The Brexit referendum took place on 23 June 2016 in the United Kingdom which mandated the British government to severe the relationship of the UK from the rest of the European Union (EU) bloc. After a long negotiation, the post-Brexit transition period ended on 31 December 2020 and the EU-UK Trade and Cooperation Agreement (TCA) has come into effect.
With Brexit in place, the UK has also been taking preparation to face the duty on export of goods to the EU and also the UK changing its customs rules for its foreign trade. Since, the UK is a long term major trading partner of Bangladesh, both the countries are also modifying its customs rules for making more business.
The UK is the major market for Bangladesh’s garment export and currently of the total apparel export from the country in a year nearly 11 percent is destined to the UK.
Figure: The export growth of garment items to the UK has been maintaining a good growth in the time of severe fallouts of the Russia Ukraine war.
In July-April period of the current fiscal year, Bangladesh exported goods worth $4.42 billion to Britain, according to data from the Export Promotion Bureau (EPB).
However, with the UK’s departure from the EU customs union, tariffs or customs duties now apply to movements of goods across the “new” border, according to the KPMG.
The duty payable will depend on the commodity code declared at import and the corresponding tariff rates contained within the EU and UK’s respective tariff schedules, unless preference or alternative customs reliefs are claimed at the time of import, the KPMG said.
There are wide reaching differences between the EU and UK’s tariff schedules for certain commodities, with approximately 60 percent of goods attracting free rates of duty under the UK Global Tariff as opposed to approximately 47 percent under the EU Common External Tariff, the KPMG said.
In terms of goods, the greatest benefit arising from the TCA is the potential for continued tariff and quota free trade between the EU and UK – but it comes with conditions.
Imported goods will only qualify for tariff and quota free access where the respective EU-UK producer or exporter of the goods can prove that the goods ‘originate’ from whichever side exported them – proving origin is all about the qualification and application of product-specific rules of origin.
BGMEA leader’s view
Faruque Hassan, President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said the export growth to the UK has been maintaining a commendable growth even in the time of severe fallouts of the Covid-19 pandemic.
The export growth of garment items to the UK has been maintaining a good growth in the time of severe fallouts of the Russia Ukraine war.
The export growth to the major destinations like the USA and the Germany has been declining to a bit but the export growth to the UK is increasing as the UK has been offering very liberal tariff benefit to the Bangladeshi products.
For instance, in the July-April period of the current fiscal year (FY2022-23), Bangladesh exported garment items worth $4.19 billion registering 10.86 year on year growth, according to data from the Export Promotion Bureau (EPB) and the BGMEA.
In the fiscal 2021-22, the import of clothing items from Bangladesh to the UK was $4.49 billion with registering 30.56 percent year on year growth and in the fiscal 2020-21 the amount was $3.44 billion registering 8.55 percent year on year growth, the EPB and BGMEA data also said.
Hassan said the export growth indicates that the sector has been performing strong to the UK markets even the Brexit.
The Brexit has no negative impact on the Bangladeshi garment export to the UK, rather the export continues to grow, he said.
Some of the reasons those which defied the challenges of three important factors like Brexit, Covid-19 and the Russia – Ukraine war are the high demand for middle range garment items to the UK consumers, price factors and for a long-time business relationship with the UK retailers and brands like M&S.
The demand for man-made fibre garment is higher in the UK compared with the cotton fibre (MMF) -based garment items. In near future when Bangladesh will also perform strong in the MMF garment, it is expected that the shipment to the UK will also grow a lot, he said.
What the expert says
Echoing with the views of Hassan, M A Razzaque, Research Director of the Policy Research Institute (PRI) said it is also expected that the garment shipment to the UK will continue to grow even after the graduation of Bangladesh to a developing nation from the Least Developed Country (LDC) in 2026 as the UK has already assured that they will continue the duty-benefit to the Bangladeshi exporters even after the LDC graduation.
Primarily, the UK will continue the LDC trade benefit to the Bangladeshi goods, especially the apparel ones, up to 2029 like the EU as the EU offers a three years grace period to the graduating county for preparation.
However, the UK has already offered its generous trade benefit Enhanced Preference for the developing nation which is equivalent to the EU’s GSP Plus status.
However, Bangladesh will not need to fulfill conditions of 32 international conventions for attaining the Enhanced Preference.
So, the UK’s Enhanced Preference is easier and better than the EU’s GSP Plus status as Bangladesh will not require to fulfill conditions of the 32 international conventions.
Moreover, the UK’s Enhanced Preference covers more than 95 percent products of Bangladesh. The 95 percent threshold also covers the main export garment items, Razzaque also said.
Some of the conditions are similar to the EU’s GSP Plus scheme that wants improvements in the rights situation. However, the UK’s requirement related to Rules of Origin (RoOs) is more liberal.
Steps for the bilateral trade growth
For increasing the bilateral trade between the UK and Bangladesh– UK Trade and Investment Dialogue was formed and the second dialogue was held in Dhaka, Bangladesh on 19 February 2023, according to a statement from the British High Commission in Dhaka.
Senior Commerce Secretary Tapan Kanti Ghosh. The British High Commissioner, Robert Chatterton Dickson, and Trade Commissioner for South Asia, Alan Gemmell OBE, led the UK delegation. Both countries agreed to convene the Dialogue annually and its Joint Working Group (JWG) regularly.
The JWG would cover a broad range of trade and investment issues, including mutual barriers to market access and trade, with an agenda agreed between the UK and Bangladesh in advance.
Both countries underscored the importance of the Dialogue and JWG as a step towards achieving an enhanced and stronger relationship.
The UK and Bangladesh agreed to enhance the bilateral trading partnership to increase mutual prosperity ahead of and after Bangladesh’s graduation from Least Developed Country (LDC) status. The UK recognized Bangladesh’s economic growth and resilience, despite the widespread impact of the global pandemic and ongoing global economic crisis.
Bangladesh welcomed the UK’s generous Developing Countries Trading Scheme (DCTS) and acknowledged its role in integrating Bangladesh into the global economy, creating stronger trade and investment opportunities.
The UK reflected commitments under DCTS to international conventions on labor standards and human rights, anti-corruption, climate change and the environment.
The UK and Bangladesh discussed cooperation in areas such as LDC graduation, investment cooperation, pharmaceuticals, ease of doing business, financial sector development, higher education provision, taxation issues and intellectual property protection. Many business leaders have already suggested the government for signing a Free Trade Agreement with the UK for enjoying more trade benefit from UK.
