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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
EU – BhutanTrade Support
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
EU – BhutanTrade Support
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
EU – BhutanTrade Support
Criterion 1: Gross National Income
Criterion 2: Human Asset Index
Criterion 3: Economic Vulnerability Index
EU – BhutanTrade Support
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
EU – BhutanTrade Support
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
EU – BhutanTrade Support
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
EU – BhutanTrade Support
Step 2: Bhutan’s export markets
Source: Atlas of Economic Complexity (2016)
EU – BhutanTrade Support
What does Bhutan export?
Source: Atlas of Economic Complexity (2016)
EU – BhutanTrade Support
Country example: what does
Bhutan export to Germany?
EU – BhutanTrade Support
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)
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Comparison of Import tariffs with and without LDC preference treatment (1/2)
EU – BhutanTrade Support
Comparison of Import tariffs with and without LDC preference treatment (2/2)
EU – BhutanTrade Support
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
EU – BhutanTrade Support
List of EU GSP beneficiaries (Nov. 2018)
Source: GIZ study on EU GSP Reform (2018)
EU – BhutanTrade Support
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
EU – BhutanTrade Support
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
EU – BhutanTrade Support
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
EU – BhutanTrade Support
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)
EU – BhutanTrade Support
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.
EU – BhutanTrade Support
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
EU – BhutanTrade Support
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)
EU – BhutanTrade Support
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+
EU – BhutanTrade Support
Thank you for your attentionQuestions?
25
EU – BhutanTrade Support
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