Can Bangladesh absorb LDC graduation-induced tariff hikes? Evidence using product-specific price elasticities of demand and markups for apparel exports to Europe
This brief uses elasticity and markup estimates to understand the potential impact of LDC graduation on Bangladesh's competitiveness in the readymade garment industry.
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Razzaque et al. Policy Brief September 2024.pdf
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- Over the past several decades, the readymade garment (RMG) industry has been the main driver of Bangladesh's export growth.
- Bangladesh is set to graduate from the group of LDCs in 2026 – a transition that may lead to the loss of trade preferences in the EU, causing the average tariff on imports of apparel products made in Bangladesh to rise from 0% to approximately 12%. This brief utilises elasticity and markup estimates to understand the potential impact of graduation on the country's competitiveness.
- Bangladesh's significant market share in EU and UK apparel sectors implies that tariff introduction on its exports could initially raise garment prices. Still, subsequent market-wide adjustments might offer a buffer to mitigate some direct impacts of the tariff hikes.
- It is recommended that Bangladesh should focus on high-value-added RMG products that inherently offer greater markups; seize opportunities from the "China plus one" strategy by positioning itself as a reliable alternative to China; and make an all-out effort to retain duty-free market access in the EU for apparel products after LDC graduation.