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Retaining preferential market access after LDC graduation: Options and challenges for Bangladesh

| Updated: August 05, 2021 20:43:38

Retaining preferential market access after LDC graduation: Options and challenges for Bangladesh

According to the recent estimates of the WTO Secretariat, 71 per cent of Bangladesh's global exports  enter duty-free into countries that grant duty-free and quota free market access to least developed countries (LDCs). Additionally, around 2 per cent of Bangladesh's global export enter duty-free into the  partner countries of regional trading arrangement, which also provide duty free access to the LDC partners. In many cases, this access is granted with flexible rules of origin, which enable Bangladesh  to successfully utilise the preference. 

There is no doubt that loss of  this lucrative market access facility after graduation from LDC status will exert pressure on Bangladesh's export sector.   As per recommendation of the UNCDP  Bangladesh is set to graduate in 2026. However, exact date will be known when the UN General Assembly will take the decision on the recommendation in its  session to be held this year. So, five-year period is available for the government to  step up efforts for keeping the momentum of export after graduation. Increasing competitiveness of export through various policy reforms is obviously a desired option. However, ways for retaining the market access facilities and creating new market opportunities will be equally important to explore. There are various ways, though those are associated with numerous challenges.    

First, there is an option to pursue for a decision by the WTO for allowing duty-free access for a certain period  or gradually phase out such preferential  access within a certain period  for the graduated LDCs as per call of UN General Assembly Resolution. As of now, in response to the UN call the European  Union including the United Kingdom officially declared to  continue duty free access to the graduated LDCs for three years after graduation. No other preference granting countries have come forward with such decision.  Since a number of LDCs are already on the way to graduation and some have already met the criteria for the first time, there is a concern among the LDCs about the future loss of DFQF market access, which led  LDC group in Geneva  to make a submission to the WTO with a request to take decision to extend among others, the DFQF market access to the graduated LDCs for 12 years after graduation. The submission has already  got support from some members. However, key players in the WTO are yet to  express their opinion on the submission. Seemingly,  there is little possibility to have a decision during the Twelfth WTO Ministerial  Conference to be held in November 2021. However, a possibility to  create  special working group or dedicated special session of  any existing committee cannot be excluded. Nevertheless, it should be borne in mind that the WTO is now in existential crisis.  At the moment, it is very difficult to reach consensus on this issue, which is political in nature. There are other challenges as well. More than half of the LDCs are not  on way to graduation. Moreover, all graduated LDCs do not have significant effect  due to loss of preference. So, the major challenge  will be mobilising  all LDCs in the group, so that all LDCs equally advocate for the outcome. Besides, it is not certain that all developing countries will give support to this submission, since they compete with the LDCs in the world market. In this context, the opposition  from some developing countries while adopting the Hong Kong Ministerial decision on DFQF market access for LDCs should be borne in mind. Nevertheless, this path, though uncertain, should and must be pursued.

Second, since Bangladesh also enjoys special preferential access as an LDC under regional trading arrangements like SAFTA and APTA, it may be worthwhile to explore how such access may be continued after graduation, especially from India under SAFTA. SAFTA contains a provision to extend LDC preference to Maldives after graduation. Therefore, Bangladesh may explore  the possibility to extend  this facility to all graduated LDCs. However, institutional arrangement under SAFTA is non-functional  for a long time, the major challenge will be to make it functional and pursue for extension of facilities to  the graduated LDCs. This is a major challenge and realisation of this will be not easy.

Third, Bangladesh may also think to approach bilaterally to preference granting countries simultaneously with the effort in the WTO.  It may help to get support  of the development partners  for a positive decision in the WTO.  Besides, in case the WTO fails to reach consensus on the decision on extension of DFQF market access facilities to the graduated LDCs, arrangement may be made with individual development partners  to extend the facility to Bangladesh. Extension of DFQF market access  by China to Samoa after graduation is a reference in this regard.

Fourth,  GSP scheme of the European Union should be given special focus since export to the EU constitutes a major share in Bangladesh's global export. The GSP scheme of the EU contains GSP+ facility, which is targeted towards supporting countries with vulnerable economies through  providing duty free  market access to a wider range of products under  certain conditions.  The necessary conditions for availing the opportunity of GSP+ is that the beneficiary country is to be considered  vulnerable due to a lack of diversification (meaning seven highest performing sectors of a GSP-beneficiary country  constitute more than 75 per cent of  import of the EU from that country) and insufficient integration within the international trading system (meaning imports of products eligible for GSP+ benefit into the EU from that beneficiary country  are less than 7.4 per cent of value of the total imports of those products from all GSP beneficiary countries during  last three consecutive years). If these necessary conditions are fulfilled, a beneficiary country wiling to avail GPS+ benefit,  requires ratifying 15 core UN/ILO human and labour rights Conventions and 12 Conventions related to the environment and to governance principles with a condition that the most recently available conclusions of the monitoring bodies under those conventions (the 'relevant monitoring bodies') do not identify a serious failure to effectively implement any of those conventions.  As of now, Bangladesh meets the lack of diversification condition. However, import of products eligible for GSP+ benefit in the EU from Bangladesh is well above 7.4 per cent threshold. Thus, if  the EU  does make any change in vulnerability  criteria or  increase 7.4 per cent threshold significantly in the current review, it will not be possible for Bangladesh to be eligible for GSP+. Therefore, it is  necessary for Bangladesh to engage in discussion with the EU to pursue for changes in the vulnerability criteria. If the criteria  are changed in the forthcoming GSP programme in 2024 in a way that Bangladesh qualifies for GSP+ benefit, it will be necessary to assess the status of ratification  and implementation of 27 Conventions and take necessary action  before 2029 so that Bangladesh can apply for GSP+ benefit.

Fifth, Bangladesh may  engage in the Agreement on Free Trade  Area (FTA) with trading partners with reciprocal arrangement.  Engaging in FTA  requires  massive reform in trade, tariff  and investment policies, efforts for diversification of products and infrastructure, and human resource development for enhancing competitiveness of products, assessment of policies related to  services, investment, competition, intellectual property rights, government  procurement,  state trading enterprises, labour, environment etc and mobilising and developing of  a strong negotiating team.       

The ways discussed above are indicative ones. Any of these may work and there is no harm to move in line with the aforesaid approaches. If some of those approaches click, Bangladesh will be in a better position to meet challenges that  its export sector is very likely to face after graduation.

Dr Mostofa Abid Khan is a  trade specialist and former Member, Bangladesh Tariff and Trade Commission.

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