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The Financial Express

Extending GSP for post-LDC Bangladesh

| Updated: June 05, 2020 21:54:55


Extending GSP for post-LDC Bangladesh

Bangladesh, as a least developed country, enjoys a lot of facilities provided by the European Union (EU). These facilities came following the request made by our government to be promoted economically. Especially, the 28-country bloc, namely the European Union, has extended facilities to Bangladesh through the contract styled "Generalised System of Preferences (GSP)." EU introduced GSP programs only for least developed and developing countries. The countries availing GSP facilities have truly benefited much in terms of business expansion, no doubt.

Introduced in 1971, the GSP programme was designed by the European Union only to serve least-developed countries by giving trade-related facilities. The GSP came as a blessing for poor countries because many under-developed countries gained the ability to keep pace with developed nations by availing GSP facilities. Needless to say that Bangladesh is grateful to the EU in respect of becoming a trusted trading partner. 

A couple of years back, an EU delegation expressed their dissatisfaction over existing labour rights and indecent work environment. Many warning letters regarding the labour issue from the EU poured in after the Rana Plaza collapse. Bangladesh tried its best to comply with their instructions issued from time to time. Timely feedback was also given. But, Bangladesh could not fully satisfy them. Now, the time comes for negotiations between the two sides. Bangladesh's economy could suffer a lot, if the EU does not consider us. Proposals came from the EU earlier that Bangladesh should create a good business climate. In light of proposal, Bangladesh performed better in many areas including labour rights.

The EU is the key trading partner of Bangladesh and the second-largest source of FDI to Bangladesh. From 2008 to 2015, EU imports from Bangladesh have almost been threefold. In 2018, Everything But Arms (EBA) exports from Bangladesh to the EU amounted to €17.4 billion and approximately €2 billion in duties were saved in Bangladesh on an annual basis-according to a published report. Bangladesh has been enjoying the zero-duty benefit on export to the EU under its EBA since 1971. With the zero-duty benefit to the EU markets, Bangladesh turned into the second largest apparel exporter after China, grabbing 6.4 per cent of the more than $460 billion global market share of apparel items. According to Export Promotion Bureau ( EPB),  in the fiscal year 2018-19, Bangladesh exported apparel items worth $21.13 billion to the EU including the UK. In 2017-18, the amount was $ 19.62 billion and it was $ 17.75 billion in the fiscal year 2016-17.

A leading English language business daily reports that the European Union is carrying out an online survey aiming to prepare a new trade benefit scheme for the poorer nations, including Bangladesh. Based on the online survey, the EU will take a wise decision as to whether they will extend the GSP facilities or not.  The EU will give an opportunity for three years more to Bangladesh after it graduates from the LDC club. If Bangladesh graduates in 2024, then it will get trade benefit to the economic bloc up to 2027. The need for undertaking measures right now is a must. Diplomatic channels might have been used prior to taking a decision by the EU.

The south Asian countries, including Bangladesh, might lose US$142 billion to $218 billion due to impact of deadly coronavirus, the Asian Development Bank said recently. The global economy also could suffer a loss amounting to $ 5.8 - $8.8 trillion, equivalent to 6.4 to 9.7 per cent of global GDP. The grim projection by ADB warns that Bangladesh, among other nations, hit hard by Covid-19 should take preventive measures in economic interest. Nevertheless, the number of new poor people in Bangladesh has risen alarmingly due to pandemic. Besides, unemployment rate has also skyrocketed. Close to 64 million people engaged in informal sectors lost their livelihoods within hours due to Covid-19. Moreover, expatriates in a greater number started coming back from middle-eastern and other countries.  In view of this scenario, the World Bank's study said that Bangladesh's inward remittances might fall by around 22 per cent in 2020 following the ongoing global crisis caused by the Covid-19 pandemic.

It is a piece of happy news for Bangladesh that many Japanese companies operating in China have shown their keen interest to relocate their units to Bangladesh shortly. The relocation plan taken by Tokyo came following the US-China trade war launched by the Trump administration earlier. As diplomatic relations between Dhaka and Tokyo are very friendly, the efforts must be scaled up to lure Japanese firms into relocating their plants. State-run Bangladesh Investment Development Authority (BIDA) has to talk with Japanese entrepreneurs right now and welcome them in Economic Zones (EZs). The concerned ministry should inform the EU of relocation plan of Japan requesting them to enhance the GSP facilities beyond 2027.

There are three types of GSP facilities categorized by the EU- GSP standard, Everything But Arms ( EBA) and GSP plus. If Bangladesh, now availing EBA facilities, falls under the GSP standard category, it will face a tough competition with advanced economies. So, the EU should be requested to place Bangladesh in the EBA category considering the crisis moment of Covid-19. The countries, that are enjoying GSP plus facilities, have no good governance there.

There is no denying that our emerging economy began to fracture sharply from March this year after entering the Covid-19 phase. The economy was growing at a pace of above 8.00 per cent. Bangladesh emerged as world's one of fastest growing economies. But, current pandemic shattered all dreams. The donor agencies and Bangladeshi think-tanks made grim projection about economy. If Covid-19 sustains for a longer period, our economy will completely lose growth momentum, no doubt. Under the circumstances, the EU should consider GSP facilities given to Bangladesh on the humanitarian ground. As the objective of GSP is to cut the poverty rate and promote vulnerable economies, Bangladesh, hit hard by Covid-19, deserves the extension of GSP facilities. The facilities should be extended by ten years instead of three years. Two recommendations can be made here. Rules of Origin ( RoU) relaxation and extension of trade benefit up to 2037 instead of 2027 are required right now to face the Covid-19 impact.

The writer, an analyst of economic affairs, is currently serving at Social Islami Bank Ltd.
Email: mazadul1985@gmail.com

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