The Asiapost News

Bangladesh’s exports to the European Union (EU) could plummet by up to 20%, driven by the dual impact of the country’s transition from least developed country (LDC) status and competition from Vietnam under the EU-Vietnam Free Trade Agreement (EVFTA), a new study warns.

The findings, presented at a seminar in Dhaka on Tuesday, were the result of joint research by the think-tank Research and Policy Integration for Development (RAPID) and the German political foundation Friedrich-Ebert-Stiftung.

Trade Diversion Concerns

According to Mohammad Abdur Razzaque, chairman of RAPID, Bangladesh’s apparel exports to the EU are projected to decrease by 1.8%, while leather and leather products could face a steeper decline of 6.5%, owing to trade diversion under the EVFTA.

“Vietnam has outpaced Bangladesh in EU exports, more than doubling its shipments by 2023, despite both countries having similar export volumes in 2002,” Razzaque said. He noted that Vietnam has significantly bolstered its garment industry with investments in backward linkages, a strategic move Bangladesh has yet to replicate effectively.

Competitive Edge of Vietnam

The EVFTA, which came into effect in 2020, has granted Vietnam substantial trade advantages, including zero-duty access to EU markets. It also addresses non-tariff barriers, facilitates market access for services and investments, and aligns Vietnam with EU labour and environmental standards, enhancing its appeal as a trade partner.

In contrast, Bangladesh currently benefits from duty-free access under the EU’s “Everything but Arms” (EBA) programme, an arrangement exclusive to LDCs. The nation risks losing this advantage post-graduation from LDC status, placing its exports at a significant disadvantage.

Lagging Policy Implementation

The study highlighted Bangladesh’s sluggish implementation of policies needed to adapt to global trade dynamics. “If Bangladesh wants to stay competitive, especially with changing trade rules, it must focus on investments in backward integration and infrastructure,” Razzaque urged.

Vietnam’s diversified export basket contrasts sharply with Bangladesh’s heavy reliance on apparel exports, leaving the latter more vulnerable to market fluctuations.

Razzaque also pointed out that while both Bangladesh and Vietnam are capitalizing on China’s declining global market share in apparel, their focus has diverged—Bangladesh in the EU and Vietnam in the US.

Industry Optimism Amid Challenges

Despite the grim forecast, Fazlee Shamim Ehsan, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association, expressed cautious optimism. He suggested that labour issues in Vietnam and China, coupled with shifting worker perceptions about the garment industry, could redirect orders to Bangladesh.

However, Ehsan acknowledged significant domestic hurdles, including labour unrest, energy shortages, and instability in the banking sector, which threaten to undermine Bangladesh’s competitiveness.

Urgent Need for Strategic Action

The seminar also featured insights from Policy Exchange Bangladesh Chairman M Masrur Reaz and Economic Relations Division Secretary Md Shahriar Kader Siddiky, who emphasized the urgency for Bangladesh to adopt comprehensive reforms and investment strategies.

The potential decline in EU exports underscores a critical juncture for Bangladesh’s economy, as it grapples with both internal challenges and a shifting global trade landscape. Without decisive action, the nation risks losing hard-won economic gains and falling behind its regional competitors.