Originally posted in The Business Standard on 27 January 2025
As Bangladesh nears its LDC graduation, trade facilitation becomes crucial for maintaining export competitiveness. With the loss of preferential tariff access, improving logistics, customs processes, and regional trade connectivity is vital.
The discourse surrounding the competitiveness of Bangladesh’s export sector often focuses predominantly on tariff-related issues, alongside the matter of preferential market access for Bangladesh’s exports.
This is particularly evident as our single most important export, ready-made garments, faces very high import tariffs in almost all major markets. For example, while average tariff rates in the EU, Canada, Japan, and the USA range between 3% and 5%, tariffs on apparel are significantly higher, ranging between 10% and 15%. Naturally, the loss of preferential access to these markets—except in the USA, where the US-GSP scheme does not cover most apparel items for Least Developed Countries (LDCs)—will have a substantial impact on export prices, and consequently, Bangladesh’s competitive strength in those markets. Given Bangladesh’s upcoming LDC graduation and the erosion of tariff preferences, it is clear that the country will need to explore other avenues to maintain and raise its export competitiveness in the global market.
Often overlooked, however, is the crucial issue of trade facilitation, which must be recognised as a key driver of Bangladesh’s export competitiveness. Trade facilitation encompasses a broad range of areas, including paperless digital trade, electronic submission of customs documents, automated customs clearance, e-payment of customs duties, electronic exchanges of certificates of origin, electronic applications for customs refunds, digitalisation and electronic exchange of information throughout the supply chain, and the establishment of integrated customs stations with interoperable software and systems. Weak trade facilitation and the resulting cost escalation are equivalent to additional import tariffs. This raises the costs of exporting a product and significantly undermines the competitive strength of exporters. Moreover, higher trade facilitation costs also increase costs for domestic importers, which adversely affects consumers, producers, and exporters dependent on the import of inputs and intermediate goods.
Benefits of efficient trade facilitation
A significant factor impeding Bangladesh’s export diversification beyond apparel is the high cost and inefficiency of trade facilitation imposed on traders and producers. Generally, non-apparel items in Bangladesh’s export basket face much lower tariffs in the global market. However, the benefits of preferential market access for these items are limited due to the high costs incurred by exporters as a result of weak logistics and trade facilitation. This inefficiency leads to time delays and cost escalation, which hinders the ability of exporters to compete effectively. Apparel exporters, however, can somewhat offset these high costs, owing to the significant preference margin from duty-free market access in most markets, excluding the US market.
A review of the UN ESCAP–World Bank International Trade Cost Database (2017) indicates that trade costs between Southeast Asian countries and South Asian economies are estimated at 130% of tariff equivalents. This is higher than the trade costs between ASEAN and the EU (105%) or between SAARC and the USA (112%). A World Bank study (2020) found that the cost of exporting from Dhaka to Kathmandu was 1.8 times higher than exporting from Dhaka to São Paulo in Brazil. Furthermore, the NBR’s time release study, conducted in 2022 as part of the WTO’s Trade Facilitation Agreement (TFA) under Article 7.6, found that the average time from arrival to release in Bangladesh was approximately 11 days and 6 hours for sea cargo, 7 days and 11 hours for air cargo, and 10 days and 8 hours for land cargo. Compared to Bangladesh’s competitors, these higher costs weaken the country’s competitive strength in both regional and global markets.
The urgency of cost-effective trade facilitation
With Bangladesh’s scheduled LDC graduation set for November 24, 2026, remaining competitive in international markets will depend critically on the country’s capacity to significantly reduce trade-related costs when tariff preferences are no longer available (even though some trading partners may extend preferential treatment for a limited period). The importance of implementing effective and efficient trade facilitation measures can no longer be overstated. Bangladesh is a signatory to the WTO’s Trade Facilitation Agreement (TFA), which was signed at the Ninth WTO Ministerial Conference in Bali, Indonesia, and came into force in 2017 following ratification by two-thirds of WTO members, including Bangladesh. The TFA requires member countries to implement several measures to expedite cross-border movement, inspection, release, and clearance of goods, with the goal of reducing trade-related costs.
