Bangladesh needs a more comprehensive trade strategy – The Daily Star

Credit: Original article can be found here

In my last article in The Daily Star, I wrote that Bangladesh needs to urgently act to retain the GSP+ facility post-LDC status. And, that Bangladesh could also opt for negotiating a Free Trade Agreement (FTA) with the EU in order to gain permanent duty-free access for Bangladeshi products into the vast EU market.

Even if Bangladesh attains GSP+ in the EU, this will get us duty-free access for our products, including apparel, only in the EU countries. While the EU is by far the largest market for Bangladesh, our exports would only represent a fraction of the products in the EU market—remember also that the EU no longer includes the United Kingdom because of Brexit. The UK was previously one of Bangladesh’s largest markets in the EU, particularly for clothing.

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Indeed, GSP+ will not be applicable for other key Bangladeshi garment export markets, e.g. Canada, New Zealand, Japan, Australia, India, China, UK. All of these are major markets for Bangladeshi apparel; and many of them are growing rapidly in terms of their middle class (India and China, in particular).

Rising above the cloud, Bangladesh needs to urgently step forward to secure her “market” going the FTA way—negotiating bilateral Free Trade Agreements (FTAs) besides also getting into the mega Regional Trade Agreements (RTAs). Going for limited Preferential Trade Agreements (PTAs) would hardly suffice. If we do not begin the process now, we risk being left behind by some of our key economic competitors in the global garment production space.

What are our competitors doing?

Asean member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and their FTA partners (China, Japan, India, South Korea, Australia and New Zealand) are negotiating the Regional Comprehensive Economic Partnership (RCEP). The 15 RCEP member countries account for about 30 percent of global population (2.2 billion people) and 30 percent of global GDP (USD 26.2 trillion). That makes RCEP the biggest trading bloc in history. RCEP would fast become even larger, economically. Remaining outside of RCEP, Bangladesh would be at serious disadvantage vis-à-vis some of its key competitors. We need to make every effort—politically—to get into RCEP, now.

Likewise, Bangladesh is not a part of the 11-nation Trans-Pacific economic bloc i.e. Trans-Pacific Partnership (TTP) which was struck in February 2016. In the post-Trump era, this trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States, now has every possibility of being revived.

Many of Bangladesh’s key export markets are in TTPA, i.e. Japan, USA and Canada, to name three. Meanwhile, Vietnam—also a TTPA member—along with Malaysia are major competitors to Bangladesh, the former especially so. Vietnam, in particular, is our most direct, like-for-like competitor.

The writing on the wall is clear: if Bangladesh fails to engage in the mega (regional) RTAs or bilateral FTAs (with key export partners) around the globe right now, our exports will be at a competitive disadvantage when tariffs from competitors will be reduced in a couple of years under the FTAs/RTAs. In a sector as price-sensitive as apparel, even small price and cost shifts can have huge ramifications. Some of the global brands engaged in Bangladesh already recognise that about the future of their sourcing footprint (from Bangladesh).

Equally at play is the global pandemic. The pandemic has placed huge strain on our garment sector as well as our public finance. Moving forward, our trade policies need to be re-aligned, re-drawn clearly and strategically to factor in the impact of the pandemic and to account for different competing priorities which have emerged as a result of the pandemic. We operate in a very different global trading landscape compared to what we were 12 months ago.

Bangladesh now has the 43rd largest economy, globally. Economies that are comparatively smaller have entered into FTAs long back—to open up their economies, to trade with countries, to secure their competitive edge. Worth noting are the ways Vietnam engaged with EU on a bilateral FTA a decade back, whereas India is still in discussion with the EU. Countries consider an FTA in a wider lens and matrix than the long-held notion of tariff adjustment or to “protect” domestic competitive sectors—essentially for an FTA to secure her overall “economic advantage”, not just tariff gains. Let’s also accept that an FTA is negotiated as a unique mix of economic-political- social-environmental trade-offs.

Today Bangladeshi exporters yearn for the government to immediately draw up a list of 8-10 countries large enough which could be of potential “interest” or “gain” for the Bangladeshi economy. We must weigh creating and tapping political leverages with a view to engaging on forthcoming FTAs—both RTAs (like RCEP) and bilateral FTAs.

This would require intense, unforeseen, complex diplomatic manoeuvres that can take years, as the RTAs (like RCEP, TTPA) mentioned above illustrate. The technical nature of the finer details of FTAs are often enormously difficult to thrash out, domestically (within Bangladesh) to begin with. Finding common, mutually beneficial ground is not straightforward as well. Experiences of other countries show that preparations for an FTA require economy-wide and also sector-specific assessment across manufacturing and services sectors.

Equally fundamental is for us to develop a comprehensive “national exports strategy”, with a vision for the short, mid- and long-term. Not just to project excel-based export figures for export destinations!

We have set ambitious targets in the past on this front. While USD 50 billion in apparel exports may seem far away now, especially having gone through the pandemic, there is no harm in aiming high. Lofty and ambitious goals are fine—provided our leaders can outline a comprehensive roadmap of how to achieve every minute step, practically, as also address any unforeseen scenario along the journey. 

Time is of the essence, clearly. I wish, we could have started yesterday.

As Bangladesh opts to move, I would sincerely plea that the government engages in open, deeper “consultations” with the private sector (not merely “meetings”) with chambers of commerce, industry associations (like BGMEA, BKMEA) as much as involvement of think tanks and other diverse experts. Bangladesh needs its brightest and sharpest minds at the table as the issues are discussed and thrashed out and different ideas and options are considered on how to move forward.

Mostafiz Uddin is the Managing Director of Denim Expert Limited. He is also the Founder and CEO of Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE).