LDC graduation poses a significant threat, with Bangladeshi exporters likely to bear a large share of tariff costs, as they may need to absorb 40 per cent of post-graduation tariffs to remain competitive in the European Union, according to a recent study.
After Bangladesh's graduation from the LDC category and the end of the transition period in 2029, the country will lose duty-free market access in the EU. Apparel exports could face a 12-percent tariff under "EU safeguard measures," while major competitors like Vietnam are expected to retain duty-free access.
The study, conducted by RAPID (Research and Development Integration for Development), also found that the unit value of Bangladesh's top apparel exports is consistently lower than that of major competitors in the EU market.
For the top ten apparel items, the average weighted price is about 36 per cent lower than that of China and Vietnam, according to the study titled "Assessing Tariff and Exchange Rate Pass-through in Bangladesh's Apparel Export Prices in the EU: LDC Graduation Implications for Bangladesh."
"Even Cambodia, another LDC, achieves a higher average price than Bangladesh," said Md Deen Islam, RAPID research director, while presenting the findings at a consultation event on Monday at the Department of Development Studies, Faculty of Social Sciences, Dhaka University.
RAPID Executive Director Dr M Abu Eusuf delivered the opening remarks, while Taiabur Rahman, dean of the faculty, national trade expert Md Munir Chowdhury, and BIDS senior research fellow Dr Badrun Nessa Ahmed, among others, spoke at the event.
Mr Islam noted that exporters are already operating on thin profit margins, leaving little room to absorb new tariff costs without significant financial strain. For every 10 per cent tariff imposed by the EU, Bangladeshi exporters will have to reduce pre-tariff prices by about 4.0 per cent to remain competitive.
The study also examined how exporters can adjust prices in response to exchange rate changes, highlighting that an appreciating taka has eroded competitiveness. Between 2012 and 2022, the taka strengthened significantly in real terms against the currencies of key rivals such as China, Vietnam, and Cambodia. This trend has progressively made Bangladeshi exports more expensive, adding pressure even before the tariff shock.
The woven sector is particularly vulnerable due to its heavy reliance on imported raw materials like fabrics. Mr Islam added that devaluation of the taka raises input costs, often offsetting potential benefits and limiting the ability to lower euro prices.
The study offered several recommendations, including intensifying diplomatic engagement with the EU to secure GSP Plus status and advocating for the removal or relaxation of safeguard clauses in the proposed new GSP regulation. It also suggested coordinating with other GSP beneficiary countries to lobby for favourable terms.
To address high import dependence in the woven sector, the study recommended strengthening backward linkages by incentivising domestic fabric production, dyeing, and finishing, attracting foreign partners with advanced technology, and offering targeted financing to firms that expand local sourcing.
Other recommendations included enhancing firm-level resilience and moving up the value chain by shifting from low-priced basics to higher-value apparel items and supporting investment in design, branding, and product development.
munni_fe@yahoo.com
