Bangladesh in the era of free trade blocs

| Updated: October 22, 2017 09:45:21

Bangladesh in the era of free trade blocs

A question with regard to Bangladesh's exports to the world market that needs to be asked is: will the country get an easy time with its exports in the coming days as it had been in the past. Many concerned people think that Bangladesh will have a tougher time ahead with its export, as it has failed to become a partner of any major free trade blocs. In the absence of membership with any free trade bloc, Bangladesh along with a few other LDCs (least developed countries), will be left out to trade in the world market under  conditions of differential terms. The countries which will not be members of FTAs (Free Trade Agreements) will face adverse terms & conditions including paying higher tax while trying to export to the member countries of FATs.
FTAs would not have been important to a country like Bangladesh had the negotiations of Doha Round of Multinational Trade Negotiations been successful. The Doha Round is virtually dead now. It is dead because the advanced economies did not want it to be successful. But the race to open up the world trade is on. Bypassing the Doha Round the influential countries of the world are trying to have bilateral and regional free trade blocs of their own. USA, Canada and Mexico have signed North American Free Trade Agreement (NAFTA). The world is no more content with only trade liberalisation. World economies are more serious with free flow of investments and capital across the boundaries. There is a competition in the world as to which country can sign how many FTAs, and which country can become a member of bigger FTAs. Recently 12 Pacific Rim countries signed the world's largest FTA known as the TPP (Trans-Pacific Partnership). The TPP includes countries like USA, Canada, Mexico, Peru, Malaysia, Singapore, Brunei, Vietnam, Australia, New Zealand and Japan. These countries together control 40 per cent of the world economy. If the USA becomes successful in signing another mega FTA which is under negotiation with the EU, then no major economy will be left out from the world's free trade system. Only a few LDCs (least developed countries) like Bangladesh will be the left out  and will have tough time with their exports to the countries belonging to the free trade blocs. Everyone recognises that Vietnam as a TPP member will be a threat to Bangladesh exports to the TPP member countries.
Why is Vietnam being singled out? The simple reason is that Vietnam exports RMG products to the same market where Bangladesh also exports RMG products. At present Bangladesh pays more than 15 per cent duty on its export to the US market, but Vietnam pays a little more than half of that, at the rate of 8.38 per cent, on its export value. Vietnam got this reduced duty facility under a bilateral agreement with the USA since 2001. Now Vietnam is poised to pay zero duty on its exports to the US market as and when TPP becomes operational. At present Vietnam's exports to the US  and EU markets is more than double of Bangladesh's. With the operationalisation of TPP, Vietnam's exports will have a quantum jump, whereas Bangladesh exports will face more discriminatory treatment from the TPP member countries.
Bangladesh's exports growth in the last one decade was higher than the world average, but a declining trend in the export growth is recently being noticed. Many apprehend export growth may be slower in the coming days.  This may happen not because anything is wrong with domestic management of the economy but because of discriminatory treatment Bangladesh will be facing from the other economies belonging to different trade blocs. India and Indonesia have already expressed their intentions to join the TPP, but Bangladesh still prefer to remain silent on such issues.
Remaining silent will testify Bangladesh's unwillingness or inability to join such a free trade bloc. Bangladesh should not wait for what India does in this respect. As a big economy, India is in a better position to negotiate with the TPP or other such free trade blocs but Bangladesh has few options. Bangladesh should be seen as a seriously interested party to join such blocs. It should also look to China as an alternative option. China is the second largest economy in the world and has been sincere with the Bangladesh's needs in the past.
Time is of essence; once the door of negotiating free trade agreements is closed or lost because of inaction and hesitation, the negotiating terms may become tougher. Bangladesh should see now what it can do to become a strong trading partner with the major free trade blocs. It should also try to have credible access to the Indian market. Facilitating transit for India should be tied to opening up the Indian market to Bangladesh's goods and services.
The writer is Professor of Economics at the University of Dhaka.
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