End of duty-free access may cost $5b in EU market: study

Bangladesh is likely to lose $5.28 billion worth of businesses annually in the European Union in the post-LDC era because of the erosion of preferential trade benefits following the country's graduation from the group of the least-developed countries, according to a new study.

Currently, Bangladesh enjoys tariff benefits in 38 countries as an LDC. But the duty-free trade benefit will not exist mostly once the country graduates to become a developing country in 2026 unless deals are signed to retain the support.

Goods bound for the EU market would be subjected to an 8.91 per cent tariff in the post-LDC period. As a result, 26.28 per cent of the exports to the bloc would be affected, showed the study.

Mostafa Abid Khan, a former member of the Bangladesh Trade and Tariff and Commission (BTTC), presented the findings of the study at a seminar on "Export Challenges of Bangladesh after Graduation from LDC Status: Options for the Private Sector" organised by the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) at its office in Dhaka yesterday.

The study was prepared with data from the World Trade Organisation (WTO) to estimate the country's potential losses of businesses in five major export destinations following graduation.

Bangladesh may lose $536 million worth of exports, which account for 42.05 per cent of the shipment to Canada, where exporters will face a 14.47 per cent duty.

In Japan, the loss might stand at $388.12 million, representing 30.53 per cent of the exports to the world's third-largest economy. Exports would come under an 8.89 per cent duty in the post-LDC period.

In Korea, Bangladesh will face a 7.94 per cent duty and lose businesses amounting to $87.78 million, which makes up 27.53 per cent of the shipment to the country.

There is a risk of suffering a loss of $76.55 million in China, or 8.29 per cent of the total merchandise sales, owing to a 2.96 per cent tariff.

Exporters may face 4.62 per cent duty in New Zealand and lose $10.13 million, which is 11.90 per cent of the total export value, the study said.

The study estimated the business loss in the five export destinations at $6.38 billion.

So, Khan suggested a reduction in trade costs for a smooth operation of the domestic industry in order to overcome the shock the country's export sector would face in the post–LDC period.

He called for mobilising more revenues to make massive investments in developing physical infrastructures and human resources.

Bangladesh needs to bring in policy reforms and implement policies related to tariff, labour, environment, and investment with a view to attracting more investments, from both local and external sources, he said. 

The country is scheduled to graduate from the LDC group in 2026, but the EU will continue the duty benefit up to 2029 as the world's largest trade bloc has extended a three-year grace period to pave the way for a smooth transition.

Ahmad Kaikaus, principal secretary of the prime minister, says the government has already formulated plans to tackle the challenges that would stem from graduation.

"There is nothing to be worried about."

In the US, where Bangladesh has not been enjoying any duty-free market access since 2013, the export is growing despite a 15.62 per cent duty, he said.

Tapan Kanti Ghosh, senior secretary of the commerce ministry, says Bangladesh has already ratified all of the conventions of the International Labour Organisation.

"So, complying with labour standards might not be a major challenge for Bangladesh in the post-LDC period."

Syed Nasim Manzur, managing director of Apex Footwear Ltd, suggested providing the same trade benefits extended to the garment sector to other sectors so that they too can grow and the country can diversify its export basket.

Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, called for expediting efforts to sign free trade agreements with major trading partners to offset graduation-related shocks.

"Bangladesh might be eligible for LDC-related privileges for five more years to 2031 as negotiations with the United Nations and the WTO are underway," said Mozibur Rahman, a former chairman of the BTTC.

Md Sirazul Islam, executive chairman of the Bangladesh Investment Development Authority, recommended the private sector develop human resources in collaboration with the government.

The government should continue fiscal and policy support for the private sector after graduation, said Md Jashim Uddin, president of the FBCCI.