According to a study of the Bangladesh Enterprise Institute (BEI), Bangladesh has to pay a 9.5% tariff to enter the European market instead of the previous duty-free benefit, after the graduation
Bangladesh’s graduation to a developing country would affect its export competitiveness and export earnings in the global market, as the existing trade preferences will no longer be in place.
If Bangladesh gets the nod in the upcoming triennial review meeting of the United Nations' Center for Policy Development (CPD) in February, next year, the country will graduate in 2024.
After 2024, Bangladesh will enjoy a three-year grace period and enjoy duty-free market access to global markets until 2027.
According to a study of the Bangladesh Enterprise Institute (BEI), Bangladesh has to pay a 9.5% tariff to enter the European market, the largest destination for Bangladeshi apparel goods, instead of the previous duty-free benefit, after the graduation.
On the other hand, in case of Canada the tariff rate would be 17% followed by 8.71% in Japan, 8.61% in India and 16.2% in China, where Bangladeshi exporters enjoy duty-free market access.
According to a recent World Trade Organization (WTO) study, LDC graduation will have the greatest impact on the exports of Bangladesh, which is estimated to see exports decline by 14%.
While the UNCTAD estimated up to 7.5% of export loss for Bangladesh, another study by the Bangladesh Enterprise Institute (BEI), a local Dhaka-based independent think tank projected that loss to go up as high as 9.8%.
These results reflect the fact that tariffs are trade policy instruments that reduce export supplies of a country on which tariffs are imposed.
“LDC graduation is likely to bring in certain challenges, affecting export competitiveness. Loss of trade preferences is a key concern for Bangladesh as after LDC graduation, tariffs on exports in major markets will rise,” said MA Razzaque, a consultant at BEI.
More than 90% of Bangladesh exports to the EU could see tariffs rising from zero to about 10%, said the economist.
Not only for garments, tariff hikes will be for most products like leather footwear in most markets such as the EU, Japan, China, India and Canada, he added.
How to retain competitiveness
In retaining the export competitiveness and duty-free market access in the post graduation era, manufacturers and experts have stressed on Free Trade Are (FTA) agreements.
“There will be erosion of duty free market access after the graduation and we need to maintain this,” Syed Nasim Manzur, former president of the Metropolitan Chamber of Commerce and Industry (MCCI).
"To retain the trade benefits, forming FTAs with the countries we already have good relations with could be an option for maintaining duty free market access," said Nasim.
He has also urged the government to appoint dedicated negotiators so that Bangladesh can extend the trade facilities after the graduation.
“Since the erosion of policy will leave Bangladesh’s exports in tougher competition, we have to give priorities on FTAs only where export market access is critical,” said MA Razzaque, also a director of Policy Research Institute (PRI).
On the other hand, different negotiation strategies for engaging with the EU, the UK, US, India, and China should be developed to retain the trade preferences even after the graduation, said Razzaque.
Bangladesh also needs setting up a chief trade representative or negotiator’s office to develop and manage trade negotiations, he added.
However, manufacturers have put emphasis on branding Bangladesh and capacity building along with FTAs.
“The negotiation skills of Bangladeshi exporters are weak. Even though we have the highest number of green factories, we are unable to negotiate a better price,” Md Fazlul Hoque, former president, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).
"We need to build better skills to negotiate and to brand Bangladesh by showing our strength to gain from it," he added.