New UK trade scheme to ease Bangladesh’s LDC graduation

All Bangladeshi exports will continue to get duty-free access to the United Kingdom until 2026 when the country will make the status graduation from a least developed to a developing nation. 

After the graduation, 98 per cent of Bangladesh's products will be eligible for the benefit, according to a new trading scheme announced by the UK on Tuesday.

Garments, which make up 82 per cent of Bangladesh's total annual exports, are among the items set to enjoy the zero-duty entry benefit after the graduation, said the British high commission in Dhaka yesterday.

Analysts view it to be more beneficial for Bangladesh compared to a new scheme under consideration of the European Union.

The disclosure comes as the UK, the third biggest export destination for Bangladesh, announced a new scheme, "Developing Countries Trading Scheme (DCTS)", in place of the existing Generalised Scheme of Preferences (GSP) launched in January last year.

The UK largely replicated the European Union's GSP that provides duty-free, quota-free entry to all good except arms from the least developed countries (LDCs).

Bangladesh enjoys a trade surplus with the UK as its exports more goods than what it imports from there.

Though the latest import data from the UK is yet to be available, the Export Promotion Bureau says Bangladesh exported goods worth $4.8 billion in fiscal year 2021-22 to the island nation in northwestern Europe.

Under the DCTS, the UK is going to introduce a new list of "more liberal Product Specific Rules" (PSRs) designed solely for the LDCs.

It said the LDCs already receive duty-free and quota-free access for all their products, other than arms and ammunition.

Improvements for the LDCs are being enabled in the DCTS through the simplification of the Rules of Origins (RoOs) by simplifying and liberalising the PSRs.

This will make it easier for the LDCs to produce goods using components from other countries without losing duty-free status.

The UK, however, said the DCTS retains powers to suspend a country on grounds of human and labour rights violations and broadens these powers to include violations in relation to anti-corruption, climate change and environment conventions.

The new scheme makes it easier for the LDCs to participate in regional and global supply chains serving the UK, according to a press release.

The new scheme, which will come into effect in early 2023, offers developing countries one of the most generous sets of trading preferences of any country in the world, said the UK's Department for International Trade.

It said the DCTS was a major milestone in growing free and fair trade with developing nations and applies to 65 countries, offering lower tariffs and simpler rules of origin requirements for exporting to the UK.

"The scheme helps countries to diversify their exports and grow their economies, while British households and businesses benefit from lower prices and more choice," said the statement.

"This new scheme demonstrates the UK's commitment to strengthening a long-term and mutually beneficial economic relationship with Bangladesh," said the British high commission.

British High Commissioner to Bangladesh Robert Chatterton Dickson said the DCTS would harness the power of trade and the private sector to enable developing countries like Bangladesh to grow and prosper.

"We look forward to increasing trade in both directions as an increasingly prosperous Bangladesh buys more high-quality UK goods and services," he said.

Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), said the introduction of the DCTS formally dispels uncertainty over whether Bangladesh would continue to get duty benefits to the UK market after Brexit.

"From my preliminary assessment, it seems to be a very good scheme. They have made it quite development-friendly," he said.

Some suspension conditions are similar to the EU's GSP Plus scheme that wants improvements in the rights situation, said Rahman.

However, the UK's requirement related to RoOs is more liberal, he said.

The EU's new GSP scheme seeks to impose a threshold, that products under a chapter of "Harmonised Tariff Schedule" will lose duty benefit if total shipments from a country exceed 6 per cent of the bloc's total imports pertaining to the chapter, he said.

The new 10-year GSP scheme of the EU is going to be effective from 2024 onwards.

In case of the UK's DCTS, product specific rules have been introduced which will be beneficial for Bangladesh, he said.

MA Razzaque, research director of the Policy Research Institute of Bangladesh, said because of the inclusion of various generous features, the DCTS would greatly help Bangladesh make a smooth graduation.

First of all, as had been communicated earlier, the UK will continue to provide a three-year additional transition period for the graduating LDCs, enabling Bangladesh to retain its current level of market access until 2029.

After the graduation, as per the provisions specified in the DCTS, Bangladesh will be considered one of the "lower-middle income vulnerable country" and thereby qualifying for a "DCTS Enhanced Preferences".

A country's vulnerability will be measured by a simple assessment of its share of imports to the UK under 7 of the largest GSP categories.

If those imports from a GSP beneficiary represent more than 75 per cent of its total shipments to the UK, the country will be determined as economically vulnerable, he said.

Given Bangladesh's current reliance on apparel items alone, Bangladesh will qualify for the "DCTS Enhanced Preferences".

"What is, however, worth noting is that the UK will allow all economically vulnerable lower-middle income countries access DCTS Enhanced Preferences by removing the requirement for countries to ratify and effectively implement certain international conventions," said Razzaque.

"This is a departure from the EU provisions of ratification and implementation of as many as 32 international conventions as a precondition for GSP+ market access," he said.

He said previously under the EU GSP+ scheme and the equivalent UK Enhanced Framework, a beneficiary country would receive duty-free access to 66 per cent of tariff lines.

But the UK, under its new DCTS, will either lower or remove tariffs on an additional 156 products, he added.

"Most importantly, while under the EU draft GSP proposal for 2024-34, Bangladesh's apparel products after LDC graduation would almost certainly be subject to safeguard measures, making those items ineligible for duty-free market access, the UK DCTS does not include any such provision," said Razzaque.

"Therefore, even after the LDC graduation, Bangladesh's exports of garment items to the UK will continue to benefit from duty-free market access," he said.