LDC graduation: Govt proposes duty cut, change in trade rules

In the budget for FY26, the government has proposed reducing import duties on certain goods and amending trade rules to enhance competitiveness in preparation for the country's impending graduation from the list of least developed countries (LDCs).

However, economists and industry leaders argue that the measures are insufficient to tackle the multifaceted challenges that lie ahead.

Beyond the implications of LDC graduation, global disruptions such as the Russia-Ukraine war, instability in the Middle East, and retaliatory tariffs from the US, demand a thorough reassessment of Bangladesh's existing tariff structure.

To this end, the government has proposed reorganising the current six-tier customs duty system by introducing a new 3 percent tier and adding a 40 percent supplementary duty slab to the existing twelve-tier structure.

As part of broader trade reforms and in preparation for tariff negotiations with the US, import duties on 110 products are proposed to be eliminated, while duties on 65 products are to be reduced.

Additionally, supplementary duties on nine products will be fully withdrawn and those on 442 others will be reduced. These measures aim to ease the tax burden and minimise anti-export bias.

Essential goods will remain unaffected, with zero tariff rates retained for 52 items, including food staples, fertilisers, seeds, life-saving medicines, cotton, and key industrial raw materials.

Duty concessions are also proposed to be expanded for the import of raw materials used in all types of pharmaceutical production, including cancer drugs and active pharmaceutical ingredients.

To support local manufacture of agricultural machinery, tariffs on parts used to manufacture combined harvesters will be reduced.

To streamline business operations, new systems, namely the "Central Bonded Warehouse" and "Free Zone Bonded Warehouse", have been introduced to simplify bond management, cutting delays in raw material imports for export-oriented industries.

Recognising the need to rationalise the tariff regime post-graduation, the budget proposes the elimination of all existing tariff values.

Minimum values on 84 products will be withdrawn, while the minimum value for 23 products will be revised upward to bring them in line with realistic benchmarks, marking progress toward abolishing minimum value practices in the post-LDC era.

Despite these steps, Dhaka University economics Professor Selim Raihan said the proposed measures fall short of adequately preparing the country for LDC graduation.

"There is still uncertainty in the investment climate and overall business environment," he said. "Preparations remain uneven, and without stronger measures, the country may face significant challenges post-graduation."

Raihan, also executive director of the South Asian Network on Economic Modeling, added that the proposed budget lacks a roadmap for alternative support mechanisms for export-oriented sectors after the withdrawal of cash subsidies, even though the National Tariff Policy outlines potential alternatives. "Such support should not be limited to a few sectors that are already benefiting," he added.

Mahmud Hasan Khan, president-elect of the Bangladesh Garment Manufacturers and Exporters Association, echoed these concerns.

He said while the tariff adjustments are a step in the right direction, they are insufficient.

He urged the government to continue cash subsidies for export sectors through the transition and to extend them for three years beyond graduation. He also proposed reducing the source tax on exports from 1 percent to 0.75 percent to maintain competitiveness.

Bangladesh is scheduled to graduate to developing country status on November 24, 2026, having met all three criteria set by the United Nations Committee for Development Policy.

This will bring an end to LDC-related trade privileges, which currently cover 73 percent of Bangladesh's exports.

Studies estimate that without countermeasures, the country could lose up to 14 percent of its annual exports, amounting to nearly $8 billion.

To cushion the impact, the government is pursuing preferential trade deals, including free trade agreements, economic partnership agreements, preferential trade agreements, and Comprehensive Economic Partnership Agreements with key partners such as Japan, India, China, South Korea, and Indonesia.