LDC graduation is simultaneously a source of excitement and anxiety in Bangladesh. On one hand, it stands as a testament to the nation’s socio-economic progress, recognised by the global community. On the other, it entails the phasing out of LDC-specific tariff preferences—benefits that played a catalytic role in Bangladesh’s garment export success and helped steer the country from a largely agrarian base toward a manufacturing-led growth trajectory—with potentially significant implications for future competitiveness.

The trade-related international support measures for LDCs have long been justified on both developmental and equity grounds. By granting preferential market access—through reduced or zero tariffs—and allowing for greater flexibilities in relation to the rules and commitments of the World Trade Organization (WTO), the global trading system recognises the structural disadvantages faced by LDCs. These provisions are intended not as permanent entitlements but as transitional tools to facilitate their integration into the global economy—enabling them to build productive capacities, diversify exports, and gradually converge with more advanced economies. The story of Bangladesh is a case in point. The country today boasts an export basket worth around US$50 billion, over 80 per cent of which consists of textiles and apparel. While this reflects a lack of diversification, it is nevertheless a remarkable achievement that Bangladesh has emerged as the world’s second-largest apparel exporter. LDC-specific tariff measures played a monumental role in making Bangladesh a garment export leader, with a staggering 73 per cent of its exports enjoying tariff-free access in destination markets. Compared to other LDCs, Bangladesh has been uniquely successful in exploiting the trade advantages associated with LDC status (see Table 1). Yet, the very success that transformed the country into a global apparel powerhouse has now become a source of concern: can Bangladesh absorb the anticipated tariff shocks once it graduates from LDC status?

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* This blog is an outgrowth of a policy brief prepared with support from the International Growth Centre (IGC). The authors are, respectively, Chairman, Research and Policy Integration for Development (RAPID); Senior Country Economist, International Growth Centre, Dhaka; and Senior Research Associate, RAPID. Any errors, omissions, or views expressed herein are solely those of the authors and do not necessarily reflect the positions of the IGC or affiliated institutions.

Table 1: Breakdown of Asia-Pacific LDC exports by types of tariffs they face on their exports

Country	LDC scheme preference	Other preference	Subject to MFN tariffs due to			Remarks
			Preference cannot be utilised	No preference granted in importing countries	MFN is zero tariff (i.e., no scope for preference)
Bangladesh	73%	0%	7%	19%	1%	19% of Bangladesh’s exports face MFN tariffs, which is mainly attributable to unavailability of any trade preferences in the U.S. market. Additionally, 7% of exports are subject to MFN rates due to non-compliance with RoO criteria.
Bhutan	10%	85%	3%	0%	2%	Most of Bhutan’s exports are destined for India, where they receive preferential treatment under a bilateral FTA with India. This FTA is not related to LDC status.
Kiribati	2%	0%	6%	4%	88%	Kiribati's primary export is fish, of which approximately 86% is destined for Thailand, where the MFN tariff on such product is zero.
Lao PDR	6%	0%	16%	32%	46%	Approximately 50% of Lao PDR exports are minerals facing MFN zero tariff in destination countries.
Myanmar	25%	1%	26%	0%	49%	Myanmar primarily exports minerals and apparel products, with minerals generally have MFN zero tariff.
Nepal	16%	58%	4%	0%	22%	Almost 60% of Nepal’s exports are directed to India, where they receive preferential treatment under a bilateral FTA (unrelated to LDC status) with India.
Solomon Islands	12%	0%	10%	73%	5%	Its main exports, wood and articles of wood, usually have MFN zero tariff in importing destinations.
Timor-Leste	0%	0%	1%	2%	97%	Its main exports, minerals products, face MFN duty-free in importing countries.

The EU and the USA are the two largest export destinations for Bangladeshi products, though they offer contrasting trade terms. Bangladesh enjoys tariff-free market access in the European market, while no such preference is available in the US. Export data from these two destinations clearly illustrates the significance of LDC-specific tariff preferences for Bangladesh. Between 2013 and 2019, Bangladesh’s exports to the USA increased from US$5.6 billion to US$6.3 billion—a growth of around 12 per cent. During the same period, exports to the EU soared from US$14.5 billion to US$21.5 billion, reflecting an almost 50 per cent increase. As China’s share in EU apparel imports declined—from over 40 per cent in 2011 to just above 22 per cent in 2023—Bangladesh, by leveraging its tariff preferences, emerged as the largest beneficiary, raising its market share from around 6 per cent to 21 per cent. A similar fall in China’s share has occurred in the US market as well; however, the main beneficiary there has been Viet Nam, while Bangladesh has gained only modestly. So what are the options for Bangladesh to mitigate the potential impact of future tariff hikes? The good news is that there are several viable pathways. A strategic combination of these—pursued in the lead-up to LDC graduation—could help Bangladesh secure continued or improved trade terms while strengthening its export competitiveness. The following are a few critical options worth highlighting.

