Beyond LDC Status: How Bangladesh Can Protect Export Competitiveness Under WTO Rules

The Asian Development Bank and RAPID study finds that Bangladesh’s graduation from LDC status will end its ability to use export-linked subsidies under WTO rules, putting pressure on its export competitiveness. It argues that Bangladesh must shift from cash incentives to productivity, innovation, and WTO-compliant support measures to sustain exports after 2026.

Bangladesh’s graduation from least developed country (LDC) status in November 2026 is a landmark achievement that reflects decades of growth, export expansion, and poverty reduction. A major study prepared by researchers from the Asian Development Bank (ADB) and the Dhaka-based Research and Policy Integration for Development (RAPID) explains that this success also brings a difficult transition. Once Bangladesh leaves LDC status, it will lose special treatment under World Trade Organization (WTO) rules that have long allowed it to support exports through direct subsidies. The paper argues that Bangladesh must now redesign its export strategy to remain competitive while fully complying with global trade rules.

Why LDC Graduation Changes the Rules

As an LDC, Bangladesh has benefited from duty-free, quota-free market access and wide policy flexibility under WTO agreements. These privileges enabled the government to utilize export-linked incentives, including cash subsidies, tax rebates on export income, and preferential credit for exporters. These measures played a crucial role in the rise of the ready-made garment sector, which now dominates Bangladesh’s exports. Graduation, however, removes these exemptions. Under the WTO’s Agreement on Subsidies and Countervailing Measures, most export-contingent subsidies are prohibited for non-LDC members. Continuing them after graduation could expose Bangladesh to trade disputes, countervailing duties, and retaliation from trading partners.

Which Export Supports Can Stay and Which Must Go

The study carefully reviews Bangladesh’s existing export support policies and finds a clear divide between those that are WTO-compatible and those that are not. Measures such as duty drawback schemes, special bonded warehouses, and back-to-back letters of credit are largely compliant because they simply remove domestic taxes on export inputs or ease cash-flow constraints. Export financing tools, including the Export Development Fund, can also remain legal if loans are provided at market-based interest rates. In contrast, direct cash incentives tied to export earnings, income tax rebates on export profits, and interest rate subsidies available only for export-related credit are clearly prohibited once Bangladesh graduates. Export processing zones are not inherently illegal, but any benefits specifically linked to export performance must be removed, leaving only neutral advantages such as infrastructure, logistics, and streamlined customs procedures.

Limited Room for Temporary Flexibility

The paper explores whether Bangladesh could retain some short-term flexibility under WTO rules. One option is possible inclusion under Annex VII(b) of the subsidies agreement, which allows certain low-income developing countries to continue export subsidies until their income rises above a defined threshold. Bangladesh’s income level remains below this benchmark, but WTO rules are unclear about whether graduating LDCs automatically qualify. Even if Bangladesh were granted this status, the benefit would be limited. WTO rules require export subsidies to be phased out for products that become “export competitive,” meaning they account for more than 3.25% of global trade. The study shows that most of Bangladesh’s major export products, especially garments and jute, already exceed this threshold, leaving little scope for continued subsidies.

Learning from Global Experience Without Imitation

Globally, many large economies are turning back to industrial policy, using subsidies to support clean energy, technology, and supply chain resilience. While these policies may appear to weaken the multilateral trading system, the paper warns that Bangladesh cannot afford to imitate them. WTO dispute cases consistently show that export-linked subsidies are frequently challenged and struck down. For a smaller, trade-dependent economy, credibility and rule compliance offer stronger protection than testing legal boundaries. The safer path is to focus on support measures that raise productivity and competitiveness without being tied to exports.

A New Export Strategy for the Post-LDC Era

The study concludes that Bangladesh should treat LDC graduation as an opportunity for reform rather than a loss. It recommends using the three-year “due restraint” period agreed at the WTO to phase out prohibited subsidies gradually and transparently. Public resources should be redirected toward WTO-compliant tools such as export promotion services, logistics and port infrastructure, skills development, research and development incentives, and green upgrading of factories. Agriculture also offers room for expansion, as Bangladesh remains well below WTO limits on domestic farm support. By shifting away from direct export subsidies and investing instead in productivity, innovation, and sustainability, Bangladesh can build a more resilient and diversified export base. If managed well, the transition after LDC graduation can strengthen Bangladesh’s position as a credible and competitive player in global trade.