Bangladesh's struggle to make trade sustainable

Can the trade and environmental policies interact? If yes, what will be its influence on climate change, biodiversity loss, pollution, and global trade flows? The questions are not new, and the answer to the first question is a resounding 'yes': it is both possible and necessary to interact with trade and environmental policies to make trade sustainable. This potential offers a hopeful and optimistic outlook, as it is the use of techniques and processes in trade that are beneficial for the environment by reducing pollution and enhancing the optimal utilisation of resources. The World Trade Organisation (WTO) rules also allow members to adopt trade-related environmental measures, provided that these are not for protectionist purposes that distort free trade. WTO has a committee on trade and environment, which is the standing forum for dialogue among the members of the multilateral trade rule-making body on the 'impact of trade policies on the environment and of environment policies on trade.'

Although the WTO has no separate or dedicated agreement or set of rules on the environment or sustainable trade, a plurilateral initiative by several countries envisions a global trading system that protects and preserves the environment in accordance with sustainable development principles. Titled Trade and Environmental Sustainability Structured Discussions (TESSD), it was launched in 2020 to advance discussions on the intersection of trade and environmental sustainability. Currently, 79 WTO members are participating in discussions to develop a framework for sustainable trade.

Considering the importance of sustainable trade, various international organisations have also took initiatives to examine the diverse aspects of trade and sustainability. Some are also tracking how different countries are moving towards the green trade. The Hinrich Foundation is an organisation that has been working for almost a decade to publish an index of sustainable trade for selected economies, including Bangladesh. The foundation is an Asia-based philanthropic organisation dedicated to advancing mutually beneficial and sustainable global trade. Last month, it released the sixth edition of the Sustainable Trade Index with its partner, the International Institute for Management Development (IMD). IMD partnered with the Hinrich Foundation in 2022 to expand and enhance the index's comprehensiveness. Since then, the index has included 30 economies and is published annually. In the previous three indices, only 20 countries were included, and the publication was biennial.

The idea behind ranking different economies on trade sustainability is to gain a comprehensive understanding of how and what countries are doing to make trade more sustainable. This comprehensive understanding, which is crucial as there is no single model for achieving sustainable trade, is derived from examining the social, environmental, and economic benefits of international trade. The Hinrich-IMD Sustainable Trade Index 2025 evaluates how 30 economies navigate the intricate interplay between economic growth, social inclusion, and environmental stewardship within the global trade system. These 30 economies cover around three-fourths of the world's population and 80 per cent of international trade.

The latest index showed that economies that reduce reliance on natural resource exports have performed better in terms of overall sustainability in trade. The analysis of the index showed that mounting pressures across economic, societal, and environmental dimensions are reshaping traditional pathways to prosperity through trade. Moreover, economies are no longer aligning behind shared best practices, such as liberalisation, openness, or multilateralism; instead, they are operating in a fragmented world shaped by strategic divergence rather than consensus. It reflects the heightened uncertainty in the global economy and is primarily fuelled by US President Donald Trump's tariff war. In this connection, the report said: "Following President Trump's return to office, the United States dramatically increased tariffs to reindustrialise its economy. Other economies responded by doubling down on domestic industrial policies already underway." Against the backdrop, advancing the green trade becomes more challenging.

The index is based on three pillars: economic, societal and environmental and these are divided into 72 indicators in total. The first pillar assesses an economy's capacity to foster and sustain growth through participation in international trade. The second pillar captures the human dimensions that make trade sustainable over the long term. The third pillar encompasses various stages of integrating trade-driven growth with environmental stewardship among nations. The entire exercise is undoubtedly a complex task.

The United Kingdom (UK) topped the latest index, followed by New Zealand, which moved into second place, as the countries swapped rankings from the previous year. Australia and Singapore remained in third and fourth place, whereas South Korea and Hong Kong moved up to fifth and sixth, respectively, leaving Japan in seventh position. Canada remained in eighth place, and the US advanced one notch to ninth place from the previous year. China and India remained 16th and 23rd in the index, as in the last year.

Bangladesh, however, dropped to 26th position, which was 25th in last year's index, whereas its rank was 23rd in the 2023 index. It means the country's performance in making the trade sustainable has deteriorated or has not improved like its peers.

The index showed that although the country has improved its performance in cutting trade costs and stabilising exchange rates, it has deteriorated in removing tariff and non-tariff barriers and advancing trade liberalisation. Bangladesh has also fallen behind in monetary policy intervention, technological innovation and technological infrastructure. As a result, its economic pillar remained weak.

According to the index, Bangladesh performed better in the societal pillar due to some improvements in the sub-indices of political stability, forced labour, human trafficking, universal health coverage, and inequality. There is, however, little scope for complacency, as improvements in these areas are still small and, to some extent, fragile.

Again, except for a few sub-indices, such as energy consumption and wastewater treatment, Bangladesh's performance in most of the sub-indices of the environmental pillar remained unchanged. For instance, the country has made no progress on environmental standards in trade.

Some observations about Bangladesh in the analytical report of the index are noteworthy. For instance, under the trade legitimacy matrix, which depicts strategic models of inclusion, Bangladesh is placed under the growth-first model along with India and the Philippines. "Growth-first models incorporate countries like Bangladesh and India that pursue export-led development while their social protection mechanisms lag behind," said the report.

Under the trade realignment matrix, Bangladesh is placed at the intersection of low liberalisation and high tariffs, leading to protectionist pathways. "Countries like Bangladesh, China, and India, for instance, demonstrate how such economies use trade as part of industrial policy, maintaining control over their pace of integration to support domestic development goals," the report mentioned in this connection.

By summing up the findings and messages of the index, it can be said that Bangladesh needs to undertake some drastic reforms in the areas of economic and environmental policies to move towards green trade. At the same time, policymakers in the country need to address the social drawbacks and barriers to human development.

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