BD need to take strategic preparation as LDC graduate with momentum: Research
Dhaka 4 March 2021:
Attainment of SDGs goals and targets will help Bangladesh to graduate with momentum to a developing country: a developing country which is economically advanced, socially inclusive and environmentally sustainable, in view of the SDGs and in light of the aspirations articulated in Vision 2041.
Such views came from a webinar titled ‘Moving out from the LDC group: Strategies for graduation with momentum’ organized by Center for Policy Dialogue (CPD) on Thursday.
CPD analyzed that graduation from LDC to non-LDC developing country will open up new opportunities:
Global branding and image, Perception about capacities and risks, Credit rating (sovereign bond, private Sector raising capital in foreign markets) and attracting investment by taking advantage of new branding and positive perception.
According to the research paper presented by Mustafizur Rahman Distinguished Fellow of CPD there are also many challenges associated with graduation. Bangladesh will need to graduate with momentum so that graduation is sustainable. Thresholds for HAI and EVI indicators were fixed in 2012 at 66 and above and 32 and below. Graduation criteria (HAI and EVI and associated sub-indices) do not include many key elements of competitiveness which will be needed for sustainable graduation. For example, it includes literacy rate and school enrolment but do not include (structural impediments) human resource quality, skills composition of labour force.
CPD suggested for building negotiating capacity. Bangladesh can go for negotiations bilaterally, or as a groups (SAFTA; BIMSTEC) with single country or with group of countries. India and China, ASEAN and RCEP are possible regional countries and groupings with most potential benefits, but also most challenging. The key strategy would be attracting investment to build value-chains and production networks to take advantage of preferential market access. Approach of negotiation: Argue for Two-track liberalization (similar to the ones for the CMLV in the ASEAN). Develop legal capacities to deal with cases in the WTO-DSB and a negotiation cell (Like the WTO Cell in the Ministry of Commerce) to be equipped with adequate human-analytical-technical resources and capacities.
CPD also suggested for Strategic preparation for Upcoming MC12. WTO MC12 will be held in the week of November 29, 2021 in Geneva (instead of the earlier scheduled meeting in June 2021 in Nur Sultan, Kazakhstan). Bangladesh should take lead in view of the proposal floated in the WTO for extension of ISMs for graduated LDCs (for twelve years). In view of TRIPS, support the proposal in the WTO for current flexibilities offered under LDC waiver, till 2032, to continue for graduated LDCs. In the context of Fisheries Agreement, and new disciplines in e-commerce, MSMEs, investment measures and others, keep the interests as a future developing country in the purview. Argue for inclusion of dedicated support measures for graduated LDCs in the MC12 outcome document.
The think tank focused on taking advantage of various flexibilities in the WTO as applicable for developing countries. Various WTO Agreements have S & D treatment provisions for developing countries. Bangladesh should take note of those while designing post-graduation policies.
Bangladesh should try to make best use of the additional time at its disposal, following LDC graduation in 2026, provided to be graduated LDCs.
According to CPD, strategies to be pursued to be the LDC graduate are Bangladesh will soon graduate from a ‘blend country’ to ‘non-blend’ (exclusively WB-IBRD) country which will result in more stringent aid conditions at a time when it will require more foreign resources to prepare for LDC graduation.
New sources such as AIIB and NDB (to which Bangladesh has been invited), issuance of sovereign bonds, should be more actively explored. A renewed effort will be needed to ensure best use of aid money to avoid debt distress. Move towards (partial) convertibility of BDT may become a necessity.
Bangladesh will continue to have access to Special Climate Fund (SCCF) and Green Climate Fund (GCF) as these are open to all vulnerable developing countries. These funds should be accessed in a more proactive manner.
Bangladesh will need to reform its patent laws and license granting procedures to make these WTO compatible.
The API park must be put into full gear to develop the backward linkage industry in pharmaceuticals in order for the sector to remain competitive in domestic as also global markets.
Actively pursue negotiations in TRIPS Council for extension of TRIPS flexibility for graduated LDCs till 2032.
Bangladesh will need to implement Trade Facilitation commitments in the WTO as applicable to developing countries. If this is not done, it may face cases in the WTO-DSB.
Bangladesh should try to get into the list of Annex VII (b) countries whose per capita GNI (in 1990 terms) is less than 1000 US$.
Gradually adjust subsidies to ensure compliance. Design alternative support measures to bring down cost of doing business. For example, strategically manage exchange rate.
Customs modernisation and digitisation, harmonisation with international standards will need to be completed before LDC graduation timeline of 2026.
Co-financing requirement of Bangladesh will rise from 10 per cent to 20 per cent. More of own resources will need to be allocated to ensure compliance with requirements of SPS Agreement which will be needed to get into global markets for agricultural items and livestock and poultry products.
On graduation more sectors will need to be opened up for foreign investment. Bangladesh will need to prepare its offer list in view of GATS. Bangladesh has particular interest in mode 4. However, there could be more competition from LDCs, mostly from Africa, which will enjoy preferential market access if GATS waiver is operationslised. The need for skills upgradation will become more urgent.
Local content requirement for foreign investors will not be allowed. In certain sectors for FDI this is currently a requirement (e.g. Pharmaceuticals). EPZ/BEZA will need to ensure compliance.
Bangladesh’s Industrial Policy, Export Policy and the National API and Laboratory Reagents Manufacturing and Export Policy will need to be made WTO-compliant. Many incentives provided to priority sectors will need to be made WTO-compliant.
Bangladesh will be able to continue enjoying flexibilities if it is listed as a net food-importing country (NFIDC). The issue needs to be actively pursued.
Bangladesh’s aggregate measure of domestic support (AMS) is well within WTO allowed limits. But export credit subsidies will not be allowed.
Regular notifications about policy changes will have to be made to the WTO.
Adjust subsidy and incentive policies in agriculture to ensure compliance with the AoA.
Strategies suggested by CPD are: Raise price-competitiveness through reduction in costs of production.
Duties paid by importers are only a part of the price structure. Cost structure includes 3 elements: within enterprises (labour cost, productivity, management quality etc.); without enterprises (financial costs, transport cost, logistics); macroeconomic policy and macroeconomic management-induced costs (exchange rate; business environment; regulatory elements).Targeted steps will be needed to reduce these cost elements to compensate for the additional costs due to duties imposed.
Export and market diversification needed by translating comparative advantage into competitive advantages and through up gradation of process and products and improvements in labour and capital productivity.
A Technology Up gradation Fund may be created to support entrepreneurs.
Attract FDI through triangulation of investment, transport logistics and trade connectivity, through development of regional value chains and production networks and transforming transport corridors into economic corridors.
Promote product and market diversification through WTO-compatible policy support.
Aggressively pursue CEPA type of negotiations with partners that matter.
At the same time negotiate with trading partners particularly with Canada, Japan, China, India) for extended preferential market access similar to the EU, both bilaterally and as a member of graduating LDC group.
According to WTO Secretariat estimates, almost 90.0 per cent of all export losses of 12 graduating LDCs will be on account of Bangladesh.
Bangladesh’s export loss will be equivalent to about 14.3 per cent of the country’s global export.
Aggressive plurilateral and mega-regional agreements will have important implications for Bangladesh’s competitiveness.
More consultations will be required with informed participation of representatives of various sectors to prepare the road map towards 2026.