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Globalisation: Not a level playing field
Muinul Islam
Globalisation has become an oft-repeated jargon of international trade and development throughout the world in the eighties and the nineties of the twentieth century, and has since emerged as a buzzword among the development thinkers and practitioners in the twenty-first century. The uncritical expon-ents of the concept of 'Globali-sation' use the term to conceptualise the increasing trend of economic, political and social integration of countries of the world, wherein this increased integration has been seen as the result of gradual liberalisation of international trade in goods and services, of strengthening and cheapening the modes of information dissemination, transport and communication with the help of the on-going revolution in information and communi-cation technologies (ICT), of liberalising the flow of capital across state-frontiers and of the increasing pressure of overseas migration.
In a recent publication of the World Bank, entitled Globalisation, Growth, and Poverty (World Bank 2002), this latest global trend starting in 1980 has been described as the third wave of modern globalisation. The first wave, according to that publication, could be identified during the period from 1870 up to 1914. The most recent third wave of globalisation has been largely spurred by technological advances in the fields of information, transport and communication, as already stated.
The World Bank claims that during this third wave of globalisation many developing countries have been able to break into global markets for manufacturing goods and for services. On the other hand, many developing and least developed countries have been increasingly marginalised and impoverished in the face of globalisation. Moreover, there has been a tremendous increase in momentum in international migration and capital move-ments.
The opponents of globalisation claim that globalisation is the name given to the process of 'recolonisation' of the Third World by the developed countries belonging to OECD in the neo-colonial world structure of the World Capitalist System, where the inter-state economic and political relationships are governed by 'dominance-dependence syndrome' of the transformed face of imperialism. As such, globalisation has become the blue-print for gradually transforming capitalism as the world's only economic and ideological system. In the process, the different dime-nsions of globalisation will seriously jeopardise state sovereignty of the developing and least developed countries. In this mission, the IMF, the World Bank, the WTO, the UNO, the regional banks like ADB, AFDB and the IADB have all been playing the roles of powerful tools of the world's lone superpower, the USA, and other major developed countries belonging to G-8.
Globalisation and Bangladesh: Challenges and Opportunities
It is significant that Bangla-desh's noteworthy success story in the export sector was thriving on the trade-restrictive Multi-Fiber Arrangement (MFA), which had been governing the system of import quotas in the textiles and clothing sector provided by the developed countries to the developing countries since 1974 and which was phased out on January 1, 1995.The WTO has been trying to address the issue of trade liberalisation through four basic principles: 1) Tariffication of import regimes and phase-wise elimination of quantitative restrictions, 2) gradual redu-ction and elimination of tariffs with the help of tariff bindings, 3) reduction of discrimination from international trade through the provision of Permanent Normal Trade Relations (PNTR), formerly known as the 'Most Favoured Nation' (MFN), status to all member states with the important exception of regional preferential arrangements, and 4) the national treatment rule. The WTO has four main functions: a) rule making; b) policy orientation and monitoring; c) negotiations; and d) dispute settlement between or among member countries. Therefore, The WTO Legal System has been impacting the Bangladesh economy regarding the following major issues:
1. Gradual Reduction of Tariffs: Bangladesh has proceeded a long way in reducing the maximum tariff imposed on different imported items, but the frequent and widespread use of the mechanism of supplementary duties and various surcharges makes the picture quite hazy. The expansion of the coverage of the value added tax has also been used as a tool to reduce the revenue loss resulting from such a rapid lowering process of tariff rates. Nevertheless, Bangladesh's pace of import liberalisation seems quite spectacular. In fact, there is a widespread perception that Bangladesh may have liberalised its import regime too rapidly, given the fact that its giant neighbour India was rather slow in liberalising its import regime. This particular mismatch massively expanded the scope and accelerated the flow of goods through illegal international trade between these two neighbours.
