Why EU diplomacy, not delayed graduation, is key for Bangladesh's apparel future

Bangladesh is scheduled to be graduated from an LDC to a middle-income country in November next year. The country was included as an LDC in 1975. There are three criteria for LDC graduation – per capita gross national income (GNI), human assets index and economic vulnerability index. Bangladesh passed all the three criteria in 2018 and 2021. In 2021, Bangladesh received the final recommendation that the country could graduate from LDC in 2024. But it was postponed for another two years due to Covid-19 pandemic. So, after a long eight-year process; on 24 November 2026 Bangladesh may make the LDC graduation.

Apparel and textile entrepreneurs of the country called for delayed graduation. They argued that LDC trade benefits are necessary for the country's apparel industry for some more years to remain competitive in the global market.

There are examples of deferred graduation of LDCs.  For example, graduation of several Pacific Island LDCs such as Vanuatu and Kiribati were deferred multiple times due to their vulnerability to environmental challenges. Nepal which met the graduation criteria in 2015 (three years before Bangladesh) deferred the graduation due to earthquake and is expected to be graduated simultaneously with Bangladesh.

Bangladesh, along with Nepal and Lao PDR, is scheduled to graduate from LDC status in November 2026. For delaying the LDC graduation, Bangladesh has to apply to the UN and UN member states have to support the application. It's easily understandable that the other apparel producing countries which will get competitive advantage from the duties on Bangladesh are not going to support the country's deferred graduation.  Therefore, the delayed graduation will not be that easy for Bangladesh.  

According to the 2023 Ministerial Conference of the WTO held in Abu Dhabi, LDC trade benefits will continue for three more years after graduation. So, if Bangladesh is graduated to a middle-income country in 2026, the country will continue to enjoy the duty-free benefits till 2029.

However, even after 2029, Bangladesh can export duty-free to the United Kingdom (UK) under the Developing Countries Trading Scheme (DCTS) and to Australia under Australian System of Tariff Preferences (ASTP). The country could also export to Canada with a minimal duty like 4 percent after 2029.

But after 2029, the country will subject to face duties from 9 -12 percent in Europe, 9 percent in Japan, 20 percent in India, and 6.7 percent in China. However, Bangladesh will be able to continue to enjoy duty-free access to Europe even after 2029 if the country attains GSP Plus. The EU as a region is the largest destination of Bangladesh's apparel export. About 50 percent of the country's total apparel export goes to the EU each year.

GSP Plus is a contract under which the EU offers tariff-free access to countries that can demonstrate full implementation of 32 international conventions covering human rights, labour standards, environmental protection, and governance. Bangladesh has already ratified all the conventions.

"As much Bangladesh desperately wants to continue its duty-free apparel export to the EU, European consumers also similarly need Bangladesh for its quality apparel supply manufactured in safe and sustainable conditions."

Abdullah Hil Nakib

However, in the GSP Plus Bangladesh has to comply with two stages rules of origin, instead of the current one stage rules of origin under the Everything But Arms (EBA) GSP scheme. Moreover, Article 29 of the proposed GSP Plus scheme stated safeguard measures for textile, agriculture and fisheries industries. The safeguard measure states that if any of these three individual sectors exceeds the product graduation threshold, which is 37 percent for textile, that sector will be out of the purview of the GSP Plus duty free access. Bangladesh's textile threshold has already crossed 55 percent under the GSP scheme. 

So, even if Bangladesh attains the GSP Plus, country's apparel and textile sector could not enjoy the duty-free facility if the rules of origin and safeguard clauses of the scheme are not changed or amended. 

Therefore, Bangladesh has to make all-out diplomatic efforts to convince the EU to change these clauses. There are instances of changing GSP clauses by the EU. For example, when Pakistan got GSP Plus, the EU's import share criterion was changed from 4 percent to 6.5 percent. Even recently the EU removed the 7 percent EU's import share criterion. Therefore, the European Commission may also consider to change the rules of origin and safeguard clauses of the GSP Plus if proper communications are made from our side. Because as much Bangladesh desperately wants to continue its duty-free apparel export to the EU, European consumers also similarly need Bangladesh for its quality apparel supply manufactured in safe and sustainable conditions. 

The current EU's GSP framework, including GSP+ provisions, was proposed in 2021 and is set to apply from 1 January, 2027, allowing time for the new rules to be finalized and implemented. So, Bangladesh should lobby for making the GSP+ provisions favorable for the country's apparel industry before it's too late. The country will be subject to duty to the EU sooner or later if the graduation happens in 2026 or in a delayed year. So, it would be prudent for the government to continue its diplomacy for the favorable GSP plus provisions even more seriously than the deferred graduation.

Abdullah Hil Nakib is the Deputy Managing Director of Team Group.

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.