Bangladesh’s graduation from Least Developed Country (LDC) status, combined with the EU-Vietnam Free Trade Agreement (EVFTA), is projected to significantly impact its garment exports to the EU, potentially causing a 20 per cent decline.

Vietnam’s garment exports, which currently face an average tariff of 9.6 per cent in the EU, are set to enjoy zero-duty access by 2027 under the EVFTA.

In contrast, Bangladesh, which currently benefits from duty-free access under the Everything But Arms (EBA) programme, is likely to face tariffs of up to 12 per cent after 2029 following its LDC graduation.

This dual trade preference erosion—arising from Vietnam’s enhanced market access under the EVFTA and the increased tariffs facing Bangladesh after its graduation in 2026 (with a three-year transition period until 2029)—could severely undermine Bangladesh’s export competitiveness in its most crucial EU market.

Moreover, Bangladesh has fallen behind in implementing policies to develop backward linkages, particularly in man-made fibre (MMF)-based garments, while Vietnam has taken decisive steps by simplifying its business environment and opening up trade and investment.

Consequently, Bangladesh may face stiff competition from Vietnam in MMF-based apparel exports to the EU.

These insights were shared at a dissemination event titled ‘The EU-Vietnam Free Trade Agreement: Implications for Bangladesh’s Export Competitiveness’,  organised by Research and Policy Integration for Development (RAPID) and FES Bangladesh, held at a city hotel on Wednesday.

Economic Relations Division Secretary Md Shahriar Kader Siddiqui attended the event as chief guest, with RAPID Executive Director Dr M Abu Eusuf serving as moderator.

Other speakers included FES Bangladesh Resident Representative Dr Felix Gerdes and Business Initiative Leading Development CEO Ferdaus Ara Begum.

The EVFTA, effective since 2020, offers Vietnam substantial trade advantages, including zero-duty access to the EU market, replacing its previous Standard Generalised Scheme of Preferences (GSP) tariffs.

Beyond tariff elimination, the agreement addresses non-tariff barriers, opens markets for services and investment, and aligns Vietnam with EU labour and environmental standards, collectively enhancing its competitiveness and investment appeal.

Speaking at the event, RAPID Chairman Dr M A Razzaque explained that simulations indicate the combined effects of the EVFTA and LDC graduation could lead to a nearly 20 per cent decline in Bangladesh’s apparel exports to the EU, along with a one-third reduction in leather, textiles, and processed food exports.

On a macroeconomic level, Bangladesh’s GDP is projected to decline by 1 per cent, driven by tariff increases associated with LDC graduation and trade diversion under the EVFTA, he added.

Despite these challenges, Bangladesh remains a dominant player in apparel exports, accounting for 21.7 per cent of the EU’s non-EU apparel imports. This success is primarily due to duty-free access under the EBA scheme and relaxed Rules of Origin (RoO) requirements.

Bangladesh has also absorbed much of the EU market share vacated by China as it moved away from low-value apparel production. Meanwhile, Vietnam has benefited more from this shift in the US market, Dr Razzaque noted.

Between 2010 and 2023, Bangladesh’s share of the EU apparel market increased from 6.0 per cent to 22 per cent, while Vietnam’s share grew modestly from 2.0 per cent to 4.7 per cent during the same period.

In the US market, where both countries face identical tariffs, Vietnam achieved a much larger market share, increasing from less than 1.0 per cent to 18 per cent, compared to Bangladesh’s rise from 3.3 per cent to 9 per cent.

RAPID Chairman Dr M A Razzaque made several recommendations, including engaging with the EU to negotiate an additional extension of the post-LDC graduation transition period by 3–5 years to mitigate tariff hikes.

He also urged pursuing relaxed Rules of Origin (RoO) and safeguard provisions to retain apparel sector preferences under the GSP+ scheme. To meet GSP+ eligibility requirements, he emphasised aligning Bangladesh’s policies with the EU’s 32 international conventions.

Additional suggestions included initiating discussions for a Free Trade and Investment Agreement (FTIA) or Comprehensive Economic Partnership Agreement (CEPA) with the EU to secure long-term market access and attract foreign direct investment (FDI).

Dr Razzaque also advocated reforms in labour standards, trade facilitation, and regulatory alignment to comply with EU requirements and enhance competitiveness.

To improve firm-level competitiveness, he recommended supporting industrial upgrading and innovation through policies such as tax incentives, low-interest financing, and supply chain development for ancillary industries.

Export Promotion Bureau Vice Chairman and BGMEA Administrator Anwar Hossain highlighted that the quality and reliability of power supply remain significant challenges for industries, particularly textiles. Many factories, he noted, are unable to operate fully due to gas shortages.

He also criticised the National Board of Revenue (NBR) for not extending bonded warehouse facilities to furniture exporters, despite existing policies that allow this benefit for partial exporters. This, he argued, hampers export diversification and limits growth opportunities in potential sectors.

Dr Mashrur Reaz, Chairman of Policy Exchange Bangladesh, remarked that traditional business practices are insufficient to sustain growth in an era of rapidly changing global regulations and consumer preferences.

He noted that US trade policies concerning China are unlikely to change and may even intensify, with the ongoing trade war creating new opportunities for Bangladesh. However, how effectively Bangladesh can capitalise on these opportunities depends largely on its preparations, he added.

Abu Sayed Belal, Trade Counsellor at the EU Delegation to Bangladesh, pointed out that Vietnam has implemented effective policies that extend beyond market preferential access. These include policy reforms to streamline processes, which have been instrumental in attracting higher levels of FDI.

He observed that Bangladeshi exporters are often complacent with their export performance, while local manufacturers benefit from a highly protected domestic market. This protectionism, he argued, discourages innovation and risk-taking, ultimately undermining Bangladesh’s competitiveness in international markets.

He suggested that Bangladesh should prioritise regional connectivity and establish more trade agreements with its trading partners.

However, Fazlee Shamim Ehsan, Executive President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), offered a differing perspective. He argued that while export growth might slow, the volume of exports is unlikely to decline.

He pointed out those labour shortages in China and Vietnam, where workers are increasingly unwilling to work in the garment sector due to perceptions that such jobs lack prestige, could shift more orders to Bangladesh.

Nevertheless, he expressed frustration with challenges such as unreliable banking services, gas and electricity shortages, and inconsistent policies, concluding that “everything is against the business environment.”