Because of the relatively backward economic position, and particularly, weaker agricultural and industrial base of Bangladesh, the flow of smuggled goods from India to Bangladesh is enormously robust compared to the flow of illegally exported goods from Bangladesh. What is more disturbing is the fact that a significant proportion of Bangladesh's legally imported goods is conveniently smuggled out to India to take advantage of the lucrative arbitraging opportunities created by policy changes relating to import liberalisation of Bangladesh, which are frequently implemented without proper consideration of this particular phenomenon of distorted relative price structures of the two countries. This massive incentive structure for smuggling created by the uneven pace of import liberalisation of the two neighbours in particular, and the countries of the region in general, is believed to be harming the economy of Bangladesh in the following major fields:
a. It has been diverting the savings of the people from the formal investment activities to smuggling and the 'black economy' through the intermediation of the banking system;
b. It has been siphoning off a significant proportion of remittances of Bangladeshi migrant workers working overseas through the informal channel called the 'hundi' system;
c. It has been instrumental in accelerating the process of institutionalisation of corruption in the economy, polity and society, which is strengthening the parallel 'black economy';
d. It has been acting as a constant source of erosion of Bangladesh's foreign currency reserve, which is marginally adequate to meet only about three months' import bill, and stands at around $3 billion;
e. It is widely believed to have been perpetuating the continued lack-lustre growth of investment activities, both in the industrial and agricultural sectors;
f. It has been seriously hurting the revenue collection efforts of the government of Bangladesh in its two major sources of tax-revenue, i.e. import duty and value added tax; and
g. Leakage of imported materials from the country's export-oriented ready-made garments and knitwear industry is on the increase, which is targeted for the domestic market as well as to smuggling.
In the light of the general tendencies noted above, Bangladesh should carefully analyse and evaluate the situation before proceeding further in the way of import liberalisation at the behest of the WTO's pressure tactics.
2. Phasing Out of MFA: As already noted, the Multi-Fiber Arrangement (MFA) has been phased out according to the provisions of the Agreement on Textiles and Clothing (ATC). It is feared that this will pose a major threat to Bangladesh's RMG and Knitwear industries because of the potential cut-throat competition from the cotton-producing giants like India, China, Egypt and Pakistan. Development of adequate numbers of backward linkage industries with sufficient competitive advantage is also not a realistically achievable option for Bangladesh at this stage. Therefore, it seems that Bangladesh should rather put most of its efforts in diversifying its RMG and Knitwear products to cater to the design-oriented items, where its cheaper labour force will bring additional advantages through increasing the value-added to the garment items like ladies' apparels, leather jackets, girls' dresses and fashionable items.
3. Withdrawal of GSP Facilities: Bangladesh has a case for pursuing the possibility of extending the GSP beyond 2005. A vigorous campaign in this regard has a fair chance of success, given the fact that the least developed countries of the world have been faring quite poorly in the present context of the world trade regime.
4. Core Labour Standards: The developed countries have shown a tendency to use core labour standards as an effective tool to protect their domestic markets from relatively unhindered flow of imports from developing countries. Bangladesh has already suffered a major jolt from this, when the issue of child labour in its garments and knitwear factories was raised through the Harkins Bill and threatened the future of these robustly performing industries. A temporary respite has been achieved in this regard, but it must be kept in mind that new issues will be raised whenever the different lobbies of the developed countries may feel convenient to do so. This tactic will have the primary purpose of protecting the vital vested interests of those lobbies, but the weak bargaining powers of the developing countries will not be adequate to successfully confront such periodical onslaughts in the garb of promoting labour standards in the Third World. The present lobbying and pressure tactics regarding the right to trade union activities for workers employed in the export processing zones of Bangladesh are symptomatic of such an effort. One should genuinely doubt the real intentions of the U.S.A. behind the bleeding heart persuasions of the World's capitalist over-lord for ensuring workers' rights in a least developed country like Bangladesh, where about 44 per cent of the people of the country are languishing below the poverty line at levels of sub-human existence. The jurisdiction and role of the ILO should not be allowed to be undermined by the WTO Legal System in respect of these sensitive issues.
