Will Bangladesh trade with European Union come under pressure?

The European Union (EU) for a long time now has been a large market for Bangladeshi goods. And 27 EU countries are the destination of around 48 per cent of Bangladesh’s exports. The volume of annual exports is around USD 25 billion (USD 2,500 crore). As a result Bangladesh is well advanced when it comes to bilateral trade with EU.

Readymade garments constitute 93 per cent of Bangladesh’s exports to EU. Generalized System of Preference or GSP has placed the garment industry in a strong position over the past two decades. Even though Bangladesh will step up from and LDC status to a developing country in 2026, it will still receive this facility for three years after that. After that, in order to keep up the tariff-free facilities with EU, Bangladesh will have to attain GSP Plus (GSP+). This will not be possible under the existing rules and regulations and Bangladesh is negotiating with EU over the matter.

Amidst these circumstances, the European Union on Thursday expressed deep concern over the state of human rights in Bangladesh and  resolution was taken up through voice vote. The resolution called upon Bangladesh to adhere to international standards to ensure civil and political rights. Additionally, the resolution highlights the importance of ensuring a safe and favourable working condition for non-governmental development organisations, human rights activists, and religious minorities.

The resolution mentioned that an Everything but Arms (EBA) enhanced engagement process remains ongoing with Bangladesh. But  owing to its serious violations of international conventions, it is concerned that the Odhikar case is a regrettable step back, bearing consequences as to whether EBA preferences continue to apply to Bangladesh. Incidentally, HSP facilities are provided through EBA.

This correspondent on Friday spoke to a number of exporters concerning the resolution taken up by the European parliament. They said there was no cause for immediate alarm over trade and commerce with the EU. However, the questions raised in the European parliament regarding the continuation of GSP facilities, was certainly uncomfortable. They felt the government should take due note of this resolution taken up by the EU parliament.

Distinguished fellow of the Centre for Policy Dialogue (CPD), Mustafizur Rahman, when asked about this issue, said, the resolution adopted by the European parliament is a matter of concern. After all, this did not come out of the blue. Various persons within EU had raised these issues at various times. This resolutions came as a result of that. He said, “EU is a large partner in our export trade. They are big investors. They provide us with loan assistance too.”

EU is a big market for Bangladeshi goods. (The US is the largest importer of Bangladeshi goods as a single country.)

According to the Export Promotion Bureau, the volume of Bangladesh’s exports to the EU in the 2022-23 fiscal totaled USD 25.23 billion (USD 2,523 crore). Six years earlier, in 2017-18, it had been USD 21.33 billion (USD 2,133 crore). It went up by 7 per cent in the following year. Then exports fell due to the Covid outbreak. In 2021-22 fiscal, exports to this market revved up again.

Among the EU countries, Germany is the largest market for Bangladeshi products. Last fiscal, 13 per cent of the exports, that is goods worth USD 7.08 billion (USD 708 crore) were exported to Germany. Next came Spain at USD 3.68 billion (USD 368 crore), France USD 3.29 billion (USD 329 crore), Poland USD 1.85 billion (USD 185 crore), the Netherlands USD 2.09 billion (USD 209 crore), Denmark USD 1.31 billion (USD 131 crore) and Belgium at USD 940 million (USD 94 crore).

Of the Bangladeshi exports to EU, 93 per cent comprises readymade garments. Last fiscal, readymade garments of USD 23.53 billion (USD 2353 crore), that is, 50 per cent of the total garment export from Bangladesh, went to the EU. Other than RMG, the commodities exported to this market under GSP include home textiles, leather and leather products, footwear, bicycles, etc.

While EU is the major destination for Bangladeshi products, imports from EU are relatively low. In 2021-22, Bangladesh imported goods of USD 75.60 billion (USD 7560 crore) from various countries around the world. And 25 per cent of these imports came from China. Coming up second was India with 18 per cent and from EU, less than 5 per cent.

According to the European Commission, while EU imported goods of 3.5 billion euro (350 crore euro) from Bangladesh, its exports to Bangladesh only totaled 2.2 billion euro (220 crore euro). The deficit went up the next fiscal to 12.90 billion (1290 crore euro). In 2022 is deficit has reached 20.20 billion euro (2020 crore euro).

European countries have foreign direct investment (FDI) in Bangladesh. Till December last year, net FDI in Bangladesh stood at USD 21.16 billion (USD 2116 crore). Of this, the US had highest investment at USD 4.10 billion (USD 410 crore). Among the EU countries, the Netherlands FDI in Bangladesh is the highest, at USD 1.26 billion (USD 126 crore).

Bangladesh will have to qualify for GSP Plus after 2029 in order to retain tariff-free facilities. However, in the meantime EU has finalised the draft of the new policy for GSP for 2024-34. This has not been passed by the EU parliament as yet.

If the GSP Plus draft is passed by the EU parliament exactly as it stands at present, Bangladesh will be caught at the initial condition. It will then have to export readymade garments to EU with a tariff of around 12 per cent. This can only be resolved through high level negotiations.

As to the consequences if GSP Plus is not availed, the managing director of Denim Export Limited, Mustafiz Uddin, said, “Without GSP facilities, the RMG in the EU market will crash. After all, in the prevailing competitive market, we lose orders on just 1 to 2 per cent differences in price. In such a situation if there are no GSP facilities, this difference in price will go up to 10 to 12 per cent. Why will the buyers want to pay this additional cost?”

Presently 8 countries including Sri Lanka, Pakistan, the Philippines, Uzbekistan and Bolivia receive GSP Plus facilities in the EU market. And 46 least development countries including Bangladesh receive GSP facilities.

When questioned about the issue, BKMEA executive president Mohammad Hatem told Prothom Alo on Friday night, “EU has never mixed political issues with trade and business. We do not know which direction things are going this time, but we hope EU will not involve politics with business.” He said, “We have made a huge population, including women of remote areas, self-reliant through the readymade garment industry. We feel that the EU leadership will not want to see this harmed.” He feels that Bangladesh may be somewhat lagging behind in GSP Plus negotiations due to the resolution adopted by the EU parliament.