Graduation From LDC: Govt seeks 5-year transition period

Bangladesh will seek to retain the zero duty benefit and the market access for five years after its graduation to a developing country as the pandemic took a heavy toll on the nation's economy.

The government will place this proposal today in a meeting of the Committee for Development Policy (CDP), a United Nations panel which analyses the status of LDCs in its triennial reviews and makes recommendations for the countries' graduation.

Being a LDC, the country has been enjoying trade preferences, development financing that includes official development assistance, technical assistance, and other forms of support.  But once it gets the recognition of a developing country by the United Nations Economic and Social Council (ECOSOC), the country will be given three more years as a "grace period" for preparation.

After this transition period, the country will no longer get such benefits.

In today's meeting, a 14-member team led by Zuena Aziz, chief coordinator for Sustainable Development Goals (SDG) Affairs, will also submit the government's action plans for tackling the challenges in international trade, commerce and cooperation following the LDC graduation, finance ministry officials said.

The CDP will present its impact assessment while the United Nations Conference on Trade and Development (UNCTAD) will place Bangladesh's vulnerable profile taking into account the impact of the Covid-19.

The country's trade, export and employment suffered serious setbacks due to the pandemic and there are concerns whether the pandemic may jeopardise the smooth and sustainable transition of the country.

"That's why the government will seek an extension of the transition period so that it has time to take necessary measures to counter probable challenges posed by the pandemic," said an official of the Economic Relations Division.

Bangladesh was recommended for LDC graduation by the CDP in its triennial review in 2018 as the country met the graduation criteria in Gross National Income (GNI) per capita, Human Assets Index (HAI), and Economic Vulnerability Index (EVI).

The CDP will review the country's performance based on these criteria in its triennial meeting on February 7, 8, and 9. If the country meets the criteria in this review, it would be recommended for graduation.

According to the CDP, a country gets a three-year transition period to prepare itself. During this preparatory period, it continues to receive benefits from specific international support in the areas of trade, development assistance, and general support.

But once a country gets out of the LDC bloc, it no longer gets those supports.

Recent official data suggests Bangladesh has met the criteria in its GNI, HAI, and EVI, to get out of the LDC bloc.

The UNCTAD in its assessment shared with the government last month found the country was well ahead of the required thresholds in the three criteria.

According to the UN's graduation threshold, the GNI per capita of a country has to be $1,230 or above. Bangladesh's GNI per capita is now $1,640 -- well above the ceiling, according to the government's latest status report.

The GNI per capita is the value of a country's final income in a year, divided by its population. It reflects the average income of a country's citizens. The per capita income was $1,272 during the last triennial review in 2018.

In terms of the HAI, a country must have a score of 66 or above. Bangladesh has performed better than it did in 2018 as its score has risen to 75.3 from 72.8. The HAI is an indicator of nutrition, health, adult literacy and secondary school enrolment rates.

In the EVI criterion, a country's score has to be below 32. Bangladesh's score is 27.3, which was 25 two years ago.

The EVI is a composition of indicators like instability in agricultural production and exports of goods and services and share of agriculture, forestry and fisheries in gross domestic product. The lower a country scores in this index the better it performs.

Countries recorded in the LDC category are defined as low-income countries that are facing severe structural impediments to sustainable development.

Bangladesh was included in the LDC list in 1975. In 2015, it crossed the threshold of the World Bank-defined lower middle-income country and became eligible for graduation in 2018.

A country must cross the threshold on two of the three criteria in two consecutive triennial reviews to be considered for the graduation.

GRADUATION CHALLENGES

The most crucial challenge the country is likely to encounter is erosion of preferential market access.

It currently enjoys zero-duty benefits, preferential trade benefits and regional trade benefits on exports to 38 countries, including 28 in the EU. Bangladesh also gets duty-free access to the US for 97 percent of its products, except readymade garments.

After the formal graduation, the country will lose duty-free and quota-free market access to the EU under the "Everything but Arms" initiative for LDCs, according to the CDP.

The UNCTAD estimates the impact of losing LDC-specific preferential market access ranges between 7 percent and 14 percent of exports.

According to an impact assessment on LDC graduation by the Planning Commission in 2019, the country would lose $7 billion in export earnings every year after the end of the transition period. By 2031, the amount would balloon to $13 billion, it said.

In today's meeting, the 14-member team will place its action plan to face the challenges, particularly in relation to the trade and export sector, ERD officials said.

It will inform the expert committee of the government's initiatives on signing free trade agreements (FTA) with 11 countries for increasing bilateral trade.

The government also initiated negotiations with the Association of South-East Asian Nations (Asean) to sign a FTA to enjoy greater market access in the bloc.

Besides, the government has already signed a preferential trade agreement (PTA) with Bhutan and is at the final stage of its negotiations with Indonesia for a PTA for duty privileges on select goods traded between the two countries.

The team will update the committee about the measures taken for export diversification. It will inform that the government is diversifying its export base in terms of products and destinations, said the officials.

Currently, the garment products account for 85 percent of Bangladesh's total export earnings. The country's main export destinations are the United States and the EU.

"The government will take initiatives to reach out to different South Asian countries with more products," said an official.

The officials said the graduation will not impact foreign aid.