5. Sanitary and Phytosanitary Standards (SPS): Bangladesh's shrimp and frozen fish exports suffered badly a few years back because of the import ban imposed on such exports by the EU countries on grounds of unhygienic processing and preservation of products in the Bangladeshi factories. These standards will create many more contentious issues and blackmailing efforts in the future too.
6. Environmental Standards: The issue of environmental protection is being used by the developed countries to put hurdles in the way of expanding production capacities in the developing countries in spite of the fact that the present day developed countries were the worst culprits in causing environmental degradation throughout the world. In the name of product standards and process standards, the GATT 1994 has incorporated provisions in different agreements to raise objections about production and trading of any item on grounds of creating environmental hazards.
7. Subsidies and Countervailing Measures: Three issues are of importance to Bangladesh regarding subsidies and countervailing measures: a) non-actionable subsidies, b) presumption of serious prejudice, and c) export competitiveness thresholds. It should be reiterated that Bangladesh's aggregate measure of support to agriculture is much lower than the permissible level of subsidies under the WTO rules. So, Bangladesh can increase input subsidies in the agriculture sector, if it wants to. The rules regarding subsidies and agricultural supports actually allow countries like Bangladesh to provide much more assistance to the poorer farmers, both in the fields of production and marketing. There remains ample scope for providing protective support to selected domestic industries on the basis of the provisions of the 'safeguard actions for economic development purposes'. The invocation of the 'balance of payments needs' can be used wisely to curb imports deserving a lower priority. Moreover, Bangladesh should try to continue export subsidies to its traditional export items like jute and tea, and to extend the threshold period allowed.
8. Trade Related Aspects of Intellectual Property Rights (TRIPs): The agreement on TRIPs is designed primarily to protect intellectual property rights in the area of patents, copyrights, royalties, designs, etc., which are targeted to benefit the developed countries. Bangladesh should be very careful about the implications of various moves made by the WTO to expand the jurisdiction of the organisation in this domain. The least developed countries have been allowed 11 years as a transition period to accept the obligations of the Agreement, which encompasses both product patenting and process patenting. This is one of the 'Singapore Issues' that are presently creating major disputes in the current Doha Development Round' of WTO multilateral negotiations.
9. Customs Valuation and Pre-Shipment Inspection: Under-valuation and over-valuation of imports through collusion between the exporter and the importer are formidable problems for a least developed country like Bangladesh. It is also quite difficult for customs authorities in these countries to check the dumping of products by various multinational companies. Pre-shipment inspection as a means of correcting this malaise is yet to be proven effective. Bangladesh has introduced pre-shipment inspection system, but the outcome is very discouraging.
10. Trade Related Investment Measures (TRIMs): The TRIMs Agreement prohibits five measures considered inconsistent with GATT rules on <>national treatment<> and the rules against quantitative restrictions. These relate to local content requirements, trade-balancing requirements, restriction of foreign exchange access, domestic sales requirements, and use of quantitative restrictions. The Agreement provides a seven-year transitional period to the least developed countries for the elimination of the prohibited TRIMs. This is one of the 'Singapore issues', which are hotly pursued by the developed countries in the current Doha Development Round of the WTO negotiations. The Multilateral Agreement on Investment (MAI) will be the outcome, if they succeed.
11. Trade in Services (GATS): The GATS framework requires countries to apply MFN treatment as well as national treatment to international service providers in the following 12 sectors of services: business (including professional and computer) services, communication services, construction and engineering services, distribution services, educational services, environmental services, financial (banking and insurance) services, health services, tourism and travel services, recreational, cultural and sporting services, transport services, and other services not included elsewhere. The GATS stipulates that a country can claim exemptions from the MFN treatment in services. An agreed list of exemptions is part of the Agreement, and subsequent exemptions may be gained through a waiver process.
