M S Siddiqui :
Bangladesh met the criteria and assuming graduation from LDC and therefore, would be expected to take place in 2024. Upon graduation, there will be direct impacts of the withdrawal of international support measures (ISMs) that are exclusive to LDCs. These measures relate to trade, development cooperation, and support for participation in the United Nations system entities and processes.
Bangladesh would lose access to duty-free quota-free (DFQF) arrangements and simplified rules of origin reserved for LDCs. In this case, the impact will be on the export of garments and employment in the industry. About 75 percent of its total exports were to preference granting countries and that most exports to those countries enjoyed DFQF treatment under LDC-specific preferential schemes and shall feel the remarkable loss of preferences. About 60% of manufacturing employment and that the share of manufacturing in GDP stood at approximately 21% in 2015-16. The main destinations of Bangladesh’s exports have been the European and Union in the United States, followed by Canada, Japan, China, Australia, Turkey, etc.
The EU’s Generalized System of Preferences (GSP) contains three arrangements: a general arrangement, a special incentive arrangement for sustainable development and good governance (GSP+), and a special arrangement for the least-developed countries (Everything But Arms – EBA). Bangladesh currently exports under the latter, which grants duty-free quota-free market access for everything but arms and ammunition. The EU’s current GSP regulation will expire in 2023.
Under current rules, Bangladesh would in principle have access to the standard GSP, whereby it would face higher, but still preferential tariffs. Approximately 83 percent of Bangladesh’s exports are garments, most of which would face tariffs of 9.6 percent in the EU under the GSP. Bangladesh´s exports would also have to comply with more stringent rules of origin to benefit from the GSP than it is required to, as an LDC, to benefit from the EBA.
Bangladesh looking for another preferential option after graduating LDCs of EU’s Special Arrangement for Sustainable Development and Good Governance (GSP+), which grants duty-free access to 66 percent of EU tariff lines (in addition to products that are subject to zero MFN duties).
In principle, graduating LDCs can apply to the GSP+, which grants duty-free access to 66 percent of EU tariff lines (in addition to products that are subject to zero MFN duties). However, under current regulations, eligibility for the GSP+ requires that the country meet certain criteria, some of which Bangladesh does not fully meet at this time.
1. The first – the import share criterion – is that the country’s share of GSP-covered imports remains below 6.5 percent of GSP-covered imports of all GSP countries. A recent estimate by the EU for Bangladesh’s share was 17 percent.
2. Bangladesh does meet the second – diversification – criterion, according to which 75 percent or more of its total exports to the EU under the GSP over three years must be in seven or fewer sections under the Combined Nomenclature of the EU. As a reference, over 90 percent of Bangladesh’s exports to the EU in 2015 were in two chapters in a single section.
3. Thirdly, a “sustainable development criterion” requires the country to have ratified and effectively implemented 27 international conventions on human rights, labor rights, environmental protection, and good governance.
Another important issue is the value addition. The minimum local value-added for a product to be granted preferential treatment would be 50 percent, as opposed to 30 percent as an LDC. For garments, only products that go through double transformation would qualify for preferential treatment, whereas as an LDC Bangladesh’s products are only required to undergo a single transformation to export under the GSP (or, if found eligible, the GSP+). In practice, this could mean that certain garments produced with imported fabric would not qualify.
If Bangladesh is not found eligible for GSP+, and unless alternatives are negotiated, its products would enter the EU under the standard GSP or most favored nation (MFN) terms. The alternate open for Bangladesh is Free Trade Agreement (FTA) with the EU. Bangladesh is on principle against FTA.
There are no important impacts are expected in the United States market, since Bangladesh´s most important products are not covered by the LDC-specific preference scheme. Bangladesh has been suspended from the GSP scheme (including preferential tariffs for LDCs) since 2013 due to labor safety issues. Among other developed country markets, in Canada, Japan, and Australia, the standard GSP does not cover an important part of Bangladesh’s exports, which will face MFN tariffs. Moreover, in some countries such as Canada and Australia, Bangladesh would no longer be able to use dedicated rules of origin for LDCs, making it more difficult to use preferences for the tariff lines covered by the standard GSPs than it is to use GSP for LDCs.
Among major developing country markets, Turkey, Bangladesh’s largest importer of jute and jute products, has aligned its GSP scheme to that of the European Union. In India and China, still relatively small destinations for Bangladesh’s exports but important due to potential and proximity, Bangladesh would no longer benefit from DFQF treatment reserved for LDCs and would instead export under the Asia-Pacific Trade Agreement (APTA) for export to China and India. It can also get MFN rates from India under the South Asian Free Trade Agreement (SAFTA). Unless negotiated otherwise such as FTA, Bangladesh would no longer benefit from LDC-specific provisions under those and other regional agreements.
A key determinant of future impacts is whether Bangladesh will seek bilateral free trade agreements, which it currently does not have a single FTA. Bangladesh going to compete with the countries that are already signed FTA with all possible countries for the source of raw materials and export markets. Bangladesh is heading for an impossible task to face completion from well prepared and competitive countries. The question is why Bangladesh will involve in an uneven trade war?
(Mr. Siddiqui is a Legal Economist, E-mail: [email protected])
