eu bhutan trade support unescap workshop on sdgs and ... · rajesh aggarwal chief, trade...

EU – Bhutan Trade Support

UNESCAP Workshop on SDGs and

Sustainable Graduation of South Asian LDCs

Rajesh AggarwalChief, Trade Facilitation and Policy for Business (TFPB)Division of Market Development

A project funded by the

European UnionA project with the Royal

Government of Bhutan

EU – BhutanTrade Support

Session 3:

LDC graduation: Challenges

and opportunities for the

private sector


Overview of private sector in Bhutan

• 95% of registered businesses SMEs– But only contribute 4% to GDP

• 36% of registered businesses women owned/managed

• Employment concentrated in agriculture/public sector

• Key obstacles: investment, productivity international trade

• Opportunities: agribusiness, services


When do LDCs graduate?

• Fulfill two out of three criteria:

– Gross National Income (GNI) per capita

– Human Assets Index (HIA)

– Economic Vulnerability Index (EVI)

• Bhutan LDC graduation planned for 2023

– Extension from 2021 to align transition period with national development plan

In 2018, Bhutan meets criteria for second time


Criterion 1: Gross National Income

Criterion 2: Human Asset Index

Criterion 3: Economic Vulnerability Index


Main consequences of LDC

graduation

• Loss of official development assistance

• Loss of special and differential treatment under the WTO – Increased commitments in accession process

• Loss of market access– Trade preferences goods

• Existing exports

• Market diversification

– Services waiver

Most relevant to private sector


Determining loss in preferential

market access in goods

Step

1 Coverage and structure of preferential schemes

Step

2 Product composition exports/

market distribution

Step

3 Fallback tariffs


Step 1: Coverage and Structure of

Bhutan’s preferential schemes

Free Trad

e

Agree

men

ts –Lo

ss of

LDC

status n

o im

pact

on

market access


Step 2: Bhutan’s export markets

Source: Atlas of Economic Complexity (2016)


What does Bhutan export?

Source: Atlas of Economic Complexity (2016)


Country example: what does

Bhutan export to Germany?


Step 3: Fallback tariffs

• Goods exports to India, Bangladesh, Nepal:

– Free Trade Agreements No major change

• Goods exports to EU/US/Thailand

– On key exports, tariff rates remain the same (high GSP coverage/low MFN rates)

– Difficulty to engage in product diversification (dairy, fruits and vegetables)


Comparison of Import tariffs with and without LDC preference treatment (1/2)


Comparison of Import tariffs with and without LDC preference treatment (2/2)


Fallback tariff EU uncertain• Upon losing EBA preferences, Bhutan will either:

– Receive Standard GSP

– Apply to the GSP+ scheme for additional preferences

• GSP+ eligibility criteria: – Meet diversification and export share thresholds;

– Ratify/effectively implement 27 conventions


List of EU GSP beneficiaries (Nov. 2018)

Source: GIZ study on EU GSP Reform (2018)


EU’s GSP Scheme: three levelsStandard GSP (automatic)

• Any developing country is automatically eligible, unless:

• It has another type of special trade arrangement with the EU

• It has achieved higher or upper-middle income status during three consecutive years (WB)

GSP+ (need to apply)

• Country must submit application, demonstrating:

• Fulfillment of standard GSP requirements

• Compliance with vulnerability requirements (diversification and import share)

• Compliance with sustainability criteria

EBA (automatic for LDCs)

• LDCs are automatically included in the EBA Scheme

• In contrast to Standard GSP/GSP+ countries do not lose EBA status by entering into an FTA with the EU


GSP+ Eligibility Criteria

• Vulnerability criteria: – Diversification criterion: A country’s seven largest

sections of its GSP-covered imports must represent 75% or more of total GSP imports from that country over a three-year period

– Import share criterion: met where the three-year average share of GSP-covered imports of all GSP countries is lower than 6.5%

• Sustainability criteria: A country must ratify/effectively implement 27 listed conventionson human rights, environmental protection and good governance


Rules of Origin

• LDCs may benefit from more lenient rules of origin than non-LDCs

• Nairobi Ministerial Decision on transparency of ROO for LDCs

• Example: EU GSP Scheme– LDCs entitled to single transformation for clothing

(not double transformation)– Higher threshold for non-originating materials (70%

compared to 50% for non-LDCs)

LDC graduation could disrupt value chains; make it more difficult to develop new value chains


Loss of trade preferences -

Implications private sector • Negligible impact on existing exports

– No market loss to main export destinations (India, Bangladesh, Nepal)

– No or negligible tariff increases on key products exported under trade preferences programs due to low MFN tariffs

• Possible challenges for future diversification into new products (fruits, vegetables etc.)

• Possible challenges to establish regional value chains (due to stringent ROOs)


Services Waiver

• Services waiver for LDCs allows Members to provide preferential treatment to services and service suppliers of LDCs.

• Graduating LDCs will lose such preferential treatment

Implications for private sector depend on (i) Bhutan’s ability to engage in service export; and (ii) the benefits LDCs received under the waiver.


SDT under the WTO

• Special WTO accession guidelines for LDCs

– Transitional periods/technical assistance

– Concrete benchmarks on tariff commitments

• Unclear how timing of Bhutan’s loss of LDC status will interact with its WTO accession

Private sector to monitor developments


Strategic opportunities for the

private sector • Proactively participate in transition phase• Identify priority sectors, based on Bhutan’s

existing and future comparative advantage– Sector-specific analysis: Identify business sectors with

potential, and bring attention to these sectors during graduation discussions (e.g., ICT, agribusinesses)

– Market-specific analysis: Identify export market opportunities. Look beyond tariffs to assess market access barriers

• Leverage enhanced reputation of Bhutan as a non-LDC (e.g. to attract investment)


How can ITC Help?

• Promote collaboration between stakeholders to achieve an integrated and consensus based approach to LDC graduation across the private sector, civil society and government

• Provide technical training on policy reforms required to maximize the benefits from LDC graduation, based on a market analysis

• Provide support to apply for the GSP+ scheme• Organize trainings and produce a GSP+ Business Guide on EU

export opportunities• Conduct an impact assessment of GSP+ on women and poor

communities, and undertake follow-up trainings in order to ensure the continued benefit of GSP+


Thank you for your attentionQuestions?

25


For more information

Project website http://www.intracen.org/projects/EU-Bhutan-Trade-Support/

Find us on

Contact us:Mr. Giles Chappell Trade Policy AdvisorTrade Facilitation and Policy for BusinessInternational Trade CentreEmail: [email protected]

Mr. Kiran SubediNational Project CoordinatorEU-Bhutan Trade SupportTel.: +975-17683103Email: [email protected] OfficeGross National Happiness Commission (GNHC)Chubachu, Thimphu, Bhutan

mailto:[email protected]

mailto:[email protected]

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