Bangladeshi apparel exporters have to absorb 40% of EU tariff cost after 2029: Study

Highlights

• Post-LDC graduation, EU tariff could reach 12% after 2029
• Apparel exporters may need to absorb 40% of that extra cost
• They may need to lower product prices to remain competitive
• Non-tariff barriers may impact exports more than tariffs
• Rights, labour standards, compliance may affect market
• Study recommends trade negotiation experts for FTA

Bangladesh's apparel exporters may have to absorb up to 40% of European Union tariff costs after 2029, following the country's LDC graduation, by lowering product prices to stay competitive, a new study finds.

The study, conducted by the Research and Development Integration for Development (RAPID), also revealed that the average weighted price of Bangladesh's top ten apparel items is around 36% lower than those of China and Vietnam. Bangladeshi apparel prices are also lower than those of India and Cambodia.

The findings were presented yesterday (29 December) by Md Deen Islam, research director of RAPID, at a programme held at the University of Dhaka titled "Assessing Tariff and Exchange Rate Pass-through in Bangladesh's Apparel Export Prices in the EU: LDC Graduation Implications for Bangladesh."

The study did not specify which categories of apparel exporters would be most affected, nor did it indicate which products would require larger or smaller price reductions.

Speaking to The Business Standard after the programme, Deen Islam said, "If new tariffs are imposed in line with market demand, exporters will have to absorb up to 40% of the price impact to remain competitive; otherwise, they risk losing market share – despite already operating on very thin profit margins." 

He added that the remaining 60% of tariff pressure would be passed on to product prices, meaning prices would ultimately have to rise.

Bangladesh will graduate from least developed country status in 2026. Duty-free export benefits to the EU market will continue until 2029. After that, under the EU's current policy framework, Bangladesh will have limited scope to avoid additional tariffs, which could reach around 12%.

If no free trade agreement (FTA) or other trade arrangement is concluded with the EU within this period, and existing policies remain unchanged, Bangladesh may face increased tariff burdens in the European market after 2029.

According to the study, Bangladesh's apparel prices are on average 36% lower than those of China and Vietnam for similar products, approximately 25% lower than India, and about 15% lower than Cambodia. Around half of Bangladesh's total exports are destined for the EU market.

The study also found that the woven apparel sector is more vulnerable due to its heavy reliance on imported raw materials, particularly fabrics.

Munir Chowdhury, National Trade Expert of the Bangladesh Regional Connectivity Project-1 under the Ministry of Commerce, said, "Non-tariff barriers can sometimes have an even greater impact than tariffs, and we need to be prepared for this." 

He added that issues such as human rights, labour standards, Environmental, Social, and Governance (ESG) compliance, and other emerging requirements may increasingly affect the sustainability of Bangladesh's export market.

Munir Chowdhury also emphasised the importance of preparing for FTAs and stressed the need to develop skilled trade negotiation experts.

RAPID recommended strengthening diplomatic engagement, building domestic resilience through stronger backward linkages, providing direct support to firm-level viability, and executing a strategic shift up the value chain to retain competitiveness in the market after Bangladesh's LDC graduation.