The Impending Void: Discrediting the Speculation of Sanctions

In recent weeks, speculation has emerged in Bangladesh regarding the potential imposition of sanctions by the USA on the Ready-Made Garment industry.

In recent weeks, speculation has emerged in Bangladesh regarding the potential imposition of sanctions by the USA on the Ready-Made Garment (RMG) industry. The US has been the largest market for Bangladeshi items for long. Around 18.12 percent of the apparel export was to the US market in the 2022-23 fiscal year; volume stood at USD 8.52 billion. The RMG sector in Bangladesh accounts for a substantial 84.6% of its total exports, and the rumored sanctions from one of the major buyers could undoubtedly have far-reaching consequences on the nation’s economic growth.

However, Bangladesh’s economic growth is just one part of the story. whereas why the US imposes a sanction, and it will even serve the interest of the US, is little discussed till today. Analyzing both sides of the coin will give a more resounding gasp of the whole scenario.

The primary reason behind these speculations, as circulated by rumors, is concerns over labor rights in Bangladesh. However, a closer examination reveals that these concerns may be unfounded. Contrary to the hearsay, the labor conditions in Bangladesh’s RMG sector have significantly improved since the tragic “Rana Plaza” incident in 2012, and the country has now become a role model for progress in health and safety.

A number of buildings have undergone structural, electrical, and fire assessments to determine their compliance with the National Fire Code and the Bangladesh National Building Code (BNBC). The government of Bangladesh strictly inspected 1,549 factories and closed 513 that were in repeated violation of safety regulations. The Labor Law was amended thrice in 2013, 2018, and 2022 to protect workers’ rights and ensure workplace safety.

Recent discussions surrounding minimum wages for RMG workers in Bangladesh have stirred controversy. The government has proactively addressed this issue by implementing a remarkable 56% wage increase, an unprecedented move that demonstrates the commitment to fair compensation and stands as a testament to the continuous improvement of labor conditions within the industry. Critics argue that the wage hike is insufficient when compared to international standards. What may seem low by global standards could be a considerable improvement within the context of Bangladesh’s economic landscape. Moreover, the success of Bangladesh’s RMG sector is, in part, attributed to the competitive pricing of its products. The affordability of these products has played a pivotal role in the industry’s expansion, contributing significantly to the nation’s economic prosperity. Before pointing out the wages, the international community should also consider that wage increases in the country can alter the pricing of the products.

Sanctioning a country to make it improve its labor condition at a time when the country has proved to be labor-friendly in its policies doesn’t seem so right. Then, the reason for a probable sanction is attributed to the political games the US wants to play. But will the US sanction an essential good industry? the answer is not straight negative. The US has imposed a lot of Sanctions on Myanmar but in such a way that doesn’t go against the self-interest of the country itself. For example, sanctions against the oil and gas enterprises of Myanmar could have affected Myanmar the most, but as the US has an interest in the sector, they delayed the sanction against the state-owned oil and gas enterprises till they could safely exit the industry to avoid any loss for the sanctions.

A question that comes to mind is, if not Bangladesh, from whom will the US take the RMG or apparel it needs? Currently, Bangladesh is the third-largest apparel source for the US. And even after the US-China Rivalry, China still holds the top apparel supplier position with around  21.75% share in 2022. If the second-largest RMG supplier contemplates an exit from the market, it will create a significant void in the supply chain, affecting retailers, wholesalers, and consumers alike.

The top suppliers will have more control over the price structure as the small players will find it challenging to meet the sudden surge in demand, potentially leading to a consolidation of market power among a few major suppliers. Ultimately, the withdrawal could disrupt trade balances, strain diplomatic relations, and trigger a domino effect affecting the economies worldwide. Even after the trade rivalry with China, the US has continued its business relations with China by prioritizing its own economic interests. That is why the US is less likely to disrupt its own economy by issuing sanctions against Bangladesh’s RMG industry.

Additionally, Bangladesh is leading the globe with over 200 RMG green factories, showcasing a robust commitment to environmental sustainability. The additional 100 factories seeking green certification signal a continuous dedication to eco-friendly practices. The USA’s expressed climate concerns may prompt diplomatic engagement and cooperation rather than sanctions, as Bangladesh’s proactive efforts align with international efforts to combat climate change. Sanctions may not align with the positive example set by Bangladesh in fostering sustainable industries.

While the economic impact of potential sanctions on Bangladesh’s RMG industry is undeniable, it is equally crucial to base such decisions on verified information. Bangladesh has demonstrated its commitment to responsible business practices, and a cooperative approach is essential to resolving any lingering concerns and ensuring the continued success of the RMG sector.

Bangladesh’s ascent in the global RMG industry is a testament to a harmonious blend of factors—economic, social, and regulatory. The nation’s ability to capitalize on its comparative advantages, coupled with a commitment to sustainability and compliance, has positioned it as a linchpin in the global apparel supply chain. The potential departure of such a country demands careful consideration from all stakeholders involved.

The global fashion and textile industries must collectively assess the potential consequences and work towards collaborative solutions to mitigate the adverse effects. The US must also realize that penalizing essential need manufacturers may hinder international cooperation on shared challenges, such as public health crises and environmental sustainability. Collaboration, rather than punitive measures, should be encouraged to address concerns collaboratively. Thus, both countries need to keep the relation intake for their own economic interest.

Dr.Ashraful Alam Chowdhury
Dr.Ashraful Alam Chowdhury
Dr. Ashraful Alam Chowdhury is an Independent Researcher and Columnist. He completed his MSS in economics from Dhaka University. Then, he pursued post-graduation and Ph. D. in economics from Emory University, Georgia, USA. He has experience of working in USA, Bangladesh, Myanmar and India.