Beyond Bangladesh's graduation from LDC

At a time when a high-level United Nations (UN) team arrives in Dhaka to discuss Bangladesh's progress for graduation from its least developed country (LDC) status to a developing nation, Japan brings off a tariff reform allowing continuation of the generalised system of preference (GSP) for the newly graduated ones for three more years. Countries like Bangladesh vying for the graduation will enjoy the grace period. Although the interim government insists that the graduation should maintain the timeline scheduled for November, 2026, economists and business leaders complain that the country is yet to be ready for the qualification and it should be deferred. At a meeting with the visiting UN delegation, the country's top business leaders sought five- to six-year delay for the graduation. In response, the UN team has asked for 'a detailed roadmap, outlining the country's preparation for graduation'. Another UN delegation scheduled to visit Dhaka in January will further assess the country's preparation for graduation.

Sure enough, the arguments for and against next year's scheduled graduation to a developing country have their merits. Bangladesh has GSP facilities with most of the countries considered destinations of the country's main product garment. However, the US, which is second to the European Union (EU) in terms of import from Bangladesh, does not allow this facility. Export to the EU amounted to $18.5 billion compared with $8.37 billion to the US in 2023-24 fiscal year. The figures for the fiscal year 2024-25 were $19.71 billion and $7.54 billion respectively. Japan's share in the import of garment from Bangladesh is estimated at $1.8 billion, accounting for 2.92 per cent of the latter's total export.

Compared to the exports to the EU and the single largest market of the US, Japan lies far below. But it is the gesture of preferential treatment that it grants to LDCs and the newly emerged countries that is highly significant. Japan had to change tariff law and inform the World Trade Organisation (WTO) of its decision. This move may inspire other countries to follow suit. For example, the LDC privileges China has agreed to extend to Bangladesh for two years may be further extended. Now the stands taken by the government and the private sector are clearly opposed to each other. The objection raised by businesses that the current macroeconomic stress, high bank interest rates, inflated or distorted growth data under the deposed government, years of loan scams, fallouts of the pandemic and Russia-Ukraine war have made the preparation for graduation untenable.

Business leaders have cited reasons convincingly. Indeed, there is no point falling into the middle-income or vulnerability trap. This means the country risks attaining a stage of development stagnation or, in a worse-case scenario, a reversal of progress. Right now Bangladesh, enjoys LDC facilities from 38 countries. But this does not mean, the country can steer clear of a global economic shock. World trade has changed so much after Trump's reciprocal tariff that economic and trade relations are now unpredictable. Hardly a country remains unaffected by the current business turmoil. But it is the smaller countries with limited or no trade diversification that are likely to suffer more from further trade disruptions. Political uncertainty in the country will not help the cause. A three-year grace period may not be enough for finding a solid ground under its feet.