Home ›› 01 Dec 2021 ›› Editorial
As an LDC, Bangladesh is enjoying certain facilities that can be classified into three groups: (i) preferential treatment, (ii) development assistance and technical cooperation and (iii) general support and other forms of assistance.
The major challenges for graduating LDCs come in the form of losing various international support measures (ISMs). The development financing agencies and donors will stop the concessional finance for the LDCs and the cost of development finance and debt servicing liabilities will increase.
According to the World Trade Organisation (WTO) Secretariat estimates, Bangladesh's export loss will be almost 90 per cent of the losses that 12 graduating LDCs will incur. Bangladesh will lose export earnings amounting to $5.37 billion, which is about 14.3 per cent of the country's total export value, while the remaining 11 graduating countries' losses will be only $650 million.
The Generalised System of Preferences (GSP) of EU provides duty-free quota-free (DFQF) market access for Bangladesh. Under the “Everything but Arms” (EBA) initiative, the EU grants DFQF. The country may experience shortfall of 8-10 per cent of its gross export revenue due to loss of DFQF which is almost $2.5 billion annually. For example, tariffs facing Bangladesh’s apparel are, on average, about 12 per cent in the EU and 16-18 percent in Canada. The depth of preference erosion will be significantly high in the case of exports of RMG items from Bangladesh.
After graduation, Bangladesh has an option to get access to GSP+ facility in the European market. But it requires ratification of 27 international conventions (7 UN conventions on human rights, 8 ILO conventions on labour rights, 8 conventions on environment protection and 4 conventions on good governance) and two numerical criteria. Rules of origin (RoO) for preferential access of apparel exported by the LDCs tend to be highly LDC-friendly (e.g. only a single-stage conversion requirement in the EU and a flat 25 per cent domestic value addition requirement in Canada). Recently the Ambassador of EU said EU is closely observing the state of human rights and democratic rights in Bangladesh and getting GSP+ is not a picnic.
Bangladesh has more challenges from the competitors in the global export market. The average tariffs on Bangladesh-made apparels will go up by 10-15 per cent while Vietnam, a key competitor, will enjoy duty-free access to markets of Canada, Australia, China, Japan and the European Union. Bilateral and regional free trade agreements and engagement in trade blocks will give Vietnam a competitive edge. On the other hand, Bangladesh is still in research stage on benefits and loss of Free Trade Area Agreements and not yet prepared to such deals with complex issues such as tariff and trade liberalisation, the opening of sectors for foreign investment, labour and environmental compliance are among the priorities for Bangladesh during the transition.
After graduation, Bangladesh will have to go for blended finance that includes loans from the development institutions and other sources with a high interest rate and shorter repayment period. In our current annual budgets, contribution of foreign assistance is around 15 per cent, which is really not that much significant considering the huge size of Bangladesh’s budget but it will have impact on our development budget.
Moreover, the graduation from the LDC group would mean relinquishing a wide-variety of preferences and privileges currently enjoyed by Bangladesh. The aids and loans will be tough to get. The terms and conditions for foreign aid from bilateral-multilateral sources will become harder, and subsidy and cash assistance to exports will not be acceptable to a number of importing countries. Similar changes will be taking place with other multilateral aid agencies.
Additionally, membership of the LDC group in negotiations and in international meetings, overseas development assistance, trade-related technical assistance, scholarships, reduced budgetary contribution to the UN, and tickets to General Assembly and other UN meetings are among the other International Support Measures (ISMs) which will be gone after the graduation.
Bangladesh also benefits from LDC-specific special and differential treatment (S&DT) under the agreements of the World Trade Organization (WTO). The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) provides a special exemption (transition) period for the LDCs with regard to providing patent protection for pharmaceutical products up to the end of 2033. Bangladesh's pharmaceutical industry will stop enjoying the flexibility seven years before the expiry of the globally stipulated preferential period.
There are some more challenges. Among others, the requirement to implement all substantive provisions of the Trips Agreement, loss of access to technology transfer schemes for LDCs, additional requirements to use special Compulsory Licences for export of medicines, and higher fees for global IP registration systems such as the Patent Cooperation Treaty.
Therefore, the benefits of Bangladesh set to lose after graduation in 2026 (with grace period of 5 years for preparation) include
A 12 per cent preferential margin on its export to the European Countries which provides a substantial price advantage over other countries.
Relaxation (One stage Transformation) in provision of rules of origin in exporting commodities to EU countries
Recipient of aid in absolute terms from the aid target of 0.15 per cent-0.20 per cent of donors’ GNI.
Budget caps for LDCs’ contribution to regular budget of UN, ILO etc.
Technology Transfer to the LDC under the article 66.2 of TRIPS (Trade Related Intellectual Property Rights.)
Assistance from LDC fund constituted under UNFCC (United Nations Framework on Climate Change) to mitigate the effect of climate change.
Assistance under EIF (Enhance Integrated Framework) to strengthen the capacity with a view to mainstreaming global trade with national
development plan.
A transitional period up to 2033 regarding patent provisions especially for pharmaceutical sector under article 70.8 and 70.9 of TRIPS agreement.
Various types of scholarships and fellowships for the citizens of LDCs.
Travel incentives for the representatives of LDCs participating in conference or summit organised by UN or its bodies.
Bangladesh must take some urgent steps to face the challenge of LDC graduation. These would entail economic diversification, technological upgradation and improvement of labour productivity. It must give focus on domestic market expansion and consolidation.
The revenue–tax/GDP ratio needs to go up, and policy reforms and investments will also be needed for greater ease of doing business. There must also be a focus on improving competitiveness, keeping in view competitive advantages such as wage levels and the faster processing of investment proposals. Moreover, the productivity of all sectors—agriculture, industry and services—must be increased.
Bangladesh has to look for free trade area agreements between Vietnam and other countries covering 60 per cent of the global market and go for FTA on top priority basis. We will also have to make better and more efficient use of our economic zones and export processing zones (EPZs), preferably with the diversification of exports.
Apart from free trade agreement and increase of Tax to GDP ratio, it needs to improve the quality of education through the modernization of tertiary education, link education and industries, and put emphasis on skills development, in a bid for increasing our productivity. It is also important to ensure good governance with accountability and acceptance of responsibility. This extends to the need for strengthening institutional arrangement for administration by government ministries. It must also focus on strengthening the Implementation, Monitoring and Evaluation Division (IMED) for public investments, ensure zero cost increase, time overruns, and above all on control of corruption to maintain a quality control of such investments.
The writer is a legal economist. He can be contacted at mssiddiqui2035@gmail.com
