Generalised Scheme of Preferences Plus (GSP+) is an economic incentive and reward scheme in exchange of the recipient country’s commitment to fulfilling “core” international conventions.
The European Parliament, last month, declared that it was withdrawing Pakistan’s GSP+ status over the controversial blasphemy laws, according to a recent news report published in the Indian news portal republicworld.com.
The report said that this action was taken by the parliament as Pakistan failed to comply with their commitments to implement 27 core international conventions on human and labour rights, environmental protection and good governance, in order to keep its GSP plus status intact.
Pakistan had been enjoying GSP plus in the European Union (EU) from January 2014, which allowed the country to enjoy zero duties on two-thirds of all product categories. From 2010 to 2020, Pakistan’s exports to the EU almost doubled, with much of the growth coming in the aftermath of the GSP plus award.
The EU is now Pakistan’s second most important trading partner, accounting for 28% of Pakistan’s total exports. Nonetheless, the EU has not shown any liberal attitude, rather been very strict in imposing the GSP plus withdrawal decision in Pakistan.
In this situation, it is important for Bangladesh to become very active and start the negotiation with the EU for its GSP plus right away, starting now. After becoming a middle-income country, Bangladesh is supposed to be exempt from the current duty-free access to the EU it enjoys under Everything But Arms (EBA) GSP Scheme.
The country is now scheduled to leave the LDC category in 2026; with extra three years to get ready for a smooth transition to a middle-income country, which means Bangladesh could avail the GSP facility till 2029. However, the country will have the opportunity to continue to enjoy tariff free export to the EU countries if it attains GSP plus.
In order to be awarded the GSP plus status, a country must fulfil two criteria set by the EU — namely, products that qualify for GSP plus must be in the top seven largest exports from the country (apparel is the largest in Bangladesh), and the three-year average of exports of that product cannot exceed 6.5% of the total import of that product into the EU. Here, Bangladesh faces an issue, as its apparel export to the EU already accounts for about 11% of the latter’s total apparel import from the world.
Moreover, under the EBA, LDCs were allowed preferential rules of origin permitting single transformation in the production chain of the exportable. That means currently Bangladesh being an LDC is getting the duty-free export opportunity to the EU by only sewing garments from fabrics. But preference eligibility under the GSP plus scheme demands “double transformation” of the exported items.
In other words, in post-graduation life so as to get duty-free market access, Bangladesh has to first convert fibers into fabrics and then fabrics to garments. Though in knit fabrics, Bangladesh is almost self-sufficient, the country still imports about 50% fabrics for producing woven products. So, the Bangladesh apparel industry needs to strengthen its backward linkage.
So, in GSP plus negotiation Bangladesh has two difficult points to pursue with the EU – one is extending the 6.5% threshold to at least 15% and reducing the rules of origin requirement from double stage to single stage – for which we require long preparation and persuasion to win at the negotiation table.
On top of that, Bangladesh has to satisfy the EU concerning the guidelines of “sustainable development.”
Therefore, if our preparation and persuasion are not started now, the year 2029 will come by in a blink of an eye. All the stakeholders should act from right now and play their respective roles to attain the GSP plus, considering the importance of the EU market for the economy of Bangladesh, in general, and for our apparel industry in particular. The decision of the EU regarding the withdrawal of GSP plus from Pakistan is a signal for us to remain alert and active from now.
The growth of our apparel industry has been accelerated by our duty-free market access to the European Union (EU). The EU accounts for more than 60% of our total apparel export and is a market we could not afford at all to lose and lessen our export. We should even negotiate for the transition period to be extended from two years to 10 years for a sustainable transition of Bangladesh – from an LDC to a middle-income country – where the country is allowed to enjoy the GSP facility in the EU till 2036.
But all we expect can be only achieved by our diplomats and persons in the concerned ministries who will sit at the negotiation table and it hinges upon how they prepare themselves as well as how early they start the negotiation.
Bangladesh now possesses some of the finest career diplomats in its foreign ministry and the persons of highest caliber in the trade related ministries like the Ministry of Commerce, Ministry of Industries, Ministry of Textiles etc. So, if the preparation and persuasion are started early, I believe they could bring the decision indubitably in favour of Bangladesh.
The start could happen by forming a joint task force by the relevant ministries and industry associations. The taskforce will be dedicated to ensuring Bangladesh continues to enjoy the duty-free export to the EU — be it in the form of extending the transition period or by attaining the GSP plus.
Ashikur Rahman is Managing Director of TAD Group and a former Director of Bangladesh Garment Manufacturers & Exporters Association (BGMEA).
