The heavy reliance on the apparel industry – which contributed to over 85 per cent of total merchandise exports – exposes Bangladesh to a reduction in exports following its graduation from the group of least developed countries (LDCs), says the Asian Development Bank (ADB).
It came up with the observation in a latest report – Expanding and Diversifying Exports in Bangladesh: Challenges and the Way Forward – on Tuesday.
The report noted that Bangladesh could face tariff hikes in most of its major export destinations after the LDC graduation. The increased tariffs could potentially result in a significant decrease in Bangladesh’s exports, ranging from 5.5 per cent to as high as 14 per cent.
Against such a backdrop, there is no alternative to increasing the country’s export capacity, it added.
Detailing the anticipated tariffs, the report said the tariffs may range from zero to over 16.0 per cent in Canada, 8.6 per cent in India, 8.7 per cent in Japan, and about 7.0 per cent in China.
Additionally, various items may be put back on the negative list for which India does not offer any preferences, even under the South Asian Free Trade Agreement.
The report noted that the post-graduation market access provisions in the EU have not been settled yet as it is devising its new Generalised System of Preferences (GSP) regime.
However, under the proposed terms, which are at the time of writing this brief, under review by the EU Parliament and Council, Bangladesh’s garments exports will not be eligible for the GSP+ scheme that allows non-LDCs’ duty-free market access in the EU. In absence of the privilege, Bangladesh’s garments exports in the EU may face a tariff of up to 12 per cent.
In the UK market, after LDC graduation, Bangladesh will benefit from the newly announced Developing Countries Trading Scheme Enhanced Preferences, with most of its exports enjoying duty-free market access.
However, rules of origin requirements will be more stringent than those applied to LDCs.
For garments, this will require fulfilling a double transformation, requiring Bangladesh to use domestically produced fabrics in the export industry. Given the limitations in the current backward linkage capacity, this could be a constraining factor.