The Financial Express

Formulating forward-looking trade policy in an era of global volatility

| Updated: October 25, 2017 05:08:20

Formulating forward-looking trade policy in an era of global volatility

Global geo-politics is becoming increasingly volatile. No wonder, it is the President of the United States Donald Trump who is fuelling the volatility. His steps in the last seven weeks at the helm of the US government have created great uncertainties for the future of the world economy and multilateral trade regime. His administration has already made its intent clear to step back from the World Trade Organisation (WTO). 
Against this backdrop, Bangladesh should take a serious look at its trade policy and strategy. Gone are the days when trade policy used to outline the scope of merchandise exports and imports. It is now instrumental to trade-led economic growth, and regional and global integration of a country. This integration means connectivity and movement of both products and people. Multilateralism facilitates such integration and connectivity. 
Bangladesh upholds multilateral trade regime and so reliance on the WTO is unavoidable. Being a Least Developed Country (LDC), it is also a better option to tap global market.  The continued negotiations within the WTO framework create significant pressure on developed and many developing countries to open their markets for the LDCs. Almost all the developed countries, except the US, have provided tariff-free market access to Bangladeshi products in one way or another. Bangladesh has, thus, a strong reason to follow multilateralism. 
At the same time, the country is now engaged in two regional FTAs - South Asian Free Trade Area (SAFTA) and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). It is also involved in five Preferential Trade Arrangements (PTAs). These are: SAARC Preferential Trade Agreements (SAPTA), Asia-Pacific Trade Agreement (APTA), D-8 PTA, Trade Preferential System among OIC Countries (TPS-OIC), and Global System of Trade Preferences among Developing Countries (GSTP). SAPTA has already been phased out and replaced by  South Asian Free Trade Area (SAFTA). But, only the first three regional arrangements have made some progress. So, PTAs and RTAs are yet to make any significant contribution towards development of trade of the country. 
But, Bangladesh is now a trade-driven economy. Country's trade-GDP ratio stood at 23 per cent. Total merchandise trade reached close to $80 billion in 2016 and registered 7.0 per cent growth when global trade growth was estimated at only 1.7 per cent, lowest since the global financial crisis. The country is the 60th largest exporter and 54th largest importer in the world, according to WTO statistics. Beside merchandise trade, trade in services is also increasing which has now reached $10 billion. 
In the new volatile world, keeping the growth of trade is very challenging. Without devising a well-thought-out and forward-looking trade policy and getting out of ad-hoc nature of trade strategy, Bangladesh may find the going difficult. Formulation and implementation of trade policy in Bangladesh is not a well-planned practice. Trade strategy is actually ad-hoc in nature and so it becomes difficult to adjust with regional and global developments. The failure of the country to sign any Bilateral Free Trade Agreement (BFTA) may be seen as a reflection of the ad-hoc nature of its trade strategy.  
While formulating and implementing trade policy, there is a tendency to overemphasise export as though import is not very important. This creates an imbalance in trade policy. Due to such leaning towards export, market access appears as the prime issue in any discussion or negotiation on BFTA or RTA. But the other side of the coin, import at a lower cost, is either ignored or deemphasised. Import aspect is analysed mostly through the lens of local industry.  But, import at lower cost is beneficial for the consumers as well as export-oriented manufactures in many cases. Lack of balance in this regard creates flaws in trade policy which also encourages wrong incentives to different sectors. Such incentives ultimately create fiscal burden and discriminate against many potential small sectors. That's why, supporting the exporters to attain competitiveness instead of handing out fiscal sops is a better option.  
Rise of non-tariff measures (NTMs) across the world is in many cases turning into non-tariff barriers (NTBs). NTBs are, no doubt, trade distorting. Nevertheless, NTMs cannot be eliminated rather it calls for a policy to assist the exporters and importers of the country to meet global standards and reduce the cost of compliance. Though a lot of complexities are there, a forward-looking trade policy must acknowledge this reality and devise ways to deal with the NTMs.
Moreover, the country needs to think on realigning bilateral trade relations, especially with the major trading partners (including both developed and developing nations). The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has already mooted a proposal to sign BFTA with the US and also with the United Kingdom (UK). The apex trade body argues that as the Trump administration is putting much importance on bilateral deal, Bangladesh should move in that direction to secure the much desired duty-free, quota-free (DFQF) market access in the US. FBCCI also suggest for establishing a bilateral free trade arrangement with UK and initiating formation of a Commonwealth FTA. These suggestions, however, need exhaustive analysis to determine the capacity of Bangladesh to sign such BFTA.  
As Donald Trump ditched the Trans-Pacific Partnership (TPP) agreement, the future of Transatlantic Trade and Investment Partnership (TTIP) agreement is also bleak. The only mega-regional trade agreement now is the Regional Comprehensive Economic Partnership (RCEP). Led by China, the RCEP is a FTA arrangement among 16 countries: 10 members of the Association of Southeast Asian Nations or ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and the six countries with which ASEAN has existing FTAs-Australia, China, India, Japan, Korea and New Zealand.  The RCEP countries have a population of over 3.0 billion, command 28 per cent of global trade and around US$ 22 trillion combined gross domestic products (GDP). 
Bangladesh is not a party of the RCEP, but if it intends to join the RCEP in the current volatile situation, it would be a rational move. In fact, a study (done by Dr Mohammad Masudur Rahman and Laila Arjuman Ara in 2015) found that complete tariff elimination by the countries of the RCEP would negatively affect Bangladesh as well as other South Asian countries. It estimated that Bangladesh may face welfare loss of approximately $79.45 million with decline in GDP by 0.67 per cent. Thus, studying the impact of joining the RCEP should be a priority task.
Finally, it is very likely that WTO and multilateralism will prevail in the long run, though maybe in a changed form. Bangladesh, a beneficiary of the multilateral trade regime, needs to prepare itself for that change. 
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