In 1971, the UN General Assembly officially established the concept of Least Developed Countries (LDCs) and agreed that these countries would receive special benefits in the global market.

There are specific criteria that, if fulfilled, allow LDCs to graduate to Developing Country status. These criteria are: a per capita gross national income (GNI) of at least USD 1,230, an economic vulnerability index of less than 32, and a human assets index of at least 66. If a country meets these criteria in two consecutive triennial reviews, the UN recommends its graduation from LDC status.

Since 1971, five countries have graduated from LDC status: Botswana, Cabo Verde, Maldives, Samoa, and Equatorial Guinea. For Bangladesh, the last review was held in 2018, during which its GNI per capita was USD 1,274, its economic vulnerability index was 25.2, and its human assets index was 73.2. Consequently, Bangladesh is set to graduate from its LDC status.

While this indicates significant economic progress, after 2024, and a grace period extending to 2029, Bangladesh will no longer enjoy LDC-specific benefits. We are now four years away from this deadline.

The most critical of these benefits is the duty-free export of Bangladeshi goods to the European Union (EU). Losing this privilege will place Bangladesh in direct competition with other garment-producing countries. Currently, Bangladesh enjoys duty-free access to the EU under its Generalised System of Preferences (GSP) scheme. After 2029, as a middle-income country, Bangladesh’s only path to duty-free access to the EU will be through the GSP-plus scheme, which comes with additional challenges.

To qualify for GSP-plus, a country must meet two vulnerability criteria and ratify 27 international conventions. While Bangladesh has ratified these conventions, it has only met one of the vulnerability criteria. The first criterion requires that exports under the EU GSP of the country’s seven largest products represent more than 70% of its total exports. Bangladesh meets this criterion, with exports representing about 83%. However, the second criterion requires that a country’s three-year average export under the EU GSP accounts for less than 6.5% of the EU’s total GSP imports from all beneficiaries. Bangladesh exceeds this limit, as its figure stands at approximately 9%.

Moreover, GSP-plus requires a two-stage transformation process - from yarn to fabric, and then fabric to garments - whereas, under GSP, only a one-stage transformation is required. Since Bangladesh still imports around 45% to 50% of its fabric, it may not be able to fully qualify for GSP-plus benefits.

So, what is the way forward? While Bangladesh needs the EU as a market, the EU also relies on Bangladesh, as it is the second-largest sourcing destination after China. If Bangladesh effectively communicates its unique circumstances, the EU might consider modifying some GSP-plus requirements. For instance, in the case of Pakistan, the EU increased the second vulnerability threshold from 3% to 6.5% to accommodate its realities.

To achieve such changes, Bangladesh’s diplomats and embassies in Brussels must actively engage in dialogue with EU policymakers.

As a contingency, Bangladesh should diversify its export markets beyond traditional destinations like the USA and Europe. If GSP-plus benefits are not secured, exports to non-traditional markets can help mitigate potential losses. Instead of pursuing Free Trade Agreements (FTAs), Bangladesh could focus on Preferential Trade Agreements (PTAs) with key export destinations, allowing for tailored negotiations on tariff structures.

Certain export markets will remain unaffected by LDC graduation. For instance, the USA does not currently provide duty-free access, so there will be no change. The UK, under its Developing Countries Trading Scheme (DCTS), and Australia, under the Australian System of Tariff Preferences (ASTP), will continue to offer duty-free access post-2026.

Efforts should also be intensified to strengthen trade relations with countries like Canada and Germany while simultaneously enhancing domestic industries. Bangladesh needs to focus on vertical integration by developing its spinning, textile, and garment industries to ensure self-sufficiency in backward linkages and meet the two-stage transformation requirement.

Challenges at home, however, persist. The Bangladeshi textile industry is facing a gas crisis, with factories not receiving uninterrupted gas supplies. Additionally, new factories have not been granted gas connections for a long time. Ensuring energy security must therefore be a top priority for the government.

If Bangladesh works diligently over the next four years, the apparel industry - which is the lifeline of the country’s economy - can not only survive but thrive. Conversely, if the country remains complacent, the apparel sector will face a severe blow, which could have devastating consequences for the national economy.

The time to act is now. Delays will only exacerbate the challenges ahead.

Omar Gias

ARTICLES BY OMAR GIAS

Omar Gias

ARTICLES BY OMAR GIAS