Published in The Independent on Sunday, 29 April 2018
Future of free trade agreements
SHARIF AHMED
The future trade benefits of Bangladesh will largely depend on bilateral free trade agreements (FTAs) as the country may lose duty-free facilities once it graduates to a middle-income nation by 2021, experts say.
Currently, Bangladesh has taken initiatives to sign FTAs with several countries including China, Bhutan, Thailand, Turkey, Malaysia and Sri Lanka, Nepal and also interested to sign free trade agreement with India. Experts hope that Bangladesh’s trade gap with these countries would become reduce if they sign free-trade agreements. FTAs expected to be signed with the Asian countries will boost both investment and trade.
FTAs are designed to reduce the barriers to trade between two or more countries that are in place to help protect local markets and industries.
Trade analysts said Bangladesh should consider two things while signing an FTA: identifying the priorities of the negotiating country and assessing agendas that are negotiable from the perspective of offensive and defensive interests.
Without FTAs, Bangladesh will lose competitive advantages to other countries, such as India, Pakistan and Vietnam, which have FTAs with a number of countries, the experts said.
FTA with Thailand
Bangladesh is expected to sign an FTA with Thailand. The agreement has to cover all major areas of cooperation, such as trade in goods, services and investments, ensuring mutual benefits, said Commerce Minister Tofail Ahmed.
Bangladesh enjoys a healthy trade and business relationship with Thailand. Now, it is working towards inking a free trade agreement (FTA) with Thailand to boost bilateral trade.
The trade between Bangladesh and Thailand currently stands at USD 1.13 billion. At present, Bangladesh exports goods worth USD 31 million to Thailand and imports goods worth USD 304 million from that country every year. Besides, Bangladesh enjoys duty-free benefits for 6,998 products exported to Thailand.
Dr Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue (CPD), told The Independent that a free-trade agreement (FTA) involved cooperation between at least two countries to reduce trade barriers, such as quotas and tariffs, and to increase the trade of goods and services with each other.
Citing an example, Moazzem said the automotive industry of Thailand was the largest in South-Asia. Thailand can invest and establish an automotive assembly plant in Bangladesh so that the latter can re-export the automotive parts and components to Thailand.
“So, a bilateral trade agreement between the two countries should be inked in such a way that it renders long-term benefits to us,” he added.
“Bangladesh has taken the initiative of signing an FTA to boost export to Thailand,” said commerce minister Tofail Ahmed while addressing the inauguration ceremony of the four-day ‘Thai Week-2018’ at a hotel in the capital organised by the Royal Thailand Embassy in Dhaka recently.
A large number of people go to Thailand every year for treatment. Various organisations providing health care services were at the fair.
Bilateral trade between Bangladesh and Thailand will reach USD 2 billion by 2021 and both Bangladesh and Thailand are willing to sign the FTA for trade expansion, Tofail Ahmed at the fair.
According to the Export Promotion Bureau of Bangladesh, some major import items from Thailand to Bangladesh are cement, cereals, plastic, man-made staple fibres, sugar and sugar confectionary, machinery and mechanical appliances, and cotton and cotton fabrics.
Sri Lanka
Bangladesh expects to boost mutual trade with Sri Lanka by signing a free trade agreement. The deal is expected to help overcome tariff and non-tariff barriers to mutual trade. Dhaka has been negotiating the FTA with Colombo since 2013 to increase trade, which is currently worth $80 million every year.
Sri Lanka, as a developing country, has put 925 products in the negative list under the South Asia Free Trade Area deal. Bangladesh mainly exports woven garments, knitwear, home textile, agro products, frozen food, leather and leather products, footwear, raw jute, jute goods and bicycles.
Bhutan
Bangladesh and Bhutan initiated negotiations for free trade and transit under bilateral arrangements to augment paltry business transactions between the two countries.
Meanwhile, a four-nation sub-regional connectivity deal has been stalled, as it has not been ratified by the upper chamber of Bhutan’s parliament.
Sources said the two neighbours opted for negotiation towards signing a preferential trade agreement (PTA) or FTA to tap the potential of boosting the two-way trade. Despite excellent bilateral relations, trade volume between the two countries is still low.
Turkey
Bangladesh is keen to sign FTAs with Turkey to boost bilateral trade. The first round of discussions for the FTA has been completed.
The bilateral trade between Bangladesh and Turkey is currently worth $843.93 million. The signing of the FTA would help boost the export of RMG, pharmaceuticals, frozen fish, dry food, jute and jute products, leather, plastic and ceramic products, ship building and light engineering products to Turkey.
FTAs with bigger economies are more beneficial than those with smaller economies like that of Nepal or Bhutan. Investors would have felt confident with their investments in Bangladesh had they seen FTA signed with China.
China
Bangladesh appears to be taking one step forward in signing of a Free Trade Agreement with China, now the single largest trading partner of the country in terms of both import and export values.
In September 2016, China had formally proposed a study to examine the suitability of the formation of an FTA. Beijing had then forwarded a draft of the MoU, which was inked in October.
According to a commerce ministry official, China will provide the necessary funds for the study.
The Chinese embassy has forwarded a letter in this regard and asked for a meeting to be held in Beijing in November. The Chinese embassy has sent a list of the terms and condition, too. A joint working group has been formed comprising officials from both sides.
However, commerce ministry officials said that signing the FTA accord with China will result in a significant revenue loss for Bangladesh.
Bangladesh’s import from China reached nearly USD 9.0 billion, while its exports reached only around USD 800 million.
Bangladesh may lose USD 2.70 billion or more as revenue if it grants duty-free market access to Chinese products by signing the FTA deal.
China has granted duty-free market access to 4,886 products of least developed countries (LDCs) in its market.
Bangladeshi goods also enjoy the facility since the country is also an LDC. Almost a similar number of Bangladeshi products also enjoy duty-free access to the Chinese market under the Asia-Pacific Trade Agreement since 2010, commerce ministry officials said.
Once the country graduates to a middle-income nation, the bilateral FTAs and regional trade blocs such as the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) will ensure duty benefits.
Before the signing of the FTA, both the countries should conduct feasibility studies to analyse the positive and negative lists of goods and services and their value addition capacity, said Moazzem.