Prepare for EU trade shift

Bangladesh’s trade relations with the European Union (EU) are set to undergo the biggest transformation in decades, but the country may not be fully prepared to seize new opportunities and tackle emerging challenges, said MA Razzaque, chairman of the Research and Policy Integration for Development (RAPID).

“The next three to four years will reshape Bangladesh-EU trade relations in a way we have not seen in the past five decades. The key question is whether Bangladesh has the capacity to take advantage of these opportunities,” he said.

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Razzaque made the remarks at a seminar titled “The changing landscape of Bangladesh-EU trade relations: LDC graduation, preference erosion and intensifying competition”, jointly organised by RAPID and the Friedrich-Ebert-Stiftung (FES) in Dhaka yesterday.

He said Bangladesh’s trade relations with the 27-member bloc are entering a critical phase as the country prepares to graduate from the United Nations’ least developed country (LDC) category. At the same time, the EU is tightening trade rules and expanding free trade agreements with competing exporters.

Razzaque said Bangladesh has yet to set clear priorities for negotiations with the EU, while Brussels has already outlined expectations on trade, governance, labour rights and sustainability.

“There were times when Bangladesh failed to clearly communicate what it wanted from the EU, while the bloc continued to pursue its own agenda,” he said, stressing the need for a clear national strategy for future negotiations.

On Bangladesh’s LDC graduation, he said the UN’s Committee for Development Policy (CDP) has recommended an extension shorter than the three years sought by the government.

“If the United Nations does not approve the extension, Bangladesh will graduate this November,” he said.

The EU is Bangladesh’s largest export destination, importing around $22 billion worth of Bangladeshi goods every year under duty-free access.

“Bangladesh definitely needs duty-free market access,” Razzaque said, warning that losing tariff benefits without securing an alternative arrangement would hurt the country’s export competitiveness.

He said some policymakers often point to Bangladesh’s export performance in the United States, where there is no duty-free access, to argue that tariff preferences are less important.

“But the European market tells a different story,” he said, adding that Bangladesh now meets around 21 percent of the EU’s apparel import demand, largely due to preferential market access.

Razzaque also highlighted the EU’s wider contribution to Bangladesh’s economy. He said EU member states account for around 30 percent of the country’s foreign direct investment (FDI), while the bloc provided about $3.4 billion in development assistance over the past five years.

Although Bangladesh has increased exports to the US without tariff preferences, Razzaque said there is still significant scope to expand exports to the European market by improving competitiveness.

“To remain competitive after LDC graduation, we will have to reduce production costs,” he said, adding that better logistics, infrastructure, trade facilitation and productivity would be crucial to offset higher tariffs and growing competition.

Razzaque said China’s declining share of the EU apparel market has created an opportunity for Bangladesh to increase its market share.

However, he warned that the opportunity could narrow as competitors such as Vietnam and India strengthen their positions through free trade agreements with the EU, while Pakistan and Sri Lanka continue to enjoy preferential access under the bloc’s GSP+ scheme.

Without a similar trade arrangement, Bangladeshi exporters could face tariffs of around 12 percent after the post-graduation transition period, reducing the competitive advantage the country has enjoyed for decades.

He said negotiating a free trade agreement (FTA) with the EU is becoming increasingly important to protect Bangladesh’s export competitiveness.

However, he cautioned that an FTA would also require Bangladesh to open parts of its own market in return. Therefore, policymakers must clearly define the country’s priorities before starting formal negotiations.

M Abu Yusuf, executive director of RAPID, and Saadhon Kumar Das, programme adviser at FES, also spoke at the seminar.