Nazneen Ahmed and Sarah Sabin Khan | November 24, 2021 00:00:00
After almost half a century of being recognised as a Least Developed Country (LDC), Bangladesh is finally all set to leave the status behind in 2026. The United Nations Committee for Development Policy (UN CDP) has recommended Bangladesh's graduation in the 2021 triennial review. Bangladesh could graduate in 2024, had there been no Covid-19 pandemic. Responding to the request of the government of Bangladesh (GoB), the CDP agreed to extend the preparatory period for graduation by an additional two years till 2026.
The extension has allowed Bangladesh a reasonable breathing space of five years to strategise and prepare for a smooth and sustainable graduation. A smooth transition helps a country withstand the phasing out of LDC-specific international support measures (ISMs) after graduation and take advantage of the resultant opportunities. Though Bangladesh will get another three years after graduation for transition when ISMs will continue, the preparation for a smooth transition should start immediately. Having a smooth transition strategy early will enable Bangladesh to utilise available ISMs more purposefully for the remaining years. There is a wide consensus among experts, academics and government counterparts in Bangladesh that smooth transition will critically hinge on the country's ability to anticipate and assess the aftermath and effectively negotiate with the international community. Strong negotiation capacities will be crucial, along with proactive engagement of the GoB with its partners, to solicit the best possible alternatives to LDC-specific ISMs.
Experiences of previously graduated countries suggest that pre-graduation negotiations with bilateral and multilateral trading and development partners have been crucial in their preparation towards graduation. Cape Verde's main concern was the potential loss of volume and concessional Official Development Assistance (ODA). Thus, it engaged in negotiated agreements with bilateral, regional, and multilateral partners on an ad-hoc basis. Graduation of the Maldives led to, among others, the negotiation of a UN General Assembly resolution allowing a three-year extension of the travel benefits to attending overseas meetings at the UN and WTO. Samoa engaged in bilateral negotiations with China and Japan to secure transitional periods for its preferences for some of its key export products. Recently graduated Vanuatu's ambassadors engaged in successful negotiations to influence an unprecedented UNGA endorsement of a request to defer all LDC-specific ISMs by five years after graduation. Such UN resolutions usually carry vital weight in international negotiations, particularly with development partners.
It is important to note, however, that the past graduation cases have been fairly different from what Bangladesh will face after graduation. First, it is the most substantive country to ever be in the graduation pipeline with a significantly larger economy and a large population size compared to others. Second, Bangladesh is the second-largest LDC recipient (after Afghanistan) of official development assistance (ODA) with a relatively high dependence on project aid to finance its annual development programme (over 30 per cent in FY2020). Finally, Bangladesh is among the few LDCs that have been able to immensely benefit from LDC-specific ISMs, particularly in developing its export-oriented manufacturing sector, facilitating structural transformation. The stakes are much higher for Bangladesh than what has been the case for previous graduates. Bangladesh will need more comprehensive, sophisticated and consolidated negotiation strategies in place to counter the full range of impacts in different areas following the graduation.
Several international reports from different UN agencies, World Trade Organization (WTO) and Enhanced Integrated Framework (EIF) as well as national level studies by researchers from top think-tanks have investigated the major areas of impact for Bangladesh. Trade has been unanimously identified as the area to be affected most by the loss of LDC-specific ISMs and as such requires the most attention as far as negotiations are concerned. The other relevant spheres warranting negotiated arrangements to mitigate anticipated impacts are in development cooperation, and, access to LDC-specific technical assistance. The areas are discussed in further details below.
CHALLENGES RELATED TO MARKET ACCESS: Unless otherwise negotiated, graduation will lead to the loss of LDC-specific duty-free quota-free market access to major trading partners and concessions on rules of origin. Bangladesh will eventually have to accommodate other preferential schemes or most favoured nation (MFN) regimes. Analyses by different studies have concurred that the corresponding switch would result in significant increases in the tariff rates faced by exporters, particularly ready-made garment (RMG) products, to major markets including the European Union (EU), Canada and Japan. According to a recent study by WTO and EIF, on an average 70 per cent of Bangladesh's exports to 12 of its major destination markets used LDC-specific preferences (averages of data from 2015 and 2016). In the largest market of EU, 96 per cent of exports used preferences granted under the Everything but Arms (EBA) initiative for LDCs. Moving out from EBA after graduation alone will lead to a tariff increase of about 10 per cent for most RMG products.
While the EU usually allows the extension of EBA beyond graduation, these are not automatic and have to be negotiated. Bangladesh is currently negotiating for the GSP+ privilege - the best alternative market access conditions for the EU. Availing the best alternative arrangements with different destinations require well-coordinated, well-informed and area-specific negotiation strategies. Moreover, to retain export competitiveness after graduation, Bangladesh may have to consider being involved in free trade agreements (FTA) and regional trade agreements (RTA) including renegotiating the terms of existing agreements (e.g., SAFTA). However, we have to bear in mind that FTA is not the only solution to addressing all challenges of Graduation. We must be careful about choosing countries for FTA and negotiating different conditionalities.
