Trade Intelligence

Executive Summary

Bangladesh's merchandise trade registers total exports of $35.73 billion against imports of $66.54 billion, producing a trade deficit of $30.82 billion. The ready-made garment sector accounts for 88.1% of total exports at $31.48 billion, representing one of the highest single-sector export concentrations among major developing economies. With LDC graduation scheduled for 2026, the impending loss of preferential market access under the EU's Everything But Arms (EBA) initiative and various GSP schemes adds strategic urgency to the dual imperatives of export diversification and trade agreement negotiation. The trade-to-GDP ratio of 35.2% underscores Bangladesh's relatively modest integration into global value chains compared to peers like Vietnam (200%+) or Thailand (120%+).

Trade Balance and Structural Dynamics

Bangladesh's trade deficit of $30.82 billion reflects a structural feature of the economy rather than a cyclical aberration. The country is a net importer of capital goods, industrial raw materials, petroleum products, and food grains, all essential inputs for a rapidly industrializing economy with limited domestic natural resource endowments. Exports contracted at -17.1% year-on-year while imports fell at -5.2%, widening the trade gap.

The trade-to-GDP ratio of 35.2% is notably low for an economy that aspires to upper-middle-income status. Vietnam's trade-to-GDP ratio exceeds 200%, reflecting deep integration into global electronics and manufacturing supply chains. Even India, with its large domestic market, posts a trade-to-GDP ratio of approximately 45%. Bangladesh's low ratio signals that substantial capacity exists to expand trade participation, but this requires addressing the structural bottlenecks in trade facilitation, logistics, and the investment climate that currently constrain integration.

The composition of imports is heavily weighted toward intermediate goods and energy. Cotton, yarn, and fabrics for the garment sector constitute a significant share of import expenditure, creating a circular dependency: the RMG sector generates the bulk of export earnings but also drives a substantial portion of import demand. The estimated petroleum import bill of $10.0 billion, with WTI at $99.89 per barrel, represents a persistent structural drain on foreign exchange reserves. Every $10 per barrel increase in oil prices adds an estimated $1.5-2.0 billion to the annual import bill.

RMG Dominance and Diversification Challenge

The garment industry's 88.1% share of total exports places Bangladesh second only to China in global garment production by value. RMG exports totaled $31.48 billion, split between knitwear (52.7%) and woven garments (47.3%). The knitwear segment has been gaining ground, reflecting a shift toward higher-value-added products and greater domestic backward linkage capacity.

This concentration represents a dangerously high level of risk. Non-RMG exports amount to just $4.24 billion (11.9% of total), a figure that includes pharmaceuticals ($215 million), ICT/ITES services ($850 million), leather goods, frozen fish and shrimp, and jute products. Each of these sectors operates at subscale relative to the garment industry.

The contrast with Vietnam is instructive: over the past decade, Vietnam successfully diversified its export base from textiles into electronics, with Samsung alone accounting for a quarter of Vietnamese exports. Cambodia, by contrast, demonstrates the risk of the Bangladesh path: with an RMG share exceeding 75%, Cambodia remains similarly vulnerable to demand shocks and preference erosion. Bangladesh's diversification challenge is compounded by the absence of anchor foreign investments in non-garment manufacturing, the kind of large-scale FDI commitments that transformed Vietnam's export profile.

Pharmaceutical exports at $215 million represent a bright spot: Bangladesh's generics industry, benefiting from TRIPS flexibilities available to LDCs, serves 160+ countries. However, Scheduled LDC graduation on 24 November 2026 will trigger a transition period for pharmaceutical patent compliance that could constrain this growth pathway. ICT/ITES exports at $850 million are growing rapidly from a small base but require sustained investment in digital infrastructure, skills development, and quality certification to reach meaningful scale.

Market Concentration and Destination Risk

Bangladesh's export geography is heavily concentrated. The EU absorbs 46.0% of total exports, the US 18.3%, and the UK 8.1%, meaning that three Western market blocs account for approximately 72% of all export revenue. This creates a triple vulnerability: macroeconomic slowdowns in these markets directly reduce garment orders; protectionist shifts (such as the EU's proposed Carbon Border Adjustment Mechanism) could impose new compliance costs; and the loss of preferential access post-LDC graduation will simultaneously affect the single largest market.

On the import side, China (25.4%) and India (14.8%) together supply approximately 40% of Bangladesh's imports. China dominates in machinery, electronics, textiles, and intermediate goods, while India supplies cotton, petroleum products, and agricultural commodities. This dual dependency on two large neighbors for inputs creates supply chain risks, particularly given geopolitical uncertainties in the Indo-Pacific region.

Geographic diversification of both exports and imports is a strategic imperative. Japan, South Korea, and the ASEAN bloc represent underpenetrated export markets with high purchasing power and growing demand for competitively priced consumer goods. Africa, with its rapidly growing middle class and underserved consumer markets, represents a longer-term frontier opportunity, particularly for pharmaceuticals and light manufactured goods.

LDC Graduation and Trade Preference Erosion

Bangladesh's scheduled LDC graduation on 24 November 2026 represents the most consequential trade policy event in the country's recent history. The immediate implications include:

• EU EBA loss: Duty-free, quota-free access to the EU market under EBA will transition to the standard GSP or GSP+ regime, imposing tariffs of 9-12% on garment exports. With the EU absorbing 46.0% of exports, this tariff shock could reduce RMG price competitiveness significantly against competitors who retain preferential access (Cambodia, Myanmar) or compete on product sophistication (Vietnam, Turkey).

