Industrial sector has to be well-prepared to ward off any adverse consequences in exporting products to countries under the European Union (EU) after Bangladesh’s graduation to a developing nation in 2024, experts said on Thursday.
In case the country fails to avail the GSP Plus facility, products originating from Bangladesh will face around 9.6% tariffs to enter into the EU nations, they added.
Trade experts and economists came up with the remarks while addressing a seminar on “Bangladesh LDC Graduation and Apparel Export to the EU” organized by the Policy Research Institute (PRI), a local think tank, in the capital on Thursday.
“The graduation from LDC status represents a major development transition for Bangladesh, demonstrating impressive socio-economic achievements,” said Abdur Razzaque in his key note presentation.
“However, it gives rise to concerns about potentially sizeable economic costs due to the loss of access to various support measures associated with LDC status, Bangladesh is unlikely to access to the GSP Plus facility of the EU.”
He said the loss of duty-free access could thus adversely impact the country’s competitiveness and export prospects.
Other economist at the seminar, however, called for quick and timely preparation to cope with the changing scenario after the graduation.
“With graduation the biggest blow is expected to come on the trade front. “Preference erosion” – the loss of LDC trade preferences will be the first to hit us. If we wait till 2024 to develop the arsenal for mitigation, the economy will face a shock,” PRI chairman Dr Zaidi Sattar said who moderated the seminar.
Bangladesh stands ready to graduate out of LDC status by 2024. But LDC graduation is not a milestone. We need to see this as only the start of a long journey towards a mature and globally competitive economy as there are formidable challenges ahead, said Sattar.
“It is better to approach the turbulence, if any, with full preparation”
In mitigating the adverse impact, the keynote paper suggested for early preparation.
Notwithstanding, there is no denying that loss of LDC preferences in the EU, resulting in a likely tariff hike of on average 9.6 percent, will trigger a serious pressure on competitiveness, said Razzaque.
Bangladesh can consider some measures including looking for extended transition period (from EBA) for graduating LDCs; possible options and strategies for securing the scheme of GSP Plus; a negotiated bilateral trade deal with the EU in mitigating any potential adverse consequences, recommended the economist.
On the supply side, he also suggested for industrial upgradation within apparel value chains including technological upgradation, attracting FDI, and ensuring compliance.
He also urged to reduce cost of doing business and remove barriers such as infrastructure bottlenecks, inefficient customs processes and incompetence at ports management.
Furthermore, Razzaque said graduating LDCs can apply for the ‘second best’ preferential regime, the Special Arrangement for Sustainable Development and Good Governance (GSP Plus), which grants duty free access to 66 percent of EU tariff lines including clothing items.
Given the existing qualification criteria, Bangladesh is unlikely to gain the GSP Plus tariffs facility. In that case, the least attractive ‘Standard GSP’ would be the only option, he opined.
“Under the Standard GSP scheme these tariffs will be reduced to 9.6 percent, while with the GSP Plus scheme tariff-free access is given for the same products.”
However, the government representative and the manufacturers present at the seminar said it would not hurt the export as Bangladesh’s export to the US market is subject to about 16% tariffs.
“Nothing is to be worried. We have absorbed 8 to 10% cost in last few years,” Fazlul Haque, managing director of Plummy Fashions said.
Bangladesh is exporting to US paying 16% tariff and earning over $5 billion. Nothing is to be worried as we can face it, Dr Shamsul Alam, A Member of the planning commission said.
The graduation will make Bangladesh more competitive, added Shamsul stressing on the need for Foreign Direct Investment (FDI) to cope up with the graduation challenge.