Bangladesh should rethink economic ties with EU, other trade blocks

The time has come for Bangladesh to rethink its economic relations with the European Union (EU) and other countries considering its graduation from the least developed country (LDC) status in 2026, says a report.

Bangladesh will not enjoy the Generalised System of Preferences (GSP) after graduation. Though some countries will extend GSP, the facilities will no longer be available once Bangladesh becomes an upper middle income nation in 2030.

That is why exports will face huge pressure if Bangladesh does not take advantage of the EU’s new GSP system after graduation, says the report by Research and Policy Integration for Development (RAPID).

Experts fear the export market will face big pressure in the long run. After four years, Bangladesh may face various conditions and tariff barriers while exporting goods to some countries, including Canada and China. The same will happen while exporting to most countries, including Europe, after seven to eight years.

That is why it is necessary to initiate bilateral and multilateral agreement talks now, RAPID Chairman Mohammad Abdur Razzaque told The Business Post.

Prime Minister Sheikh Hasina has already directed the commerce ministry to prepare and sign free trade agreements (FTAs) or preferential trade agreements (PTAs) with various countries. The ministry is preparing to do so.

However, adequate preparations have not been done to sign a deal with the EU, a major export market for Bangladesh. Experts have urged the authorities to do the preparations soon.

Commerce ministry’s Additional Secretary (FTA wing) Noor Md Mahbubul Haq told The Business Post Bangladesh gets the duty-free quota-free facility in most markets and the ministry was trying to retain this even after LDC graduation.

“The EU will extend tariff benefits for three years after graduation while we are working to get the same benefits in all other countries. We wrote to the World Trade Organisation, seeking a six-year extension.”

He said Bangladesh would ultimately increase its capabilities and was preparing to sign bilateral agreements, including FTAs, PTAs, and comprehensive economic partnership agreements (CEPAs), with different countries.

A policy formulated to sign FTAs had been sent to the cabinet, he said.

Mahbubul added, “Bangladesh earlier offered to sign an FTA with the EU. We hope tariff facilities will be available in the bloc even after 2029.”

Bangladesh will formally graduate from LDC in November 2026. The EU’s new 10-year GSP scheme will be launched in January 2024. The scheme has already been proposed and is awaiting the EU Parliament’s approval.

Bangladesh has the potential to qualify for the EU’s GSP+ scheme considering the present situation, said the RAPID chairman.

“We have implemented so many laws. Even if we qualify for GSP+ in December 2029, the readymade garment (RMG) sector will not get the benefit,” he said.

The RAPID report says if a country holds more than 6 per cent share of the EU’s imports, it will not get the GSP facilities. At present, Bangladesh holds a 14 per cent share.

Under the current rules, no country can get more than 47 per cent of GSP facilities offered by the EU. If the new GSP system is introduced, this share will be 37 per cent. At present, Bangladesh is enjoying 50 per cent as an LDC, the report says.

“Bangladesh’s exports to the EU may increase to more than 50 per cent in 2029. That is why we need to prepare now,” the RAPID chairman said.

In December 2029, Bangladesh’s RMG export tariff in the EU market will jump from zero per cent to 12 per cent. In 2026, this tariff will rise from zero per cent to 17 per cent in Canada, 16 per cent in China, 15-25 per cent in India, 9 per cent in Japan, and 5 per cent in Australia.

“If we want to continue enjoying the tariff benefits, bilateral agreements should be signed within these periods. We have to negotiate with Canada and China now as benefits for these markets will end in 2026,” Razzaque said.

He said Bangladesh was currently getting tariff benefits in the Indian market as an LDC while these could be retained under the existing South Asian Free Trade Area (SAFTA) deal after graduation.

However, as RMG is on the sensitive list of SAFTA, Bangladesh would not get tariff benefits for that, he said.

He further said Bangladesh needed to negotiate with Canada, Japan, China, and other countries to get the benefits.

Razzaque said Vietnam’s export tariff in the EU was decreasing by 2 per cent every year due to its agreement with the bloc.

“When Vietnam, Bangladesh’s main RMG competitor, will get zero tariff facilities in 2029 in the EU, Bangladesh will have to pay 12 per cent. Resolving this requires negotiations with the EU now,” he explained.