SHREWSBURY, Massachusetts — Each year, developing nations pay millions of dollars on tariffs for products they export to the U.S. Establishing duty and quota-free trading polices with the U.S. would have enormous benefits for struggling nations. Removing a tariff is a relatively easy process and could greatly improve the economies in low-income nations.
For example, the country of Bangladesh exported over $5.4 billion in goods to the U.S. in 2013, with clothing as the primary commodity. If the duty on garments–which is on average 13 percent–was eliminated, then exports could increase by over $1.5 billion. The rise in production and capital could create more than 500,000 new jobs in Bangladesh, boosting the economy.
Other developing nations that face steep export taxes include: Cambodia (12.8 percent), India (4 percent), Indonesia (5.73 percent) and Vietnam (7.41 percent).
Eliminating or reducing tariffs proves a relatively effortless way to foster development. And while countries like Bangladesh and Cambodia would gain from other trade reforms such as factory improvements and investments, these changes are costly and require cross-nation regulation and funding.
The U.S. normally puts duties and quotas in place for environmental, safety and workers’ rights reasons. However, few corporations or nations are willing to pay for the factory improvements or increase in wages needed to meet these standards.
Bangladesh offers a prime example for the ineffectiveness of the tariff system. In April of 2013, the Rana Plaza factory building collapsed, killing over 1,100 people. In an effort to prevent incidents such as this from occurring in the future, two organizations–one representing European buyers and the other U.S. buyers–were created. The groups formed with the intention of helping to inspect factories and to pay for a portion of required structural improvements. However, a year after this Rana Plaza tragedy, BusinessWeek reported that very little progress has been made to improve factory safety and conditions for workers. Many doubt that the associations will actually pay for the changes needed.
World Bank economist Hassan Zaman has proposed a solution to this problem. To enhance economies in developing nations and to help pay for the needed factory changes, Zaman suggests that the money generated from duties be put in a fund. The fund can then be used to improve working conditions within these nations.
For example, the $850 million from duties that U.S. consumers pay for clothing from Bangladesh could be used to repair buildings and to improve working conditions for Bangladeshi employees.
Zaman entitled his theory “Tariffs for Standards,” as it offers a new way to foster development. So instead of removing tariffs to generate growth, Zaman targets the internal structural problems within developing nations to create sustained advancement. He also recommends that an international third party such as the World Bank manage the fund.
Though just a theory, “Tariffs for Standards” is practical as it uses the money collected because of poor factory conditions and takes action by applying the money to fund the needed changes. In a larger sense, the theory also calls on the U.S. to rethink seemingly mundane and established trading polices in innovative ways, such as linking tariffs to help foster growth in developing nations.
– Kathleen Egan