How Bangladesh Can Ensure Trade Balance With EU

The EU works closely with Bangladesh in the framework of the EU-Bangladesh Cooperation Agreement, concluded in 2001. This agreement provides a broad scope for cooperation, extending to trade and economic development, human rights, good governance, and the environment. The EU is Bangladesh’s largest trading partner, absorbing over 60% of its exports, predominantly apparel. This relationship, however, stands at a critical juncture. Bangladesh’s imminent graduation from Least Developed Country (LDC) status will trigger the phased withdrawal of the Everything But Arms (EBA) duty-free, quota-free regime. Without strategic recalibration, this could lead to a significant trade imbalance, jeopardizing hard-earned economic gains. A significant policy debate has already been reignited by the European Union’s recent appeal to Bangladesh to purchase more European goods, which was presented as a means of reducing the bloc's substantial trade deficit with Bangladesh. Should Dhaka import more, or should it pursue a strategic package of reforms and trade measures to sustain a balanced, fruitful relationship with Europe? In short, the answer is that Bangladesh should strive to improve the quality of its trade with the EU such that imports increase productive capacity while export resilience is reinforced, rather than just changing the numbers on its balance sheet.

What the numbers tell us

According to the European Commission, Bangladesh was the EU's 36th largest trading partner, and the bilateral trade between the EU and Bangladesh was approximately €22.2 billion in 2024, with the EU selling about €2.3 billion and Bangladesh exporting about €19.9 billion. This left the EU with a roughly €17.5 billion deficit. Nearly 94% of Bangladesh's imports into the EU are textiles and clothing, making up most of Bangladesh's exports to the EU. In contrast, most of the EU's sales to Bangladesh are made up of chemicals, machinery, and appliances.

Why is simply “import more” insufficient and risky

A sudden rise in consumer imports would reduce the headline surplus, but it might threaten Bangladesh's macroeconomic stability if imports are dominated by non-productive, consumption items. A rising import bill can put pressure on foreign reserves and deepen current account deficits if capital inflows do not keep up. Furthermore, because Bangladesh's export profile is concentrated in a single labor-intensive industry (ready-made garments), any shock to global apparel demand would still expose the economy, even if the trade ledger appears "balanced."

A better framing would be important to upgrade, not to consume. Rather than a broad liberalization that floods the market with consumer goods, Bangladesh should prioritize imports of capital goods, intermediate inputs, and green/clean technologies that improve domestic productive capacity, machinery for light engineering, specialized chemicals for pharmaceuticals and ceramics, automation, and digital systems that increase productivity. This helps transform imports into future export potential. To create a sustainable equilibrium, Bangladesh may implement several policy frameworks. Such that:

Targeted import strategy (quality over quantity): Bangladesh must negotiate and formulate import facilitation measures to boost the influx of productive commodities from Europe, such as industrial machinery, precise tools, sustainable energy technology, and high-quality intermediate inputs that local enterprises are now unable to produce efficiently. Preferential tariffs, matching grants for technology adoption, and import-linked investment incentives might direct imports toward capacity expansion rather than short-term consumption. The EU's export mix (machinery ~35%, chemicals ~23% to Bangladesh) highlights potential areas for partnership.

Simultaneous export diversification and value addition: It is necessary to reduce sectoral concentration. Diversification beyond RMG into higher value areas (technical textiles, leather products, electronics subassembly, medicines, furniture, and light engineering) must be accelerated by policies. This requires targeted industrial policy, including vocational training aligned with industry needs, export credit and buyer-seller meetings, regulatory harmonization of standards, and active trade promotion in specialized EU markets. The EU market is a reasonable target for diversification initiatives due to its size and interest in higher-value goods.

Institutional and regulatory reforms to attract quality FDI: EU envoys and businesses have repeatedly emphasized that deeper investment and commercial links require consistent regulation, transparency, and efficient customs and logistics. In addition to lowering import costs, Bangladesh needs to modernize ports and logistics, lower non-tariff barriers, expedite digital customs, and improve contract enforcement to attract investment in domestic production. Although the Bay Terminal and port modernization initiatives are positive advances, they require concurrent institutional transformation to provide value.

Leverage LDC graduation strategically: Bangladesh will progressively lose some trade benefits and face more competition because of its planned graduation from the Least Developed Country (LDC) classification (UN date: November 24, 2026). Therefore, graduation should be accompanied by negotiated transitions, such as pursuing GSP+ protections or custom partnership agreements with the EU that connect privileged access to quantifiable governance and sustainability commitments. Bangladesh could take advantage of this transitional period to negotiate technical assistance on standards, SPS (sanitary and phytosanitary) measures, and export upgrading capacity building.

How to negotiate with the EU: Be pragmatic, not passive

Dhaka should offer a conditional, reciprocal framework in response to the EU's requests for commitments to increase purchases: imports must be increased in exchange for EU promises on long-term investment, technology transfer, and preferential access that assist Bangladesh's diversification strategy. This always worries about the trade gap while maintaining policy room for industrial development. A transparent "import-for-investment" corridor that links import tariff relief to foreign direct investment in specific industries might be a useful tool.

Risks to watch and a final test: Two potential risks need to be considered. First, local small-scale producers may suffer if markets are open without protection. Second, long-term structural vulnerability may result from political pressure to accept agreements for immediate headline gains. Any policy should be evaluated based on whether it improves export competitiveness and productive capability rather than just closing an accounting gap.

Afterwards, Dhaka should turn the imbalance into an opportunity as the EU’s request to import more is not an ultimatum; it’s an invitation to see the current relationship through the prism of industrial upgrading. Bangladesh might take the chance to modernize, diversify, and professionalize its investment and trade policies. Bangladesh can maintain a sustainable trade balance with the EU and write a new chapter in its development story by importing goods that increase export capacity, diversifying its products, and ensuring institutional reforms that draw quality foreign direct investment.


Imran Hossain teaches Business 
Administration at Bangladesh Army 
International University of Science and 
Technology (BAIUST), Cumilla.