FRIDAY, March 29, 2024
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Future of export hinges on continuity of EU duty benefit PRI study says

Future of export hinges on continuity of EU duty benefit PRI study says

The future of Bangladesh's exports heavily depends on the continuation of duty-free privileges to the European Union, the country's largest export bloc, following the 2024 status graduation, according to findings of a study released yesterday.

If the EU extends the duty privileges, then other developed countries will follow suit, said MA Razzaque, research director of Policy Research Institute (PRI).

As a least developed country (LDC), Bangladesh currently enjoys duty-free access to the EU under the latter's Everything But Arms (EBA) initiative, with around 61 per cent of its yearly exports destined for the region.

Of these exports, garments account for about 64 per cent, or $24 billion.

So far, only the EU has assured that it would continue providing the zero-duty benefit until 2027 to allow Bangladesh a period for preparations following its status graduation from an LDC to a developing one.

If the privilege is not extended, then local exports will face 9.5 per cent to 10 per cent duty on shipments to the EU, which may pose a challenge in staying competitive in the EU markets, Razzaque said.

Therefore, Bangladesh needs such an extension to go beyond 2027 even though its economy has been severely affected in the Covid-19 fallouts, he added.

The EU is set to review the existing Generalised System of Preferences (GSP) facility in 2023.

So Bangladesh needs to engage in dialogues with the EU to secure duty-free privileges for the new era past the graduation, said the PRI research director.

Razzaque made these comments while presenting a keynote paper at a virtual discussion on "getting ready for LDC graduation", organised by Economic Reporters Forum (ERF) in collaboration with the Research and Policy Integration for Development (RAPID) and Asia Foundation.

Bangladesh should engage in lobbying with the EU so that it extends the EBA initiative by more than just a few years so that the country's exports to the largest trade block continue without facing any interruption, he said.

Bangladesh could also lobby for the duty privileges to be removed in phases, Razzaque added.

For instance, the EU could add a 2 per cent duty in the first phase, 3 per cent in the next and so on so that Bangladesh could enjoy a smooth graduation.

Apart from the EU, Bangladesh should also hold intense negotiations with other developed countries like Australia, Canada, Japan, China, India and other GSP-providing countries.

Here, Bangladesh could engage in lobbying with India so that article 12 of South Asian Free Trade Area (Safta) is followed in case of the country's graduation.

As per article 12, India has committed to continue its duty privileges for the Maldives even after its graduation to a developing country.

However, signing the proposed comprehensive economic partnership agreement (CEPA) with India will not be a wise decision at this moment, Razzaque said.

Similarly, Bangladesh could launch negotiations with China for the continuation of its duty-free facility for 97 per cent of goods of Bangladeshi origin even after the graduation.

"Also, signing a free trade agreement (FTA) with China could bring cheers for Bangladesh in the post LDC period as China itself is a very big consumer market for Bangladeshi products," he said.

Once, the duty privilege to Chinese markets is withdrawn, local exporters will have to face a 17 per cent duty on exports to Chinese markets.

However, Razzaque also said it would not be wise to rush into signing FTAs or preferential trade agreements (PTA) under pressure.

"LDC graduation presents a lot of challenges but also has a lot of opportunities for the country and we have to find those opportunities," he added.

Although signing an FTA entails 90 per cent product coverage under the agreement, Bangladesh would still have to make duty free arrangements with partnering countries.

So, if possible, the country needs to be a partner with any of the mega trade deals, such as Regional Comprehensive Economic Partnership (RCEP).

There is a possibility of signing another mega trade deal like the now defunct Trans-Pacific Partnership (TPP) in the near future.

Last year, Bangladesh gave around $600 million in direct export subsidies. Paying such subsidies on exports after the country's graduation would be difficult. Besides, World Trade Organization (WTO) has some restrictions regarding such a decision.

So, Bangladesh should find a mechanism that allows the country to continue giving such subsidies even after the graduation, Razzaque said.

Currently, of the total revenue generated by the country each year, 30 per cent comes from import duty, as the country is highly dependent on such taxes given that it has very few FTAs or PTAs.

Bangladesh needs to manage the revenue through other measures as the country is getting ready to sign FTAs and PTAs with a few of its trading partners, according to Razzaque.

Overall, Bangladesh needs to save 10 per cent of its costs for offsetting the losses of the LDC graduation. It is possible by improving productivity, weakening the local currency against the dollar, improving the ease of doing business and technologies and logistics, he said.

Some 14 per cent of the country's exports might be affected due to the LDC graduation, he added.

Razzaque suggested taking advantage of certain opportunities to offset the losses, such as availing funds from the LDC Fund and the Technology Bank for the LDCs and extending the Trade-Related Aspects of Intellectual Property Rights (TRIPs) up to January 2033.

Commerce Secretary Md Jafar Uddin said $7 billion worth of the country's trade would be affected by the graduation.

However, Bangladesh has the opportunity to export $10 billion worth of halal goods if an accreditation board was formed.

"So, some $3 billion additional trade would also take place if Bangladesh begins exporting halal foods and we also have many other sectors from where we could gain a lot after graduation," he said.

"That's why Bangladesh should not be worried about LDC graduation," Uddin added.

Currently, Bangladesh has been negotiating with 11 countries to either sign FTAs or PTAs.

"We need to continue negotiations with the EU to retain our trade privileges as long as possible as it is our biggest export destination," said Planning Minister MA Mannan.

Similarly, negotiations with the UK should also be started as this is also a very important export destination, he added.

Mohammad Sirazul Islam, executive chairman of Bangladesh Investment Development Authority, urged for minimising the gap between tax and GDP as the existing 9 per cent ratio was too low even in the context of the country's South Asian peers.

M Abu Eusuf, a professor of the department of development studies at the University of Dhaka; Kazi Faisal Bin Siraj, country representative of Asia Foundation; Sharmeen Rinvy, president of the ERF, and M Rashidul Islam, the ERF general secretary, also spoke at the event. 

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