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NEEDED: Negotiation cell to deal with tariffs in post-LDC era

  • Published at 12:24 am March 5th, 2021
Projected impact of LDC graduation on tariff

According to the CPD, the impact of LDC graduation will be felt in four areas: market access, dealings with trade partners, policy freedom and compliance enforcement

To ensure smooth and sustainable graduation from a least developed country (LDC), the Centre for Policy Dialogue (CPD) has recommended forming a negotiation cell for dealing with tariff and trade liberalisation in the post-LDC era.

The local think-tank made the recommendation yesterday at a dialogue styled "Moving Out from the LDC Group: Strategies for Graduation with Momentum".  

On February 26, the United Nations Committee for Development Policy, after the second round of review, recommended Bangladesh for graduation from the list of LDCs to that of developing countries.

After graduation to a developing country in 2026, Bangladesh will lose duty and quota-free market access. However, it will enjoy duty-free market access to the EU until 2029.    

According to the CPD, the impact of LDC graduation will be felt in four areas: market access, dealings with trade partners, policy freedom and compliance enforcement.

For Bangladesh, preferential market access is very important as 70 per cent of the country’s global exports are covered by preferential access -- one of the highest in the world.  

After graduation, Bangladesh's export loss will be equivalent to about 14.3 per cent of the country’s global exports.

In trade negotiations, countries get not what they deserve, but what they negotiate, said Mustafizur Rahman, distinguished fellow of the CPD, in his keynote presentation.  

“The capacity to carry out tough negotiations for a comprehensive economic partnership agreement [CEPA] based on what we can offer to our trade partners is very important.”

The country should be well-prepared to face the challenges. 

“It should not happen that on the morning of 2026, we see lots of issues remaining unaddressed. It would leave us in trouble.”

There will be lots of challenges in exports, including for pharmaceuticals, in both the local and export markets. 

For instance, with the new tariff rate after graduation, the prices of insulin may increase eight times, according to Rahman.          

The preparedness to deal with complex issues such as tariff and trade liberalisation, the opening of sectors for foreign investment, labour compliance and environmental compliance would be very crucial, he said.   

Bangladesh can go for negotiations either bilaterally, or as a group with a single country or with a group of countries. 

India and China, the Association of Southeast Asian Nations (ASEAN), and the Regional Comprehensive Economic Partnership (RCEP) are possible regional countries and groupings with the most potential benefits, but also the most challenging ones, Rahman said.

The CPD also urged for exploring opportunities presented by the World Trade Organisation (WTO), which could help Bangladesh enjoy trade benefits.   

“There are trade benefits for Bangladesh even after graduation, which need to be explored. For the developing countries, 155 issues are relaxed, from which we could benefit,” Rahman said.

On the other hand, Bangladesh has to take lead in the WTO Ministerial Conference 12 (MC12), to be held on November 29 this year in Geneva.

Bangladesh should take lead given the proposal floated in the WTO for extension of International Support Measures (ISMs) for graduated LDCs, said Rahman adding that to ensure the continuation of support, Bangladesh should actively support the initiatives at MC12.

The graduation will bring new opportunities as well as challenges, said Md Shahriar Alam, the state minister for foreign affairs.

“It will build the country's image and branding, which will attract a lot of foreign investment, thus creating employment opportunities for us.”

Bangladesh's credit rating will improve and it will help the country to get loans from others through offloading sovereign bonds. The country will also be able to join different blocs.

Besides, the government has formed a high-powered team to formulate a strong strategic roadmap for the transition period and for facing challenges in the post-LDC period. The Eighth Five Year Plan also focuses on graduation, Alam added.

Bangladesh needs to graduate for real

"We have been somewhat prematurely celebrating the graduation. We actually have not graduated yet. We are going to graduate in 2026," said CPD Chairman Rehman Sobhan.

“I made this distinction because we have graduated on a statistical level. Bangladesh needs to graduate in real life,” Sobhan said.

He also raised questions about competitiveness as Bangladesh has to compete with China, India and Vietnam after graduation.    

With the erosion of Trade-Related Aspects of Intellectual Property Rights (TRIPS) facilities after graduation, the pharmaceuticals sector will face major challenges and it needs proper steps to overcome those, Sobhan added.     

The attainment of sustainable development goals (SDGs) will help Bangladesh graduate to a developing country with momentum in an economically advanced, socially inclusive and environmentally sustainable manner, Rahman said.

FDI needed to capitalise on post-LDC advantages

Policymakers and private sector representatives called for opening up foreign direct investment (FDI), especially in the textile and apparel sectors, to capitalise on the advantages posed by graduating to a developing country.

"We will lose preferential market access after graduation and it will be very challenging for us.  To remain competitive, we have to invest in high-value and non-cotton products," said Matin Chowdhury, former president of the Bangladesh Textile Mills Association (BTMA).  

He urged for opening up foreign investment in the high-end textile and garment sector for bringing in new technology and technical know-how and for securing greater market access in the post-LDC period.

Kazi Nabil Ahmed, a member of the Parliamentary Standing Committee on the Ministry of Finance, said: “The graduation of Bangladesh to a developing country is a milestone for us. There is a window of challenge and a window of opportunities. To face the challenges and take advantage, we need comprehensive initiatives." 

For capitalising on the opportunities that open up with graduation, FDI is needed. Without investment, it is quite impossible to capitalise on those advantages, he added.          

Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association, called for an outreach policy to face the challenges in mitigating the impact of the erosion of trade benefits in global markets.

She also called for opening up foreign investment, mostly in non-cotton and manmade fibre, as the demand for these products is growing.

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