LDC exit nears but trade deals stayed in waiting mode in 2025

As 2025 winds down, Bangladesh is staring at an approaching deadline with growing concern.

Less than a year remains before the country formally graduates from the least developed country (LDC) club in November 2026. For an economy built on garment exports, this milestone is not just symbolic; it comes with the real risk of losing duty-free access to major markets.

The government has intensified trade talks with key partners to preserve preferential market access, guided by the Smooth Transition Strategy (STS) -- a policy roadmap designed to soften the graduation shock.

Yet, despite nearly two decades of negotiations, most agreements are still in early stages. Apart from a small number of exceptions, few have reached enforcement, leaving exporters in a state of limbo.

Over the years, some progress has been made. One notable breakthrough came yesterday as Bangladesh and Japan concluded negotiations on a bilateral Economic Partnership Agreement (EPA). The deal, once signed and ratified, will grant duty-free access to 7,379 Bangladeshi products to Japanese market, including ready-made garments, while Bangladesh will offer zero-duty entry to 1,039 products from the island nation.

The agreement also covers services, with Bangladesh opening 97 sub-sectors and Japan 120, creating scope for investment and technology transfer. The EPA will now move towards formal signing and approval by Japan's parliament, the Diet, before it comes into force.

South Korea is another relative bright spot.

According to Commerce Secretary Mahbubur Rahman, talks on a separate EPA with Seoul are close to a conclusion. The authorities hope for a near-term signing.

Apart from Japan and South Korea, Bangladesh is juggling preliminary discussions with a number of partners, including the European Union, the Regional Comprehensive Economic Partnership (RCEP), Asean countries, China, India, Australia and the United Arab Emirates.

However, having so many talks has not accelerated progress. In many cases, Dhaka is still waiting for dates to sit across the table from prospective partners.

For slow progress, economists point to structural constraints at home.

For example, the average import tariff of Bangladesh is more than 28 percent, far higher than regional peers such as Malaysia, where rates are around 5 percent.

"High protection discourages potential partners from committing to comprehensive trade agreements," said Zaidi Sattar, chairman of local think tank Policy Research Institute of Bangladesh (PRI).

While lowering tariffs could speed up negotiations, it runs into fiscal realities. Import duties are still a major source of government revenue. Trade policy reform is therefore politically and economically sensitive.

According to the PRI chairman, institutional capacity also poses a barrier.

Bangladesh often does not have sufficient negotiating manpower, and key export-import policy documents are not always available in English. These issues limit the accessibility of foreign counterparts.

Meanwhile, the business community watches the developments anxiously.

High interest rates, inconsistent energy supplies, rising production costs and inflation are already squeezing enterprises, making the timing of LDC graduation particularly challenging.

"Trade agreements take time, and we had urged the government to seek a deferment of LDC graduation," said Anwar-ul Alam Chowdhury (Parvez), president of the Bangladesh Chamber of Industries.

"This is not the right moment for graduation, given the economic pressures businesses are facing," added the business leader.

Garment exporters, who are the backbone of the country's export sector, are especially concerned.

Inamul Haq Khan, senior vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said businesses are critical stakeholders whose concerns often go unheard.

Industry leaders have repeatedly called for a six-year deferment of graduation, citing the absence of major trade agreements and limited preparedness on both public and private fronts.

"The country is going to graduate next year, but it is very unfortunate that we have yet to sign any trade agreements to retain the major trade partners," Khan said.

He warned that the loss of duty-free access could put exports under severe pressure.

"Export incentives have already been reduced, and while government support schemes aim to boost competitiveness, their impact may not be enough to offset the loss of LDC benefits," he added.

Other sectors are also facing the pinch.

Showkat Aziz Russell, president of the Bangladesh Textile Mills Association (BTMA), said primary textile manufacturers are already under strain.

"Cheap yarn imports from India have surged, rising 137 percent over the past year, squeezing domestic spinning mills grappling with inadequate gas supply."

He warned that any setback in the garment sector could jeopardise roughly $25 billion invested in the country's primary textile industry.

Despite the challenges, some policymakers see opportunities.

Mohammad Abdur Razzaque, chairman of local think tank Research and Policy Integration for Development (RAPID), described the Japan EPA as a meaningful milestone.

He said that RCEP has requested documentation to assess Bangladesh's eligibility for membership in January, alongside Hong Kong, Chile and Sri Lanka.

If approved, it would give Bangladesh access to the world's largest trade bloc, added Razzaque.

He said negotiations with the EU should secure the GSP Plus facility, preserving access to European markets.

The stakes are high. At present, about 73 percent of Bangladesh's exports rely on LDC-related duty-free access to 38 countries. Studies suggest losing these preferences could slash up to 14 percent of exports, roughly $8 billion annually.

As the year ends, the status of trade negotiations is clear.

Bangladesh has opened channels, laid out strategies, and crossed a few important milestones. Yet the distance between negotiation and enforcement remains the defining challenge on the country's trade frontier.