South Asia’s standards trap: Why Bangladesh risks being locked out of global trade

A quiet but consequential transformation is reshaping global trade. While tariffs have declined across much of the world and remain relatively low in most sectors, technical standards, regulations and private certifications have increasingly become the primary gatekeepers of market entry. These requirements often operate alongside tariffs rather than replacing them.

This shift exposes South Asia – particularly Bangladesh – to significant vulnerabilities in international trade. Simply competing on cost is no longer sufficient; compliance with complex and often costly standards increasingly determines who can participate in global markets.

The scale of this shift is striking. The share of global trade governed by technical standards has risen from less than 15% in the late 1990s to almost 90% today. For a Bangladeshi garment exporter entering a single foreign market, six or seven technical regulations must now be met – more than three times the number required two decades ago. For high-income destinations such as the United States and the European Union, which remain Bangladesh's main export markets, that number frequently exceeds twelve.

This proliferation has created what analysts describe as a "spaghetti bowl" of overlapping requirements. Firms must comply with multiple standards that often cover similar environmental, labour or safety conditions while requiring separate audits and certifications.

According to the World Development Report 2025, a Pakistan-based textile firm reported spending $75,000 annually to comply with fifteen sustainability standards. Even seemingly modest certification costs can be burdensome for South Asian small and medium-sized enterprises (SMEs). In Bangladesh, for example, obtaining ISO 14001 environmental certification involves several fees – certification, renewal and inspection – that together pose a significant barrier for smaller firms.

The consequences are increasingly visible at the border. Rejection rates for South Asian food and agricultural exports in EU and US markets are two to four times higher than their share of total imports. These rejections often reflect deeper structural weaknesses – including limited access to accredited testing laboratories, trained auditors and credible certification bodies that could verify compliance before goods are shipped.

Equally worrying is the region's stalled progress in export quality. According to the IMF's export quality index, South Asia made rapid gains between 1960 and 2000, nearly closing the gap with advanced economies. After 2000, however, progress slowed sharply. By the mid-2010s, the region's export structure had stagnated – with products often produced at quality levels similar to those seen decades earlier. This pattern is more commonly observed in parts of Sub-Saharan Africa and the Middle East.

The contrast with East Asia is striking. Countries such as China and the Republic of Korea consistently upgraded export quality through systematic standardisation as part of broader industrial strategies. They invested heavily in quality infrastructure, leveraged foreign direct investment for technology transfer and actively participated in international standards-setting bodies. South Asia's response, by contrast, has been fragmented and largely reactive.

The result is a persistent low-quality equilibrium. Bangladesh – the world's second-largest garment exporter – remains heavily dependent on price competitiveness. Although its firms are deeply integrated into global value chains, they often lack the incentives or capacity to upgrade production standards. Weak domestic purchasing power further dampens demand for higher-quality goods, reinforcing the cycle of stagnation.

At the same time, standards in international trade are becoming even more demanding. Sustainability requirements are shifting from voluntary differentiation to conditions for market access.

The European Union's Deforestation Regulation illustrates this transition. Major corporations are also moving in this direction: Mercedes-Benz, for example, has pledged to source exclusively from carbon-neutral partners by 2039. Fashion brands are increasingly demanding full supply-chain traceability.

For Bangladesh's garment sector – which employs more than four million workers and generates over 80% of export earnings – this transformation represents both a threat and an opportunity. Initiatives such as Better Work and the Accord on Fire and Building Safety demonstrate that industry-wide programmes can harmonise requirements while strengthening compliance capacity at the factory level. However, legal and political challenges surrounding such initiatives reveal tensions over who ultimately sets the rules.

Bangladesh's upcoming graduation from least developed country (LDC) status by the end of 2026 further intensifies these pressures. As an LDC, Bangladesh has benefited from preferential market access under initiatives such as the European Union's Everything But Arms (EBA) scheme, which provides duty-free and quota-free entry.

Graduation will remove many of these preferences, exposing Bangladeshi exporters to standard tariff schedules precisely as non-tariff barriers become more stringent. The paradox is clear: LDC graduation is meant to signal economic maturity, yet Bangladesh risks entering a far more demanding trade environment without having built the quality infrastructure, certification capacity or standards expertise required to compete on equal terms.

Unlike earlier graduates, Bangladesh will face a global trading system in which technical barriers have multiplied and sustainability requirements are rapidly becoming non-negotiable conditions of market access. Without a deliberate transition strategy that treats standards compliance as a core element of graduation readiness, the country risks a contraction in export volumes just as its development model continues to rely on foreign exchange earnings.

Such a shock would not merely be economic. With more than four million workers dependent on the garment sector, any standards-driven market exclusion could carry serious social and political consequences.

Tunisia's automotive components sector offers a useful counterpoint. Tunisian suppliers embedded international quality, environmental and labour standards through coordinated industry efforts and long-term decarbonisation commitments. This transformation was supported by strong human capital, enabling infrastructure and close cooperation between firms and investors.

Bangladesh does have foreign investors and active industry associations, but it still lacks a similarly robust ecosystem of quality infrastructure and strategic capability.

The risks are also emerging in newer sectors. Standards for technologies such as 5G, digital payments, semiconductors and artificial intelligence will shape the next wave of global growth. Yet developing countries largely remain technology adopters rather than standard setters.

India's digital public infrastructure – including UPI and Aadhaar – demonstrates what can happen when countries actively shape technological standards. Without similar initiatives, Bangladesh risks falling further behind in regional and global competition.

This matters because standards generate powerful network effects and technological lock-ins. When global standards for general-purpose technologies are set without input from South Asia, they often fail to reflect the region's languages, contexts and development priorities.

The concentration of standard-essential patents illustrates the challenge. More than 70% of core 5G patents are held by just six companies, leaving late adopters with little choice but to pay expensive licensing fees.

At its core, the problem is also regional fragmentation. Historical tensions, political polarisation and security-driven policies have limited economic cooperation in South Asia. Intra-regional trade accounts for only about 5% of total trade, compared with more than 30% in ASEAN.

Even basic products such as dairy face divergent standards across neighbouring countries. The absence of harmonisation prevents economies of scale and weakens the region's collective bargaining power.

The policy agenda is therefore clear.

First, governments must prioritise investment in quality infrastructure, including accredited laboratories and trained auditors. Second, SMEs require targeted support through certification vouchers, compliance financing, regulatory incentives and group certification schemes.

Third, regional harmonisation through platforms such as SAARC or BIMSTEC could significantly reduce compliance costs and strengthen South Asia's voice in global standards negotiations. Fourth, countries must engage strategically in international standards-setting bodies, particularly in sectors with strong export potential. Finally, standards should be integrated into a coherent industrial policy rather than treated as an afterthought.

The World Development Report 2025 warns of "kicking away the trade ladder". For Bangladesh – and South Asia more broadly – this risk is real. Passive integration into global value chains is no longer enough.

Without active engagement in shaping and meeting global standards, the region risks prolonged exclusion from high-value trade. The tools exist, and successful models are available. What remains uncertain is whether the political will will emerge before the costs of inaction become too high to reverse.

Mohammad Asaduzzaman is the Research Director at the Dacca Institute of Research and Analytics (daira). Jahid Hossain is a research assistant at the Dacca Institute of Research and Analytics (daira).

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.