SPECIAL AND DIFFERENTIAL TREATMENTS UNDER WTO AGREEMENTS: Bangladesh as an LDC has had access to the full range of LDC-specific SDT provisions since the platform's inception. Graduation will entail the withdrawal of many of these SDTs, often with important implications for the country's policy space. The most prominent impact will transpire from not being able to benefit from the extension given to LDCs under the agreement on Trade-Related Intellectual Property Rights (TRIPS). The pharmaceutical industry in Bangladesh receives some specific exemptions from TRIPS provisions that had an instrumental impact on the growth of this industry. There is no automatic smooth transition period accorded under the TRIPS agreement and as such needs to be negotiated. Besides TRIPS, Bangladesh's LDC graduation would imply reviewing its subsidy policy to ensure compliance with the Agreement on Agriculture and the Agreement on Subsidies and Countervailing Measures, forgoing certain facilities related to dispute settlement, and, losing out on LDC-specific provisions in existing and future trade negotiations. Phasing out of any such SDT provisions will have to be negotiated by actively engaging with WTO members both bilaterally and in WTO Committees.
CHALLENGES IN DEVELOPMENT COOPERATION: Graduation from the LDC category itself is expected to have a limited immediate and/or direct impact on the volume of development cooperation. In general, the implications of Covid-19 and the ensuing response by development cooperation are expected to exacerbate the pre-Covid trend of plateauing ODA flows in the future. Accessing development finance will also continue to get costlier. For instance, ODA from certain partners like Japan and Germany is likely to be on less concessional terms after graduation. Experiences of previous graduates suggest that early discussions and negotiations with development partners can help mitigate graduation-related costs and mobilise focused support towards a smooth transition.
CHALLENGES CONCERNING TECHNICAL ASSISTANCE: Bangladesh will lose eligibility to receive various LDC-specific technical assistance provided by different UN agencies and WTO which include capacity support to engage in effective negotiations. The LDC fund for climate change, for instance, includes funds dedicated to building the capacity of civil servants to participate effectively in intergovernmental climate change processes and the development of negotiation strategies.
TOWARDS CAPACITY BUILDING FOR NEGOTIATION SKILLS IN CONTEXT OF LDC GRADUATION: While Bangladesh is preparing a Smooth Transition Strategy that will encompass wider contexts of LDC graduation-related concerns, initiatives to strengthen capacity building for negotiation skills need not wait any longer. Different public training institutes and even some private institutes have capacity-building courses on negotiation. However, the LDC graduation-related challenges noted above call for negotiation skills, particularly covering those challenges. In this connection, we also need to build a complete framework that includes the entire process of negotiation at different levels. This entails extensive and updated knowledge generation on the most critical areas, staying updated regarding the current state of affairs, identifying issues that require in-depth research and analysis, and building the technical capacity to perform them. Technical capacity constraints, both in the public and private sectors, are acute, especially when it comes to use of updated tools to analyze issues related to trade negotiations. There is overdependence on a very few resource persons. We need to have a pool of negotiators with practical skills. Existing training academies can revisit their curricula and include additional courses/sessions/contents related to LDC graduation and negotiations and cover the critical issues in a more in-depth manner. Looking at international best practices in this regard could be helpful.
We may also explore possible international resources that can facilitate capacity building in LDC graduation-related negotiation skills. For example, The UN-CDP is piloting an enhanced graduation support facility, specifically designed to assist graduating countries in their negotiations with major trading and development partners. The Asia-Pacific regional office of the UN is also implementing a capacity-building programme in the form of an online tool that helps prepare government officials for trade negotiations. One of the key features of the Trade Intelligence and Negotiation Adviser tool is dedicated to supporting LDC graduation-related negotiations. The GoB has already made use of this tool in conducting a feasibility study for a trade agreement with India. Bangladesh must continue to prioritise the utilisation of available support toward building negotiation capacities of key stakeholders from the public and private sectors
So far, the GoB has been hailed for its proactiveness in preparing the country for graduation. However, much work needs to be done in order to formulate a consolidated strategy to facilitate effective engagement in negotiations in the critical areas affected by graduation. There is a demand for new generation civil servants and private sector representatives to be more agile, forthcoming and organised during negotiations. The UN-CDP ex-ante impact assessment of Bangladesh's graduation reveals that government officials were still alarmed regarding the capacity constraints in developing negotiation strategies and undertaking actual negotiations. Private sector representatives also raised concerns regarding weak negotiating capacities of exporters in securing better prices.
Given the significant magnitude of surrendering LDC-specific ISMs for Bangladesh, strongly negotiated stances are vital to secure extensions for the transition period of preferences, as well as the best alternative deals beyond the LDC status. Finally, the multifaceted impact of graduation warrants a coordinated approach among different ministries, and between the public and private sectors. With only four years left till effective graduation, the time is critical for the government and its partners to come together and facilitate the strengthening of dedicated negotiation capacities as an integral component of the country's smooth transition strategy.
Dr. Nazneen Ahmed is the Country Economist of United Nations Development Programme (UNDP), Bangladesh. [email protected]
Sarah Sabin Khan is a research officer of UNDP, Bangladesh. [email protected]
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