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LDC to DC, preparation to triumph over the upcoming challenges

UNBangladesh policymakers have a vision to turn the country from ‘Least Developed Country’ to ‘Middle Income Country’ by 2021, which marks the 50th anniversary of Bangladesh’s independence. Interestingly Bangladesh already has achieved the status in 2015 while Bangladesh upgraded itself to the World Bank’s “lower middle income” category by increasing its Gross National Income. On the other hand, very recently, on March 16, the Committee for Development Policy, a UN panel announced Bangladesh’s eligibility for the developing country category as it has made satisfactory (to CDP) progress the three criteria including GNI Capita, Human Assets Index, and Economic Vulnerability Index.

Figure 1: Showing identification criteria of LDC Category and Income-based Classification.
Figure 1: Showing identification criteria of LDC Category and Income-based Classification.

It is positive news for the country, however, at the same time, it contains some challenges also as Bangladesh was enjoying several benefits being a country of LDC. Economic analysts have said that if the real transformation occurs, the country naturally won’t require privileges of LDC. The country by this time could have developed a stable strong economy and industry. But many industry insiders, particularly from textile and apparel sector, told that they are not ready to imagine an industry without market access and other privileges as LDC.

The United Nations introduced LDC category in 1971 when there were 25 LDCs and now the number has been increased to 47, of them only five countries were able to graduate from the LDC group, including Bangladesh, Botswana, Cape Verde, Maldives, Samoa and Equatorial Guinea. Bangladesh is the only country that met all three criteria for graduation. However, the country will have to pass two more reviews in 2021 and 2024 to be freed from the Least Developed Country (LDC) label.

In addition, if finally Bangladesh able to meet required criteria for the graduation in 2024, there will be a grace period of another 3 years until when Bangladesh can enjoy all LDC-specific benefits. After that, it will lose the trade facilities it enjoys as an LDC.

The probable impact of graduating to DC


The purpose of the World Bank’s income-based classification is to assess the creditworthiness of a country. On the other hand, the purpose of the UN’s LDC classification is to eliminate a country’s structural deficits. According to the United Nations, when a country graduates from the LDC category, it no longer benefits from LDC-specific international support measures. The practical implications and significance of that change depending on numerous factors and thus differ among countries. The actual impact of losing LDC-specific preferences depends on what goods the country exports, as well as other factors; including any trade agreements it may be a part of. For Bangladesh, apparel products are the main goods that are exported and it enjoys duty-free access in European Union and some other countries.

Figure 2: Future possible impacts of graduation from LDC.
Figure 2: Future possible impacts of graduation from LDC.

Bangladesh is entitled to have duty-free access to the European market under the “Everything But Arms” initiative, which is a huge opportunity for the country as more than 60 percent of its export goes to the European market. Some developing countries like India offer duty-free market access for all products, and China for more than a thousand tariff lines.

However, for the graduation, Bangladesh will lose about 8 percent of its total exports because of the imposition of an additional tariff on its exports by 6.7 percent without a preferential treatment. A Centre for Policy Dialogue (CPD) study reveals that the loss will be equivalent to USD 2.7 billion.

New tariffs for EU, non-EU, and Canada are likely 8.7%, 3.9%, and 7.3%, respectively. According to the United Nations Conference on Trade and Development estimated, Bangladesh may face an export decline between 5.5% and 7.5%.

Md. Shafiul Islam Mohiuddin, President of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) said, “We are very happy that Bangladesh has been declared eligible for graduation from LDC.  Bangladesh has taken its status to a new height. But there are some challenges, which we have to face carefully.” “For the graduation, Bangladesh will lose duty-free and tariff-free facility in the European countries,” he added.

BGMEA President Md. Siddiqur Rahman said, “If Bangladesh comes out from the LDC, I think, the export of the country will not face its negative impact. Bangladesh will get a long period to take preparation. By this time, our business and industry will be more advanced and developed. Skills of our workers, entrepreneurs, and management will be enhanced.”

Preparation to face the challenges

This graduation will open many doors of opportunities, though there are some challenges, according to the previous discussion.  Now Bangladesh needs to take proper preparation as it can pass the next two more reviews in 2021 and 2024. At the same time, preparation is must to cope up with the new tag ‘Developing Country’.

Md. Shafiul Islam Mohiuddin said, “To overcome the challenges the government should emphasize on doing ‘Free Trade Agreement’, ‘GSP Plus’ and ‘Regional Trade Agreement’ with developed countries. Besides, the recommendations of the committee formed to measure the impact of graduation from LDC have to follow properly.”

Abul Kasem Khan, President of the Dhaka Chamber of Commerce and Industry (DCCI), said, “We need to reform our policy, increase private investment, develop infrastructure and enhance manpower skills.” “As some facilities in export will be decreased, so that, we need to formulate a proper export policy and search new sector of export,” he added.

Figure 3: Showing the measures are needed to overcome the future challenges.
Figure 3: Showing the measures are needed to overcome the future challenges.

“Apparel sector will be more developed and export of other products will be increased. Market and demand for Bangladeshi products will be increased, which will help us sustain,” said Siddiqur Rahman.

“Unless Bangladesh manages to renegotiate through bilateral agreements or as part of regional trade arrangements, it will face MFN (most favored nation) tariff rates following the LDC graduation or reduced preferential margins under standard GSP scheme in EU market,” said Mustafizur Rahman, distinguished fellow of Centre for Policy Dialogue (CPD).

“Since the production costs have gone up due to improved wages and safety improvement, manufacturers have to increase productivity through skills training and enhancement,” said Abdus Salam Murshedy, President of Exporters Association of Bangladesh.

In fine, Bangladesh is on the road to be a developed country, to go ahead of the road it needs proper planning and action. Above discussion could help the policymakers to make future steps to conquer the challenges.

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