What is GSP | Why It Is Necessary for Garment Sector of Bangladesh

Last Updated on 11/03/2021

What is GSP? Why GSP is Necessary for Bangladesh Garment Sector?

Md. Ferdus Alam
Department of Textile Engineering
Southeast University
Email: ferdus.j@gmail.com

GSP:
The Generalized System of Preferences (known as GSP for short) is a formal system whereby a wide range of industrial and agricultural products originating in certain developing countries are given preferential access to the markets of the developed country. Actually, GSP is an instrument by which developed nations help the poorer countries foster more trade. The GSP scheme is specifically designed to benefit certain developing countries and integrate them into the world economy.

It is provides garment manufacturers in Bangladesh with duty-free access to the market of the developed country–subject to certain conditions relating to the origin of the materials used in the manufacture of the garment. Bangladesh is allowed to export nearly 5,000 products duty-free to the United States, which purchases about 25 percent of the country’s $18 billion in annual apparel exports.

Importance of GSP Status:
Bangladesh has an excellent opportunity to boost exports of garments to the USA and EU countries where demand for

Low price
Good quality
Capacity
GSP status

So, GSP status is very important for us.

With the GSP status, Bangladeshi garment products can enter the market duty free. On the other hand, its absence, it has to pay 12 percent import duties for most products. This status helps decrease the cost per unit of garments, causing the demand to rise.

This not only helps the garment industry but also the entire economy.

Increased trade means higher export earnings which help promote further industrialization, leading to higher economic growth.

Now let us look at a more concrete example. Bangladesh’s apparel exports to the EU made a leap since January 2011 when it allowed GSP for Bangladeshi garments made from imported fabrics. Previously, Bangladesh used to enjoy the GSP benefit only for those garments made from local fabrics.

There is a 46 percent rise in apparel exports between a year without and with GSP, indicating the importance of this status in the country’s apparel industry.

apparel export with or without gsp — Fig: Apparel export with or without GSP

Without it, the price per unit of garment will rise and this may lead to many European buyers turning their backs on our products.

***During the period of President Barack Obama had suspended long-time US preferential trade benefits, or GSP status, for Bangladesh in a mostly symbolic response to dangerous conditions in the garment industry that have cost more than 1,200 lives in the Rana Plaza collapse.

As a result of losing the GSP facility will cost Bangladesh millions of dollars in taxes as well as will lead to the loss of an essential ingredient in our brew.

And Bangladesh has been enjoying the zero-duty benefit on export to the EU under its Everything But Arms, the name of the EU’s Generalised System of Preferences (GSP), since 1971. In the meantime, Bangladeshi garment sector to lose $4b in EU if duty-free benefit ends.

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Mazharul Islam Kiron

Founder & Editor of Textile Learner. He is a Textile Consultant, Blogger & Entrepreneur. He is working as a textile consultant in several local and international companies. He is also a contributor of Wikipedia.