FTAs instrumental to sustained growth https://businesspostbd.com/post/30863

M S Siddiqui

06 Oct 2021 00:00:00 | Update: 06 Oct 2021 02:03:25

Bangladesh has a preferential trade agreement with Bhutan but yet to sign a

bilateral free trade area agreement with any country.

The regional trade area includes Preferential Trade Area (PTAs) namely: (1) Asia-

Pacific Trade Agreement (APTA); (2) Trade Preferential System among OIC

Countries (TPS-OIC); (3) Preferential Trade Agreement among D-8 Member

States (D-8); (4) preferential Trade Agreement between Bangladesh and Iran; and

(5) Agreement on SAARC Preferential Trading arrangement (SAPTA).

It has also signed Free Trade Area (FTA): (i) South Asian Free Trade Area

(SAFTA) and (ii) Bay of Bengal Initiative for Multi-Sectoral Technical and

Economic Cooperation (BIMSTEC-EC). Among the FTAs mentioned above,

SAFTA is in operational while the BIMSTEC is yet to be functional.

The Asia-Pacific Trade Agreement (APTA), previously named the Bangkok

Agreement, signed in 1975 as an initiative of ESCAP. Bangladesh, China, India,

Lao PDR, Mongolia, Republic of Korea, and Sri Lanka are the parties to the

APTA. ESCAP functions as the secretariat for the Agreement. APTA is a

preferential tariff arrangement that aims at promoting intra-regional trade through

exchange of mutually agreed concessions by member countries. With the entry of

China in 2001 made APTA, the only RTA linking the two fastest-growing

economies of the world China and India. One of the most distinguished gains for

Bangladesh is to get access to the two most populous and fastest growing countries

in the region and also to opportunities to trade in major world markets, such as the

Republic of Korea, and in newly developing markets in South Asia, such as well as

Sri Lanka.

Bangladesh is now enjoying some benefits from the rules of origin criteria of

APTA are:(1) In case of single country content, value addition requirement is 35

per cent for LDCs and 45 per cent for non-LDCs, and (2) In case of regional

accumulation, local content requirement in 50 per cent for LDCs and 60 per cent

for non-LDCs. Bangladesh will graduate from LDC in 2026 and these facilities

will cease after few years.

Bangladesh and China signed a Memorandum of Understanding (MoU) to study of

feasibility of FTA during Chinese President Xi Jinping’s Dhaka visit in 2016. In

September 2016, China had formally proposed conducting the study to examine

the suitability of formation of a free-trade area. China will provide necessary funds

for the study. A senior official told a local newspaper that the “signed” document

couldn’t yet reach the Ministry of Commerce (MoC) from the Ministry of Foreign

Affairs (MoFA) as reported on 4th February 2017 by a local newspaper. Thus, the

MoC could not go forward with the feasibility study. Contacted over phone, a top

MoC official said though the MoU was signed, Bangladesh has reservation on FTA

with any country at this stage considering the possible impact on revenue earnings

and interests of local industry.

In a 2017-study by CUTS, an Indian think tank, observed that India, China and

Bangladesh do not have any common products in the list of their top ten exporting

products and, also, the degree of commonality and competition is very low. But,,

the study mentioned that India should worry about this proposed FTA between

Bangladesh and China. India's traditional ties with Bangladesh may be at stake

from this agreement because its share of trade in Bangladesh may be captured by

China sooner or later. Additionally, in future China's import demand of textiles and

other products, most of which Bangladesh is exporting largely, may be further met

by Bangladesh and, hence, the demand for Indian products of the same category in

the Chinese market may decline.

Despite some confusion and contradiction, at last, a meeting scheduled in

November 2017 to discuss about joint feasibility study to held in Beijing to

identify the benefits and impacts that might accrue from the FTA. Bangladesh

delegation finally did not go to Beijing for the meeting and reason not yet known.

According to sources at the commerce ministry, Bangladesh took a go-slow policy

but the reason not explained by the authority. The change of mind of the authority

is a major policy change of the government.

In different occasions, the officials also express fear that Bangladesh’s local

industry would be hit hard if FTA is signed with a country like China having huge

production capacity at a very competitive price. They said interests of exporters,

importers, domestic industry, and consumers ought to be kept in balance before

signing any preferential deal with any country.

On the other hand, Bangladesh has Regional FTA with India under SAFTA.

Bangladesh now conducting a feasibility study for a Comprehensive Economic

Partnership Agreement (Cepa) with neighboring India. The Bangladesh Foreign

Trade Institute (BFTI) is conducting the feasibility study for the government.

There is another report stating that on 9th September 2021, a meeting of the Sub-

Committee on Preferential Market Access and Trade Agreement – one of the

several sub-committees formed by the Prime Minister's Office to prepare for the

possible post-LDC graduation challenges and discussed about possible FTA with

Nepal, Indonesia, Sri Lanka, Malaysia, Singapore, ASEAN, Canada, the United

States, the Eurasian Economic Union, and Mercosur, a South American trade bloc

– apart from India and China. Russia has also proposed to Bangladesh to sign a

protocol on trade cooperation, which is currently being reviewed by the commerce

ministry.

Again, there is a change of stand of government. According to a report at a daily

newspaper on 2nd October, 2021, the government is considering Free Trade Area

(FTAs) with China and India as part of its endeavor to strengthen ties with major

trading partners to face post-LDC graduation challenges. The government is

considering FTAs as a tool to maintain the competitiveness in the export market in

the end.

The United Nations Conference on Trade and Development estimated that exports

may fall by 5.5 percent to 7.5 percent after the graduation. The country should not

only try to sign FTAs, but also lobby with major countries and trade blocs for

signing the Comprehensive Economic Partnership Agreement which include trade,

tourism and investment. Successful implementation of FTA can play a vital role in

investment flows, not only from non-member countries but also from other

countries.

Unfortunately, the signing of the much-needed Free Trade Area agreements

(FTAs) with the important trading partners is still far away as authorities have fear

of losing 'income' from customs duty and safeguard some import substitute

industries. Bangladesh will have to be ready and continue lobbying with the major

trading partners for the FTAs to be competitive after graduating to developing

country and to face competitors having FTA with seller of raw materials and buyer

finish products countries.

Global experience proved that bilateral FTAs have been becoming instrumental in

the global trading system. There are more than 200 such deals worldwide and all of

our competitors are ahead of us and reap the benefits of FTA. Bangladesh also

needs FTA with China and India simultaneously due to geo-political reality. The

concern Ministries should not give contradictory statements and policy makers

should come up with firm decision on FTA with these two major trading partners.

The higher authority may give direction to the concerned departments to reform

their rules of trade and taxation policy as early as possible to facilitate FTA.

The writer is a legal economist. He can be contacted

at mssiddiqui2035@gmail.com