Bangladesh will lose trade benefits in export destinations when it finally transitions into a developing country
Bangladesh’s recommended graduation from the group of the least developed countries (LDCs) to a developing country comes at a time when the country is set to celebrate the golden jubilee of its independence.
The development has brought joy to the country along with new challenges in the area of trade and commerce — especially for exports in the global market, following the graduation in 2026.
On Friday, the United Nations Committee for Development Policy (CDP) took a final decision after the second round of review, recommending Bangladesh’s graduation from the list of the LDCs.
In March 2018, the CDP declared Bangladesh’s eligibility for graduation from the list of LDCs as it had fulfilled the requirements in all three criteria — gross national income per capita, human assets index and economic vulnerability index — to be considered a developing country, as determined during the 5-day review meeting held between February 22 and 26.
According to the UN, per capita income of $1,230 is one of the requirements for transitioning into a developing nation. Bangladesh’s per capita income currently stands at $1,827 and its score in the Human Assets Index (HAI) is 75.3 against a threshold of 66.
Moreover, to make the cut, the Economic Vulnerability Index (EVI) must be below 32 points and Bangladesh’s current score is 27.3 points.
Taffere Tesfachew, chair of the CDP subgroup on LDCs, revealed the decision regarding the recommendation at a press briefing on Friday night.
The UN committee also made recommendations on the country's appeal to extend the final terminal period to 2026 from 2024.
Following the recommendation by the CDP for Bangladesh to become a developing nation, the proposal is supposed to be sent to the UN Economic and Social Council (Ecosoc) for endorsement in June.
The UN General Assembly is scheduled to approve the proposal in September this year.
The graduation can be hailed as a milestone for Bangladesh and reflects the country’s sustained development in the socio-economic indicators.
It has brought opportunities as well as challenges since Bangladesh will lose trade benefits in export destinations and lose competitiveness to its competitors following the graduation.
"At a time when we are set to celebrate the golden jubilee of our independence, the country achieved international recognition for its sustained development in the socio-economic indicators," said Prof Mostafizur Rahman, distinguished fellow at Centre for Policy Dialogue (CPD).
“The recognition will bring new opportunities and enhance Bangladesh's branding to global investors and others. We have to utilize this opportunity to attract foreign investments and take credits from the private sector people of foreign countries,” he added.
In addition, it will increase Bangladesh's credit rating, which will in turn help issue sovereign bonds and boost the confidence of global lenders as well as investors, the economist told Dhaka Tribune.
However, alongside the opportunities, there will be new challenges for the country, especially in the export market, due to the diminished trade benefits.
"After graduation, exports will face the most challenges as the duty free benefits enjoyed as an LDC under the World Trade Organization (WTO) regime will no longer remain in effect. But it will prevail till 2029 in EU markets only,” Prof Mostafizur.
To tackle the challenges, Bangladesh has to come out of the preferential market driven competitiveness and enter productivity driven competitiveness.
On the other hand, Bangladesh also has to focus on compliance, keeping aside flexibility as it will step into being a developing country.
“We have to increase capacity, trade and communication connectivity, and productivity to remain competitive in the global business, Prof Mostafizur said.
Meanwhile, another economist called for preparations for negotiations to retain the trade facilities and devise new ways to start new deals with trading partners.
Job far from done
“The recognition is a milestone for Bangladesh, but the work is not finished with that [achievement]. If we become complacent, the result of the recognition will not be favourable,” opined Dr Zahid Hussain, former lead economist of the World Bank’s Dhaka office.
“The trade facilities we used to enjoy as an LDC country will be reconsidered for the interim period, but after the final declaration it will be over."
“Duty- and quota-free market access will be over in the EU market by 2029. In addition, the Trade-Related Aspects of Intellectual Property Rights (TRIPS) on pharmaceuticals will also come under a question when we graduate into a developing country,” said Dr Zahid Hussain.
A five-year period was not much time to be well-prepared for facing the challenges that will emerge after graduation, especially in exports, said the noted economist.
“Bangladesh has to assess the impacts of declining trade benefits and duty-free market access under the WTO as an LDC to start negotiations in this regard,” he added.
Based on the findings, Bangladesh would have to determine whether it would be better to sign bilateral trade agreements or join an economic bloc to retain trade facilities or ink new deals with regional and global partners, he suggested.
“If we can increase our economic capacity, we will not have to remain dependent on others. A skilled human resources policy will be very crucial,” Dr Zahid remarked.
Meanwhile, businesses and exporters want a proper mechanism to deal with the tariff rate and a proper infrastructure to attract investment.
"We were on the right track, but the Covid-19 pandemic disrupted the pace. In light of the new context, the government has to develop an infrastructure to ensure that we can invest and foreign investors become keen to invest here," Abdus Salam Murshedy, president of the Exporters’ Association of Bangladesh (EAB), told Dhaka Tribune.
If the government could complete the Special Economic Zones (SEZ) in time, it would create employment opportunities and help attain growth, said Murshedy.
While talking about the tariff rate after graduation, Salam urged lobbyists to negotiate trade benefits with different blocs and countries. He emphasized bilateral agreements and joining regional and global economic deals to remain competitive.
Myanmar also met the graduation criteria for the second consecutive time. However, the CDP deferred the decision on Myanmar as well as Timor-Leste to the 2024 triennial review.
The UN panel deferred recommending Myanmar for graduation due to concerns regarding negative impacts of the state of emergency declared by the military on its development trajectory and graduation preparation.
The CDP also stayed recommending Timor-Leste due to apprehensions about the sustainability of the country's development progress.
For the first time, no country was found eligible for inclusion in 2021.