RMG may lose UK trade benefits post-LDC

Bangladesh's apparel products may lose duty-free access to the United Kingdom after it graduates to a developing country as regular tariffs will be applicable to any product when its import exceeds a set limit under the UK's new Generalised Scheme of Preferences (GSP).

Commerce ministry officials believe that such a provision in the UK GSP scheme's public document sent to the ministry could be detrimental to Bangladesh's duty-free export facilities to the country.

The UK has started formulating its own GSP scheme after Brexit. Bangladesh will enjoy duty-free access to the British market for all of its products except for arms and ammunition under the scheme's Least Developed Country Framework until 2026.

The UK GSP scheme's provision on product or goods graduation states that for textiles, apparel and clothing goods, graduation applies when the import ratio referred to exceeds 47.2%, according to the document.

The general threshold of 57% applies to all other goods. For live plants and floricultural goods, vegetable goods, animal or vegetable oils, fats and waxes and mineral goods, graduation applies when the import ratio referred to exceeds 17.5%. The UK will review the list of graduated goods every three years.

Goods graduation is the suspension of preferential rates of customs duty on certain imports following a goods graduation assessment. These imports are deemed highly competitive and no longer need preferences to compete in the UK market. These imports cannot benefit from preferential rates and the UK Global Tariff will apply instead. Suspensions can be applied to goods from countries in the General Framework, according to the document.

The proposed Enhanced Framework is similar to the EU's GSP Plus to provide GSP benefits to low-income and lower middle income countries, which are classified as economically vulnerable and have satisfied requirements relating to the 27 international conventions. Under this, two-thirds of product lines will get duty-free facility.

Under the General Framework and the Enhanced Framework, the UK market still includes Vietnam, India, Indonesia, Pakistan and Sri Lanka, which are exporters of readymade garments. Of them, Vietnam will not get the GSP benefit as it has a trade agreement with the UK.

Therefore, the export rate of Bangladesh's major garment items under the GSP facility is likely to go over 47% after its graduation to a developing country status.

To get GSP benefits under the enhanced framework, Bangladesh will have to comply with 26 international conventions. In this context, the UK said the aim is to encourage compliance with human and labour rights, good governance and sustainability. The Enhanced Framework asks countries to ratify, accede to or otherwise consent to be bound by 27 international conventions and their reporting requirements.

Under the UK GSP scheme's General Framework, low-income and lower middle income countries, as classified by the World Bank, will enjoy reduced tariffs on two-thirds of product lines. 

UK's GSP is going to have a provision to cancel or suspend such facility for a country for various reasons, including violations of human and labour rights, violation of international conventions on anti-terrorism and money laundering, violation of UN Single Convention on Narcotic Drugs and the failure to prevent illicit trade.

The least developed countries will request the UK to relax the conditions as it will be very difficult for them to comply with them, the commerce  ministry officials said.

The United States has suspended Bangladesh's GSP facility in its market since June 2013 for alleged labour rights violations. 

The European Union has sought a nine-point roadmap from Bangladesh to protect labour and human rights to remain eligible for the GSP benefit in its market. 

According to the Export Promotion Bureau, the UK is the third largest export market for Bangladesh. In the last fiscal year, Bangladesh's exports to the country amounted to $3.7 billion, which was 9.68% of the country's total exports. Exports of woven garments raked in $1.33 billion, knitwear $2.11 billion and home textiles $96 million from the country in FY21.

Officials in Dhaka Bangladesh are still not sure whether Bangladesh will continue to enjoy market access preference in the United Kingdom for an extra three years till 2029 after moving out of the LDC status in 2026. 

However, London has verbally promised Dhaka of maintaining the GSP facility for three more years after the LDC graduation. The UK High Commissioner in Dhaka has also confirmed it.

The United Kingdom has already sent a questionnaire on its new GSP scheme and asked for position papers from various countries, including Bangladesh, by 12 September. 

The commerce ministry held a stakeholder meeting on Monday with Commerce Secretary Tapan Kanti Ghosh in the chair.

The commerce ministry's WTO Cell director general Md Hafizur Rahman told The Business Standard that Bangladesh will send a position letter within the stipulated time. They will ask for some relaxation of the conditions in the GSP.

Commerce ministry officials said Bangladesh hopes to get GSP benefits in the UK under the Enhanced Framework after graduating to a developing country status. Bangladesh will try to get an unconditional GSP facility for the export of readymade garments to the country. That is why Bangladesh will request the UK to relax the condition of "product graduation" in the position paper.

Commerce ministry officials say the duty-free export of frozen fish to one of the country's leading export destinations will suffer owing to unregulated fishing at sea after it comes out of the LDC status. They said there is a mention of regulated and controlled fishing for duty-free marine fish exports to the UK. But there is no system in Bangladesh to regulate fishing vessels at sea. Therefore, they will request to relax this condition too.

Dr Khandaker Golam Moazzem, research director at the Centre for Policy Dialogue, told TBS that the post-Brexit UK would prioritise bilateral trade agreements. The UK will make free trade agreements with different countries, which may reduce the importance of the unilateral scheme. 

If Bangladesh's competitors are among those who will sign an FTA with the UK, the country's exports will suffer, he added. 

Bangladesh should give importance to ensuring the existing GSP facility for an extra three years even after its graduation. At the same time, the country will have to continue its efforts to waive tariffs considering its competitiveness in the countries with which the UK will sign FTA, Dr Moazzem said.