Retaining duty-free access to EU market

While Bangladesh's preparation for graduation from the LDC (Least Development Country) status lacks on a few counts, as confirmed by a UN assessment, prompting the country to formally seek a three-year deferment to 2029, its rivals have clinched free trade agreement (FTA) deals with the European Union (EU). The EU-India and EU-Vietnam FTA can cause a fall in Bangladesh's export to the 27-member bloc by up to 36 per cent and for garment export this rate could be as high as 44 per cent. This grim prospect is no guesswork but an outcome of a research analysis by the Research and Policy Integration for Development (RAPID). Notably, the EU is the largest export market for Bangladesh knitwear and woven garment products. Indeed, aggressive trade policy by both India and Vietnam has set the alarm bell ringing for Bangladesh.
The EU FTAs with Vietnam and India will close the gap in tariff difference with Bangladesh or even eliminate it, Dr. MA Razzaque, chairman of RAPID, argues. In consequence, it will divert trade towards those two partner countries slicing Bangladesh's share. It will be particularly telling in the post-LDC graduation time. So the urgency for Bangladesh is to negotiate a FTA deal as early as possible. One example cited by Dr. Razzaque should confirm the dreaded prospect. Under the EU-Vietnam FTA (EVFTA), EU tariffs on Vietnam's export are progressively being reduced to zero by 2027. If both India and Vietnam enjoy such tariff facilities, both of them will be strong contenders to claim larger shares in the EU market. What is particularly worrying is that garments from Bangladesh will not get duty-free access to that market even if Bangladesh qualifies for the generalised system of preferences plus (GSP-plus) window due to the safeguard clause of the scheme.
Evidently, with the loss of such tariff facilities, Bangladesh will face a tough time after the extended three-year period of duty-free access ends. In that case, there is no alternative to starting negotiation on FTA facilities. Such a deal can limit the overall export decline to around 16 per cent with a contraction of garment export to 19 per cent, according to the research paper prepared by RAPID. Leaders of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) disclose that buyers have already started switching over to alternative sources. There will be no surprise if they look forward to sourcing products from India and Vietnam.
As the EU ambassador in Bangladesh, Michael Miller hinted recently, before starting a negotiation on trade facilities like FTA, Bangladesh has to expedite reforms in areas like non-tariff barriers, labour rights and improvement in the business environment. The good news is that the EU is ready to begin exploratory discussions on an FTA deal. So the ground work should be initiated immediately. At the same time, the rules of origin clause should also be made a subject of discussion. Besides, the garment industries should diversify its products in favour of value addition, preferably shifting to man-made fibre (MMF). The challenge before the country is quite daunting but informed negotiations can lead to relief from some of the complicated issues. A RAPID recommendation for development of technology, skills and new products through attracting foreign direct investment (FDI) will bolster resilience of the garment industry here.