LDC graduation and market access challenge

Ali Ahmed and Nesar Ahmed | Published: February 09, 2019 21:10:53 | Updated: February 12, 2019 20:52:44

Bangladesh has met all the three criteria for graduating from the Least Developed Country (LDC) status and if everything goes right, will finally be graduated in 2024. After graduation, the country will no longer be entitled to enjoy any LDC-specific special benefits from the international community or system.

As an LDC, Bangladesh is currently entitled to enjoy various special facilities, which can be grouped into three main areas: (i) international trade; (ii) development assistance, including development financing and technical cooperation; and (iii) general support and other forms of assistance.

The main categories of special measures related to international trade for LDCs are: (a) preferential market access, (b) Special & Differential Treatments (S&DTs) under the World Trade Organisation (WTO), and (c) trade-related capacity-building. Various preferential market access facilities are available for the LDCs including (i) Duty-free & quota-free (DFQF) market access, (ii) GSP (Generalised System or Scheme of Preferences) facilities, (iii) Special market access facilities for LDC members in various RTAs (Regional Trade Agreements) like SAFTA, APTA etc.

In the WTO system and Agreements, various S&DTs are available for developing countries and LDCs. Currently, around 140 such S&DTs are available, among which some are exclusively for the LDCs. Again, an important initiative in support of the LDCs is the Enhanced Integrated Framework (EIF) of the WTO. The EIF is a multi-donor programme, which supports LDCs to increase their participation in the international trading system through building trade-related capacity, including addressing critical supply-side constraints.

Though Bangladesh is entitled to enjoy all the special facilities mentioned above, it has been benefiting most from two facilities. First one is the preferential market access. Among the various LDC-specific facilities, it is considered as the most important for Bangladesh. The country has been using the preferential market access, including DFQF facilities. It has currently been enjoying DFQF facilities in all the developed countries except the United States of America (USA). However, the greatest benefit comes from the European Union (EU) market. Along with the developed countries, many developing countries, including India, China and South Korea, also provide DFQF market access to the LDCs, including Bangladesh, for a wide range of products. As a result, around 70 per cent of Bangladesh's export is carried on under the DFQF facilities. This is a huge benefit, and is one of the main reasons why export earnings of Bangladesh have steadily been increasing. Annual merchandise export earnings reached to US$36.67 billion in FY18 from US$112.17 billion in FY07.

Second one is exemptions in Trade-Related Intellectual Property Rights (TRIPS). Under the WTO TRIPS Agreement, LDCs have been exempted from providing protection to IPRs (Intellectual Property Rights) until July 01, 2021, in general, and until January 01, 2033 for pharmaceutical products, in particular. Bangladesh has been benefiting from the TRIPS exemptions, particularly from the exemption relating to pharmaceutical products. It has exempted the LDCs from providing patent protection for medicines. Bangladesh has been able to make use of this exemption very effectively. As a result, pharmaceutical industry of the country is now able to meet more than 95 per cent of domestic requirements and also to export medicine in many countries around the world. The most significant factor is that due to exemption of patent protection, price of medicines in Bangladesh is comparatively low and affordable, which has provided access to essential medicines and thereby bringing enormous benefits to the citizens of the country.

CHALLENGES AND WAY FORWARD: After graduation from the LDC status in 2024, Bangladesh will no longer be entitled to avail itself of the LDC-specific S&DTs mentioned above. As a result, it will fall in a more competitive situation in international trade. Along with losing various special facilities, some obligations, like IPR obligations under the TRIPS Agreement, will become mandatory for Bangladesh.

In order to face the post-LDC challenges, some actions or initiatives may be considered by the concerned authorities.

First, as  EU is the largest export destination for Bangladesh, initiatives should be taken to achieve GSP+ facility under the EU GSP when EBA (Everything but Arms) facilities will not be available after 2027 (as of now, EU will continue to provide facilities under the EBA scheme for an additional three years after graduation).

Under the GSP+ Scheme, EU provides duty-free facilities to 66 per cent of the total products. However, for achieving GSP+ status, a country needs to fulfil some requirements. Important requirements, among others, are fulfilling 'vulnerability' criteria and ratification of 27 International Conventions (Seven UN Conventions on human rights, eight ILO Conventions on labour rights, eight conventions on environment protection and four conventions on good governance). In this regard, a country is considered 'vulnerable' due to a low level of economic diversification, and a low level of integration within the international economy.

Annex VII to the EU GSP Regulation also provides two numerical criteria to determine 'vulnerability'. First, exports under the EU GSP of the seven largest sections of products, as mentioned in the EU GSP Regulation, from a country must represent more than 75 per cent of the country's total exports under the EU GSP. Secondly, the country's exports under the EU GSP (EBA Scheme in Bangladsesh case) must represent less than 6.5 per cent of the value of the EU's total GSP imports from all GSP beneficiaries.

Bangladesh does fulfil the first criterion of vulnerability as the ready-made garment (RMG) sector alone accounts for more than the stipulated threshold by the EU. RMG's share in total export stood at 83.50 per cent in FY18. But, Bangladesh does not currently fulfil the second criterion as, according to the latest report generated in the EU, Bangladesh's share of total EU imports under GSP is around 9.0 per cent. It is going to be a serious obstacle, because Bangladesh already exports 9.0 per cent and is expected to do even more by the time graduation really takes place. For Pakistan and Sri Lanka, moving to GSP+ was easier as they exported, and still continue to export, less than this 6.5 per cent threshold. As things now stand and as the prospect appears to be, it would not be possible for Bangladesh to avail itself of the facilities under GSP+ Scheme unless the EU threshold is raised to a level that Bangladesh may export within that limit.

In the matter of ratification of the 27 international conventions, Bangladesh ratified all the conventions except the minimum age convention of the International Labour Organisation (ILO). So, these points need to be taken into consideration in case of pursuing GSP+ facility under the EU-GSP+ Scheme after graduation.

Second, Free Trade Agreement (FTA) or Regional Trade Agreement (RTA) with potential trading partners may be concluded for securing better market access. In this connection, activities relating to diversification of products and markets may be further streamlined and strengthened; and all compliance-related activities, such as in labour, workplace safety etc. need to be more strengthened as these issues will come more into focus and strict scrutiny in the post-LDC era.

Third, overall competitiveness needs to be enhanced by improving business climate, increasing productivity, building necessary infrastructure, and establishing modern trade facilitation system to reduce cost of production as well as the cost of doing business. 

Fourth, IPR regime needs to be improved in terms of both legal and enforcement as providing and ensuring IPR protection will become mandatory for Bangladesh after graduation.

Ali Ahmed, a former Member (Customs) of the National Board of Revenue (NBR), now works as the Chief Executive Officer (CEO) at the Bangladesh Foreign Trade Institute (BFTI). aahmed48@gmail.com

Nesar Ahmed, a former Joint Secretary of the Ministry of Commerce, now works as the Director at the BFTI.

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