Europe action would have big impact

If Bangladesh were to lose its preferential trading status with Europe over conditions in its garment factories, it could face hundreds of millions of dollars in duties and limits on access to its largest trading partner.

EU officials said on Wednesday they hoped the threat of action would be enough to make Bangladesh change its laws to secure a market which formed over a quarter of the south Asian state's $40.5 billion annual exports in 2011. Any action would likely take more than a year.

"This is about firing a shot across the bows of Bangladesh to get them to engage on the issue," an EU official told Reuters. "We want to turn up the diplomatic heat on them and get them to sit down and discuss this with us."

The European Union said late on Tuesday the 27-country bloc would reconsider its status unless Bangladesh improves labour safety standards after a garment factory collapse killed hundreds last week.

The EU imported roughly 9.2 billion euros of goods from Bangladesh last year, according to data from the EU's executive, the European Commission.

Textiles and textile products from clothing to towels and bedding accounted for almost 93 percent of those goods.

Bangladesh currently receives duty-free access to EU markets under a programme known as the globalised scheme of preferences (GSP), designed to help developing countries grow through trade. The country has the most generous level of GSP, aimed at least-developed countries.

If it were outside the GSP, it would face normal import duties, which are 12 percent for many clothing items ranging from men's jackets to women's blouses.

It was the second warning this year from the European Commission. In January, the bloc called on Bangladesh to immediately act to ensure its factories comply with International Labour Organisation (ILO) standards, after a garment factory fire killed six employees.

This followed a November fire at another garment factory that killed over 100 workers and prompted US lawmakers to call for suspending their own GSP programme with Bangladesh, but no action was taken.

If the European Commission did suspend Bangladesh from the GSP scheme, it would not be the first time the bloc used access to trade preferences as leverage in dealing with countries.

The Commission suspended Myanmar from the scheme in 1997, prompted by concerns over forced labour. A positive report from the ILO last year resulted in the Commission proposing to readmit the country to GSP in September.

In 2007, the Commission ended GSP to Belarus after an ILO report found the country failed to respect basic rights allowing trade unions.

In the case of Bangladesh, the next possible step would be for the European Commission to launch an investigation into concerns over labour conditions in the country, after first consulting with European governments, a process that could take more than a year.

Only after this investigation would the Commission consider whether or not a country could be temporarily withdrawn from the GSP scheme. This decision would need to then be approved by EU member countries.