Free Trade Agreements will define Bangladesh’s post-LDC economy

Bangladesh stands on the verge of a historic transition—from a Least Developed Country (LDC) to a developing economy. This graduation reflects economic growth, export expansion, and notable social progress. Yet, behind this achievement lies a complex set of emerging challenges that could reshape the country's trade and development trajectory.

Among these, the gradual loss of preferential market access is the most immediate and consequential. In this new reality, Free Trade Agreements (FTAs) are no longer merely a policy option; they are fast becoming an economic necessity.

For years, Bangladesh has benefited from duty-free and quota-free access to major markets, particularly in the European Union under initiatives such as Everything But Arms (EBA). These preferences have been instrumental in driving the growth of export-oriented industries—especially ready-made garments (RMG), which account for nearly 80% of total exports. However, with LDC graduation, these unilateral trade benefits will be phased out. As tariffs are reintroduced, Bangladeshi exports may face price disadvantages in key markets, eroding competitiveness and putting pressure on employment in export sectors.

This looming shift places FTAs at the center of Bangladesh's trade strategy. By negotiating bilateral and regional agreements, Bangladesh can secure preferential access to major markets and mitigate the adverse effects of preference erosion. However, FTAs in the post-LDC era differ fundamentally from past arrangements. They require reciprocity—Bangladesh must also reduce tariffs and gradually open its domestic market. This transition introduces both opportunities and risks, demanding careful calibration.

From an employment perspective, the stakes are particularly high. The RMG sector—the backbone of Bangladesh's industrialisation—is highly sensitive to changes in market access. Even modest tariff increases could reduce export orders, trigger factory closures, and lead to job losses. Well-negotiated FTAs can help sustain and even expand employment by preserving access to key markets. At the same time, they create opportunities for diversification into sectors such as pharmaceuticals, leather goods, and light engineering—industries that can generate new jobs if supported by coherent policy frameworks.

The services sector also presents significant opportunities in a post-LDC FTA landscape. Modern trade agreements increasingly incorporate provisions on services, digital trade, and investment facilitation. For Bangladesh, this opens pathways for IT professionals, freelancers, and service exporters to integrate more deeply into global markets. Moving up the value chain—from low-skilled manufacturing to knowledge-based services—will be essential to sustaining long-term employment growth.

However, the transition is not without risks. A major concern is the exposure of domestic industries to intensified foreign competition. During the LDC phase, relatively high tariffs provided a degree of protection for local producers. Under FTAs, these barriers will be reduced, allowing greater market access for foreign goods. For small and medium enterprises (SMEs), which often lack scale, technology, and competitiveness, this could pose significant challenges. Without targeted support, many firms may struggle to survive, potentially leading to job losses in import-competing sectors.

The agricultural sector adds another layer of complexity. While FTAs may create export opportunities for agro-processed goods and fisheries, they also expose domestic farmers to competition from subsidised imports. Without effective safeguard measures and productivity-enhancing investments, rural livelihoods could come under strain, exacerbating inequality.

Beyond sectoral implications, LDC graduation, combined with FTA commitments, presents serious fiscal challenges. Bangladesh's revenue system remains heavily reliant on import duties. As tariffs decline under FTAs, revenue pressures will intensify. This makes tax reform imperative. Strengthening the value-added tax (VAT) system, improving compliance, and expanding the direct tax base will be essential to ensuring fiscal sustainability in a liberalised trade regime.

This looming shift places FTAs at the center of Bangladesh's trade strategy. By negotiating bilateral and regional agreements, Bangladesh can secure preferential access to major markets and mitigate the adverse effects of preference erosion. However, FTAs in the post-LDC era differ fundamentally from past arrangements. They require reciprocity—Bangladesh must also reduce tariffs and gradually open its domestic market. This transition introduces both opportunities and risks, demanding careful calibration.

Another critical challenge lies in meeting the higher standards embedded in modern FTAs. These agreements often include binding commitments on labour rights, environmental protection, intellectual property, and technical regulations. For Bangladeshi firms—particularly SMEs—compliance will require significant investment in technology, quality assurance, and institutional capacity. Failure to meet these standards could limit the effective utilisation of FTA benefits.

Against this backdrop, the success of Bangladesh's post-LDC trade strategy will depend on preparedness. First, trade negotiations must be strategic and evidence-based. Bangladesh needs to carefully calibrate its commitments to retain policy space for sensitive sectors while maximising market access for competitive industries. Issues such as Rules of Origin, transition periods, and safeguard mechanisms will be central to achieving a balanced outcome.

Equally important is domestic readiness. Trade facilitation must be strengthened through customs modernisation, digitalisation, and improved infrastructure. Reducing lead times and logistics costs will directly enhance export competitiveness. At the same time, investment in education and skills development is essential to prepare the workforce for higher-value economic activities.

Industrial policy must also play a proactive role. Promoting diversification, encouraging innovation, and enhancing value addition will allow Bangladesh to move beyond its heavy dependence on RMG. The objective should be deeper integration into global value chains, where competitiveness is determined not only by cost but also by quality, reliability, and technological capability.

International experience offers clear lessons. Countries that have successfully navigated similar transitions have combined proactive trade policy with strong domestic reforms. For Bangladesh, the message is clear: FTAs can be powerful tools for managing the challenges of LDC graduation—but only when embedded within a broader strategy of economic transformation.

In conclusion, LDC graduation marks both an achievement and a turning point. The loss of preferential market access presents real risks to exports, employment, and growth. At the same time, it creates an opportunity to reposition Bangladesh within the global economy. FTAs offer a pathway to secure market access, attract investment, and drive diversification—but they also demand greater competitiveness, stronger institutional capacity, and greater policy coherence.

The transition ahead will not be easy. But with strategic foresight, careful negotiation, and sustained reform, Bangladesh can transform the challenges of LDC graduation into a catalyst for long-term development. The imperative now is not just to graduate—but to grow in a way that is resilient, inclusive, and globally competitive.

Sketch: TBS

Dr Md Neyamul Islam is an international trade law expert.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.