No major progress in post-CL preparation
Bangladesh has not yet made any significant progress in its preparation to maintain the tariff preference which will be removed once it leaves the group of least developed countries (LDCs).
With steady economic growth and gains in the social sector, the country is on track to become a developing country in 2026.
With this, Bangladesh will lose its duty-free access to major markets and other benefits it has enjoyed since its inclusion in the group in 1975.
LDCs benefit from a number of specific international support measures in the areas of trade, official development assistance and others, including travel assistance for United Nations meetings and reduced budgetary contributions to international organizations .
After graduation, countries no longer benefit from these support measures, according to the UN PMA portal. However, the vast majority of development partners continue to support countries even after they graduate.
As time is running out, Bangladesh has decided to sign Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) with its major trading partners to retain the tariff advantage.
In its eighth five-year plan and export policy for 2021-24, the government announced its intention to sign FTAs and PTAs with major trading partners.
So far, Bangladesh has been able to conclude a preferential trade agreement with Bhutan. And talks are underway to sign the Comprehensive Economic Partnership Agreement (CEPA) with India.
The government plans to conclude trade agreements with India, China, Malaysia, Vietnam, Japan and the countries of the Association of Southeast Asian Nations (ASEAN), the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Some high-level committees have been formed to address issues related to graduation. The government is in talks with some major trading partners to sign trade agreements.
“Bangladesh took a lot of preparation in terms of policies. Now is the time to implement the plans to face the challenges of exit,” said Mustafizur Rahman, a senior fellow at the Center for Policy Dialogue.
MA Razzaque, research director of the Policy Research Institute, also called for the proper execution of policies to ensure a smooth transition of the group.
The country has become a manufacturing hub, especially for clothing items, thanks to the trade advantages.
But due to poor preparation, Bangladesh stands to lose markets by 10-20% in the post-LDC period due to the end of tariff preference.
Currently, Bangladesh enjoys tariff advantages under the Generalized System of Preferences (GSP) in 38 countries. Of total export earnings, 74 per cent is covered by benefits granted to LDCs.
Thus, if the total revenues of $38.75 billion recorded in the last financial year are taken into account, $28.67 billion of external companies could be affected if the appropriate measures are not taken in time.
For example, local suppliers will face tough competition in the EU, with Bangladesh’s largest export destination accounting for 60% of goods shipped from the country, if the tariff advantage cannot be maintained.
Studies suggest the country could lose $4 billion in clothing exports to the EU alone each year as suppliers will face a 12% tariff in the bloc due to graduation.
This will pile up pressure on exporters as Vietnam, Bangladesh’s big competitor, enjoys the benefit of zero duty in the EU thanks to its signature of an FTA.
Bangladesh will have to comply with 27 international conventions, including four main ones – improving human rights, labor rights, good governance and environmental protection – to obtain GSP Plus status, which will guarantee the advantage Rights.
“The government should also try to partner with some trading megablocks like RCEP and ASEAN to get the tariff advantage in the post-PMA period,” Razzaque said.
He says the world situation is changing very quickly and it all depends on the markets.
For example, once it was assumed that Myanmar would be a major source of clothing for international retailers and brands. But work orders are moving to Bangladesh from the crisis-hit Southeast Asian country.
Orders are also being shifted from China, the world’s largest apparel exporter, due to rising costs, among other factors.
“So Bangladesh might not be greatly affected in the post-PMA period,” Razzaque said.
Yet maintaining preferential duty is crucial for any developing country. Two examples can clearly explain why.
First, Bangladesh has become the second largest garment exporter in the world thanks to the tax advantage. This enabled the country to increase its share of the global clothing market to 6.8%.
Second, Bangladesh’s garment exports hovered around $1 billion thanks to the zero-duty facility in Turkey. The shipment fell to $117.15 million in the last fiscal year due to the 17.50% tariff imposed on Bangladeshi textiles and garments in June 2012.
“Bangladesh also needs to develop the private sector, special economic zones and skills,” Razzaque said.
The government is set to release today its progress document on the readiness of the LDC group.
Recently, Tapan Kanti Ghosh, Principal Secretary of the Ministry of Commerce, said the government was negotiating with some major trading partners to sign FTAs, PTAs and CEPAs to retain tariff advantages.
“We are not worried about the challenges of PMA graduation because we are taking good steps.”
Bangladesh will enjoy tariff advantages in the EU until 2029, as the bloc extended the grace period for another three years.
“At that time, the country will be ready to achieve GSP Plus status by improving the working environment and meeting other conditions,” the secretary said.
Australia recently said that she would maintain the duty privilege to Bangladesh after graduation.
In addition, negotiations are underway through the World Trade Organization (WTO) for the extension of LDC-related tariff privileges for exiting countries for another 12 years.
“I am hopeful that the WTO will take action to extend the tariff privileges for at least six years,” Ghosh said.
The secretary, who is also a member of the government’s very powerful LDC graduation committee, admits that the most important issue is product diversification.
Bangladesh’s exports are largely dominated by shipments of clothing items, which account for about 85% of national revenue.
Apparel exporters, however, are performing well in the US despite a 15.62% tariff in the absence of GSP and the volatile global scenario.
Apparel shipments to the United States jumped 50% year-on-year to $5.78 billion between July and February, according to data from the Export Promotion Bureau.
Apparel export to the United States is expected to hit $10 billion in the current fiscal year, ending in June, due to higher demand.