Why exporters are ‘displeased’ with decision on graduation from LDC

A section of exporters are displeased with the interim government’s decision to proceed with the country’s scheduled transition from a least developed country (LDC) to a developing nation status amid the prevailing economic challenges.

They said once the country graduates from the LDC status, they would no longer enjoy the market facilities for the export of goods, thus, the competition capacity of Bangladeshi products would reduce.

The LDC graduation will also be suicidal without any specific initiatives to tackle challenges.

Exporters said they could not understand why such a decision was taken all on a sudden.

A graduation from LDC status will raise challenges to Bangladesh’s export sectors as the country enjoys duty-free market access under the World Trade Organization (WTO).

Currently, Bangladesh exports goods to various international markets, including the European Union (EU), the UK, India, China and Australia under a duty-free facility. But, this facility will stop after LDC graduation.

However, duty-free access to the EU markets will be in place until 2029, and the UK also pleaded to do so. An LDC country can provide subsidies or cash incentives on services and products manufactured in their country. Bangladesh provides cash incentives on exports.

Local entrepreneurs also enjoy many privileges including tax facilities and subsidies.

However, cash incentives must stop after the graduation from LDC. As part of the preparation, the ousted Awami League government twice reduced incentives on exports of goods in various sectors.

Readymade garments (RMG) account more than 80 per cent of Bangladesh’s exports and 50 per cent of RMG products go to the EU markets, where Bangladesh currently enjoy duty-free access under the EU’s Generalised Scheme of Preferences (GSP) facility, which will last for three more years after Bangladesh will graduate from LDC status.

After that, Bangladesh will have to give a 12 per cent tariff to export to EU markets unless it secures the GSP plus (GSP+).

Speaking about the situation, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) president Mohammad Hatem told Prothom Alo, “We are preparing for suicide through the decision to proceed with the scheduled transition from LDC status amid the present situation. No other country which is currently preparing for LDC graduation along with us has the RMG products to export. So, they have nothing to lose.”

Mohammad Hatem claimed incentive cuts over LDC preparation have already affected the country’s garment sector.

The RMG sector is followed by the export of leather and leathergoods, which has been exporting goods worth about 1 billion for a long time.

Leathergoods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB) vice-president Md Nasir Khan said leather and footwear production would be affected by the transition from LDC status.

With a note of caution, he told Prothom Alo, “We will face a stiff challenge because we are not ready yet. The leather sector could not flourish despite receiving the duty-free facility. The situation will worsen if no duty-free facility remains.”

Many small entrepreneurs also export handy crafts though the volume is low. Currently, the government gives 10 per cent incentive on jute products and 8 per cent on handy crafts. Entrepreneurs fear losing work orders if incentives are lifted due to LDC graduation.

Diversified jute products exporting company, Creation Private Limited, managing director Md Rashedul Karim told Prothom Alo if there is no incentive and duty-free facility they would face high competition.

As investment would be necessary on skill, product and technology development, he urged that the transition from LDC status should be deferred for several years to take these preparations.

Private research organisation, Research and Policy Integration for Development (RAPID), chairman Mohammad Abdur Razzaque thinks it is necessary to start several tasks in order to face the challenges.

He told Prothom Alo that negotiation with the EU should start soon over the GSP plus facility.

The RAPID chairman also remarked that initiatives must be taken to reduce the cost of doing business.

According to him, it was also possible to provide facilities on export of goods other than cash incentives like India does.

Mohammad Abdur Razzaque noted that it is also kept in mind the incentive can be continued for the next three years after the graduation from LDC status.