The UN Department of Economic and Social affairs requires the fulfilment of three criteria in order for a country to be eligible to move from LDC (Least Developed Country) to Developing Country Status. As Bangladesh, a country of more than 160 million people and an economy worth $686.5 billion, enters a stipulated six-year graduation period to become a “developing country” by 2024, we take a look at the criteria for eligibility and the trade implications once the status change is achieved and the way forward in order to make the change to developing country status a reality.
There are three criteria required to be fulfilled to change status from LDC to Developing Country. Bangladesh shows its current fulfilment of these criteria in terms of these statistics (1):
- Criteria 1: A country needs a Gross National Income (GNI) per capita of $1,242. Bangladesh’s current per capita income is $1,610.
- Criteria 2: Human Assets Index (HAI) needs to be at 66 or above. Bangladesh’s HAI is 72.9.
- Criteria 3: Economic Vulnerability Index below 32. Bangladesh’s EVI is 25.
A country needs to fulfil at least two out of three criteria during consecutive three-year reviews in order to be eligible to change its status from a Least Developed Country to a Developing Country. According to Daniel Gay, the inter-regional adviser on LDCs, Daniel, who wrote on a U.N. website in October 2017 that Bangladesh was likely to be the first LDC to graduate after meeting all three criteria.(5)
Trade implications of Bangladesh achieving Developing Country status (2)
Bangladesh’s prior status as Least Developed Countries (LDC) entitled the country to the European Union’s Generalised Scheme of Preferences (GSP), an initiative which allows vulnerable developing countries to pay fewer or no duties on exports to the EU, giving them vital access to the EU market and contributing to their growth (4) .
The most observable trade-related ramification of LDC graduation is the loss of this preferential market access. This includes benefits such as the EU’s EBA (Everything But Arms) initiative and the concessions granted to the LDCs under the global system of trade preferences (GSTP) among the developing countries. The EBA benefit currently provides LDCs various allowances and tariff concession such as duty-free, quota-free access for all products except arms and ammunition. LDCs also benefit from exemption from trade-related aspects of intellectual property rights (TRIPS) agreement. These privileges contribute to helping the LDC in managing product prices and administrative burdens, a benefit which will no longer apply to Bangladesh after a certain period of achieving Developing Country status.
Benefits of these preferential opportunities include
- higher prices of existing exports
- price gains from diverting sales from other export markets or domestic markets
- increased value added through expansion of production.
Loss of Bangladesh’s preferential facilities in major export destinations will impact export, sustainable GDP growth and other socio-economic indicators e.g. poverty and employment generation as the cost of overseas funds will increase (2).
The transition process has to be introduced in a gradual and predictable manner so that it does not disrupt the development progress of the graduating country. Otherwise, Bangladesh stands to lose exports between 5.5 per cent and 7.5 per cent as per an UNCTAD projection in 2016.
Other areas which will be affected are loan terms and conditions which are more lenient for LDCs and other low-income countries (LICs) compared to terms and conditions provided under the same conditions to a middle-income country (MIC).
However, despite these challenges, the EU makes allowances for a smooth transition period, giving at least three years for countries that graduate from the LDC category. The objective is to alleviate any adverse effects which may be caused by the removal of the tariff preferences granted under the special arrangement for LDCs. (3)