Bangladesh needs to lower its apparel-production margin costs through developing skills and manufacturing high-value-added items amid heightened competition in the post-LDC period, said MA Razzaque, chairman of the Research and Policy Integration for Development (Rapid).
He also said that the country's readymade garment (RMG) sector will lose trade preferences that offer substantial profit margins and government support, like bonded warehouses and cash incentives that ensure profitability, once the country graduates from least developed country status.
He made the remarks at a program while presenting the findings of a study titled "Can Bangladesh Absorb LDC Graduation-Induced Tariff Hikes? Evidence Using Product-specific Price Elasticity of Demand and Markups for Apparel Exports to Europe" on Sunday.
Sharifa Khan, senior secretary of the Economic Relations Division, and Tapan Kanti Ghosh, senior secretary of the Ministry of Commerce, also spoke at the seminar.
The demand for Bangladesh's top 50 RMG products in the EU and the UK is highly elastic, Razzaque said, adding that for most products in most countries, own-price elasticity is between 3 and 4 in absolute value.
Though some of these top 50 local RMG products have high markups (profit margins), for most of them the markup is between 2 and 4, he noted.
Bangladesh is set to graduate from LDC status on November 24, 2026 and various studies indicated that tariff hikes after LDC graduation would result in a significant shock to Bangladesh's exports, he said.
The United Nations Conference on Trade and Development estimated Bangladesh's potential export losses to be between 5.5% and 7.5% while the World Trade Organization suggested a decline of more than 14% in Bangladesh's exports.
In 2022-23, Europe-bound merchandise exports from Bangladesh amounted to $30.5 billion, of which apparel exports comprised $28.6 billion.
The EU and the UK account for more than 60% of Bangladesh's garment exports while apparel products constitute more than 93% of total exports to the EU and the UK, he noted.
Currently, as an LDC, Bangladesh enjoys duty-free access to the EU for all exports, barring arms and ammunition.
The sector should consider raising the markup on current RMG products by capitalizing on cost efficiency through improvements in infrastructure, power, utilities, skilled labor and management, modern technologies and advanced supply-chain management techniques.
The sector should explore opportunities to diversify the RMG product portfolio by focusing on high-value-added products that inherently offer higher profit margins, he added.
Many European countries are increasingly adopting the “China plus one” policy to diversify their supply chains. Bangladesh can proactively engage in negotiations with these nations to secure a share of these expanding markets, the Rapid chairman mentioned.
Trade agreements between the EU and the comparator countries exporting apparel, such as Vietnam's free trade agreements (FTAs) with the EU and the UK, also mean that while Bangladesh may face a tariff of 12%, nations with FTAs such as Vietnam will get duty-free access, he added.
