Bangladesh looking to stay competitive after LDC graduation

The government will soon find an alternative for cash subsidies on export so that local exporters can remain competitive even after Bangladesh graduates from the list of least developed countries (LDCs) in 2026, according to experts.

Besides, the government will introduce bonded warehouse facilities for at least 10 sectors with high export potential in order to keep their earnings unhurt after graduation.

These decisions were taken yesterday at a meeting of the National Committee on Exports, chaired by Prime Minister Sheikh Hasina at Gonobhaban in Dhaka.

Various ministers and their secretaries, senior officials of government agencies, and leaders of different businesses and trade bodies attended the meeting.

The meeting mainly focused on Bangladesh's preparedness for facing challenges in trade after graduation, when the country will no longer enjoy preferential trade benefits as an LDC.

As per rules set by the World Trade Organisation, the government of any developing or developed country cannot enjoy direct cash incentives on export.

So, the government will continue giving direct cash incentives up till 2026, after which the subsidy will be provided in other forms, Tapan Kanti Ghosh, senior secretary to the commerce ministry, told The Daily Star after the meeting.

"Most of the alternatives for cash subsidies in export sectors have to do with policy support," Ghosh said without elaborating further.

Last year, the government paid nearly $1 billion as cash incentives on export receipts.

To ensure that Bangladesh maintains its pace in export earnings after graduation, the government will launch bonded warehouse facilities for 10 sectors with high export potential, including ceramics, pharmaceuticals, agro-processing, plastic, leather and leather goods.

These sectors will get duty-free raw material imports under the bonded warehouse facility, which has been enjoyed by the garment sector for many years now to much success.

The commerce ministry has already extended the validity of import registration certificates and export registration certificates to five years instead of one year as businesses and international trading partners have long been urging for the automation and simplification of trade rules.

Moreover, the commerce ministry will issue a circular within a day or two for extending the validity of Rules of Origin certificates obtained from the Export Promotion Bureau (EPB) to five years from one year.

The certificate is mandatory for availing benefits under the Generalised System of Preferences (GSP). The EPB will issue five-year certifications for green industries while that of yellow industrial units will last two years.

The automation and simplification of trade is expected to help Bangladesh become more competitive in global trade after its LDC graduation.

The government has also been working on commencing full operations at all Special Economic Zones, Ghosh said.

As an LDC, more than 73 per cent of the country's international trade is conducted under the GSP facility in 38 countries.

This means that 73 per cent of Bangladesh's $52 billion earnings from merchandise exports in fiscal 2021-22 came under preferential trade benefits as an LDC.

But following LDC graduation, local exporters will face nearly 12 per cent duty on shipments to the EU if Bangladesh cannot obtain GSP plus benefits.

The EU has already confirmed that the trade bloc of 27 countries will continue providing the LDC trade benefit to Bangladesh until 2029 as they give three years as a grace period for graduates.

Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), demanded 10 per cent cash incentive on garment exports, including those made from imported manmade fibre (MMF), for five years so that local exporters can grab a bigger share of the roughly $750 billion global market for non-cotton products.

After five years, local textile millers will be able to make the MMF based yarn and then continuation of the incentive will not be required, he said.

Hassan also demanded the withdrawal of VAT and other taxes on the procurement and sourcing of recycled fabrics to be more competitive in the segment as demand for recycled garment items is on the rise globally.

The BGMEA chief then demanded source tax be reduced to 0.50 per cent from the existing 1.0 per cent.