12. Dispute Settlement Mechanisms and Agreement on Anti-dumping: Bangladesh had in the past been subjected to anti-dumping duties imposed on the terry towel exports and batteries. The present system of excluding anti-dumping from the general dispute settlement process has proved dangerous for developing countries. The provisions for retaliation and cross-retaliation as well as cross-compensation in case of non-compliance and failure of the dispute settlement mechanisms may be used as blackmailing tools by the developed countries against the weak developing countries, because it may require about twenty eight months before a country obtains final relief after a dispute process is formally started.
13. Rules of Origin: The agreement stipulates that the member countries should undertake harmonisation of the rules of origin applicable to non-preferential trade. Bangladesh should carefully monitor the harmonisation process, because its exports may be adversely affected by any marginal change in this regard.
14. Special and Differential (S&D) Treatment: The issue of providing special and differential treatment to the least developed countries on various trading items and terms and conditions of trading needs to be carefully monitored. The S&D status given to the least developed countries is supposed to be implemented through exemptions, delays in implementation, preferential arrangements, best effort provisions, flexible schedules of implementation, safeguards and technical assistance. But, the promises are not followed up by concrete actions taken by the developed countries.
15. Tariffication of Non-tariff Barriers: GATT 1994 stipulates that all non-tariff barriers, especially in agriculture, be converted into tariff equivalents, considering 1986-88 as the base period. These tariff equivalents were to be added to the existing tariffs and the total tariff bound.
16. Removal of Quantitative Restrictions: Import quotas, import bans, import licensing and permits are to be eradicated gradually. Bangladesh has proceeded a long way in this area.
17. Market Access: The issue of providing enhanced market access to the goods of the least developed countries is not followed up sincerely by the developed countries. Zero-tariff access commitments remain mostly illusory.
There is a general perception that Bangladesh has been achieving reasonably satisfactory export growth since the decade of the nineties. The success stories were built around the rapidly expanding sectors like ready made garments, knitwear, shrimp, frozen fish, leather goods, ceramic products, etc. There is no denying the fact that Bangladesh's performance in these non-traditional items is quite laudable by the standards of the least developed countries. But, if we take into consideration the fact that in spite of the country's impressive export growth during the last two decades Bangladesh's share in the global export has come down, the picture comes close to the sobering realities. The other 'hard' fact emanates from the low value added in our major export item, ready made garments, which will put Bangladesh in a position of definite disadvantage compared to its cotton-producing rivals in the world market. Another disquieting feature of Bangladesh's external trade is reflected through the fact that the terms of trade have been deteriorating menacingly in case of most of our major export items, both traditional and non-traditional.
The growth rate of export earnings of Bangladesh was higher than the growth rate of import payments in most of the years of the last two decades, which is largely instrumental in slowly transforming Bangladesh from a status of aid-dependent nation to a status of a trade-oriented one. But, the RMG and knitwear sector remains a 'foot loose' endeavour, where enterprises are born or discontinued too easily to suit the convenience of some unscrupulous businessmen thriving on various government policy favours. A more distressing issue concerning the RMG and knitwear sector revolves around the so-called 'leakage' problem, where the real problem lies in the huge illegal import of garments materials through under-invoicing of back-to-back L/Cs for the domestic market as well as for smuggling out to India. The informal system of sending remittances from the overseas migrant workers as well as professionals, called the 'hundi' system, is being used overwhelmingly by the organised operators to finance such extra imports of garments materials targeted for the domestic market and for smuggling.
The extremely narrow range of export items from Bangladesh highlights the serious vulnerability of the economy to pressures and machinations of a few of its major trading partners like the European Union and the U.S.A. The issue of the recent past concerning child labour in the RMG sector or the sudden ban on shrimp import from Bangladesh by some EU countries on grounds of health and sanitary standards should be considered as the tip of the iceberg regarding the future pressure tactics coming from the trading partners of the developed world under the WTO legal system.
