From access to integration: the case for value-linked trade preferences

Most trade preferences for least developed countries (LDCs) work the same way. If a product qualifies, it enters the rich market with no duty. The more a country ships, the more it benefits. I call this a volume-linked preference, because the reward grows with the quantity exported and with nothing else.

On its own terms, it has worked. Bangladesh is the clearest example. In the 2024-25 fiscal year the country exported goods worth US$48.28 billion. Ready-made garments made up US$39.34 billion of that, about 81 per cent. Much of this trade was built on duty-free entry to Europe under the EU's Everything But Arms scheme.

What access leaves out

The export figure overstates what stays at home. A garment factory in Bangladesh imports much of its cotton, yarn, fabric and trims. After paying for imported raw materials, the garment sector kept about 59 per cent of its export earnings in 2024-25 and about 62 per cent in 2025-26, according to Bangladesh Bank figures reported by The Financial Express.

That remainder is not profit. It still has to cover wages, energy, finance and everything else. One study of apparel exports to Europe found that median markups were below 4 per cent for most products.

So the country has access. What it does not yet have is integration. By integration I mean taking part in more stages of the chain: spinning, weaving, design, branding, logistics. Access gets a product through the door. Integration decides how much of the price tag belongs to the exporting country.

Volume-linked and value-linked

A volume-linked instrument asks one question: did the goods qualify? A value-linked instrument asks a second one: how much of the value was created in the exporting country, and is that share growing?

The idea is not new. Rules of origin already try to tie preferences to local content. The problem is how they do it. For years the EU asked LDC garment exporters to complete two stages of production at home, for example weaving the fabric and then sewing the garment. LDCs asked for more than a decade for that rule to be relaxed. The EU's reformed rules now ask for one stage, and raise the share of imported materials allowed in many sectors from 40 to 70 per cent.

The lesson I take from this is simple. A rule that demands local value as a condition of entry shuts out the countries that most need the access. A value-linked preference should reward value addition. It should not require it at the door.

What that could look like

I am still working this out. These are directions, not finished proposals.

• Keep basic duty-free access simple and easy to qualify for.
• Add a second layer of benefit for sectors that raise their domestic value share over time. This could be a longer transition after graduation, wider cumulation, or lighter paperwork.
• Point domestic export incentives the same way, so that support follows value added and not shipment size.

The hard parts

Measuring domestic value added product by product is difficult and costly. A badly designed value test could become a new barrier. And preference-giving countries have little reason to change schemes that already look generous.

I do not have answers to these yet. The next post sets out one group of options, and the one after looks at the Bangladesh garment case in more detail.