LDC graduation – then what?

Tell me quite frankly: Wouldn't you be sleeping much better and much happier if we still remained an LDC and you could go on enjoying the benefits of duty-free access?

This was the question from economist Prof Rehman Sobhan, chairman of the Centre for Policy Dialogue (CPD), at a webinar to BGMEA President Faruque Hassan.

The same question was also put to Syed Manzur Elahi, the leather industry tycoon who was moderating the webinar on Bangladesh's agenda for the upcoming WTO ministerial.

"You hit the nail on the head, sir, as usual," Syed Manzur Elahi said, before giving his own thoughts on Bangladesh's preparedness for its journey beyond LDC.

However, Faruque Hassan was quick to respond, saying: "We are happy to have duty-free access for some more years. But definitely we will have to be ready for graduation in a few years."

Explaining, the apparel industry whizz kid said Bangladesh needs to negotiate for a maximum transition period to prepare for the post-LDC graduation.

"We are competitive. But the problem is that we don't have the core raw materials," he said, making his point why the apparel industry needs duty-free benefits to stay competitive as Bangladesh produces only 1% of the cotton needed for the sector.

Prof Rehman Sobhan had more questions: Tell me is there any point in the future where you will say that all right we can be competitive with other developing countries like Sri Lanka, Pakistan, Ghana and others who are not LDCs and who are competing in the market.

Not an easy question to answer.

Yet, Faruque Hassan expressed his optimism about gaining more competitiveness by setting up more textile industries and backward linkages if Bangladseh got maximum transition period of duty-free benefits.

CPD's Distinguished Fellow Prof Mustafizur Rahman came in aid, citing that the apparel industry is already competing effectively "on a same footing" with others in the single largest market-- US, where Bangladeshi apparels do not get duty free access.

Faruque Hassan also felt that only negotiation centering duty-free and quota-free access will not work any longer, now more focus needs to be given on a bigger agenda—foreign investment, technology and knowledge transfer and financing.

Prof Rehman Sobhan narrated the history of Bangladesh's being listed as an LDC, which, he said, was an accident and was possible for relentless efforts made by Prof Nurul Islam, the first deputy chairman of post-independence Planning Commission and then a member of CDP, a UN body that decides on LDC status. That paved the way for Bangladesh's apparel, leather and other industries to benefit from duty-free access and thrive in exports. 

Prof Rehman Sobhan said there is reason to take pride in graduation as it is a recognition that our economy performed well.

"However, we still don't seem very sure that we are capable of graduating," he said, citing all discussions being focused on extending the transition period after LDC graduation.

When actually shall we really graduate, he asked.

Prof Rehman Sobhan stressed that real graduation depends on a level of global competitiveness a country needs to attain to do trade on a same level playing field with other countries. He referred to countries like Pakistan and Sri Lanka who have been suffering as developing countries without access to benefits that LDCs like Bangladesh are getting.  

Bangladesh is going to join negotiations at the WTO at a time when the global body itself has entered into its own particular crisis, the senior economist pointed out. 

"Some would say that in the presidency of Mr Trump, WTO entered into a process of life support, whether it was alive or dead became somewhat uncertain," he said.

The whole concept of the rules-based international economic system was "progressively eroded and aggressively assaulted" during the Trump administration, he recalled.

The trading arrangements now are not being guided by WTO-driven rules at all, they are being dictated by a series of bilateral and regional trading arrangements, be they free trade arrangement or comprehensive economic partnerships, Prof Rehman said.

He identified the United States as the main violator of the global trading system. "If you look at the trading regime of the US today, it trades on different terms with probably 50 different countries."

Two biggest trading countries, the US and China, are now setting their own rules of trading, he commented, stating that the emergence of a new set of rules would depend on the ongoing negotiations at the WTO.

Prof Rehman Sobhan cited the case of Vietnam, which is not getting any trade benefit after graduating as a developing country but will get privileged access to the EU at a time when Bangladesh will lose duty-free access and face some 10% tariff on its products.

Bangladesh needs to change the whole nature of the agenda in negotiation and exit from the "same old argument" for extension of privileges given to LDCs, the economist suggested.

"Actually in 50 years we have not negotiated a single FTA with anyone, whereas countries around us who are not getting the benefit of duty-free access, have been working out their own negotiations," Prof Rehman Sobhan pointed out.

He also suggested that Bangladesh need to take into account the issues attached to the EU's new GSP+ strategy.

New sets of variables like issues of handling labour relations and practicing human rights are among the possible determining factors of future trade relations, said Prof Rehman Sobhan, adding that the trade world is no longer "business as usual".

The pioneer in economic research who served on the national planning commission and BIDS before founding the CPD, Prof Rehman Sobhan urged researchers and policymakers to find out what problems were faced by countries which have graduated and how they overcame those.

Voicing his thoughts on the graduation issue, Apex Group Chairman Syed Manzur Elahi said today or tomorrow Bangladesh must stop "dragging on to the eternity of being an LDC."

One of the big problems of remaining an LDC is "image crisis," the leather industry pioneer said.

For exporters, buyers' confidence in timely delivery comes before the price, he said.

Syed Manzur referred to the high cost of trade transactions as import letters of credit (LCs) issued by local banks are often not accepted in foreign countries if not reconfirmed by any global bank. He felt that graduation could help improve sovereign guarantee and credit ratings.

Other issues which now matter much in global trade are high productivity, sustainability and compliances, he pointed out.

They now ask whether there is rainwater harvesting in the factory, whether the factory is sustainable in production, quality and supply, the senior businessman said about the evolving conditions from global buyers.

"Buyers want to know the number of shoes produced per minute. If you can't, they will rush to Vietnam or Madras in India," he said.

"Nike, Adidas order in billions. Your export figure will jump by 10 billion dollars if they come. LCs, sustainability, compliance matter in dealing with these big players," he said.

Citing skilled human resources is one big challenge, Syed Manzur Elahi said his industry is facing a shortage of skilled labour and managers. "That is why some 25,000 foreigners are working in industries here. They are taking out $5 billion officially and another $5 billion unofficially. Can we afford this big amount going out every year?"

Graduating from LDC or not will matter little if Bangladesh fails to improve business atmosphere and if DHL package needs a week to be cleared from customs and if NBR collects 20% tax on technology transfers, the businessman said, comparing with the atmosphere in Vietnam, which diversified its exports and is growing fast.