Why effective economic diplomacy is a necessity
Bangladesh’s policymakers must prioritise structured diplomatic engagement, data-driven trade negotiations, and strategic alliances to take advantage of trade in the upcoming years as the country graduates from its LDC status
Economic diplomacy has become an essential instrument for nations to navigate the intricacies of global trade, attract investment, and ensure economic resilience. For Bangladesh, a country transitioning from Least Developed Country (LDC) status to a developing economy, economic diplomacy is not merely a choice but a strategic necessity.
Given the increasing complexities in the international trade regime—marked by protectionism, geopolitical tensions, and evolving regulatory frameworks—Bangladesh must recalibrate its diplomatic efforts to maintain competitive advantages, negotiate favorable trade terms, and integrate effectively into global value chains.
The international trade landscape is influenced by significant changes in power dynamics, economic nationalism, and rigorous compliance requirements, all of which carry substantial consequences for Bangladesh's economic goals. If these challenges are not strategically managed, they could have detrimental effects on the country.
Historically, Bangladesh has gained from trade advantages associated with its Least Developed Country (LDC) status, notably through the European Union's Everything but Arms (EBA) initiative, which provides duty-free and quota-free access to the EU market.
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However, with the anticipated graduation from LDC status by 2026, these benefits will be gradually withdrawn, subjecting Bangladeshi exports—particularly in the ready-made garment (RMG) sector—to increased tariffs. A lack of organised economic diplomacy may lead to significant market disruptions, diminished price competitiveness, and a decline in export revenues.
Therefore, it is imperative for Bangladesh to actively pursue economic diplomacy to establish preferential trade agreements (PTAs) and free trade agreements (FTAs) with crucial partners, including the EU, the UK, Canada, and Japan. Failing to secure preferential access post-LDC status could place Bangladesh at a competitive disadvantage compared to emerging economies like Vietnam, which has established FTAs with major markets.
Besides, trade liberalisation has given way to non-tariff barriers (NTBs), including environmental, social, and governance (ESG) compliance, stringent labor rights enforcement, and technical standards. Developed economies are increasingly imposing sustainability-linked regulations, such as the EU's Carbon Border Adjustment Mechanism (CBAM), which could affect Bangladesh's exports if carbon-intensive industries fail to comply.
Bangladesh must strengthen economic diplomacy by engaging in structured dialogues with trade partners to negotiate transition periods, secure technical assistance, and ensure that compliance measures do not disproportionately disadvantage its industries. Failure to engage diplomatically in shaping these regulations could result in market access restrictions and supply chain disruptions.
Additionally, the ongoing geopolitical rivalry between the US and China, along with regional tensions in South Asia, has created an uncertain trade environment. Bangladesh, strategically located at the crossroads of South and Southeast Asia, must carefully balance its diplomatic engagements to maximise economic gains without being caught in geopolitical conflicts.
Hence, Bangladesh's economic diplomacy should focus on leveraging its strategic location to position itself as a neutral trade hub. Strengthening bilateral relations with both China and the US, while actively engaging in regional economic initiatives such as BIMSTEC and ASEAN partnerships, could diversify trade opportunities and reduce overdependence on any single market.
Moreover, regional economic integration is crucial. Despite being a key economic player in South Asia, Bangladesh's regional trade remains significantly underutilised. Trade with neighboring countries such as India, Nepal, and Bhutan is hindered by high tariffs, poor logistics infrastructure, and bureaucratic red tape.
Therefore, economic diplomacy should prioritise regional trade facilitation through the removal of non-tariff barriers, harmonisation of customs procedures, and the implementation of cross-border logistics frameworks. By playing a proactive role in South Asian Free Trade Area (SAFTA) and BIMSTEC, Bangladesh can enhance intra-regional trade and reduce dependency on Western markets.
Given these challenges, Bangladesh's economic diplomacy must be restructured with clear objectives and targeted interventions. One of the significant priorities should be focusing on bilateral and multilateral trade agreements.
Securing preferential market access should be at the forefront of Bangladesh's diplomatic efforts. This requires: a) Expediting trade negotiations with the EU, UK, and Canada to secure GSP+ status or similar preferential arrangements post-LDC graduation; b) Entering into FTAs with emerging economic hubs such as ASEAN, Gulf Cooperation Council (GCC) nations, and Latin American markets; c) Strengthening Bangladesh's participation in WTO negotiations to advocate for developing country flexibilities in trade regulations.
Alongside this, strengthening investment diplomacy for industrial diversification is crucial. Bangladesh's overreliance on the RMG sector makes it vulnerable to external shocks. Economic diplomacy should focus on promoting foreign direct investment (FDI) in high-potential sectors such as ICT, pharmaceuticals, and agribusiness, enhancing Bangladesh's attractiveness as a manufacturing hub by negotiating technology transfer agreements and improving ease of doing business and strengthening diplomatic ties with multilateral financial institutions to secure investment in infrastructure and energy projects.
Additionally, Bangladesh's economic diplomacy should prioritise infrastructure-led regional integration, for instance, accelerating the implementation of regional connectivity projects such as the Bangladesh-Bhutan-India-Nepal (BBIN) Motor Vehicle Agreement, advocating for trade corridor development with Southeast Asia through ASEAN and BIMSTEC.
Moreover, it is also important to strengthen Bangladesh's position in global economic governance. Bangladesh's active engagement in global economic governance forums is essential to ensure that international trade rules do not disproportionately disadvantage its economy.
Thus, diplomatic strategies should include building alliances with other developing economies to influence global trade rulemaking and engaging with international organisations such as the WTO, International Labour Organization (ILO), and UNCTAD to negotiate favourable terms in trade and labour regulations.
In an increasingly volatile and complex international trade landscape, Bangladesh's economic diplomacy must evolve from reactive engagement to proactive strategy. The country's ability to secure favourable trade agreements, attract diversified investment, and enhance regional trade connectivity will determine its long-term economic resilience.
By integrating economic diplomacy into its national development framework, Bangladesh can position itself as a competitive player in global trade while safeguarding its economic interests against external shocks.
To remain relevant in the shifting trade order, Bangladesh's policymakers must prioritise structured diplomatic engagement, data-driven trade negotiations, and strategic alliances. A failure to do so could expose the country to economic vulnerabilities that may hinder its transition to a high-income nation in the coming decades.
Dr Mohammad Kamrul Hasan is a Public Administration and Public Policy Researcher
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.
