As Bangladesh is entering one of the most consequential economic transitions in its post-independence history, a major new policy study warns that the country's trade policy apparatus is not yet equipped to handle what lies ahead.
The paper titled “Strengthening Trade Competitiveness: Bangladesh's Strategy for Effective FTAs and EPAs”, authored by Prof Selim Raihan of Dhaka University and Executive Director of the South Asian Network on Economic Modeling (SANEM), was published recently under a joint SANEM and Australian High Commission policy paper series.
Using the Global Trade Analysis Project (GTAP) general equilibrium model, it simulates 10 distinct trade scenarios to measure the actual impact on Bangladesh's welfare, GDP, exports, and industrial structure under different policy choices.
Bangladesh's graduation from Least Developed Country (LDC) status, formally scheduled for 2026, has long been framed as a development milestone. The paper acknowledges that reality but immediately pivots to the risks it carries.
Bangladesh’s structural advantage of preferential market access, particularly the European Union's Everything But Arms (EBA) initiative, is now eroding as the recently concluded India-EU free trade agreement, the paper warns, will narrow Bangladesh's historical margin sharply, if not eliminate it altogether.
Bangladeshi exports will face standard tariff regimes when the EU and UK transition periods for Bangladesh's LDC preferences expire by 2029, unless new arrangements are secured.
The GTAP model quantifies the cost of inaction. In the post-LDC baseline scenario, where Bangladesh graduates with no compensating trade agreements, welfare falls by 2.4 percent of GDP, real GDP contracts by 1.5 percent, and exports shrink by 8.7 percent.
The sharpest blow lands on textiles and clothing, which contracts by nearly 8 percent. The paper calls this the "cliff-edge" effect.
"Trade agreements can support growth," the paper states, "but domestic reforms are the primary driver of sustained and inclusive welfare gains."
Japan EPA
The paper gives particular attention to the Economic Partnership Agreement (EPA) signed with Japan in February, Bangladesh's most comprehensive bilateral trade deal to date, and its first substantive preferential agreement beyond a limited arrangement with Bhutan inked in 2020.
The model projects the Japan EPA will deliver a welfare gain of 0.7 percent of GDP, a GDP rise of 0.8 percent, and export growth of 3.0 percent. The paper characterises these as "reliable and broad-based", the kind of stable, manageable adjustment appropriate for a country in transition.
But it cautions against complacency. The agreement covers over 7,000 tariff lines and extends into services, investment, intellectual property, labour standards, and regulatory cooperation.
The paper said customs systems must be modernised, rules of origin compliance strengthened, and quality and hygiene standards met for Japanese import approval. Without institutional upgrading, preferential access will remain largely theoretical.
"The Japan EPA is both an opportunity and a test," the paper states. "It imposes a need for preparedness that goes beyond the normal trade policy agenda."
China and RCEP
The two scenarios generating the largest export figures – a China FTA and RCEP accession – come with a prominent structural warning that the paper treats as among its most important findings.
In both cases, the textiles and clothing sector booms dramatically, up 10.99 percent under a China FTA and 13.36 percent under RCEP accession. But light manufacturing contracts by approximately 9 to 10 percent and heavy manufacturing by 8 to 10 percent in both scenarios.
The paper described this as "a classic case of specialisation driven by comparative advantage, but in a potentially unbalanced way."
Pursuing these deals risks deepening Bangladesh's dependence on garments while hollowing out broader industrial capacity through import competition from stronger regional partners, it said.
"This is a critical cautionary point," the paper notes. "The rise in exports is significant, but this structural result may not be so positive if it means over-relying on one sector and the erosion of industrial diversity."
The paper also flags an important modelling caveat: both scenarios assume full tariff liberalisation, whereas real-world RCEP commitments involve phased reductions, sensitive lists, and varying degrees of openness. Actual gains would be lower and more gradual, as would adjustment costs.
India FTA and The US Framework
The India FTA scenario reveals a pattern the paper considers diagnostically important. Exports rise by 5.7 percent, a solid headline figure, but welfare gains amount to only 0.2 percent of GDP and GDP growth just 0.3 percent.
The paper attributes this divergence to the fact that India already grants duty-free or near-duty-free access to a large share of Bangladeshi exports.
The incremental tariff benefit of a formal FTA is therefore limited. Meanwhile, import competition from India, particularly in light manufacturing, which contracts by 4.06 percent under this scenario, erodes gains elsewhere.
