Bangladesh will graduate from a least developed country (LDC) by 2026.
As per a report of the United Nations Conference on Trade and Development (UNCTAD), Bangladesh may lose 14.28 per cent export earnings after LDC graduation, while estimates carried out by think-tank, the Centre for Policy Dialogue (CPD), indicate Bangladesh’s exports will face an additional tariff of about 6.7 per cent, on an average, once the current DFQF (duty free quota free) market access ceases to exist.
“Graduation from the LDC category will eventually result in loss of special treatments, and the cumulative losses over the years could be really huge unless policy measures are taken in accordance,” said an industry insider while the former member of Bangladesh Tariff Commission Dr. Mostafa Abid Khan, on his part, added, “We have only four years in hand before graduation. The time has to be used properly without delay.”
As it would have been, focus is now increasing on minimising the implications of this much-awaited transition, especially on Bangladesh’s exports and so is the need for striking trade agreements even if experts expressed divergent views on the same.
If some are for signing FTAs, others feel Preferential Trade Agreements (PTAs) would be a more feasible option even if many others are vouching for new-age FTAs.
Then there are also those who are for Regional Trade Agreements or RTAs.
Each group has come up with their very own explanations as to which of the above-mentioned trade agreements would work best for Bangladesh and why.
“…nowadays no country negotiates PTA as PTA does not bring in any major trade benefit,” underlined an economist speaking to Apparel Resources (AR) even if another expert opined reaching FTAs with developing countries will yield minimum benefit in terms of Bangladesh’s export trade unless there is a major drive to diversify the export basket.
Then there is new generation agreement on FTA, which requires reduction of tariff on at least 90 per cent of total bilateral trade within 10 years along with the elimination of duties and taxes other than tariff, which many feel, will compound Bangladesh’s worries rather than solving.
Given the existing scenario, Bangladesh has now decided to look beyond Bhutan and Sri Lanka to more consequential export destinations it seems.
Eyes on Malaysia…
Considering the existing potentials, trade negotiations with Malaysia are something the industry is keenly following.
As per Statista, revenue in the Malaysian apparel market amounts to US $ 4.70 billion in 2022, and is expected to grow annually by 7.21 per cent (CAGR 2022-2026) even as according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Bangladesh’s apparel exports to Malaysia during the July-January period of fiscal 2021-22 increased 6.34 per cent to touch US $ 101.69 million.
“…Malaysia-Bangladesh free trade agreement will bring about tremendous benefits and business opportunities for both,” claimed Malaysian High Commissioner to Bangladesh Haznah Md Hashim even if Bangladesh Commerce Minister Tipu Munshi stressed the need for signing FTA with Malaysia soon.
“Bangladesh has a long-standing trade and economic relationship with Malaysia. There is a need for signing FTA to boost trade… The discussion in signing FTA between the two countries has advanced considerably. It will be possible to sign the FTA, if Malaysia comes forward…,” stated the Bangladesh Commerce Minister.
Japan and South Korea in focus too
Japan and South Korea are amongst the non-traditional destinations, in which striking FTAs, could help Bangladesh reap rich dividends, underline people in know of things.
The exciting fashion retail destinations in Asia as they are, Bangladesh has already approached both the countries for FTAs.
As per Statista, revenue in the Japan apparel retail market amounts to US $ 86.07 billion in 2022 and is expected to grow annually by 4.14 per cent (CAGR 2022-2026) while revenue in South Korean apparel retail market amounts to US $ 37.51 billion in 2022 and, is expected to grow annually by 0.76 per cent (CAGR 2022-2026).
The good news is Bangladesh’s apparel shipments to both these countries are on the rise. In the July-January period of fiscal 2021-22, Bangladesh’s apparel exports to Japan rose by 15.90 per cent while that to South Korea increased by 25.75 per cent.
Then there are the major markets of India and China, in both of which Bangladesh currently enjoys duty advantages but to different results.
Advantage India, questions remain on China though…
Bangladesh has been enjoying duty-free trade benefit to Indian markets from 2011 under the South Asian Free Trade Area (SAFTA) on export of all goods including apparel products, except 25 alcoholic and beverage items.
Due to the duty-free trade benefit, Bangladeshi garments now account for around 40 per cent of total apparel import by India even if in a letter written to then Indian Textile Minister Smriti Zubin Irani by ex-President of the Clothing Manufacturers Association of India (CMAI) Rakesh Biyani, he underlined between the fiscal years 2016-17 and 2019-2020, garment import from Bangladesh to India registered 192 per cent growth.
Meanwhile, in China, Bangladesh started receiving zero tariff facility on 97 percent of its goods under the Duty Free Quota Free (DFQF) scheme of WTO for the Least Developed Countries (LDCs) from 2020 which was later increased to 98 per cent goods. However, despite such facilities, exports to China failed to make much headway unlike that in India.
According to reports, apparel shipments to China fell to US $ 131.20 million in the July-January period of the current fiscal year, a decrease of 19.66 per cent from US $ 163.30 million in 2020-21.
Now India is looking to advance a comprehensive free trade agreement with Bangladesh and soon, as has been hinted by Indian Commerce and Industry Minister Piyush Goyal. Bangladesh garment exporters felt such a facility will go a long way (along with trade privileges in Japan and Korea if forthcoming) towards cushioning the graduation shocks while also allow Bangladesh the time and space to work things out accordingly for the traditional strongholds of EU and UK, both of which are extending the DFQF facility for three additional years.
Appeasing the EU
Nonetheless, following the recent visit of an EU delegation, Bangladesh is said to be working overtime towards meeting the demands put forth by EU in terms of amending labour laws, which would pave the way towards attaining GSP Plus facility in the European market.
“…of the nine suggested actions, the EBA delegation of EU was satisfied over the progress of six areas,” claimed Commerce Ministry Joint Secretary Md Abdur Rahim, adding other three issues would also be addressed and, keeping true to the commitment, Bangladesh has already ratified the much-talked about International Labour Organisation (ILO) Convention 138 to fix the minimum working age, a long time demand from the European Union to become eligible for the new GSP.
“We need to realign policy support to meet the need of the industry as well as to facilitate potential areas of growth and investment…,” said BGMEA President Faruque Hassan in the meanwhile, indicating perhaps towards the fact it’s not the kind of trade agreements which would matter as much as would the policy principles to complement and help those reach the true potentials.
All that Bangladesh needs to do now is hasten things up and avoid any complacency to ensure safe sailing through the transition period.
