Bangladesh Trade Regime and the Elusive Quest for Export Diversification
Abstract
Bangladesh’s scheduled graduation from UN LDC status in November 2026 will narrow preference-based market access and expose structural vulnerabilities in an export model dominated by ready-made garments (RMG). This makes the quest for export diversification both essential and urgent. This paper traces the evolution of trade policy and shows that RMG expanded because firms could operate at world prices through bonded duty-free inputs, back-to-back trade finance, and expedited customs, while most non-RMG sectors remained constrained by complex protection, para-tariffs, slow refunds, and uneven standards capacity. At the same time, high tariff protection raised domestic prices and profitability (in domestic sales) well above what could be extracted out of exports, creating a persistent anti-export bias. The paper argues, with research evidence, that it is the protection regime that serves as a binding constraint to export diversification, not competitiveness. As LDC graduation narrows preference margins and tightens rules of origin across major markets, Bangladesh must shift from preference-driven to policy-driven competitiveness, which includes tariff rationalization as a priority. The paper recommends economy-wide replication of the RMG operating regime (rules-based duty-free world-priced imported inputs, standardized trade finance, digital and time-bound duty-drawback), tariff and protection rationalization to WTO-consistent neutrality, and upgrades to standards infrastructure, logistics, and trade finance. Externally, it prioritizes securing EU GSP+, targeted FTAs, and integration into Asian regional value chains. A sequenced 2025–2029 program can reduce concentration risk, broaden the export base, and convert graduation from a vulnerability into a platform for sustained, inclusive growth.