What the new EU GSP proposal means for our apparel industry
As Bangladesh will be able to continue to enjoy duty-free access in the region if it achieves GSP+, the EU Commission's proposal for the new Generalised Scheme of Preferences (GSP), which includes provisions for achieving GSP+, is crucial for us
The European Union (EU) is the largest destination for Bangladesh's apparel exports. The EU countries combinedly account for about sixty percent of our total apparel exports.
The growth of our apparel export to the EU accelerated due to the duty-free market access Bangladesh has been enjoying in the region as a Least Developed Country (LDC) through the Everything But Arms (EBA) initiative under the EU's GSP scheme.
Bangladesh will no longer be eligible for EU's GSP after being promoted to middle-income status, but it will be able to continue to enjoy duty-free access in the region if it achieves GSP+.
As a result, the EU Commission's proposal for the new Generalised Scheme of Preferences (GSP), which includes provisions for achieving GSP+, is crucial for Bangladesh.
On the 22nd of this month, the Commission adopted the legislative proposal for the new GSP for the period 2024-2034. The Commission proposed improving some of the scheme's key features to better respond to GSP countries' evolving needs and challenges, as well as to strengthen the scheme's social, labour, environmental, and climate dimensions.
There are several takeaways for Bangladesh from the new GSP proposals.
It removes the import-share criterion, which was one of the eligibility requirements for obtaining GSP+.
According to the import share criterion, a country's share in the EU's total import under the scheme should not be more than 7.4 percent.
Given that Bangladesh is a significant supplier of apparel and other products to the EU market, the relevant figure for Bangladesh is as high as 26 percent, which was considered a major issue in obtaining our GSP+. But with the proposed removal of the import share, obtaining GSP+ for Bangladesh will be much easier.
The EU's GSP sustainable development principles are currently based on a list of 27 relevant international conventions. The new GSP proposal updates this list and adds six new international instruments, which have already been ratified by Bangladesh.
Another major provision made in the proposals is: "A product can lose tariff preferences if the share of its imports from a specific country exceeds a certain threshold. This threshold will now be lowered by ten percentage points in order to exclude large, competitive industrialised producers in GSP countries. This in turn will leave more space for poorer developing countries."
The new threshold for generalised products is 47 percent, and for textiles, it is 37 percent. However, according to Eurostat data, Bangladesh's apparel export to the EU in 2020 was $12 billion, representing only 18 percent of total exports, and in 2019, it was $15 billion, representing 19 percent of total exports. So, this will not pose any major threat to us.
However, there are some challenges that Bangladesh must address through diplomacy in order to achieve GSP+ or properly utilise the trade preference.
For example, under the EBA, LDCs were allowed preferential "rules of origin" (RoO) permitting "single transformation" (the need to do only one conversion of inputs to another product) in the production chain of the exportable.
But preference eligibility under the GSP+ scheme demands "double transformation". We need to persuade the EU to change the condition of "double transformation" to "single transformation'' as Bangladesh still imports a large percentage of woven fabrics to manufacture garments.
However, there is a scope for regional cumulation for meeting the requirements of double transformation. One such provision allows imports from South Asian countries (including India) to be accounted for in the calculation of the double transformation.
The regional cumulation provision can also be executed by accounting for imports from countries with which the EU has free trade agreement (FTA). Two countries, namely Vietnam and South Korea - having FTA with the EU - are relevant for Bangladesh in this respect.
But both Vietnam and India are two major competitors of Bangladesh in apparel export and we mainly import fabrics from China.
The proposal emphasises the importance of ensuring a smooth transition for all countries set to graduate from LDC status over the next decade.
In this regard, it is worth noting that our Commerce Minister, Tipu Munshi, MP, recently urged the EU to grant Bangladesh a 12-year transition period instead of the usual 3 years.
The European Parliament and the Council will now discuss the proposal. The current GSP Regulation will expire on 31 December 2023. Once adopted, the new GSP Regulation will be in effect from 1 January 2024 to 2034.
I am hopeful that the Bangladesh Mission in Brussels will convey our concerns to the EU in order to ensure a smooth transition for Bangladesh and allow it to benefit from the trade preference.
Abdullah Hil Rakib is the Managing Director of Team Group. He is also a Director of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and a member of the sub-committee from BGMEA in the GSP+ Taskforce for Bangladesh.