How Bangladesh struggles to secure WTO trade benefits ahead of LDC graduation

Highlights:

• Bangladesh struggles to retain WTO benefits post-LDC graduation due to low interest
• TRIPS waiver loss may raise medicine prices by nearly 20%
• EU, UK markets secure till 2029; US tariffs pose concern
• Export subsidies, tax exemptions to end after graduation, affecting competitiveness
• Government plans transition strategy with trade reforms and FTAs for support

Despite efforts since 2018 to secure WTO trade benefits ahead of LDC graduation – including duty-free exports and continuing government subsidies for agricultural and non-agricultural products – Bangladesh has yet to achieve them due to member states' lack of interest, according to former and current commerce ministry officials.

They say Bangladesh seeks to retain duty-free export facilities for at least three years after LDC graduation to navigate the challenges ahead. Additionally, the country aims to extend benefits under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) until at least 2033.

A commerce ministry official said discussions on Bangladesh's proposal to increase TRIPS benefits at the WTO are currently "frozen".

"If no progress is made, Bangladesh's pharmaceutical industry will lose these benefits as soon as the country graduates from LDC status. This could result in a potential price increase of nearly 20% for pharmaceuticals in Bangladesh," the official said.

Experts say with the Trump administration taking office in the US, the WTO has weakened further, making the prospects of securing these benefits even slimmer.

According to them, Bangladesh's LDC graduation, expected in November 2026, comes with certain economic risks. To address these, ensuring macroeconomic stability should be the top priority.

Therefore, they stress the importance of stabilising foreign exchange reserves, maintaining steady interest rates on private sector loans, and diversifying exports before graduation.

Mohammad Hafizur Rahman, former director-general of the WTO Cell at the Ministry of Commerce and currently an administrator at FBCCI, told TBS that incentives must be provided to boost exports, focusing on specific products.

According to commerce ministry officials, at the 13th Ministerial Conference in the UAE last year, Bangladesh, along with other LDCs, applied to the WTO for at least 12 years of the Generalised System of Preferences (GSP). However, due to a lack of interest from countries like the US, the timespan was repeatedly reduced.

Eventually, Bangladesh proposed that other countries follow the European Union's model of extending GSP benefits for at least three years. No decision was reached on the matter in the UAE.

Former member of the Bangladesh Trade and Tariff Commission, Mustafa Abid Khan, told TBS that reducing business costs and enhancing efficiency will be key for the private sector to achieve competitive capabilities to face LDC-graduation challenges.

Can Bangladesh continue subsidies on exports?

Bangladesh has sought to maintain agricultural export subsidies by securing the WTO's net food-importing country status. It has also attempted to continue subsidies for non-agricultural exports according to the WTO's Agreement on Subsidies and Countervailing Measures (SCM).

According to the WTO agreement, if the per capita Gross National Income (GNI) is $1,000 or below, there is an opportunity to continue providing government subsidies for non-agricultural product exports even after graduation. However, Bangladesh is not getting this benefit.

According to officials, Bangladesh started efforts to secure this benefit in 2018. Based on data from three years ago, Bangladesh's per capita GNI, with 1990 as the reference year, stood at $700. However, given the high GDP growth rates each year, even using 1990 as the reference year, Bangladesh's GNI was expected to exceed $1,000 by 2026. This led Bangladesh to abandon its efforts.

Mohammad Hafizur Rahman told TBS that if 1990 is used as the reference year, Bangladesh's current per capita GNI could be between $850 and $900. Even if it reaches $1,000 next year, according to WTO rules, Bangladesh would still be able to provide subsidies for exports for the next three years.

Additionally, to continue providing subsidies for agricultural product exports, Bangladesh must obtain the status of a net food-importing country. Although Bangladesh previously applied for this status at the WTO, it was unsuccessful. The country must reapply by March next year and demonstrate that, over the past five years, it has imported more food products than it exported for at least three of those years.

60% export safe until 2029, but challenges remain

Around 50% of Bangladesh's total exports go to the European Union (EU) and 10% to the United Kingdom. Even after LDC graduation, Bangladesh will continue to enjoy the Everything But Arms (EBA) benefit in these two markets. Therefore, despite LDC graduation next year, there is no concern about these two markets until 2029, according to the officials.

The United States, Bangladesh's second-largest export market, recently imposed a 37% additional tariff on Bangladeshi products, which has since been paused for 90 days.

Meanwhile, to qualify for the EU GSP Plus benefits after 2029, Bangladesh will need to comply with 32 conventions, including ensuring workers' rights. This will require amendments to labour laws. However, under the EU's GSP Plus policy, Bangladesh's garment products will not receive duty-free access.

According to Hafizur Rahman, whether the EU grants duty-free access to Bangladesh's garment exports will depend on political relations.

Trade expert and Rapid Bangladesh Chairman Professor Dr M A Razzaque told TBS under Canada's existing General Preferential Tariff (GPT) law, Bangladesh will not receive any benefits after LDC graduation. The country is in the process of drafting a new law called GDP Plus, under which Bangladesh may qualify for benefits.

Copyright issues to be crucial after LDC graduation

According to commerce ministry officials, Bangladesh will need to comply with copyright laws after LDC graduation. Currently, Bangladesh largely uses pirated software and reproduces foreign books and publications. This could increase the cost of software and textbooks, such as those for medicine and engineering.

Besides, many designs in Bangladesh's textile and garment industries are used by other countries without royalties. This is mainly due to the lack of a "Textile Design Protection Act" in Bangladesh, which means local entrepreneurs are not receiving royalties for their designs.

Review meeting tomorrow

A high-level meeting, led by Chief Adviser Muhammad Yunus, will be held Tuesday to discuss how Bangladesh can tackle the challenges of graduating from Least Developed Country (LDC) status. Officials say the meeting may shape key measures in the upcoming budget.

According to the meeting brief, Bangladesh enjoys duty- and quota-free export access to 38 countries, including the entire EU, benefiting 73% of its total exports. After graduation, many of these benefits will end, and exports could face tariffs of 9% to 19%, potentially cutting export volume by up to 15%.

However, duty-free access to the EU, UK, Canada, and Turkey will continue until 2029. To qualify, Bangladesh must meet stricter Rules of Origin, such as double-stage processing for garments and 50% value addition for other goods.

Other post-graduation challenges include the end of export subsidies (now 0.3%–10% on 43 items) and tax exemptions. In pharmaceuticals, TRIPS waivers currently help meet 98% of local demand at low cost, but prices for some medicines may rise.

To manage the transition, the government has launched a "Smooth Transition Strategy", proposing alternative support like electricity bill discounts, trade reforms, and Free Trade Agreements with major markets.

Bangladesh met all LDC graduation criteria in UN reviews in 2018 and 2021. The official graduation is set for 24 November 2026, following a five-year transition period.

Bangladesh joined the LDC list in 1975. Of the 44 current LDCs, only eight have graduated so far, including Bhutan, Maldives, and Botswana.