Bangladesh pledged on Monday to quickly boost worker rights and recruit more factory inspectors as it seeks to preserve European Union trade benefits after 1,129 workers were killed in the collapse of a garment plant in April.
The EU, which gives preferential access to Bangladeshi garments, has threatened punitive measures to press Dhaka to improve worker safety standards after the collapse of the illegally built Rana Plaza factory.
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Instead, EU Trade Commissioner Karel De Gucht launched a "sustainability compact" at a meeting with Bangladesh officials, who committed to enacting a new labour law y the end of 2013 and increasing the factory inspectorate by 200 staff to 800.
"We have a carrot and a stick but I prefer to use the carrot," he said. "We want to help the Bangladeshi people, not to punish them."
The EU said it would reallocate funds to help rehabilitate those permanently disabled in the Rana Plaza collapse and extend technical assistance to improve labour standards in Bangladesh and other impoverished countries in the region.
Tax concessions offered by Western countries and the low wages paid by the manufacturers have helped to turn Bangladesh's garment exports into a $19 billion annual industry, with 60 percent of the clothes going to Europe.
In late June, U.S. President Barack Obama cut off U.S. trade benefits for Bangladesh in a mostly symbolic response to conditions in the country's garment sector, given that clothing is not eligible for U.S. duty cuts.
De Gucht said the United States was considering whether to join the compact announced on Monday.
The EU imported roughly 9.2 billion euros ($11.8 billion) of goods from Bangladesh last year, with textiles from clothing to towels and bedding accounting for almost 93 percent, corresponding to some 2.5 million jobs, mostly held by women.
Bangladesh receives duty-free access to EU markets under a program 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.
De Gucht said Bangladesh should not take that for granted and the EU could still consider action if there was "insufficient progress for Bangladeshi workers."
Bangladesh Foreign Minister Dipu Moni said parliament would reconvene soon to adopt a new labour law. The bill will make it easier to form trade unions. Workers can now form a union only with permission of the factory owner.
"We realize in the wake of the recent tragedies our friends ... expect us to deliver fast. Please do bear with us and stay engaged in Bangladesh," Moni said.
But the minister also hit out at brands which she said continued to raise retail prices while squeezing suppliers.
"Some leading buyers are still quietly pressing for lower prices," she said. "How do we ensure fair pricing? The demand side must also come forward on delivering their part."
Earlier on Monday, a group of mainly European retailers announced they had finalized a plan to promote worker safety through coordinated inspections. But many U.S. retailers have shunned the deal, proposing instead a non-binding initiative.
In the compact, the EU and Bangladesh welcomed the European-led plan, while urging all retailers and brands adopt a unified code of conduct to audit factories. ($1 = 0.7792 euros)
(Additional reporting by Jessica Wohl in Chicago; Editing by David Goodman/Mark Heinrich)