Export diversification of Bangladesh through FTA

Bangladesh is often touted as a successful case of export-led growth among the least developed countries (LDC). Bangladesh has consistently prioritised export diversification, as reflected in its key national policy documents. These strategies focus on identifying potential sectors ripe for diversification and propose strategic interventions designed to bolster and diversify the country’s export industries. While the ready-made garment (RMG) industry stands out as an outstanding example of Bangladesh’s export prowess, other sectors have lagged, resulting in an export portfolio that remains heavily concentrated in the RMG sector rendering the economy vulnerable to shocks affecting this sector.

CURRENT STATUS OF DIVERSIFICATION: For Bangladesh, export concentration has emerged as a major and long-standing challenge. Before the 1980s, a few primary products dominated Bangladesh’s exports. The growth of the RMG industry resulted in a short-lived phase of diversification in the late 1980s, during which time garment and non-garment exports held nearly equal shares. However, while non-RMG exports grew at a compound annual rate of 7.6 per cent, from $1 billion in the early 1990s to just over $8 billion by 2023, garment exports surged from $1 billion to $47 billion in the same period, with an annual growth rate of 14.6 per cent. Bangladesh’s heavy reliance on a single export product makes its export basket one of the least diversified globally.

LDC GRADUATION AND COMPETITIVENESS OF BANGLADESH: As Bangladesh approaches its graduation from LDC status in 2026, its export competitiveness will face challenges, potentially due to higher tariffs in major export markets. Bangladesh has greatly benefited from the generous market access provisions extended to LDCs by countries such as Australia, Canada, China, the European Union, India, Japan, and the United Kingdom, which have provided tariff-free access. However, the anticipated tariff rise could hinder Bangladesh’s export growth. The heavy reliance on a concentrated export basket means that any negative effects on the garment sector could have significant consequences. Enhancing Bangladesh’s export competitiveness and intensifying diversification efforts should be top priorities as the country prepares for LDC graduation. A key strategy for Bangladesh for addressing challenges related to graduation is to sign FTAs with countries having significant trade potential. In this regard, initiatives have been taken by the government to sign Preferential Trade Agreements (PTAs), Free Trade Agreements (FTAs), and Comprehensive Economic Partnership Agreements (CEPA) with several commercially important countries.

STRATEGIES FOR EXPORT DIVERSIFICATION: EXPLORING THE POTENTIALS OF FTA : Maintaining strong export performance requires investing in and modernising trade, infrastructure and transport logistics. Although there is no one-size-fits-all solution for promoting diversification, a wide range of policies may be necessary to develop and sustain new export products. It’s important to recognise that the diversification challenge may be specific to each country’s context, although certain common factors can always be identified. In the case of Bangladesh, a tailored approach may be required to address the challenges outlined below.

First, the import system must be streamlined to ensure the smooth flow of imported inputs for exports; second, the structure of export incentive needs to be properly aligned (i.e. removing anti-export bias); third, reducing the costs of trade-related services (improved trade and transport logistics); fourth, given significant governance challenges, proactive policies that support exporters in upgrading existing products, entering new geographic markets, and establishing or expanding new business lines abroad could be crucial; fifth, even subsidies of the kind calling for strategic government intervention that encourage investment in bottleneck areas or non-traditional domains, might be required, but those must have sunset provisions to weed out investments that fail.

Finally, signing FTA could be an effective instrument to combine all the strategies as contemporary FTAs cover almost all issues for trade and investment facilitation. In essence, FTAs serve as catalysts for export diversification by combining market access, investment promotion, knowledge sharing, competitive forces, supply chain integration, market comprehension, and policy development. Studies indicate that Peru’s FTAs with Japan, Thailand, and Singapore led to a gradual decrease in the concentration of its exported goods over time.  The Canadian Ministry of Foreign Affairs and International Trade reported that the Canada-Chile Free Trade Agreement led to 90 per cent of the net increase in value of Canadian exports to Chile and over 76 per cent of the net rise in imports by products previously not traded before the agreement. These instances may encourage policy makers of Bangladesh to emphasise more on signing FTA for promoting export diversification and thereby sustaining the economic growth.  

Mohammad Navid Safiullah, Chief Executive Officer (Additional Charge), BFTI, Additional Secretary, Ministry of Commerce. [email protected]

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