Analysis: LDC Graduation: Impact on EU–Asian and EU–Pacific trade

A large number of countries are preparing to leave the UN’s category of least developed countries (LDCs), process called “graduating”. In Asia and the Pacific, the change is particularly striking, with as many as 9 out of the current 11 LDCs graduating. That changes the conditions for trade. 

What does it mean when a country graduates from LDC status?

Leaving LDC status means that a country no longer meets the criteria of low income, weak human assets, and high economic and environmental vulnerability. It is a sign of progress in development and poverty reduction, but there are some negative consequences when it comes to international trade.

What challenges does this create for Asian countries?

LDCs benefit from duty-free access to major markets, such as the EU. They are also granted certain exemptions from regulation in the World Trade Organisation (WTO). For several Asian countries, graduation can reduce competitiveness in export sectors such as clothing, agricultural products and food. This will have major consequences for Bangladesh in particular, with a large export of textiles to markets that grant preferential treatment for imports from LDCs. Graduating countries also risk losing access to LDC-specific support programmes, some linked to the WTO.

What opportunities exist to manage the transition?

When countries graduate from LDC status, they risk losing important tariff preferences, but several options are available. Other preferential schemes, for example the EU’s GSP+, grants lower tariffs to certain low- and middle-income countries. Other options are to negotiate or expand bilateral and regional trade agreements. For the EU and other partners, the key is to support a soft landing by facilitating access to preference schemes, offering assymetrical trade agreements that take into account different levels of development, providing technical assistance, and maintaining trade-related aid.

This short report, focusing primarily on LDC-graduation in Asia, is based on the findings in our previous report: Trade Effects of Rising Prosperity in Many of the World’s Least Developed Countries – Consequences of Graduation (PDF)

Additional reading on the subject focusing on Africa: LDC Graduation: Challenges and opportunities for EU–African trade

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