The current issues of contention regarding labour standards and trade union rights, environmental standards, agricultural subsidies, intellectual property rights, international product standards and process standards, protection of bio-diversity, sanitary and phytosanitary measures, anti-dumping and countervailing duties, government procurement, etc. have already raised the fears of effective re-colonization and blatant domination of the developing countries by a few giant capitalist metropolitan centres through the edifice of the WTO. Therefore, the fiascos in Seattle and Cancun should be used as wake-up calls for Bangladesh to prepare itself for the battles of the future through forging strategic alliances in multilateral negotiations of the WTO.
The extreme lack of diversification in Bangladesh's export basket brings to fore the need to open up new vistas and to specialize in new items of export based on the principles of comparative advantage. Computer software and data entry seem to be two prospective items for us, provided we substantially gear up our efforts in building the proper communication infrastructure and facilities, liberalising the telecommunication facilities, rules and regulations, and in training our huge manpower in the field of information technology. Efforts should also be focussed to gear up the development of backward linkage industries for our RMG and knitwear sector. Ceramics, leather products, agro-processing and food processing remain as potentially attractive export fields. The following fields also seem promising: 1) Jewellery, gems cutting and polishing; 2) toys and puppets; 3) imitation jewellery; 4) petro-chemical products; and 5) flowers and plants.
Conference of the G-8 leaders... dictating the International trade regime
In order to minimize the risks arising out of the globalisation process, Bangladesh should actively seek to strengthen the regional economic cooperation mechanisms. The issues of transit, strengthening of SAPTA, tariff-free access to the Indian market for a significant number of Bangladesh's export items become more and more crucial every day from this perspective.
Conclusion
A number of opportunities are waiting to be tapped. The following are the major issues, which deserve priority attention and early resolution:1. Regional Economic Cooperation: The South Asian Preferential Trading Arrangement (SAPTA) faces a bleak future too not to speak about the emergence of the South Asian Free Trade Area (SAFTA) sometime down the stream. In this context, Bangladesh should seriously pursue other arrangements regarding regional economic cooperation. BIMSTEC seems to be a good alternative arrangement
2. The Issue of Transit or Transhipment: Because of Bangladesh's geographical location, the issue of providing transit or transhipment facilities for goods through Bangladesh territory to the neighbouring land-locked states of India, and to Nepal and Bhutan is of crucial importance, especially to Bangladesh's neighbours. Through a proper approach of regionalisation, this issue can be resolved to the mutual advantage of all parties concerned.
3. Development of Chittagong Port as a Regional Entrepot: The geographical location of Chittagong port makes it a prime candidate for development as a regional entrepot in the style of Singapore. Therefore, this prospect should be pursued vigorously, shunning political feuds on the issue.
4.Transforming Bangladesh from an Aid-Dependent Economy to a Trade-Oriented Economy: The role of foreign loans and grants has been dwindling fast in importance for economic progress of Bangladesh. In 2003-2004, the contribution of foreign loans and grants to Bangladesh's GDP came down to less than 2 per cent. It can be surmised that Bangladesh has reached a stage where it can use its better judgement in choosing only the really beneficial project aid from the donor countries and organisations.
5. Tariff-Free Access to the Indian Market: The issue of tariff-free access for Bangladeshi goods into the Indian market should be pursued vigorously. Bangladesh's ill-advised policies regarding rapid import liberalisation since the mid-eighties have virtually opened the flood gate for Indian goods in particular, and foreign goods in general, to capture an increasing proportion of Bangladesh's domestic market in the last 20 years. On the other hand, India has successfully used various delay-tactics in opening up its economy for exports from Bangladesh
Bangladesh has already become a victim of the invasion of the World Capitalist System in all its familiar faces. Therefore, our real option is to make our people conscious, and to educate and train them as fast as possible in order to raise a well-trained army of skilled manpower as early as possible to fight this battle for market in a truly globalised trading system.
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The author is Professor of Economics, University of Chittagong.
