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UN encourages signing of FTAs: What's the way forward?

Ferdaus Ara Begum | Published: September 17, 2019 22:22:24


As Bangladesh is poised to gain the status of developing country, it is set to face newer challenges due to loss of certain facilities in its international trade by then. Regulations of the World Trade Organisation (WTO) suggest that the least developed countries (LDCs) such as Bangladesh may lose duty-free and quota-free facilities in the countries of the European Union (EU) once they graduate to the next level.

Bangladesh has met all criteria for its graduation to the status of a developing nation. It may then lose several benefits of trade preferences, certain forms of technical and financial support, dedicated climate financing and travel assistances and no longer enjoy the advantage of making smaller contribution to the United Nations (UN) budget.

The biggest LDC and also the world's second-largest apparel exporter, Bangladesh sends half of its garment products to the EU region and enjoys a tariff preference margin of 9.6 per cent on many of its exports to that market.

As Bangladesh can no longer rely on multilateral preferences following its probable loss of 'Everything But Arms (EBA)' in 2027, it may consider negotiating free trade agreements (FTAs) or striking bilateral deals with a number of major trading partners, such as China, the EU and the United States of America (USA).

In a report titled "World Economic Situation and Prospects 2019", the UN has strongly recommended that Bangladesh should sign FTAs with major trading partners to counter a regime without duty-free access facility after its graduation in 2027.

Bangladesh is a party to the South Asian Free Trade Area (SAFTA) adopted by the members of the South Asian Association for Regional Cooperation (SAARC) for deepening trade cooperation in 2006 which replaced the South Asian Preferential Trading Arrangement (SAPTA). Under Trade Liberalisation Programme (TLP), all member countries including Bangladesh reduced their duties other than items under sensitive list to 5.0-0.0 per cent by the end of 2016. The SAFTA members later revised their sensitive lists and have brought down the number by 20 per cent.

Bangladesh has 49 bilateral trade agreements with more than 40 countries, which are general in nature and aimed at promoting bilateral trade. So far Bangladesh has not been benefitted much from the FTA with South Asian countries, thanks to political and economic reasons. These countries, except India, have limited items to exchange.

Bangladesh has expressed its interest in signing FTA with South American trade bloc MERCOSUR. It has already submitted a 'letter of intent' to that effect to secure greater access for Bangladeshi products to a huge market of 300 million consumers across Argentina, Brazil, Paraguay and Uruguay. Bangladesh Tariff Commission (BTC) has been assigned to carry out a study in this respect. The Ministry of Commerce is holding discussions on relevant issues.

Higher tariff -- up to 35 per cent -- on imports from Bangladesh and 60 per cent of domestic taxes are key barriers to the entry of apparel goods into the MERCOSUR bloc, with $3.4 trillion GDP (gross domestic product) and average per capita of $12,000. Official statistics show Bangladesh's exports to MERCOSUR are quite small, slightly over $200 million whereas imports from those countries stand at more than $2.0 billion.

Bangladesh exports goods worth $6.0 billion to the USA as against imports valued at $2.1 billion (as of 2017-18). Bangladesh has secured duty-free market access to many countries through multilateral trade negotiations under the WTO, but the USA has denied such facilities arguing the Doha Round negotiation of the WTO has not yet been completed.

The USA, the single largest export market for Bangladeshi products, is yet to provide Bangladesh any preferential market access, let alone duty-free, quota-free market access. Rather, in 2013, the US administration suspended the Generalised System of Preference (GSP) facility which, however, covered only 1.0 per cent of Bangladesh's total exports. Bangladesh took some measures to regain GSP but is yet to attain any remarkable progress.

An FTA could have provided Bangladesh better market access, but the structure of the US FTA covers investment, intellectual property rights (IPR) and standards on labour and environment. To get full and permanent market access to the US goods and services, a partner country requires commitment to protect IPR beyond the WTO.  The US also stresses on investment protection and prefers arbitration, instead of going to domestic court of the partner country, if any dispute with a US investor arises. Finally, there are provisions for environment and labour standards.

As the IPR regime in Bangladesh is not strong, deeper research is required to get ready for facing future challenges. The Ministry of Industries has prepared and circulated an IPR policy but it has not yet been widely used. Sometimes foreign investment is at risk due to intensity of copying and trademark infringement.

The US has bilateral free trade arrangement with a number of countries but not with any South Asian country. The current US administration of President Donald Trump has not signed even a single BFTA.

In such circumstances, the Ministry of Commerce may conduct study on the already signed FTAs to have more ideas before making negotiation with the US. These agreements are available at the Office of the United States Trade Representative (USTR). Bangladesh may initially focus on goods-related FTA, depending on the negotiation. The country has limited export items that have competitiveness in markets such as the USA's.

Bangladesh needs more studies on these issues and enough information before starting negotiation with the USA. Any BFTA with the US is a comprehensive agreement that supports economic and even political reforms in partner countries.

Preparing a "Guide to the Bangladesh-USA Free Trade Agreement", Bangladesh needs to focus carefully on issues, such as eliminating customs duties, protecting geographical indication goods, reducing non-tariff barriers to US exports, public procurement, safeguarding social and environmental protection standards, promoting democracy and respect for human rights, promoting bilateral investment and more effective dispute resolution.

Bangladesh could start with signing BFTA with some South Asian and ASEAN countries, such as Sri Lanka, Indonesia, Thailand and Malaysia. The SAFTA process may offer the country some lessons before entering FTA negotiation with developed countries.

Local think-tanks may be engaged in further studies before signing new FTA or PTA (preferential trading arrangement). Bangladesh would need to approach these processes carefully, supported by strong research. Otherwise, the country's exports may be affected which will have impact on the economy.

Ferdaus Ara Begum is Chief Executive Officer at Business Initiative Leading Development (BUILD).

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