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Hammering out trade deals for post-LDC period is the need of the hour

  • Published at 12:45 am December 21st, 2020
Probable Tariff Bangladesh post LDC graduation

Say experts at a webinar on Sunday

Bangladesh needs to proactively explore trade deals to retain its export competitiveness in the global market following the withdrawal of trade benefits upon graduation from the least-developed country bracket, said experts yesterday.

With the graduation to a developing country status, Bangladesh’s cost of trade with partners or in the global market would rise by an average of 10 per cent, said Mohammad Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID).

“LDC graduation is likely to bring in certain challenges and affect export competitiveness. The loss of trade preferences is a key concern as after LDC graduation the tariffs on Bangladesh’s exports in major markets will rise.”

Razzaque’s comment came at a webinar titled “Getting Ready for LDC Graduation”, organised by the Economic Reporters’ Forum (ERF) in association with RAPID and The Asia Foundation. 

For Bangladesh, the first and foremost policy focus should be on proactively exploring trade preferences beyond graduation and specially look for ways to mitigate any likely adverse consequences resulting from the loss of tariff preferences in the largest export market of the EU, said Razzaque, also the research director of Policy Research Institute.

If export shocks can be avoided, the impact of graduation will be minimal. 

“So, Bangladesh needs to identify and prioritise areas where immediate attention is needed and look for options to keep or prolong the current level of duty-free market access,” he added. 

Bangladesh will face up to 7.5 per cent exports loss, according to the United Nations Conference on Trade and Development. But according to the Centre for Policy Dialogue, the loss would be 8.7 per cent.

Then a study by the World Trade Organisation said LDC graduation will have the greatest impact on the exports of Bangladesh. Exports are estimated to see a decline of 14 per cent.

More than 75 per cent of Bangladesh’s exports enjoy LDC tariff preferences but it is not clear if Bangladesh will be able to retain any preferences upon graduation.

For instance, tariff to the EU, which is zero at present, would rise to about 10 per cent from 2027, while that for Vietnam would come down to zero. 

The current market access in the EU could be maintained until 2027, while the UK could follow the EU provisions.

But there are uncertainties. 

Market access conditions in Australia, Canada, China, India, Japan can significantly change from 2024 if no proactive initiatives are undertaken, the experts said. 

Bangladesh should proactively engage in the process to seek for relaxed admission criteria including any favourable changes in the rules of origin provisions, the experts said.

For years, Bangladesh's real exchange rate has become greatly overvalued vis-à-vis its major competitors. 

In the absence of LDC tariff preferences, exporters will find it difficult to compete with rival suppliers when taka is overvalued.

The management of the exchange rate can also promote external competitiveness.

In addition to promoting firm-level competitiveness, raising labour productivity, technological upgradation, moving up the value chains and attracting foreign direct investment, will help to address cost issues, Razzaque said.

Seeking for a gradual phasing out of LDC preferences and exploring the possibility of initiating FTA negotiations with the EU and other countries such as Australia, Canada, China, India, Japan, Korea should be proactive engagements in securing an extended transition period and considering future arrangements, including bilateral trade deals.

China recently provided duty-free access from Bangladesh to around 97 per cent of tariff lines. 

Bangladesh should engage with China for retaining the current preference for a certain period after graduation, he added.

“I do not want to bear the LDC tag for long,” said Planning Minister MA Mannan, who was the chief guest at the event.

While there is a fear that Bangladesh might struggle to find its feet in the post-LDC era, there are thousands of opportunities awaiting, too.

“We will have to keep in mind that keeping pace with the world is our aim.”

Subsequently, he urged the commerce ministry to enhance communication with the EU and the UK for getting maximum benefits from them following graduation to the developing country bracket as well as make continuous efforts to boost trade with Canada, China and India.

Commenting on the post-pandemic era, the minister said: “It would be a whole new world once all this is over. There would be massive changes at the political and business arenas.”

To put the country in good stead in the post-pandemic era, Mannan suggested the concerned authorities and stakeholders become more competitive in trade and commerce and focus on enhancing training programmes, boosting technical capabilities and incorporating technology more and more.

Although LDC graduation would pose a “challenge” for the country, the government has taken enough preparations to face it, said Commerce Secretary Md Jafar Uddin. 

“There is no reason to get frightened. We are continuing with our efforts to get duty and quota-free access to many countries. We will not die -- we will live.” 

The government has been continuing discussions with the EU and the other countries for extending the transition period after LDC graduation while efforts are on to strike some 11 FTAs and PTAs by next year, he added.

Md Sirazul Islam, executive chairman of the Bangladesh Investment Development Authority, said that they are hopeful of bringing down the ease of doing business index to double-digit by next year, which will attract both local and foreign direct investment (FDI).

“Once Bangladesh fully graduates from the LDC bracket, the country’s image will brighten and FDI would trickle down.”

And with that, employment generation and thus economic progress would be expedited.

Islam also suggested taking all the necessary preparations for successful LDC graduation, increasing the tax-GDP ratio and further expanding the tax net, increasing efficiency, ensuring human resource development, and putting emphasis on export diversification and the services sector.

M Abu Eusuf, executive director of RAPID, and Kazi Faisal Bin Seraj, country representative of The Asia Foundation also spoke. 

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