The agreement outlines specific measures in four key areas to facilitate trade transactions: transparency, simplification and modernisation, harmonisation, and standardisation. Full implementation of the TFA is expected to reduce trade costs by an average of 14.3% and increase global trade by up to one trillion USD. In many cases, the benefits from improved trade facilitation are expected to far exceed the benefits derived from tariff preferences.
As an LDC, Bangladesh has been granted flexibility in implementing the 36 provisions of the TFA, which are divided into three categories: Category A (provisions to be implemented immediately), Category B (to be implemented within a time frame), and Category C (provisions to be implemented subject to the availability of international support). However, as Bangladesh transitions to a non-LDC developing country, it will be required to fully comply with the TFA measures applicable to developing countries. Failure to comply could lead to disputes with partner countries at the WTO Dispute Settlement Body (DSB).
For Bangladesh, the substantial dividends arising from efficient and cost-effective trade facilitation should be seen as a key element of trade competitiveness rather than merely a compliance obligation. Therefore, investment in trade facilitation measures must be prioritised in Bangladesh’s export and trade policymaking, with a view to offering long-term value for the resources invested.
Required actions
Currently, only about 16% of Bangladesh’s total exports are destined for South Asian, East Asian, and South-East Asian countries. One of the primary reasons for this underperformance in accessing regional markets is the weak state of trade facilitation, particularly regarding land-based trade routes. This undermines Bangladesh’s ability to convert its comparative advantages into competitive advantages in neighbouring countries. To address this, it is imperative to operationalise the BBIN (Bangladesh, Bhutan, India, Nepal) Motor Vehicle Agreement, which was signed in 2015, and implement the finalised Standard Operating Procedures (SOPs). Additionally, enhancing railroad and water connectivity within South Asia, advancing the BIMSTEC Multi-modal Transport Strategy, and revitalising the BCIM (Bangladesh-China-India-Myanmar) Economic Corridor are crucial steps for Bangladesh. With the appropriate trade facilitation measures in place and deeper multi-modal connectivity across South and broader Asia, Bangladesh will stand to gain significantly in terms of trade competitiveness through improved investment, transport, logistics, and trade links.
In recent years, Bangladesh has introduced several measures aimed at improving trade facilitation. These include paperless trade, the introduction of ASYCUDA++ for customs clearance, and the automation of land ports, particularly the Benapole land customs station, which handles about 90% of bilateral trade with India. Other initiatives include enhancing coordination among various agencies at Chattogram seaport and improving cargo handling capacity at Dhaka airport to reduce release and turnaround times. Bangladesh has also formulated the National Logistics Policy 2024, which aims to increase exports, reduce business costs, and attract investment. Furthermore, the National Board of Revenue (NBR) launched the National Single Window (NSW) in early January 2025, which will facilitate simplified trade procedures. Initially, seven out of 19 customs agencies are integrated into the system, and the platform is expected to handle 119 certifications and permissions.
The operationalisation of the Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific—of which Bangladesh is a signatory—requires urgent attention. Additionally, the increasing emphasis on Green Trade Facilitation (GTF) by key trading partners of Bangladesh will require significant reductions in the carbon and environmental footprints associated with trade. GTF is likely to become the new norm in global trade, and Bangladesh must remain engaged in global discussions to ensure that the evolving demands of trade facilitation do not become protectionist barriers in the hands of major global players.
As Bangladesh prepares for its LDC graduation and the erosion of preferential market access, addressing the issue of trade facilitation has become an urgent priority. Bangladesh’s policymakers, ministries, trade bodies, and associations must prioritise concrete measures to improve trade facilitation efficiency. The ongoing initiatives must be expedited to ensure Bangladesh’s future export competitiveness. The country’s ability to reduce trade costs through cost-effective trade facilitation will be crucial in maintaining its competitive edge in the global market.