The year 2021 could be landmark year for Bangladesh. Making rapid progress from socio-economic viewpoint, the country is expected to join the big league of developing nations, leaving behind its present status of a Least Developed Country (LDC).
A matter of pride to say the least, the country would however have to face the implications of this graduation, the biggest of which would be losing the trade benefits that it had been enjoying so far as LDC. This could have a direct bearing on the country’s biggest foreign currency earner, the readymade garment industry.
As per an estimate, due to LDC graduation, in terms of actual duty benefits the loss will be the maximum in the EU, amounting to around US $ 2.035 billion. Other major losses in duty benefits will be in Canada amounting to US $ 188 million, Japan amounting to US $ 106.82 million, and China amounting to US $ 93 million.
As such, Bangladesh Government is going full throttle in pushing for FTAs to some of these export destinations, alongside a host of other countries. It already seems to have made a clear headway in garnering GSP status from Japan. Commerce Minister Tofail Ahmed, who was in Japan recently with a high-powered panel to explore business scope in Tokyo, sought GSP status for Bangladesh after it graduates out of the LDC club, to which Japan has reportedly assured that it will ensure duty-free facility for imports from Bangladesh, a move being viewed as a big commitment from a country where Bangladesh is eyeing to expand its apparel exports.
World’s third largest economy with a population of 127.1 million and GDP per capita (PPS) of US $ 36,194, Japan is emerging as a very promising market for Bangladesh. As per data from the Export Promotion Bureau (EPB), in the fiscal year 2017-18, Bangladesh earned US $ 1.13 billion from exports to Japan, which is 11.73 per cent higher compared to earnings of US $ 1.01 billion in FY17.
Out of US $ 1.13 billion, US $ 846.73 million or 74.8 per cent came from the RMG sector alone with apparel export to Japan witnessing a 13.73 per cent rise compared to previous year’s earnings of US $ 744.48 million.
“The Japanese Government has assured us of continued free market access after we graduate to developing country status for all goods except hand gloves and arms,” said the Commerce Minister. He added, “Japan is a high-potential market for Bangladeshi products and very soon it would be a large export destination for our goods, especially apparel and leather, and export earnings would reach to US $ 2 billion over the next two to three years”.
Supporting the Government’s relentless efforts in ensuring trade benefits to its apparel industry post LDC graduation, one of Bangladesh’s biggest trading partners, the European Union (EU) too has reiterated its commitment to ensure tariff-free trade benefits for the country. Bangladesh, in return, appreciated sustained commitment from the EU to continue to provide tariff-free market access for Bangladeshi goods to the EU market, under the ‘everything but arms’ (EBA) regime – which, in other words is the GSP Plus.
The assurances and gratitude were exchanged between the 3rd Bangladesh – EU Diplomatic Consultations in Dhaka in July this year. The EU was led by Gunnar Wiegand, Managing Director for Asia and the Pacific, EU External Action Service, while Foreign Secretary Md. Shahidul Haque represented the Bangladesh side.
As far as China is concerned, to improve trade facility and export apparel items more, Bangladesh has already sought duty-free market access in China. Tofail Ahmed recently underlined that Bangladesh currently exports 5,074 products to China, including RMG, and already a Letter of Exchange (LoE) has been forwarded to China, and if China approves the LoE, Bangladesh will enjoy exporting the duty-free benefit of 97 per cent of the products under the World Trade Organization (WTO) rules. The minister further added that China also expressed interest in Bangladesh with Free Trade Agreement (FTA). In this regard, the MoU has already been signed between the two countries. Now the FTA probability process is underway. After completing all formalities, Bangladesh will sign the FTA with China.
As per Zhang Zuo, the newly appointed Chinese Ambassador in Bangladesh, China gives the highest importance to Bangladesh, and commercial and economic relations between the two countries have been excellent for a long time. Keeping the same in consideration, China wants to introduce a new level of trade by signing the FTA with Bangladesh.
Currently, China is Bangladesh’s second largest export destination among the Asian nations after Japan. As per EPB data, in fiscal 2017-18, Bangladesh exported garment items worth US $ 391.64 million to China while the figure stood at US $ 391.60 million in fiscal 2016-17. China’s demand for basic garment items is high, as its manufacturers mainly concentrate on high-end products for upscale western markets. This resulted in rise of Bangladesh’s garment export to China over the last few years.
Graduating to a developed nation will however not have much of an impact on Bangladesh’s exports to the USA as it does not enjoy the GSP facility there, which was revoked by the latter in the aftermath of the tragic Rana Plaza disaster.
However, as per media reports, Bangladesh is now pushing for a FTA with USA, more so as LDC transition is looming large. Describing Bangladesh as a middle-income state, Commerce Minister Tofail Ahmed recently underlined that Bangladesh doesn’t need the Generalised Scheme of Preferences (GSP) facility from the United States anymore.
He said, “We are already a middle-income state; the GSP privilege will eventually be abolished after we officially get the note. We don’t want the GSP anymore from the US.”
The minister further said, “We will form a Free Trade Agreement (FTA) with the USA to boost up bilateral trade relations,” while underlining that United States is the principal market for Bangladesh with US $ 6 billion export business, which is expanding still.
While boosting trade with major export destinations through FTAs, the country is also trying to forge strong bilateral relations with many other countries and Sri Lanka is just a case in point. Bangladesh has initiated a move to sign FTA with the island nation to increase bilateral trade. Bangladesh would be immensely benefited if the FTA is signed with Sri Lanka, as a portion of its exports and import of goods are done through the Colombo port.
Bangladesh mainly exports woven garments, knitwear, home textile, agro products, leather and leather products, footwear, etc., to Sri Lanka. As per figures from Export Promotion Bureau, in the fiscal 2016-17, Bangladesh exported goods worth US $ 42.25 million, up from US $ 30.45 million a year ago.
Given the Government’s proactive role in safeguarding the interests of the country’s readymade sector, the so-called fears of losing the competitive edge, seems unlikely.