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Bangladesh’s graduation from LDC: What are the strategies required?

The European Union (EU) is the largest destination for Bangladesh’s apparel exports. The EU countries combinedly account for about sixty percent of our total apparel exports.

The growth of our apparel export to the EU accelerated due to the duty-free market access Bangladesh has been enjoying in the region as a Least Developed Country (LDC) through the Everything But Arms (EBA) initiative under the EU’s GSP scheme.

Abdullah-Hil_Rakib
Figure: Abdullah Hil Rakib.

Bangladesh will no longer be eligible for EU’s GSP after being promoted to middle-income status, but it will be able to continue to enjoy duty-free access in the region if it achieves GSP+.

On the 22nd of September 2021, the EU Commission adopted the legislative proposal for the new GSP for the period 2024-2034. The Commission proposed improving some of the scheme’s key features to better respond to GSP countries’ evolving needs and challenges, as well as to strengthen the scheme’s social, labor, environmental, and climate dimensions. It removes the import-share criterion, which was one of the eligibility requirements for obtaining GSP+. According to the import share criterion, a country’s share in the EU’s total import under the scheme should not be more than 7.4 percent. Given that Bangladesh is a significant supplier of apparel and other products to the EU market, the relevant figure for Bangladesh is as high as 26 percent, which was considered a major issue in obtaining our GSP+. But with the proposed removal of the import share, obtaining GSP+ for Bangladesh will be now much easier.

However, there are still some challenges that Bangladesh must address through diplomacy in order to achieve GSP+ or properly utilize the trade preference.

For example, under the Everything But Arms (EBA) GSP scheme, LDCs were allowed preferential ‘rules of origin’ (RoO) permitting ‘single transformation’ (the need to do only one conversion of inputs to another product) in the production chain of the exportable. But the preference eligibility under the GSP+ scheme demands ‘double transformation’. As we all know Bangladesh imports a large percentage of woven fabrics to manufacture garments. So, it’s a challenge for us.

While apparel diplomacy is expected to persuade the EU to change the condition of ‘double transformation’ to ‘single transformation’’, we need to review in this connection the ongoing structural changes in the country’s textile industry. Over the years, Bangladesh has strengthened its backward linkage in the knitwear where we are almost self-sufficient in producing knit fabrics domestically. But in the case of woven, we still have to import about 50 percent of the fabrics. So, Bangladesh needs to implement a strategic business plan in its textiles sector to cover the shortfall in the area of woven backward linkage, to reap the benefits of the GSP+.

 

But in the case of woven, we still have to import about 50 percent of the fabrics. So, Bangladesh needs to implement a strategic business plan in its textiles sector to cover the shortfall in the area of woven backward linkage, to reap the benefits of the GSP+.

However, there is a scope for regional cumulation for meeting the requirements of double transformation. One such provision allows imports from South Asian countries (including India) to be accounted for in the calculation of the double transformation. The regional cumulation provision can also be executed by accounting for imports from countries with which the EU has free trade agreement (FTA). Two countries, namely Vietnam and South Korea – having FTA with the EU – are relevant for Bangladesh in this respect. But both Vietnam and India are two major competitors of Bangladesh in apparel export and we mainly import fabrics from China. So, there is no alternative for us in growing vertically for the era after the LDC graduation.
Our Commerce Minister, Tipu Munshi, MP, recently urged the EU to grant Bangladesh a 12-year transition period after our graduation to a middle-income country that means we are expecting the EU will continue to allow us duty free export under the EBA till 2029. Nonetheless, the essence of the above discussion is that the country should be ready at the earliest with a dynamic, coherent and inclusive strategy to pursue market access negotiation with the EU as well as to explore new markets especially in the Latin American and Gulf countries which still remained largely untapped by us.

Finally, it should be mentioned that the government under the Prime Minister’s Office already formed a National Task Force on LDC Graduation in January 2018 ‘to oversee implementation of a roadmap for LDC graduation’. The recent EU GSP proposals coming in favor us, especially the proposed removal of the import-share criterion, is in fact a result of the work of the Task Force and its close oversight on the situation.

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Author: Abdullah Hil Rakib is the Managing Director of Team Group. He is also a Director of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and a member of the Sub-committee from BGMEA in the Taskforce on LDC graduation.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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