Sustainability after Graduation

EU is the most crucial trading partner that extended preferential market access to Bangladesh as LDC. The total merchandise import of the EU is $6.3 trillion, which is 30 per cent of global imports and offers significant export earning opportunities for Bangladesh. The EU apparel market is $180 billion (40 per cent of the worldwide apparel market) where Chinese market is just $11 billion (2.4 per cent of global apparel imports), and the Indian market is $1.1 billion. Bangladesh has a huge opportunity to exploit the market, so it needs to be prepared to ensure sustainability after graduation.

Bangladesh’s export to the EU was USD 23 billion in 2021-22. After BREXIT, alone in the UK, export of Bangladesh in 2021-22 was $ 3.05 billion. The UK alone contributes 10 per cent of the exports of Bangladesh, while the EU covers 45 per cent; in total, it is about 55 per cent of our exports destined for the EU.

A recent study by RAPID informed that there is potential for about 60 per cent export meaning an additional USD 18 billion can be exported to EU, of which USD 16 billion is in the apparel sector. The study mostly covered the impact on the apparel sector as it is the highest export-earning product from Bangladesh, and upcoming changes in policies of the EU will create mayhem to the whole export of Bangladesh.

EU is also a significant source of FDI, which is USD 3.5 billion (2014-2021); in a recent meeting, EU Ambassador informed that Vietnam has a population almost half of Bangladesh, received more than $6 billion in FDI from the EU nations whereas Bangladesh, received only $3.5 billion. Bangladesh would need to work hard to attract more investment to increase its factory-level competitiveness based on the learning from them to prepare it to enter the vast EU market.  

EU is also a crucial development partner supporting Bangladesh in several aspects. Bilateral EU donors, except Germany, do not consider LDC status in their aid allocation. However, increased ODA resources for LDCs could be a problem for graduated LDCs, and Bangladesh may face some erosion in that respect. Graduation is not too far, and preparation needs to be taken to analyze the potential behavior of important bilateral partners to understand critical changes.  

After graduation, Bangladesh can apply for GSP+ support per the EU’s policies.

However, Bangladesh needs to achieve the status by ensuring compliance with 32 international conventions; GSP + requires 32 International Conventions to be ratified and implemented (20 confirmed) that cover four core areas, including good governance, human rights, labour rights, and environmental protection.

On the other hand, goods comprising HS 61, HS 62, and HS63- in the EU imports per cent, it needs less than 6 per cent to obtain duty-free in apparel products under GSP+. The newly proposed GSP (2024-34) is among the other emerging challenges. Even with GSP+, duty-free access could discontinue because of stricter rules of origin (RO). Instead of single-stage transformation, two-stage transformation for woven garments may be complex, while knitwear may sustain.

Bangladesh may explore possible opportunities from the UK market; they have set their RO, which is not that difficult. The newly announced Developing Countries Trading System (DCTS), going to be implemented the following year, cuts product tariffs and simpler terms of trade for sixty-five developing countries, including Bangladesh. In the case of product specific 6 per cent margin, they are flexible. In the case of safeguards, they are a bit simple. They want to keep their retail market stable by competitive trade flow. UK’s retail market is vast within the service (62 per cent) sector. 

The export of Bangladesh can be increased to at least USD 10 billion by 2030 following the UK import of apparel which is about USD 20.84 billion in 2021. However, Bangladesh will enjoy the benefits as an LDC up to 2026; it needs to analyze the market carefully to sustain itself after graduation. The rules of origin criterion for zero duty may face some changes.  

Another essential aspect for the EU market is that it announced to be carbon neutral by 2050, and the required policies have been framed to be implemented by the following year. They have introduced Emission Trading System (ETS), which could be the first biggest carbon market. Initially selected sectors such as Iron, Steel, Aluminum, Fertilizers, and Electricity will come under Carbon Border Adjustment Mechanism (CBAM).

China, India, and Vietnam already have their carbon Market-Bangladesh needs to establish a similar market. Under the system, embedded carbon content will be carefully calculated, and there will be no discrimination between local and foreign products. Countries with no carbon market will have to face carbon equivalent tariffs, which will make Bangladesh uncompetitive.

Even though Bangladesh has several successes stories and is the highest in green garments worldwide, including 46 Platinum, 95 Gold, and 10 Silver-certified industries. Six are among the Top Ten in the world. More than 500 factories are in the process of getting LEED certification.

BGMEA pledges to be a green button. However, it is not clear that these industries will qualify to get CBAM certificates while calculating carbon emissions per the EU’s criterion. EU considers that more production will generate more carbon, and in that respect, factories may like to transfer their production plant from the EU to other countries. However, the EU wants to bridge the leakage and will be very sincere in calculating the carbon content carefully.

Bangladesh has taken some policy measures through its national plans, as per the 8th FYP, for introducing Carbon Tax by 5 per cent (2025). The tax will be increased to 15 per cent by 2041. 

For calculating carbon content, policies must be set strategically and carefully to align with trading partner countries’ needs. The private sector also needs to be aware to prepare their factories accordingly to maintain competitiveness.  

Bangladesh is a signatory of 36 International Conventions Treaties and Protocols (ICTPS) and required policy and regulations, recently announced waste management policy. Ministry of Environment and Forest and Climate Change (MOEFCC), in cooperation with donor organizations, has been preparing a framework to be presented after the next COP27 in November 2027. The Mujib Climate Prosperity Plan (MCPP) has also announced some actions to be a climate-neutral country.

The regulatory mechanism is in the process- presently, some areas for carbon emission reduction for brick kilns, rice etc. are in the implementation process.  

Regarding ESG (Environment, Social Corporate Governance), it needs to be managed to establish long-term relations with the EU. Bangladesh has faced massive ESG challenges, such as excessive water use in the RMG, low labour standards and inadequate waste management. Besides RMG, in all other sector, ESG is much lower. The Environment Conservation Act 1995 should have a yardstick; there is a limited yardstick to test the standard. There are rules; however, the act needs amendments regarding using water for the factories.

Bangladesh can benefit from developing a proper carbon market like other developing countries.

For this, some EU support can be requested as they have to experience preparing required regulations and policies. ESG-related compliance for export promotion has to be ensured. Bangladesh also needs to start thinking about signing FTA with the EU like other countries such as; Vietnam, India, and Indonesia; otherwise, it will be difficult for Bangladesh to sustenance. Because of FTA between Vietnam and the EU, their tariff will reduce gradually to zero; if Bangladesh has to pay 12 per cent, it duty be challenging to sustain.

We also need to go for export diversification and diversification within the RMG sector, as we presently export only 6-7 products, while the mass market of fashion worldwide is vast. Fashion-based RMG is influenced by several factors, such as; climate, innovation, creativity, and designs covering political, economic, and technological aspects.

Bangladesh is the 2nd largest exporter in the world; this has branded the country with an increasing export target of at least USD 100 billion by the next 2-3 years. The factories and industries need adequate preparation, and proper support must be devised with a strict time-bound action plan.

The writer is CEO of BUILD a Public Private Dialogue Platform. She can be contacted at ceo@buildbd.org