Impact of LDC Graduation on the Textiles and Clothing Sector

International Economics Consulting Ltd (IEC), through its CEO, undertook a report for the WTO on the impact of LDC graduation on the textiles and clothing sector in Bangladesh, Cambodia, Lao PDR, Myanmar and Nepal. The report was covered under the project, LDC Graduation and the WTO: Assisting LDCs to address the trade-related implications of graduation from LDC Status. The overall objective was to assess the trade and market access dimension of the textiles and clothing sector in each country as part of an EIF-WTO project, in cooperation with UN DESA, UNCTAD and ITC.

Through the report it was found that, the removal of LDC-specific preferences threatens the survival of the textiles and clothing industry in the stated countries, particularly if these are faced with tougher Rules of Origin in their new trading arrangements – such as the stringent double-transformation requirement, which is the rule in the EU’s GSP and GSP+ schemes. However, graduation also presents an opportunity to tackle some of the countries’ most pervasive challenges – such as the limited product and market diversification, weak business environment and high trade costs, thereby aiming to capture greater value addition.

Most of the South Asian LDCs have benefitted significantly from a strong export performance that has been fueled by the high preferential margins from tariffs, and favourable rules of origin available for the LDCs under the various unilateral initiatives offered. However, it is worth highlighting that the impacts of trade preferences, while being development friendly and generally benefit women most, can generate unexpected consequences for equality. Graduation will intrinsically represent losing access to preferences through LDC-specific schemes. Overall, the persistently high trade costs and high cost of doing business represent a significant barrier to the development of the T&C sector in the selected countries.

Noting that the global textile and apparel value chain is likely to change post-pandemic, LDCs will need to adopt new strategies that allow them to seize market opportunities for their products even before graduation from the LDC status. In any case, securing trade preferences should also be a top priority for the graduating countries, particularly with the EU, which absorb over half of the graduating LDCs’ T&C exports. Alternatively, the study found that the countries should target to negotiate preferential trade arrangements with the EU, which would allow for continued Duty-Free Quota Free (DFQF) access for their textiles and clothing products as well as single transformation of their clothing exports. Improving the countries’ connectivity and trade facilitation environment will be crucial to ensure the sector’s competitiveness. Moreover, enabling the economic and industrial upgrade should be a priority for policymakers.

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