"The India FTA seems to solidify Bangladesh's comparative advantage in garments, but at the expense of undermining other sectors of industry," the paper concludes.
It evaluates the emerging bilateral trade framework with the United States (US) with notable candour. The arrangement under discussion offers selective tariff relief rather than comprehensive liberalisation, including conditions such as zero-tariff access on US imports, procurement commitments for American aircraft and energy products, and regulatory alignment in certain sectors.
The paper identifies a potential imbalance between the obligations Bangladesh would assume and the export gains it stands to receive.
It does not recommend withdrawal from negotiations, acknowledging that engagement with Washington carries geopolitical and investment-signalling value. But it warns that Bangladesh must enter such discussions with clear priorities and avoid binding itself to long-term commitments that do not serve its development interests.
Gulf FTA
The Gulf Cooperation Council (GCC) scenario, a newer inclusion in the modelling exercise, produces modest but targeted results: welfare up 0.2 percent, with exports and imports each rising 1.7 percent. The standout sectoral gain is in processed food, which registers the highest food-sector performance across all ten scenarios.
The paper argues the GCC holds genuine diversification potential, particularly given Bangladesh's large expatriate community and the expanding global halal economy spanning food, pharmaceuticals, and consumer goods.
However, it stresses that tapping this market requires credible halal certification systems, reliable supply chains, and compliance with international quality standards, none of which are yet fully in place.
Critical Gaps
Alongside the modelling, the paper conducts an extensive audit of Bangladesh's institutional readiness and identifies several critical shortfalls.
On negotiating capacity, it finds a shortage of skilled trade negotiators and legal experts capable of handling the complexity of modern FTAs and EPAs.
Responsibilities are fragmented across multiple ministries, institutional memory is weak, and private sector consultation is informal and inconsistent.
On trade defence, the paper notes that tools such as anti-dumping duties and safeguard measures, essential as markets open, are rarely deployed. The Bangladesh Trade and Tariff Commission lacks sufficient staffing and technical expertise. Awareness among affected firms of how to file cases is low, leaving domestic industries exposed to unfair import competition without adequate remedy.
On the fiscal dimension, the paper raises a concern that trade policy discussions frequently overlook: import duties constitute a major share of government revenue.
As Bangladesh liberalises tariffs under FTAs, fiscal pressures will mount. This must be addressed through a parallel transition to stronger domestic taxation, particularly a modernised VAT system and cannot be deferred.
Four-Pillar Framework
Drawing on both the modelling results and the institutional audit, the paper advances a four-pillar strategic framework.
The first pillar calls for sequencing trade partners by strategic priority, beginning with quality agreements such as Japan that build institutional capacity and establish compliance benchmarks, then engaging China and India more carefully in the medium term, and approaching broader regional frameworks like RCEP only after domestic readiness is secured.
The second pillar recommends establishing a dedicated FTA Negotiating Cell within the Ministry of Commerce, a permanent, multidisciplinary team capable of providing evidence-based negotiating positions, retaining institutional memory across negotiations, and coordinating across government.
The third pillar focuses on domestic reform as the primary driver of competitiveness: simplifying the tariff structure, modernising customs administration through a National Single Window, and investing in export diversification into pharmaceuticals, footwear, agro-processing, and higher-value-added garment segments.
The fourth pillar emphasises proactive trade diplomacy, engaging the WTO actively to preserve post-LDC policy flexibilities, building coalitions with other developing countries to strengthen Bangladesh's negotiating voice, and securing generous transition periods within agreements to allow industries adequate time to adjust.
The paper's overarching argument is captured in a phrase it returns to repeatedly: bridging the gap between access and ability. Trade agreements can open markets, but they cannot ensure that firms are ready to compete. They can reduce tariffs, but not structural weaknesses in productivity, logistics, or compliance.
The paper recommends the creation of a National FTA Roadmap with specific milestones and annual performance assessments, situating trade agreements within a cross-governmental and economy-wide strategy rather than treating them as isolated diplomatic achievements.
"The effectiveness of Bangladesh's FTA and EPA strategy will not be judged by the number of agreements signed," the paper concludes. "It will be judged by outcomes, whether exports grow and diversify, whether firms become more competitive, and whether new opportunities translate into better jobs and higher incomes."