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Bangladesh is in danger of exporting on the basis of Most Favoured Nation (MFN) tariff, after and even before the country’s graduation from the list of Least Developed Countries (LDCs) by 2026. Curretnly, 85 per cent of the country’s export destinations provde unilateral and temporary Generalisesd Systme of Preferance (GSP) which can be terminated any time. It may be noted that Bangladesh has no bilateral free trade partners anywhere.
So, the LDC Graduation will create a numebr of challenges to Bangladesh. For instance, most of the clothing items are not in India’s tariff liberalisation schedule aplicbale for non-LDC members of South Asia Free Trade Area (SAFTA). Thus Bangladesh will have to export clothing items to India under the applied rate of duties.
Again, graduation will also mean losing LDC preferences in Asia Pacific Trade Agreement (APTA) markets such as China and Republic of Korea to a certain extent. The products on which preferences will be available will be reduced, the margin of preference will also be reduced, and Bangladesh will have to comply with a higher value addition (45 per cent instead of 35 per cent for LDCs).
If these essential elements of productive capacities and trade flows are not developed before graduation, it is highly likely that the road to sustainable development after graduation will be rough and full of pitfalls.
The challenges Bangladesh may face in the post-graduation period are a continuation of the weaknesses and impediments that characterised our economy in the period prior to graduation. These include underdeveloped productive capacities, cumbersome trade rules and regulations, lack of dynamic enterprises and infrastructure, limited technological capabilities, and infant or fragile institutions.
Against the predicted export shocks due to loss of trade preferences Bangladesh needs to begin to open negotiations with strategic trading partners to protect its long-term trade interests. Deepening partnerships through Free Trade Agreements (FTAs) is of strategic importance as trade expansion and diversification is one of the unavoidable long-term targets for Bangladesh with a view to creating export opportunity through reciprocal tariff reduction.
Taking into account the trends and practices of our competing exporting countries like India, Pakistan, Sri-Lanka, Vietnam, Cambodia, China, Korea, Malaysia, Philippines, Indonesia and others, Bangladesh has no other option but to ensure predictable and sustainable destinations within the period 2021-2026 by entering into comprehensive free trade agreements in goods and services instead of Preferntial Trade Agreemtns (PTAs) on trade in goods only. What is necessary is to go for FTAs with major economic blocs along with bilaterl FTAs with the United States of America (USA) and the post-Brexit United Kingdom (UK).
BANGLADESH-EURASIAN ECONOMIC UNION FTA: An FTA with Russia and CIS countries or Eurasian Economic Union (EAEU) will open our third major export front apart from the US and European Union (EU) and boost our exports to these resourceful countries significantly. Russia, the world’s fifth largest economy by purchasing power parity, and ranked ninth by population, is a hugely significant market in global terms with gate way to other CIS Members of the EAEU (global import US$ 424.83 billion in 2018 is, in fact too big and important to ignore).
Vietnam has already signed a BFTA which is effective from January 2017 and India is also negotiating on fast track basis with this block. Vietnam’s exports to EAEU since 2017 rose sharply by 36.5 per cent to $5.9 billion from $4.3 billion in the previous year and they are on the way to achieve their target of US$10-12 billion bilateral trade by 2020, and US$30 billion by 2030.
Therefore, expanding Bangladesh’s new Export markets in Russia and other CIS Countries under a free trade agreement, like India and Vietnam, is of absolute necessity.
BD-US FTA: Non-reciprocal trade deals like GSP and multilateral, regional arrangements have been excluded from the US trade agenda and the US has also withdrawn from TPP preferring only to make bilateral reciprocal trade deals.
Bangladesh needs to take up a proactive initiative in establishing a bilateral free trade arrangement with the US no matter how highly ambitious the move is. The terms of BFTA with the US in goods, services and investment need to be without prejudice to the rights and obligations under the WTO Agreements and respective international rights and obligations as agreed in Bangladesh-US TICFA. US is the leading trade partener of Bangladesh.
BD-EU FTA OR GSP SCHEMES : Bangladesh will continue to be enjoy the current tarff-free market access in EU countries under the EU EBA scheme till 2029, even after three years of the graduation from the LDC category. The country has two possible options for the post-2029 market access strategy in EU. The first one is the standard GSP scheme for develoing countreis which grants only duty reductions (not duty elemination or duty-free access) for maximum 66 per cent of all EU tariff lines. Under the terms of WTO this unilateral GSP scheme can be withdrawn any time. The second one is GSP-plus scheme (may terminate in 2023) with only 66 per cent product coverage having conditon of complying 27 core international conventions.
Thus, both the ‘Standard GSP’ and the ‘GSP-plus’ schemes are neither meaningful in respect of product coverage and margin of preference nor a worthwhile and sustainable option for Bangladesh. Bangladesh, like Vietnam and others, needs to start negotiation with EU to eneter into a FTA deal to secure the future market.
