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President Barack Obama suspended U.S. trade benefits for Bangladesh on Thursday after concerns over worker safety in the country’s multibillion-dollar garment industry peaked in the wake of the Rana Plaza building collapse in April. The deadly accident, which claimed the lives of 1,132 men and women outside the capital of Dhaka, achieved international notoriety as the worst in a string of disasters to hit the South Asian nation. Although the U.S. imported $4.9 billion worth of goods from Bangladesh in 2012, the bulk of which was clothing, the move is mostly a symbolic one: U.S. preferential access, known as the Generalized System of Preferences, does not cover apparel.

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Observers say, however, that it could prompt the European Union to take action, which would exact a larger economic toll as Bangladesh clothing-and-textile exports to the EU are duty-free. The hit in reputation could also dissuade American businesses from investing in the country, already among the world’s poorest.

The hit in reputation could also dissuade U.S. businesses from investing in Bangladesh, one of the world’s poorest countries.

“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,” Obama said in a statement.

The U.S. Trade Representative review of Bangladesh’s labor conditions stems from a 2007 petition by the American Federation of Labor and Congress of Industrial Organizations, the largest federation of unions in the United States, to seek withdrawal of the GSP benefits amid complaints about deteriorating workers’ rights. The review was expedited late last year after the unsolved killing of prominent labor activist Aminul Islam in April 2012, followed by the Tazreen Fashions fire, then Bangladesh’s worst industrial tragedy with a death toll of 112, in November.

The Bangladesh government criticized the move for its potential to derail current efforts to improve workers’ rights and safety. “We are desperately trying to upgrade the situation of our garment factories and we expect assistance, not punitive action,” said H.T.Imam, government adviser to Prime Minister Sheikh Hasina.

EU and Bangladeshi officials are scheduled to convene in Geneva next month to discuss ways of improving safety conditions in Bangladesh and maintaining the country’s trade benefits.

[Via Financial Times and Reuters]