The Financial Express

LDC graduation and after

| Updated: March 09, 2021 20:37:43

LDC graduation and after

It was a forgone conclusion that Bangladesh would graduate out of least developed countries (LDC) after the remaining formality was completed in February this year. Now that the official confirmation in this regard has been made by the UN Committee on Development Policy (CDP). Bangladesh can congratulate itself, taking pride on its performance.

It has been long and eventful journey, starting in 1975 when it joint the grouping known as LDC that numbered 25 at the time and went on to include 47 in 2018. The qualifying criteria of low income and severe structural impediments to sustainable development were anything but enviable. But the level LDC came with a few important advantages that were like a lifeline for the member countries. These included duty free, quota free access to export markets of non-LDC countries, particularly developed ones; access to loans at concessionary rate from bi-lateral and multi-lateral institutions and waiver of the restrictions of intellectual property rights in respect of industries like pharmaceuticals. Bangladesh's success story as a 'test case of development' owes a great deal to these international support measures (ISMS) accorded to LDCs. Its attainment of lower middle income status in 2015 and the prospect of reaching the next stage of middle income country by the end of 2021 has been made possible by the ISMS that it enjoyed since 1975 as a LDC. It is the ISMS again which have helped Bangladesh qualify graduating out of the LDC status by satisfying the three eligibility criteria: (a) minimum per capita income (b) human development index and (c) economic vulnerability index. On receipt of the report from the Second Review Committee, the CDP is now going to recommend to the UN Economic and Social Council (ECOSOC) that Bangladesh be given five years instead of three because of the pandemic to prepare for the transition into a developing country in 2026. Bangladesh thus has five years as transition period to make all necessary adjustments to the new status of a developing country. It is a period which is neither too long in view of the pandemic, nor too short given the advance information.

What the adjustments for the new status involve are getting used to living without the international support measures that Bangladesh enjoyed over the last forty five years. It is a daunting challenge, to say the least. Having been used to all the concessions in its international transactions, Bangladesh now has to compete as per with all the other developing and developed countries in terms of trade, finance and investments. How successful will be its performance in the 'brave new world', will depend on two factors. Firstly, the confidence and strength gained by Bangladesh as it travelled the long road along the development superhighway as a LDC. Secondly, what bi-lateral arrangements it can make through negotiations to enjoy benefits in a win-win situation. The first will enable the country to face competition with others on the basis of comparative advantage. This will no longer be with the help of cheap of labour alone. Upgradation of skills and use of new technology will be at a premium for Bangladesh to compete with other countries with higher productivity in the sectors where goods will be traded. Already quite a few of our industrial products have become so competitive in foreign markets that trading partners are using non-tariff barriers to stop their imports. In imports also many of the items that used to be made in foreign countries are being produced in Bangladesh in such quantity and so high quality that foreign products are losing out in competitions. How far our exports thrive and imports shrink in volume will be a test of the economic strength of the country, particularly the sectors concern. To ensure their continuing competitiveness a better and stronger enabling environment has to be provided by the government than before. These will consist of improved infrastructures, uninterrupted supply of gas, electricity and water at reasonable rates and with no rent-seeking, a friendly tax regime and minimum of red-tapism. Ease of doing business will be the greatest spur to the economy that has already belt up a momentum on the back of private initiative. The strategy of private sector-led growth should be given all out support now by the government as was done in the case of the Newly Industrialized Economist (NIEs) of East Asia.

Increasing the competitiveness of the economy will not be enough in a world where everyone else is doing the same though in varying degrees. Therefore, Bangladesh will need to enter into negotiations with other developed and developing countries and with economic bloc like EU, ASEAN etc. to have mutually beneficial terms in trade, investment, finance and technology transfer. The competitive edge of Bangladesh will not be enough to get the better of other countries. If not concessions, better terms will have to be obtained on the basis of give and take. Whether we will end up giving more and taking less will depend on our negotiating skill. So long we negotiated from a position of strength in the sense that we were asking for concessionary terms as a matter of right, whether for loans or access to markets. Now, after graduation from LDC, negotiation will be a different ball game. Our negotiators will be bargaining with their foreign counterparts for better terms and so will they. Being a new kind of negotiation for our bureaucrats, detailed knowledge and improved skills will have to be brought to bear on the deliberations that will often verge on bargaining.

The greatest and immediate challenge after graduation will be in the garments and the pharmaceutical sectors of Bangladesh. Industries in both the sectors now enjoy great benefits because of the LDC status of the country. Garment industries enjoy duty free and quota free access to the markets of almost all developed countries except America. The largest buyer of garments is EU and it has given the lost liberal of concessions to Bangladesh garments exporters so far which will not be available after the graduation. The EU's Generalized System of Preferences (GSP) has three arrangements: (a) general arrangement (b) a special incentive arrangement for sustainable environment and good governance (GSP+) and (c) and special arrangement for LDC. After graduation, Bangladesh will not be eligible for GSP under the third arrangement. As regards the second, EU is not satisfied that Bangladesh has made the conditions under it, particularly for good governance. Bangladesh will have to take measures immediately to promote good governance as perceived by EU so that it can avail of GSP+ under the second arrangement. With five years to kick in the developing status, there is enough time to fine-tune the good governance criteria and related conditionality's. If Bangladesh can satisfy EU in this regard our garment exports will get duty free access to 66 per cent of EU tariff lines. Bangladesh has a negotiating space under this arrangement as it meets half of the conditions. The other half relate to ratification of 27 international conventions in terms of human rights, labor rights, and minimum value addition in garments to the tune of 50 per cent. Failing to avail of the second arrangement for GSP of EU, Bangladesh can go for the first i.e. the Generalized Preference which allows higher but preferential tariff.

Given the uncertainty and complexity of getting concessions under the first and second arrangements of GSP offered by EU, it seems a better gambit after graduation will be to negotiate a free trade agreement with EU. Bi-lateral free trade agreement as an alternative to GSP preference has already been considered as an option by the government of Bangladesh. Ministry of Finance prepared a list of countries in 2018 with which it thought free trade agreement (FTA) can be concluded and gave the list to the Ministry of Commerce. The latter reportedly conducted a feasibility study of the subject. According to reports, the Ministry of Commerce has decided the hold consultations with stakeholders on the implications of FTA. As of now the private sector is reportedly opposed to FTA as it will involved lowering of import duty, that will allow foreign goods in the country. Lowering of import duty has also been opposed by the revenue collecting authorities on the ground that it will reduce the volume of revenue collection. A compromise will have to be found over this issue as there are not many options available to Bangladesh to make adjustments for the new global context after graduation.  Moreover, when other erstwhile LDC countries including Vietnam are happy with bi-lateral trade agreements, particularly with EU there is no reason why Bangladesh will have a different experience.

The problem of pharmaceutical industries is less intractable. It can be resolved through mechanisms like joint investment by Bangladeshi companies with foreign firms owning proprietary rights of the patents. But negotiations should start immediately lest the foreign firms enter into arrangements with neighboring countries offering similar advantages.

Finally, in respect of concessionary loans, Bangladesh is already in the midst of negotiations with multi-lateral institutions like World Bank for hard loans. The strong foreign exchange reserve position of the country will not make it difficult to service debt at market rates.

To sum up, there is no need to feel as if an emergency has appeared all on a sudden catching us on the back foot. All this was foreseen and some home work has already been done. If taken in earnest, preparations during the transition period may not find the country ill at ease as it rubs soldiers with other developing countries.


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