NAFTA-parity, albeit subject to certain stringent criteria, rules of origin (RoO) and quantitative limits. These include the "basic eligibility criteria" of GSP and fulfillment of international commitments to eliminate the worst forms of child labour (identified according to the Harkins-Helms Amendment). Also the apparel articles have to be assembled in the beneficiary countries from US made fabrics from yarns wholly formed and cut in the United States. Besides these requirements common to all beneficiaries, the TDA2000 also includes some region-specific eligibility criteria. Subject to certain limits, the African beneficiaries can use their own fabrics made from yarns originating either in the United States or one or more beneficiary countries. On the other hand, subject to some limits for exporting particular knit articles, the Caribbean beneficiaries are eligible if the apparel articles are knit to shape (other than socks and T-shirts) from their own fabrics or US made fabrics from yarns wholly formed in the United States. The TDA2000 also carries a Special Treatment Provision for "lesser developed countries" of the Sub-Saharan Africa (identified in the Act as countries with per capita income less than $1500 per annum) which allows the countries to have the same preferential treatment irrespective of the "rules of origin" criteria. This particular benefit will be effective till September, 2004. The TDA2000 also has a Penalty Provision in case of preferential exports not conforming to the eligibility criteria.

Market analysis reveals that a number of the Caribbean beneficiaries (specially Dominican Republic, Honduras, El Salvador, Guatemala, Costa Rica, Jamaica, Nicaragua and Haiti) are Bangladesh's close competitors in the US textile and apparel market. Mauritius and Lesotho of the Sub-Saharan African region are also emerging as modest exporters to the US market.
Product-specific trade performance reveals that some of the major exporting countries of the CBI region export a significant volume in 15 export categories having "high" export interest to Bangladesh. The CBI countries which closely proximate Bangladesh's export structure in this respect are Dominican Republic, Guatemala and Honduras. On the other hand, in case of exports of 18 apparel items of relatively "low" export interest to Bangladesh, the performance of some CBI countries in particular items signal potential threat to Bangladesh.
The supply capacity of the major competing countries reveals that in the course of the duty-free and quota-free regime, some CBI countries are expected to be able to expand their apparel exports to US market, which may lead to trade diversion in favour of the CBI countries in the short-run. On the other hand, in the medium term (3-6 years), provided the SSA countries could put in place the necessary infrastructure, these countries may also emerge as competitors of Bangladesh in the US market.

The current tariff structure in most of the important apparel categories (averaging about 20%) puts the non-partner countries into severe disadvantage. It is to be noted here that even though the strict rules of origin criteria is expected to act as a deterrent in receiving the preferential treatment for most of the beneficiary countries, the recent figures show that a number of major CBI competitors are already sourcing a large part of their yarns and fabric from the USA. Whether the beneficiary countries would be able to maintain their competitive edge with inputs from the USA (which are relatively more expensive) will in effect depend on the cost structures of the non-beneficiary countries such as Bangladesh.

The analysis put forward in the paper shows that a zero-tariff and quota-free access for the apparel products of the CBI (and SSA) countries is likely to pose formidable challenge to Bangladesh's export sector in the near future. Under these circumstances, the paper proposes that Bangladesh pursue a multi-layered approach to face the emerging challenge. First of all, it is essential that Bangladesh carry out a detailed impact study focusing on domestic resource costs, existing tariff rates, market dynamics and probable demand and supply scenarios. Secondly, since the Act extends special treatment to particular LDCs, the Government of Bangladesh could urge the US Government to extend the same facilities to all the remaining LDCs. Thirdly, Bangladesh could place the issue at the forthcoming Third UN Conference on the LDCs and make use of other inter-governmental platforms for enhanced market access. Fourthly, Bangladesh and other LDCs could demand preferential treatment from all developed countries on the basis of the letter and spirit of Article I of the ATC. Bangladesh could also make use of the existing networks maintained by the government, civil society and Bangladeshi diaspora living in the USA to lobby for the country's interest. Particular focus should be put on influencing the members of the US Congress and the Senate and on creating caucus in such institutions.

To obtain the full text of this report please contact:

Centre for Policy Dialogue
Dialogue and Communication Division
House 40C, Road 11, Dhanmondi R/A, Dhaka-1205, Bangladesh
Mailing Address: GPO Box 2129, Dhaka-1000,Bangladesh
Tel: (8802) 8124770, Fax: (8802) 813095.