Bangladesh's exports to the United Kingdom are set to face stiff competition as Britain is preparing for its new tariff policy after leaving the European Union.
The tariff policy will come into force in January next, bringing duties of the products of many developed counties on par with developing nations, which can erode the competitive advantage Bangladesh now enjoys.
In a letter to commerce minister Tipu Munshi last week, the British High Commissioner in Dhaka Robert Chatterton Dickson issued such a warning.
The UK, which left the EU in January, is developing a new most favoured nation, MFN, tariff schedule, replacing the regional grouping's common tariff policy.
But the new tariff will not be applicable to goods coming from developing countries like Bangladesh, which are beneficiaries of the generalised system of preferences, or GSP.
Under the GSP, Bangladeshi goods continued to enjoy duty-free market access there.
To simplify the UK's tariff, the British government is considering removing the "nuisance tariffs," which are as low as 2.5 per cent.
With the removal of lower-band tariff, many goods of developing countries will have to compete with those coming from the developed countries as duty rate will turn into zero in both cases.
"…you will recognise that tariffs lowered for everyone may expose Bangladesh and other developing countries to more competition on some goods, where they previously had a competitive advantage," said the letter .
Britain is also considering rounding tariffs down to the nearest standardised band.
Tariffs currently under 20 per cent will be rounded to the nearest 2.5 per cent, which means the present tariffs of 19.2 per cent will come down to 17.5 per cent and from 12.3 per cent to 10 per cent.
Besides, tariffs currently more than 20 per cent and under 50 per cent will be rounded to the nearest 5.0 per cent. It means current tariffs of 48 per cent will be lowered to 45 per cent and from 22 per cent to 20 per cent.
Moreover, tariffs currently equal to and above 50 per cent will be rounded to the nearest 10 per cent, which means current tariffs of 68 per cent will go down to 60 per cent.
The UK will also remove tariffs on key raw materials and where it has zero or limited domestic production, thus essentially slashing the import costs.
The envoy has sought Bangladesh's opinion on the new arrangements for future bilateral trade relationship.
After receiving the letter, the minister has asked the officials to convene a stakeholder consultation on this issue.
Vice president of the Federation of Bangladesh Chambers of Commerce and Industry Siddiqur Rahman said Britain's new tariff policy will reinforce competition for goods from the developing countries.
"Goods of developing countries will face competition in terms of prices as the developed nations will enjoy competitive advantage due to the removal of lower-band tariffs," he told the FE on Friday.
"Our export is already facing trouble. The new competition will further deepen it," said Mr Rahman, a former president of the Bangladesh Garment Manufacturers and Exporters Association.
Analysts agree that lowering tariff means Bangladesh will face competition from the developed world exporters.
Research director of the Centre for Policy Dialogue, or CPD, Dr Khondaker Golam Moazzem said the UK is trying to prepare a unique tariff structure compared with the EU, thus making it liberal and further opening up its market.
Britain has lived up to its promise and kept the GSP facility for the poorer countries, he said.
Dr Moazzem said the bulk of Bangladeshi exports falls in the second slab of the UK's tariff structure ranging from 2.5 per cent to 20 per cent.
"As duties on this slab will also be lowered Bangladesh's export to the UK will be exposed to competition to some extent," he said.