Could Bangladesh’s exports to the EU face pressure?
The European Union (EU) has long been a vital market for Bangladeshi goods, with 27 EU nations accounting for approximately 48 percent of Bangladesh’s total exports, valued at around US$25 billion (US$2,500 crore) annually. This robust trade relationship has positioned Bangladesh favorably in its bilateral trade with the EU.
Notably, 93 percent of Bangladesh’s exports to the EU consist of ready-made garments. The Generalized System of Preference (GSP) has played a crucial role in bolstering the garment industry over the past two decades. Although Bangladesh is set to transition from its Least Developed Country (LDC) status to a developing country in 2026, it will still enjoy GSP benefits for three additional years. However, beyond that point, to maintain tariff-free access to the EU market, Bangladesh must attain GSP Plus (GSP+). Achieving GSP+ status is challenging under the current regulatory framework, prompting ongoing negotiations between Bangladesh and the EU.
Against this backdrop, the European Union recently voiced deep concern about human rights conditions in Bangladesh, leading to a resolution passed through a voice vote. The resolution calls upon Bangladesh to adhere to international standards for civil and political rights and emphasizes the importance of ensuring safe and favorable working conditions for non-governmental development organizations, human rights activists, and religious minorities.
The resolution specifically noted that an ongoing Everything but Arms (EBA) enhanced engagement process with Bangladesh is in progress. However, due to serious violations of international conventions, there are concerns that the Odhikar case represents a regrettable setback, potentially affecting whether EBA preferences will continue to apply to Bangladesh. It’s worth mentioning that Humanitarian Support Partnership (HSP) facilities are provided through EBA.
In response to this development, several exporters were interviewed, and they expressed no immediate alarm about trade and commerce with the EU.
Nevertheless, they found the questions raised in the European parliament regarding the continuity of GSP facilities discomforting, urging the government to take note of this EU parliament resolution.
Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue (CPD), commented on the matter, expressing concern about the resolution adopted by the European parliament. He highlighted that this resolution didn’t emerge out of nowhere but rather stemmed from various concerns raised by individuals within the EU over time. Rahman noted that the EU is a significant partner in Bangladesh’s export trade, an important investor, and a provider of loan assistance.
The EU serves as a major market for Bangladeshi goods, with the United States being the largest single-country importer of Bangladeshi products.
According to data from the Export Promotion Bureau, Bangladesh’s exports to the EU for the fiscal year 2022-23 totaled US$25.23 billion (US$2,523 crore), up from US$21.33 billion (US$2,133 crore) in 2017-18. While there was a 7 percent increase in the following year, exports experienced a decline due to the COVID-19 pandemic. In the fiscal year 2021-22, exports to the EU rebounded.
Among EU countries, Germany represents the largest market for Bangladeshi products, accounting for 13 percent of exports valued at US$7.08 billion (US$708 crore) in the last fiscal year. Spain followed with US$3.68 billion (US$368 crore), France with US$3.29 billion (US$329 crore), Poland with US$1.85 billion (US$185 crore), the Netherlands with US$2.09 billion (US$209 crore), Denmark with US$1.31 billion (US$131 crore), and Belgium with US$940 million (US$94 crore).
Of Bangladesh’s exports to the EU, 93 percent comprises ready-made garments. In the last fiscal year, the EU received US$23.53 billion (US$2,353 crore) worth of ready-made garments, accounting for 50 percent of Bangladesh’s total garment exports. Additionally, commodities such as home textiles, leather and leather products, footwear, and bicycles are exported to the EU market under GSP.
While the EU is a significant destination for Bangladeshi products, imports from the EU remain relatively low. In the fiscal year 2021-22, Bangladesh imported goods worth US$75.60 billion (US$7,560 crore) from various countries worldwide, with China accounting for 25 percent, followed by India at 18 percent, and less than 5 percent from the EU.
According to the European Commission, the EU imported goods worth 3.5 billion euros (350 crore euros) from Bangladesh but only exported goods valued at 2.2 billion euros (220 crore euros) to Bangladesh. This trade deficit increased to 12.90 billion euros (1290 crore euros) in the following fiscal year and further escalated to 20.20 billion euros (2020 crore euros) in 2022.
Several European countries have made foreign direct investments (FDI) in Bangladesh, with net FDI standing at US$21.16 billion (US$2116 crore) as of December of the previous year. The United States led in investments with US$4.10 billion (USD 410 crore), while among EU countries, the Netherlands had the highest FDI in Bangladesh, amounting to US$1.26 billion (USD 126 crore).
The importance of GSP lies in the fact that Bangladesh must qualify for GSP Plus after 2029 to maintain tariff-free access to the EU market. Although the EU has drafted a new GSP policy for the period 2024-2034, it has not yet been approved by the EU parliament.
If the current GSP Plus draft is passed as is by the EU parliament, Bangladesh may face initial challenges. This would mean exporting ready-made garments to the EU with a tariff of around 12 percent, necessitating high-level negotiations to resolve the issue.
In the absence of GSP facilities, Mustafiz Uddin, Managing Director of Denim Export Limited, warned that Bangladesh’s ready-made garments in the EU market could suffer a significant setback. In a fiercely competitive market, even a 1 to 2 percent difference in price can result in lost orders. Without GSP facilities, this price difference could surge to 10 to 12 percent, potentially dissuading buyers from paying the additional cost.
Currently, eight countries, including Sri Lanka, Pakistan, the Philippines, Uzbekistan, and Bolivia, receive GSP Plus facilities in the EU market, while 46 least developed countries, including Bangladesh, receive standard GSP facilities.