Overview of Bangladesh's 2020 Export Policy
Bangladesh's export policy is currently structured under the framework titled "Export Policy 2018-2021." It sets three core objectives: export diversification, market expansion, and value-add upgrading. In 2020, total exports fell to USD 33.7B after the COVID-19 shock, a 16.8% decline from the previous year's USD 40.5B. RMG textiles (ready-made garments) accounted for 84% of exports at USD 28.3B, making non-RMG export diversification a structural challenge.
The incentive package is centered on Cash Incentive (cash subsidy) ranging from 1 to 20%, bonded manufacturing (Special Bonded Warehouse), Back-to-Back LC, and Duty Drawback. EU EBA (Everything But Arms) duty-free access under LDC status, along with GSP preferences in Canada, Australia, and Japan, has been the backbone of Bangladesh's trade competitiveness. The largest medium-term risk is the loss of tariff preferences after 2026 LDC graduation. CEPA with Korea and broader FTA participation, including RCEP, are discussed as alternatives, but concrete progress remains limited. This report analyzes incentive options available to Korean firms producing for export from Bangladesh.
Export Incentive Architecture
Bangladesh's export incentives are among the most generous globally. Cash Incentive provides 1-20% of export value as a direct payment. Higher rates apply to non-RMG sectors, with 20% for agricultural products, 10% for fish and seafood, 15% for leather, 10% for IT services, and 10% for shipbuilding. RMG receives 4%. Special Bonded Warehouse programs exempt customs and VAT on imported materials for export production. Back-to-Back LC allows import payment for raw materials to be funded against export proceeds, reducing working capital burdens. These incentives are directly usable by Korean firms and significantly improve cost competitiveness.
| Incentive | Description | Eligibility | Benefit | Korean Firm Relevance | Notes | Challenges |
|---|---|---|---|---|---|---|
| Cash Incentive | Cash rebate on export value | Non-RMG first | 1-20% | Applicable | WTO consistency | Post-LDC transition |
| Bonded Processing | Duty exemption on input imports | SBW registration required | 100% duty exempt | Critical | Essential for RMG | Compliance burden |
| Back-to-Back LC | Raw material financing via export proceeds | Exporting firms | Working-capital relief | Recommended | Industry standard in RMG | Bank coordination |
| Duty Drawback | Refund of paid duties | Exporting firms | Up to full refund | Applicable | Post-clearance claim | Complex procedures |
| Corporate Tax Relief | Export income tax relief | SEZ/EPZ entities | 50-100% | Applicable | 10-year cap | Entry condition for SEZ |
| Export Finance | Concessional loans | Exporting firms | 7-8% | Available | BB refinance support | Access conditions |
| GSP Duty Exemption | Tariff preference in destination markets | EU, Canada | 0% tariff | Indirect benefit | LDC-specific | Post-2026 graduation |
GSP, LDC Graduation, and Trade Strategy
Bangladesh's export competitiveness remains heavily dependent on LDC-based tariff preferences. EU EBA gives duty-free and quota-free access for LDC products and has supported roughly 62% of Bangladesh's exports to the EU. Although a three-year transition is available after 2026 graduation (through 2029), the shift to EU GSP+ (approx. 9.6% duty) would sharply erode RMG price competitiveness. World Bank estimates suggest potential export losses of USD 5-8B if preferences are fully removed. Planned responses include building an FTA/CEPA network (including India, China, Japan, and Korea), diversifying product mix, and upgrading value-add from cost-based competitiveness to quality-based competitiveness, but implementation remains slow. A Korea-BD CEPA remains mutually beneficial, yet negotiations have not formally started.
How Korean Firms Can Use Export Incentives
Bangladesh's export policy is built around a triple support structure of Cash Incentive, bonded processing, and EU EBA duty-free access, representing one of the world's most generous incentive environments. Korean firms can use these instruments to operate Bangladesh as a global export hub, but the largest near-term risk remains the expiration of EBA in the post-2029 period following LDC graduation. FTA network expansion, product diversification, and value-add upgrading remain medium-term priorities, while securing a Korea-Bangladesh CEPA is likely to be the key enabler for deep trade expansion. Combining Cash Incentive at up to 20%, a 10-year corporate tax relief window, and EBA-driven market access frames Bangladesh as a currently attractive base for export-led Korean expansion.