Bangladesh’s readymade garment (RMG) exports to the European Union could decline by 20% due to the combined impact of the EU-Vietnam free trade agreement (FTA) and Bangladesh’s transition from a least developed country to a developing nation, research revealed.
The study, jointly conducted by the Research and Policy Integration for Development (Rapid) and Friedrich-Ebert-Stiftung, also stated that Bangladesh's overall exports to the EU could decline by 21%, primarily due to the loss of duty-free access following its LDC graduation, with the additional impact depending on the stringency of rules of origin.
The findings and observations of the study were presented on Wednesday at an event titled “The EU-Vietnam Free Trade Agreement: Implications for Bangladesh’s Export Competitiveness,” held on Wednesday.
It also said that Vietnam has made significant investments in its garment industry’s backward linkages, while Bangladesh has yet to implement visible policies, failing to capitalize on the opportunity.
Vietnam’s garment exports, currently subject to EU duties, are set to benefit from zero-duty access by 2027.
In contrast, Bangladesh, due to its graduation, will likely face up to a 12% duty after 2029, the study mentioned.
Currently, Bangladesh's exports enjoy duty-free access to the EU under the Everything but Arms program.
Furthermore, while Bangladesh lags in policy implementation, Vietnam has effectively streamlined its business environment and opened up trade and investment, taking timely and strategic policy actions, it also said.
If Bangladesh wants to remain competitive, as global trade rules evolve, it must prioritize investments in backward integration and infrastructure development, said Rapid chairman MA Razzaque.
He said while presenting the report that Vietnam was making substantial investments in backward integration, leading to a notable increase in value addition within its textile industry, a significant shift for a country historically known for low domestic value retention in exports.
The study recommended that Bangladesh should engage with the EU to negotiate an extended transition period for its LDC graduation, allowing more time to adjust to changes in market access and mitigate the impact on export competitiveness.
Furthermore, the country should explore relaxing the stringent rules of origin under the Generalized Scheme of Preferences Plus (GSP+), particularly the requirements for double transformation in garment exports and 50% value addition for other exports, it said.
The study also recommended that Bangladesh should comply with the 32 international conventions required for GSP+ eligibility, with focus on enforcing rather than just ratifying these conventions.
Alongside this, pursuing FTA with the EU should be explored, capitalizing on the country's young, growing population and its strategic importance in global trade, the report mentioned.
To enhance competitiveness the report suggested Bangladesh invest in backward integration, especially in the production of man-made fibres, and improve farm-level competitiveness through better productivity and operational efficiency.
Compliance
Addressing the EU’s stringent sustainability and carbon policies is also critical, requiring improvements in labour standards, environmental compliance, and carbon management to meet the EU's due diligence requirements and avoid trade barriers, it outlined.
The study opined that modernizing trade infrastructure and logistics was essential to reduce costs and improve supply chain efficiency, ensuring Bangladesh remains competitive in the global market.
Policy Exchange Bangladesh chairman M Masrur Reaz said that FTAs and trade agreements, such as those Bangladesh was pursuing with Japan and Singapore, were vital for the country’s economic future.
He explained that these agreements would offer opportunities to diversify exports, improve competitiveness, adapt to evolving global regulations, and secure market access after LDC graduation.
Masrur said that Bangladesh's growth vision, including a $100 billion RMG industry, depended on diversifying exports, as the majority of the country’s exports were concentrated in traditional markets.
The evolving global landscape, including sustainability standards and shifting trade relations, poses both challenges and opportunities, he said.
Masrur mentioned that LDC graduation would lead to the loss of preferential market access, requiring Bangladesh to strengthen its competitiveness, address structural weaknesses, and learn from countries like Vietnam, whose trade agreements have spurred significant economic growth.
FES Bangladesh representative Felix Gerdes emphasized that Bangladesh’s role as a major cotton producer was an advantage, especially with Europe’s stricter circular economy regulations making single-fiber garments more recyclable.
While expanding into manmade fibres is important, Bangladesh should focus on strengthening its established garment industry and supporting fabric recycling to stand out internationally as sustainability in garment production becomes a key focus, he mentioned.
Gerdes said that Bangladesh has made notable strides in improving workplace safety, although some areas required further progress.
Challenges with unions persist, with approximately 17 complaints, many concerning the blacklisting of union members, he said.
Tackling these issues will not only boost Bangladesh’s reputation but also help address the concerns raised by European and German procurement regulations, Gerdes added.
Exports won’t be hampered
Bangladesh Knitwear Manufacturers and Exporters Association executive president Fazlee Shamim Ehsan said that Bangladesh’s export growth might slow on the EU market after the LDC graduation but the total export volume is unlikely to decrease.
He said that labour shortages in China and Vietnam, along with a growing reluctance among their workers to view RMG jobs as prestigious, could lead to a shift in orders from these countries to Bangladesh.
However, he mentioned that Bangladesh has been facing substantial challenges in creating a business-friendly environment due to inadequate banking facilities, inconsistent gas and electricity supplies.
Economic Relations Division secretary Md Shahriar Kader Siddiky said that the government was working on FTAs, investment opportunities and policy reforms to foster economic growth in Bangladesh.
He said that the government remained actively engaged with countries like Korea and China to attract diversified investments.
Additional commerce secretary Ayesha Akter, Export Promotion Bureau vice-chairman Md Anwar Hossain, EU delegation to Bangladesh trade counselor Abu Syed Belal and Rapid executive director M Abu Eusuf, among others, also spoke at the event.