Al Amin :
Bangladesh’s export earnings are likely to drop by around 30 per cent for Green Deal proposed by European Union (EU) and losing duty-free facility after post LDC graduation, according to a study.
The study, conducted by Research and Policy Integration for Development (RAPID), said there is very little chance of export damage of China and Vietnam compared to Bangladesh as they have preparation for carbon tax and market.
The China and Vietnam are the main competitors of Bangladesh in European market for apparel exports.
According to the study, the European Parliament, Commission and Council will now engage in a trialogue and discuss the differing viewpoints of the three institutions. The political process may be completed by the end of this year to adopt the final Carbon Border Adjustment Mechanism (CBAM) regulation for the Union.
According to the European Commission, the CBAM will initially apply only to a selected number of goods at a high risk carbon leakage, like cement, iron and steel, aluminum, fertilizers and electricity and will be operational from January 2023.
During the transitional period of 2023-25, importers will have to report emissions embedded in their goods without paying any financial compensation. From 2026 onward, the EU importers will have to pay for CBAM certificates. If non-EU exporters establish a carbon market, the corresponding cost will be deducted from total CBAM charges.
Both the European Council and Parliament have adopted their positions on the Commission’s proposal for a CBAM.
Bangladesh will have to pay 10-12 per cent duty after 2029 under Most Favored Nation (MFN), if it fails to get GSP plus facility to export goods to EU markets.
On the other hand, if Bangladesh does not take effective steps to control CO2 emissions and if Bangladeshi apparel products are added to the list of carbon tax, an additional tax will have to be paid in the EU market.
Bangladesh’s major comparators have either already established or are in the process of developing carbon markets locally.
China launched its carbon market in 2021 while Vietnam and India are in process of establishing their internal carbon market. Vietnam wants to formally launch its carbon market in 2028. The 8th Five Year Plan of Bangladesh aims to introduce green taxation on the consumption of fossil fuels, but it is not clear yet how this will be implemented. However, no progress has been made so far.
Therefore, the CBAM under the Green Deal can disproportionately affect Bangladesh relative to other comparators.
The implementation of the CBAM will coincide with Bangladesh’s LDC graduation timeline as the country is set to graduate in November 2026 and will lose EU EBA trade preferences in 2029.
If Bangladesh qualifies for GSP+ in the EU after graduation, its apparel export may not get any preference and thereby be subject to an MFN tariff of 12 per cent (from the current 0 per cent under EBA), then an additional carbon tax can hinder the export competitiveness of Bangladesh.
If the coverage of CBAM is expanded to consider textile and apparel items, Bangladesh will face post-LDC tariff hikes and CBAM charges. This would result in double trouble for our exports.
Estimates based on the Energy-Environmental Version of GTAP (GTAP-E) model suggest that after LDC graduation if it pays MFN tariff for textile and clothing; if carbon price equals $90 per tCO2e; and if CBAM is extended to cover textile and clothing; then Bangladesh’s apparel exports to the EU could decline by 27 per cent.
Dr MA Razzaque, Chairmen at RAPID told The New Nation, “These results are based on hypothetical scenarios with various assumptions. However, the bottom line is, CBAM charges along with tariff hikes on clothing items in the EU could seriously affect Bangladesh’s export competitiveness.”
Initially, major export items of Bangladesh, such as apparel, leather and footwear are not included in CBAM. However, these are among the 63 subsectors that are identified as sectors with a risk of carbon leakage, which EU might include these later on.
“The projection has been made considering all the factors. But, if Bangladesh gets duty-free facility after LDC graduation, takes effective step to reduce carbon emission in supply chain and establishes carbon markets, the market may remain continue,” Dr Razzaque said.
