In a blow to apparel exporters, the EU, Bangladesh’s largest export destination, has extended duty-free access to Vietnam, eliminating the competitive edge that the country held over its biggest rival in the trade.
As a least-developed country Bangladesh enjoyed duty-free benefit to the EU since its independence, whereas Vietnam had to pay 12 percent duty. Now, Southeast Asian country has obtained the same privilege as Bangladesh thanks to the signing of a free trade agreement (FTA) with the EU on June 30.
“We are going to face tough competition as Vietnam has become a parity of us in the same market,” said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.
Bangladesh will face even tougher completion once it fully graduates from the LDC bracket in 2027 as the duty benefits would be withdrawn then. Exports to the EU will then face 12 percent duty but Vietnam will continue to ship to the trading bloc at zero duty.
“So we need to lobby with the EU either for the signing of an FTA or for continuation of the duty benefit,” Rahman added.
Bangladesh’s apparel exports have lost 3.64 percent value in terms of price per unit during 2014-2018, whereas Vietnam’s price has gone up, said Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
“With the gradual elimination of tariff on Vietnam’s exports the price competition will be more intense.”
Apart from erosion of competitiveness and the resulting trade diversion, the FTA may have a severe toll on the price level for Bangladeshi manufacturers, Huq said.
In 2018, Bangladesh exported $19.32 billion worth of garment items to the EU, up 11.17 percent year-on-year. Vietnam’s exports that year stood at $3.92 billion with an annual growth of 9.74 percent, according to data from the BGMEA.
With its 4 percent share Vietnam is currently is the sixth largest apparel exporting nation to the EU, whereas Bangladesh is the second with its share of 19 percent.
“This wide gap is under threat,” the BGMEA president added.
Md Shafiqul Islam, additional secretary to the commerce ministry, echoed the same.
He, however, dismissed the need for signing an FTA with the EU in the near future.
“Bangladesh does not need to sign FTA with the EU as we will continue to enjoy duty benefit until 2027,” he added.