FTA WITH POST-BREXIT UK: India Canada, China, Mexico, Singapore, South Korea Australia, New Zealand and the ASEAN among the countries that are now negotiating free trade agreement with the post-Brexit UK. Bangladesh should also take a strong proactive role in establishing a BFTA with UK and initiate to form Commonwealth free trade area to bring together a community of countries representing one fourth of the countries of the United Nations.
FTA WITH AFCFTA, ASEAN, APEC, MERCOSUR AND RCEP: The Asia-Pacific Economic Cooperation (APEC) is a regional economic forum established in 1989. APEC’s 21 member economies are Australia, Brunei Darussalam, Canada, Chile, China, Hong Kong, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russian Federation, Singapore, Chinese Taipei, Thailand, United States of America, Viet Nam. Sigining a FTA with the bloc will be a difficult job no doubt. Bangladesh may consider it for future agenda. The same it true for Mercosur (Southern Common Market) is a South American trade bloc established where Argentina, Brazil, Paraguay and Uruguay are full member. Venezuela’s membership has been suspended since December 1, 2016. FTA with the African Continental Free Trade Area (AfCFTA) may also be examined. Finally, Bangladesh needs to think on joining the Regional Comprehensive Economic Partnership (RCEP), the mega regional trade deal centred on China.
These Regional Blocks may be approached to extend market access to all products and services under Modes 1, 3 and 4 against our unilateral liberalised service sectors and investment regime offering to them our SAFTA terms of trade in goods and services.
WHAT TO DO: To streamline and ensure highest level of co-ordination in all trade related negotiations in Geneva and elsewhere, a National FTA Committee (NFTAC) headed by the Secretary Ministry of Commerce and consisting of line ministries and agencies including NBR as well as private sector to formulate Country/Region specific draft FTAs templates highlighting the strategic options of Bangladesh.
THEMATIC SUB-COMMITTEES: In this connection, the Federation of Bangladesh Chambers of Commerec and Industries (FBCCI) has sugested formulation of a numebr of specialised thematic sub-committees in the WTO Cell of the Ministry of Commerce in partnership with the line ministries, agencies and the private sector with proactive TORs. The sub-committes are on: (i.) WTO, global Market Access, FTAs & RTAs; (ii) Trade in Services and Investment; (iii) Tax and Tariff; (iv) International trade; (v) Trade Facilitation; (vi) Trade Rules, NTBs, Technical Barriers to Trade, Sanitary & Phytosanitary Measures and Compliance issues; (vii) TRIPS; and (viii) Trade and Environment.
Each committee should establish a computerised database documentation unit and collect, store, study, analyse and disseminate its assigned subject related information, documents, reports, communications and notifications submitted to WTO and other international institutions and become the National information source for the government, enterprises and the stakeholders as the subject-wise Reference Centre.
Each sub-committee will also submit the draft concept papers on issues to NFTAC which it determines to be important and on issues assigned to them by the NFTAC from time to time. National Trade Policy Papers should be formulated by these NSCs in consultations with the experts and the stakeholders, among others, by open-ended e-communication soliciting feedback and inputs.
The NSC will place draft concept papers in seminars to be organisined in collaboration with FBCCI for eliciting opinion and comments and submit the final draft report with appropriate recommendations.
The final draft report thus obtained may be adopted as the National Trade Policy Papers as may be approved by the NFTAC. Upon approval of the Cabinet, the National FTA Committee along with the private sector experts would engage in respective negotiations on the basis of strategic policy and options outlined in the negotiating template.
To develop the template, folllwoing issues may be reiviwed: (a) Vietnam, Lao PDR & Myanmar RCEP and ASEAN FTA and schedules of commitments; (b) Vietnam-EAEU and India-EAEU FTA and schedules of commitments; (c) United Sates Kenya-USA mutually agreed FTA negotiating template; (d) Vietnam-EU FTA and schedules of commitments; (e) AfCFTA and MERCOSUR Free Trade Agreements and schedules of commitments.
CAPACITY DEVELOPMENT: For the capacity development, Ministry of Commerce, NFTAC, NSC, BTTC, BFTI, NBR, BB, EPB and WTO Cell should form panel of experts with recognised expertise on national, regional and international trade from the private sector stakeholders and officials from the line Ministries and agencies to serve as their respective back up units.
All posts of commercial cousellors should be filled by officials with officially recognised expertise on national, regional and international trade.
The expertise and skill gained through training and on the job experience must not be lost by routine transfers notwithstanding the provisions of the Rules of Business.
Compulsory regular courses on acquiring knowledge and expertise on tariff structures, HS classification, list of products and services in sensitive list and mutual economic and domestic priorities of our trading partners for all trade related officers in different line ministries and agencies need to be introduced.
There should also be strategic orientation courses for officers who will take part in trade negotiations to develop, within the scope of mutual and global rights and obligations, comprehensive understanding and expertise of mutual interest in the subject of negotiations, case studies of like, similar and comparable negotiated deals in respect of terms of trade and schedules of commitments.
There is also the need to facilitate investment abroad to establish warehouses, marketing and distribution network and after sales service centres in target markets.
Manzur Ahmed is Adviser, FBCCI.