1. Engaging with the EU to secure favourable post-LDC trade terms: If Bangladesh can secure favourable post-LDC trade terms in the EU, which accounts for nearly half of its total exports, the most immediate and significant challenges stemming from graduation would largely be mitigated. Factoring in the UK’s DCTS tariff preferences and Australia’s granting continued duty-free market access, the share of exports benefiting from the almost the similar LDC type preferences would rise to more than 60 per cent, substantially easing the transition.
In its engagement with the EU, Bangladesh should focus on two strategic priorities: first, obtaining GSP+ status by fulfilling the necessary conditions related to economic vulnerability and the ratification and implementation of 32 international conventions; and second, negotiating a waiver from the EU’s safeguard provisions—specifically Article 29 of the proposed GSP regulation—which currently disqualifies Bangladesh’s apparel exports from preferential treatment due to its market share exceeding the threshold. Without such a waiver, even if GSP+ status is granted, it would not provide duty-free access for garments. In parallel, Bangladesh must also advocate for more flexible rules of origin, particularly the retention of the single-stage transformation requirement for apparel, to maintain its competitiveness. With the EU’s extension of its current GSP scheme until 2027, Bangladesh has a valuable window of opportunity to proactively engage in consultations and push for critical adjustments that would help safeguard its export interests in the post-LDC landscape.

2. Attract FDI for export diversification and backward linkages: Despite Bangladesh’s impressive garment export performance, FDI inflows remain critically low, below, on average, 1 per cent of GDP during 2012-23, significantly trailing behind countries like Cambodia (12.75%), Viet Nam (4.69%), and Malaysia (3.21%). In contrast, Viet Nam’s export success has been largely driven by FDI, which accounts for 60 per cent of its manufacturing exports. For Bangladesh, FDI will be particularly crucial for expanding non-garment exports, as these sectors suffer from a lack of technological know-how, weaker product standards and compliance, and limited integration into global value chains. Additionally, for export diversification within the garment sector, FDI will play a vital role in developing backward linkages for man-made fibre (MMF)-based apparel production. Without a strong domestic MMF industry, Bangladesh risks losing competitiveness to countries already integrated into global synthetic textile supply chains. Given the substantial investment required for MMF production, relying solely on domestic capital will be insufficient, making FDI essential for breaking into this high-value segment.

3. Ensuring macroeconomic stability: This is critical in preparing for a smooth graduation, as it directly impacts export competitiveness, investment inflows, and long-term economic resilience. By fostering predictability, a stable macroeconomic environment, characterised by controlled inflation, fiscal discipline, and a competitive exchange rate, is essential for mobilising investment from both domestic and foreign sources. In the absence of LDC-specific trade preferences, export price competitiveness must be maintained, making inflation control a priority to prevent cost-driven erosion in global markets. Similarly, a stable and competitive exchange rate regime will help ensure e exports remain attractive, remittance inflows remain steady, and external imbalances are minimised. Sound economic management, supported by adequate foreign exchange reserves and prudent fiscal policies, not only safeguards trade performance but also bolsters investor confidence. Given the current inflationary pressures and foreign exchange challenges, prioritising macroeconomic stability must be at the forefront of Bangladesh’s LDC transition strategy to sustain export-driven growth and long-term economic resilience.

4. Adopting sustainability measures, strengthening product standards and enhancing compliance: In the post-LDC era, Bangladesh’s export competitiveness will increasingly depend on meeting evolving global standards—not just on cost advantages. In the post-LDC era, Labour rights and workplace safety have become central to trade policy in key markets, and access to schemes like the EU’s GSP+ will hinge on demonstrable progress in these areas. Failing to comply risks not only lost market access but reputational damage that can undermine broader trade ambitions. Equally, strengthening product standards and adopting sustainability measures—including environmental compliance—will be essential for moving into higher-value sectors and responding to emerging regulations such as the EU’s Corporate Sustainability Due Diligence Directive and Cross Border Adjustment Mechanism rules. Investing in compliance now is not optional—it is a necessary step towards securing long-term export resilience.

Bangladesh’s graduation from LDC status should also be seen as a transition that demands strategic reforms to preserve and strengthen its competitiveness in the global trading system. Trade negotiations, trade policy reform, and sound macroeconomic management—all are essential tools that, if applied judiciously and in a timely manner, can support the shift towards a more resilient export sector and economy. It is time to turn challenges into opportunities by aligning reforms with national priorities and reinforcing the foundations for sustained and inclusive growth.