Bangladesh is yet to sign even a single free trade deal with any country until now. Signing of free trade agreements is essential for the country. Yet the authorities are apparently not that much serious about it.
The first such agreement was supposed to be signed with Sri Lanka last year. Unfortunately, it did not happen. The government said earlier that the agreement with Sri Lanka would be signed soon as both the countries had already completed a joint feasibility study and examined pros and cons of the matter.
Sri Lanka is in an advantageous position in value-added apparel industry, shipping lines and deep-sea port, financial services, ICT and skilled technical people in different sectors.
On the other hand, Bangladesh enjoys advantages in the apparel sector, skilled workforce in the garment sector, agricultural products, processed foods and migrant workers.
Bangladesh would be immensely benefited if the FTA is signed with Sri Lanka, as a portion of its exports and imports of goods are done through the Colombo port.
Now the question is what FTA means. It is an agreement between two or more countries to reduce or remove trade barriers and bring closer economic integration. FTA offers lower or zero tariff on exports and imports of goods and components assigned under FTA.
The country's commerce minister has recently stressed the need for signing a FTA with Beijing aiming to narrow the yawning trade gap between Bangladesh and China. Bangladesh and China have a huge trade gap. The country's export has been growing with China in recent years and if the growth continues, it will be able to boost its export to US$2.0 billion within two or three years.
Presently, as a least developed country, Bangladesh gets duty-free market access to European Union, Canada, Australia, Japan and some other countries. The country also gets duty-free access to Indian and Sri Lankan markets under the South Asian Free Trade Agreement (SAFTA).
The truth is that the country's future trade benefits would largely depend on bilateral free trade agreements as it may lose duty-free facilities once it graduates to a middle-income nation in the next few years. Without FTAs, the country will invariably lose competitive advantages to other countries.
Bangladesh needs to sign comprehensive trade agreements with its major partners in order to retain preferential access to key international markets after graduating from the least developed country (LDC) status, according to experts.
Only the EU will provide a three-year grace period, during which Bangladeshi exports will enjoy duty-free access to the market, following the country's graduation in 2024.
Therefore, the signing of preferential trade agreements (PTAs) or free trade agreements (FTAs) with other developed nations might ease the burden of export taxes to some extent.
Although the process of signing PTAs with Bhutan and Nepal is already underway, Bangladesh needs to sign such agreements with higher-income economies like the EU, the USA and Canada.
In most cases, Bangladesh should look to sign Comprehensive Economic Partnership Agreements (CEPA), which not only cover duty, but also investment, logistics, services and other important issues.
The country should begin trade negotiations immediately in order to secure zero-duty benefit after graduation. The government should also increase its revenue generation from internal sources as the signing of trade agreements will erode tax collection.
And since these are major sources of income for the government, the country does not feel the need to encourage the signing of FTAs. Bangladesh also needs to strengthen its laws on intellectual property rights, labour, banking and insurance in order to enjoy the real benefits of the CEPA.
The signing of FTAs or PTAs with high-income nations is always beneficial as the country needs to increase its export basket. Regional markets are important and therefore, signing PTAs with Bhutan and Nepal is a good initiative.
Besides, Bangladesh must negotiate with India to get the same treatment as the Maldives. Under SAFTA Article 12, the Maldives was allowed to have the same market access benefits as an LDC after graduating in 2011.
To address such an issue, a high-powered trade representative or negotiator's office should be in place to launch proactive trade engagements with major trade partners.