A Free Trade Agreement (FTA) signed between the European Union (EU) and India a week back and the reduction of US reciprocal tariff on India from 50 per cent to only 18 per cent have evidently heightened concerns in Bangladesh about safeguarding its trade preferences in the two major export markets. The concerns involve the duty-free access (under Everything but Arms or EBA, scheme) of its products, apparel to be specific, that Bangladesh is now entitled to as a least developed country (LDC) will expire in the case of EU market with its graduation in 2026. In that event, Bangladesh will be required to widen options to retain duty-free access to EU market, where 44 per cent of its exports are currently destined. But neighbouring India's tariff-free access of its garment products to the same (EU) market through FTA and the cut in US tariff on India do obviously pose a serious challenge to Bangladesh's prime export industry exactly at a time when it is going to navigate a critical post-LDC transitioning phase.
Understandably, appreciating the urgency of the situation, the Chief Adviser (CA), Dr Muhammad Yunus is learnt to have issued a directive to initiate FTA negotiations with the EU forthwith. As far as US market is concerned, the authorities concerned will have to work hard to lower further the existing reciprocal tariff rate at 20 per cent. Since FTA is a legally binding treaty that reduces or eliminates barriers to trade between two countries including tariffs, quotas, regulations, etc., Bangladesh should go ahead with such trade talks with the EU early to ensure that a new agreement is in place before arriving at the November 2029 tariff cliff, that is, the end of the three-year grace period (following Bangladesh's 2026 graduation) for preferential trade benefits with the EU.
The rationale behind negotiating an FTA is that, it helps countries under such agreement to focus on producing goods where they have a competitive advantage. For instance, Bangladesh has cheap labour that investors from the EU can take advantage of. What is more, such investments have the potential to create jobs and boost exports to advanced European markets. Also, due to removal of tariffs and other forms of trade barriers under FTA, Bangladesh will be able to import goods that are scarce or otherwise expensive to produce locally. But there is a caveat: FTA negotiations are complex and time-consuming. The EU-India FTA talks, for instance, have taken about two decades to come to a close recently. In this context, it is reassuring that the EU's Ambassador to Bangladesh, Michael Miller, expressed EU's readiness to bring investment and technology to Bangladesh and, to that end, he proposed organizing a EU-Bangladesh Business Forum to this effect in 2026. As expected, the EU ambassador, in this context, pointed out that Bangladesh needed to ensure a level playing field for the EU businesses for the purpose.
Such expression of goodwill on the part of the EU's representative is most welcome and Bangladesh would do well to build on such cooperation from friendly quarters. Towards building confidence for EU negotiations, the good news is that Bangladesh has already a template to work on. And that template is its recently concluded Economic Partnership Agreement (EPA) with Japan, the world's fourth largest economy. Notably, the benefits that might follow this agreement is that over 73,000 Bangladeshi products would henceforth enjoy duty-free access to Japan's market. It remains equally important for Bangladesh to get reduced tariff from the US since the latter is the largest importer of apparel produced by the former. Dhaka is set to sign a trade deal with Washington soon. The tariff issue must be addressed there.
