Home ›› 24 Jul 2022 ›› Opinion
Bangladesh, widely known as import-oriented economy, repeatedly faces a trade deficit situation. A wide difference between import and export volume is seen resulting in a trade imbalance state. When foreign exchange reserves begin to decline, the government becomes worried over import payment. The reserve in Bangladesh has grown steadily with export earnings and inflow of foreign remittance earned by Bangladeshi expatriates. The contribution of expatriates to the development of Bangladesh economy cannot be expressed briefly. The foreign remittance sent by Bangladeshi workers helped to bolster foreign exchange reserve even in the midst of the novel coronavirus pandemic. During crisis moments, export earnings, which come in the form of US dollar. was totally insignificant in size. Currently, the reserve started to come down following a fall in foreign remittance in recent times.
Despite hectic efforts, Bangladesh has failed to show dynamism in export diversification. With limited export items pushing some countries, Bangladesh had been able to pay import payment so far. Ukraine-Russia war came as a curse because it has resulted in soaring import costs. Bangladesh was totally unprepared for facing this untoward situation. Anyhow, the country has to rely on export earnings in the coming days due to unstable situation in overseas jobs seen during the pandemic period. As a least developed country, Bangladesh lags far behind in signing of Free Trade Area (FTA) agreements. Though Bangladesh began its journey with Bhutan under a Preferential Trade Agreement (PTA), the business success in this avenue is yet to come. If Bangladesh does not trade under duty-free facility, the expected earnings from export would not materialise. Bangladesh now looks forward to trading on condition of duty-free access. As part of the move, Bangladesh intends to promote bilateral trade agreement with 13 countries and economic blocs. The countries and blocs are India, China, Japan, Singapore, Indonesia, Sri Lanka, Malaysia, Nepal, the USA, Canada, the Eurasian Economic Union, ASEAN, and Mercosur. It should be mentioned here that export earnings from European Union (EU) countries is notably significant. It is high time to ink FTA with EU considering the LDC graduation challenges lying ahead.
Two Asian countries- Vietnam and South Korea- have FTAs with the EU. Vietnam is a competitor of Bangladesh in the area of Ready Made Garment (RMG) sector. As Bangladesh now exports to EU countries around 58 per cent of total exports, there is no alternative ways but to hold on to EU markets. Besides, around 64 per cent of total apparel items is exported to EU countries. The news report said that during 2010-2020, China’s apparel market shares in EU markets fell from 30 per cent to 22 per cent whereas Bangladesh experienced its share from 6.5 per cent to 13 per cent.
Since 1971, European Union (EU) has been beside Bangladesh as a trusted trading partner. The EU is the largest export destination for Bangladesh. Besides, the EU countries came forward with capital in the form of Foreign Direct Investment (FDI). The European Union (EU) had provided duty-free export facility to the least developed and developing countries under its Generalised Scheme of Preferences (GSP) scheme. The GSP initiative was introduced following recommendations that came from United Nations Conference on Trade and Development (UNCTAD) in 1971. There are three types of facilities under GSP- Everything but Arms (EBA), GSP Plus and GSP Standard. For the last fifty years, as a LDC group, Bangladesh had been enjoying EBA facility. The EBA facility will expire once Bangladesh graduates into a developing country. As Bangladesh is permanently set to graduate from its LDC status in 2026, the country will no more be eligible for EBA facility as a developing economy.
The EU provided three more years of grace period to Bangladesh for enjoying duty-free facility that ends in 2029. The grace period might be expanded upon persuasion from the Bangladesh side. Currently, Bangladesh is trying its level best to enjoy GSP Plus facility that needs to be addressed through 32 international conventions. If Bangladesh is deprived of duty-free facilities by the EU, the exports to EU countries is likely to face duty-related complexities. Approximately twelve per cent duty has to be paid for entering into EU markets. As a result of paying high duty, export earnings of Bangladesh are expected to fall. There is no alternative to carry out negotiation with EU regarding GSP Plus benefit.
In 2015, the EU launched a preferential market scheme titled “Special Incentive Arrangement for Sustainable Development and Good Governance”. Actually, the scheme came for non-LDC low-income countries (LICs) and low-middle-income countries (LMICs). Notably, the EU offers zero duty market access up to 66 per cent of tariff lines to the eligible countries under this scheme. Out of the potentially eligible 71 LICs and LMICs, only eight countries are enjoying GSP-Plus benefit. In South Asia, Sri Lanka and Pakistan are enjoying the facility.
GSP Plus facilities for Bangladesh would not be so easy to get in view of the terms and conditions recently imposed by the EU. Once, EU ambassador to Bangladesh- Charles Whiteley said that seizing of GSP Plus facility after LDC graduation era would be a challenging task and added that “this will not be a picnic”. Very recently, the European Union Parliamentarian delegation on international trade visited here in Dhaka. The delegation sat with officials of three ministries where they gave advice on implementing labour roadmap successfully. The EU delegation have expressed dissatisfaction over current labour laws existing in Bangladesh. The EU delegation demands the drafting of uniform law for the workers working in EPZs and outside EPZs. Apart from amending substandard labour law, the delegation advised to improve human rights issue to be eligible for next trade benefit named GSP Plus. If labour roadmap is not fully implemented following international standard, the current negotiation made by Bangladesh side is likely to be scrapped. In particular, the EU has a zero-tolerance policy on child labour that is to be eliminated by 2025.
A number of challenges will appear after the post-LDC graduation era. The EU delegation wants to see a prudential National Action Plan (NAP) so that Bangladesh may overcome LDC graduation-related economic challenges.
The new GSP scheme is set to start in 2024 and end in 2034. The EU bloc has been playing a significant role in uplifting socioeconomic situation in Bangladesh. Bangladesh has so far gained the eligibility for being developing country due to EU’s good relations with Bangladesh. Upon getting GSP Plus facility, Bangladesh would achieve economic goals set earlier. Export under Duty-free Quota-Free (DFQF) facility is needed for Bangladesh for materializing economic goals set earlier. In this respect, the EU support is badly needed. Bangladesh had better address EU’s directives in respect of seizing GSP Plus scheme in the aim of addressing huge losses-related to LDC graduation. Since GSP Plus is committed to give developing countries a special incentive to pursue sustainable development and good governance, Bangladesh should take the chance as soon as possible.
The writer is an economic affairs analyst. He can be contacted at mazadul1985@gmail.com