• GSP recalibration: The US GSP does not currently cover garments (Bangladesh was suspended from US GSP in 2013 following the Rana Plaza disaster), but graduation affects other product lines and other countries' GSP schemes. The GSP utilization rate of 72.5% suggests that even existing preferences are not fully exploited.

• TRIPS transition: LDC graduation triggers a transition period for compliance with WTO intellectual property obligations, particularly relevant for the pharmaceutical sector's current freedom to produce patented generics.

Bangladesh currently has 0 bilateral free trade agreements, an extraordinary gap for an economy of its size and trade dependence. The FTA strategy must be urgently accelerated:

• CEPA with India: A Comprehensive Economic Partnership Agreement with India, covering goods, services, and investment, would secure the most important regional trading relationship and could serve as a template for broader South Asian integration.

• RCEP observer status: Engaging with the Regional Comprehensive Economic Partnership would signal Bangladesh's commitment to rules-based regional trade integration and potentially open a pathway to full membership.

• EU and UK agreements: Bilateral trade agreements with the EU and UK should be the top priority to mitigate EBA and GSP loss.

Trade Facilitation and Institutional Reform

Bangladesh's trade facilitation infrastructure remains a significant constraint on competitiveness. The average MFN tariff of 14.1% is among the highest in Asia, creating implicit protection for domestic industries but also raising input costs for exporters and reducing consumer welfare.

The 100 planned and approved Special Economic Zones under BEZA (Bangladesh Economic Zones Authority) represent an ambitious institutional response. However, implementation has been uneven: only a fraction of approved zones are operational, and those that are face persistent challenges with land acquisition, utility connections, and regulatory coordination. The contrast with Vietnam's industrial zones, which combine streamlined approvals, reliable infrastructure, and one-stop service centers, underscores the implementation gap.

Customs modernization through the ASYCUDA World system has improved processing times, but Bangladesh still ranks poorly on the World Bank's Trading Across Borders indicators. Container dwell times at Chittagong port (5-7 days vs 1-2 days at Vietnamese ports), complex documentation requirements, and inconsistent application of rules of origin provisions all add to the effective cost of trade. The bonded warehouse system, which allows duty-free import of inputs for re-export, has been a critical enabler of RMG competitiveness but requires modernization and extension to non-garment export sectors.

Non-tariff barriers (NTBs), including sanitary and phytosanitary standards, technical barriers to trade, and import licensing requirements, add an estimated 10-15% to the effective cost of trade beyond tariff barriers. Systematic NTB rationalization, aligned with WTO commitments and regional standards, would provide significant competitiveness gains at relatively low fiscal cost.

SAFTA (South Asian Free Trade Area) and BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) offer frameworks for regional trade expansion but have underperformed due to extensive sensitive lists, poor trade facilitation, and political tensions. Intra-SAFTA trade remains below 5% of total trade, compared to intra-ASEAN trade exceeding 25%. Revitalizing these regional frameworks, particularly the BIMSTEC corridor connecting Bangladesh with India's northeast, Myanmar, and Thailand, could unlock new trade and transit opportunities.

Outlook, Risks, and Policy Implications

Three principal risks dominate the horizon:

• LDC graduation and preference erosion: The loss of duty-free access to the EU could reduce RMG export competitiveness by 9-12 percentage points. Without proactive FTA negotiation and investment in product upgrading, export growth could decelerate sharply. Bangladesh has 0 bilateral FTAs, leaving it almost entirely dependent on unilateral preferences that will expire with graduation.

• Export concentration and demand shocks: The 88.1% RMG share means that a recession in the EU or US, shifts in sourcing patterns toward nearshoring, or reputational damage from workplace safety incidents could deliver a severe external shock. Non-RMG exports at $4.24 billion provide almost no absorptive buffer.

• Energy price volatility and BOP pressure: With oil at $99.89/barrel and structural dependence on imported energy, sustained increases in global energy prices would widen the current account deficit (currently $3.01 billion) and accelerate reserve depletion. Remittances at $27.52 billion offset 89% of the trade deficit but cannot be assumed to grow indefinitely. FDI inflows of $1.28 billion remain far below potential, limiting the capital account offset.

Policy recommendations:

• Launch an emergency FTA negotiation programme: Bangladesh should pursue bilateral agreements with the EU, UK, India (CEPA), and Japan as top priorities, while seeking RCEP observer status. A dedicated trade negotiation unit with private sector representation should be established under the Prime Minister's Office to accelerate negotiations ahead of 2026 graduation.

• Implement a targeted export diversification strategy: Designate pharmaceuticals, ICT/ITES, light engineering, and agro-processing as priority sectors for coordinated support including dedicated SEZ clusters, fiscal incentives, skills training partnerships with industry, and regulatory streamlining. The $215 million pharma and $850 million ICT export bases should be targeted to reach $1 billion each within 5 years.

• Modernize trade facilitation infrastructure: Reduce Chittagong port dwell times to 2-3 days through process automation and 24/7 operations. Extend the bonded warehouse system to non-RMG export sectors. Rationalize NTBs systematically. Reduce the average MFN tariff from 14.1% toward the ASEAN average of 5-6% over a phased 5-year schedule.

Data sources: Export Promotion Bureau (EPB), BGMEA, Bangladesh Bank, WTO Trade Policy Review, UN Comtrade, World Bank Development Indicators, FRED (Federal Reserve Bank of St. Louis), BEZA.