European Union ( EU) to reconsider GSP facilities after Bangladesh’s graduation from LDC
September 21st, 2020 at 11:12 am
European Union ( EU) to reconsider GSP facilities after Bangladesh’s graduation from LDC

by Md Mazadul Hoque in Dhaka

Bangladesh, as a least developed country, enjoys a lot of facilities provided by the European Union (EU). The uncountable facilities came following the request by the Dhaka government to be promoted economically.

Especially, the 28-countries in European Union has extended facilities to Bangladesh through the contract styled “Generalized System of Preferences (GSP).” EU introduced GSP programs only for least developed and developing countries. The countries availing GSP facilities have truly been benefited much in terms of business expansion, no doubt.

Introduced in 1971, GSP program was designed by the European Union only to serve least-developed countries by giving trade-related facilities. GSP came as 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 .  

Bangladesh garments
Workers busy making cloths for the western buyers in Bangladesh garment factory

A couple of years back, EU delegation expressed their firm dissatisfaction over existing labor rights and indecent work environment. Many warning letters regarding labor issue from EU poured onto us after Rana plaza collapse. Bangladesh tried her best to comply their instructions issued from time to time. Timely feedback was also given. But, Bangladesh could not fully satisfy them and EU delegation sits with our concerned ministry to reach a fruitful discussion. Now, the time comes to go for negotiations held between the two sides. Bangladesh economy could suffer a lot if EU does not consider us. Proposals came from EU earlier saying that Bangladesh must create a good business climate. In light of proposal, Bangladesh performed better in many areas including labour rights issue.

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 three fold. In 2018, 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 published report. Bangladesh has been enjoying the zero-duty benefit on export to the EU under its Everything But Arms ( EBA), the name of EU’s Generalised System of Preferences ( GSP) since 1971. With the zero-duty benefit to the EU markets, Bangladesh turned into the second largest apparel exporter after China, grabbing 6.4 percent of the more than $460 billion global market share of apparel items. According to Export Promotion Bureau ( EPB),  in  2018-19 fiscal year, 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 online survey aiming to prepare a new trade benefit scheme for the poorer nations, including Bangladesh. Based on online survey that ended on o3 June of  this year,  EU will take a wise decision whether they will extend  GSP facilities or not.  The EU will give opportunity three years more to Bangladesh after it graduates from LDC club. If Bangladesh graduates in 2024, then it will get the trade benefit to the economic bloc up to 2027- reported The Financial Express, 23 May, 2020.   If it happens, Bangladesh might face hurdle to revamp corona-ravaged economy. So, the need for undertaking measures right now is a must. Diplomatic channels might have been used prior to taking decision by EU.

Novel coronavirus

The South Asian countries, including Bangladesh, might lose US$142 billion to $218 billion due to impact of novel coronavirus according to the Asian Development Bank. The global economy also could suffer a loss amounting to $ 5.8 – $8.8 trillion, equivalent to 6.4 to 9.7 percent of global GDP. The grim projection by ADB warns that Bangladesh, among other nations, hit hard by Covid-19 should take preventive measures for economic interest. Nevertheless, the number of new poor people in Bangladesh has risen alarmingly due to pandemic. Besides, unemployment rate has also been skyrocketing. Close to 64 million people in the informal sectors have lost their livelihoods within hours due to Covid-19 . What should be disclosed here that expatriates in great number started coming back from middle-eastern and other countries.  In view of scenario, the World Bank’s study said that Bangladesh inward remittances might fall by around 22 percent in 2020 following the ongoing global crisis caused by COVID-19 pandemic.

It is 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 side came following US-China trade war launched by Trump administration earlier. As diplomatic relations between Dhaka and Tokyo is very friendly, the efforts must be scaled up to attract all Japanese firms now in China. State–run Bangladesh Investment Development Authority ( BIDA) has to talk with Japanese entrepreneurs right now to welcome in Economic Zones ( EZs).  Concerned ministry should inform relocation plan of Japan to EU requesting them to enhance GSP facilities from 2027 to more.   

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 on GSP standard category, it has to face tough completion with advanced economies. So, I will request to EU 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 Covid-19. The economy was running fast with above 8.00 percent GDP growth rate. Bangladesh was emerged as world’s one of fastest growing economy. But, current pandemic vandalized all dreams taken by our visionary government earlier. The donor agencies and Bangladeshi- original think-tanks made grim projection about Bangladesh economy.  If Covid-19 sustains longer period, our economy will completely lose growth momentum, no doubt. In this circumstance, the EU should reconsider GSP facilities given to Bangladesh in view of humanitarian ground. As the objectives of GSP is to minimize poverty rate and to promote vulnerable economies, Bangladesh,  deserves the extension period of GSP facilities. The facilities should be extended by ten years instead of three years. Two recommendations from my side want to place here in this piece. Rules of Origins ( RoO) relaxation  and extension of trade benefit up to 2037 instead of 2027 are required right now to face post-Covid-19 impact.

The Writer is an analyst of economic affairs