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

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The continuing future of Bangladesh's exports heavily depends on the continuation of duty-free privileges to Europe, the country's major export bloc, following the 2024 status graduation, according to findings of a report released yesterday.

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

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

Of these exports, garments take into account about 64 %, or $24 billion.

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

If the privilege isn't extended, then local exports will face 9.5 per cent to 10 % duty on shipments to the EU, which might pose a challenge in staying competitive in the EU markets, Razzaque said.

Therefore, Bangladesh needs such an extension to go beyond 2027 despite the fact that its economy has been severely influenced in the Covid-19 fallouts, he added.

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

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

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

Bangladesh should take part in lobbying with the EU in order that it extends the EBA initiative by a lot more than just a few years to ensure that the country's exports to the major 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 example, the EU could put in a 2 per cent duty in the first phase, 3 % in the next etc so that Bangladesh could enjoy a smooth graduation.

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

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

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

However, signing the proposed comprehensive economical partnership agreement (CEPA) with India will never be a wise decision currently, Razzaque said.

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

"Also, signing a free of charge 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 work privilege to Chinese markets is withdrawn, local exporters must face a 17 % duty on exports to Chinese markets.

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

"LDC graduation presents a whole lot of challenges but also offers a lot of opportunities for the country and we must find those opportunities," he added.

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

So, if possible, the united states needs to be somebody with the mega trade deals, such as for example Regional Comprehensive Economic Partnership (RCEP).

There is a likelihood of signing another mega trade deal just like the now defunct Trans-Pacific Partnership (TPP) soon.

This past 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 look for a mechanism that allows the country to keep giving such subsidies even following the graduation, Razzaque said.

Currently, of the full total revenue generated by the united states each year, 30 % comes from import duty, as the country is highly dependent on such taxes given that it has hardly any FTAs or PTAs.

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

Overall, Bangladesh needs to save 10 % of its costs for offsetting the losses of the LDC graduation. It's possible by improving productivity, weakening the neighborhood currency against the dollar, increasing the ease of conducting business and technologies and logistics, he said.

Some 14 per cent of the country's exports might be affected as a result of LDC graduation, he added.

Razzaque suggested taking good thing about certain opportunities to offset the losses, such as for example 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 will be afflicted by the graduation.

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

"So, some $3 billion additional trade would also happen if Bangladesh starts exporting halal foods and we also have many other sectors from where we're able to gain a whole lot after graduation," he said.

"That's why Bangladesh shouldn't be concerned about LDC graduation," Uddin added.

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

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

Similarly, negotiations with the UK should also be started as that 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 prevailing 9 % 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 function.
Source: https://www.thedailystar.net

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