To What Extent Do EU Tariff Preferences Benefit Apparel Exporters from Bangladesh? Exploring Implications for Post-LDC Competitiveness
Abstract:
How tariff preferences impact the competitiveness of Bangladeshi apparel exporters constitutes an important issue, considering the country's impending graduation from LDC status. This policy brief uses the concept of 'tariff pass-through' to explore how preferences translate into real benefits for exporters, such as obtaining higher prices for their products, and the consequent implications for maintaining market competitiveness post-LDC graduation. Evidence from various studies shows that the extent of benefit from preferences accrued to beneficiary country exporters varies widely. Given the data limitations, while direct econometric estimation is not possible, it can be inferred that Bangladeshi exporters could gain a price premium of 0.5 to 0.8 for every unit of EU MFN tariff. That is, given the EU MFN tariff rate of about 12 per cent for apparel products, Bangladeshi exporters could have benefited by 6 per cent to 9.6 per cent as a price advantage due to receiving duty-free market access. The impending shift to full MFN rates post-graduation, therefore, poses a risk of eroding these benefits, potentially affecting competitiveness. As the preference pass-through is less than full, estimates of potential export losses due to LDC graduation, as undertaken in many different studies, could be exaggerated. Nevertheless, any sizeable benefit from the existing tariff preference will call for strategies to mitigate any adverse effects due to the withdrawal of preferences triggered by LDC graduation. Improving product quality, moving up the value chain, strengthening backward linkages, and tackling the high cost of doing business are among the factors that can help improve competitiveness in the face of loss of LDC status. Proactive engagements with the EU, seeking more favourable terms in the EU's revised GSP framework to maintain or protract duty-free access beyond LDC graduation, can also help with competitive market positioning.