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Fostering global free-trade relations

Manzur Ahmed | November 24, 2019 00:00:00

Consistent and incremental growth of Bangladesh helps the country graduate from the United Nations (UN) list of least developed countries (LDCs) to a developing country by 2024. The country will, however, continue to enjoy a number of international support measures (ISM) up to 2027.

The main challenge for Bangladesh will be to face the post-graduation shock and maintain the trade growth.

Being a trade-dependent country, it is not in a position to absorb any deviation in this regard. So what is needed is to deepen and diversify the global market access in goods and services along with global, regional and domestic trade facilitations to ensure predictable and sustainable destinations of the export products, both goods and services. To do this, it is important to take into account the trends and practices of competing countries like India, Pakistan, Sri-Lanka, Vietnam, Cambodia, China, Korea, Malaysia, the Philippines, Indonesia and others.

Currently, the country is enjoying duty-free quota-free (DFQF) market access provided under the framework of World Trade Organization (WTO) and tariff-free Generalised System of Preferences (GSP) market access to European Union (EU), Canada, Japan, Australia and other seven markets. It is also getting benefit of Preference Rules of Origin provision for LDCs and extension of the transition period under Article 66.1 of the Trade Related Intellectual Property Rights (TRIPS) Agreement for LDCs on pharmaceutical products. Moreover, Article 66.2 of the TRIPS agreement on transfer of technology to LDCs is also there.

After the completion of formal graduation from an LDC to a non-LDC developing country, there will be termination of WTO DFQF market access for LDCs and duty-free GSP market access. As a result, the country will have to export on Most Favored Nation (MFN) tariffs which means Bangladesh-made exportable items will face variable tariff rates in different markets. There will be no zero duty unless negotiated through Bilateral Free-Trade Agreement (BFTA).

Stripping off the tariff benefits, along with Termination of TRIPS benefit for on pharmaceutical products and technology transfer, will result loss in exports from 5.50 per cent to 7.50 per cent (in 2016 count), according to United Nations Conference on Trade and Development (UNCTAD).

Another estimate by Commonwealth of Independent States-Bangladesh Chamber of Commerce & Industry (CIS-BCCI), however, finds that it may be as high as 20 per cent of the country's annual export which is now worth US$40.0 billion. It is not only due to the termination of above mentioned benefits, but also due to loss of markets in EU and other GSP granting countries. Competitors countries like India, Pakistan, Sri Lanka, Vietnam, Cambodia, China, Korea, Malaysia, the Philippines and Indonesia have already signed and will be signing BFTAs with EU and other GSP granting countries. There is an apprehension that by 2019 or early 2020, most of these free trade arrangements will be in force. This will compel Bangladesh to export our products on even higher MFN tariffs.

Taking into account the trends and practices of the competing exporting countries, Bangladesh has no other option but to strike free trade agreements with major and potential markets by 2024.

BROADER TRADE BLOCS FOR FTA: In fact, a number of 'broader trade blocs' are there and Bangladesh needs to negotiate free-trade deals with those without any further delay.

The first bloc to come under consideration of Bangladesh is Russia-CIS bloc or the Eurasian Economic Union (EAEU). An FTA with EAEU will open third largest export front apart from the US and the EU and boost the country's exports to these resourceful countries significantly. Russia, the world's fifth largest economy by purchasing power parity, and ranked ninth by population, is a big market in global terms and also a gateway to other CIS members of the EAEU. Its global import was US$ 424.83 billion in 2018.

Vietnam has already signed a BFTA with EAEU which came into effect from January 2017. Vietnam's exports to EAEU since 2017 rose sharply by 36.50 per cent to $5.9 billion from $4.3 billion in the previous year and they are on the way of achieving their target of US$10-12 billion bilateral trade by 2020, and US$30 billion by 2030. India is also negotiating on fast track basis with this block.

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.

Second bloc is the US-Canadian or North American bloc. Non-reciprocal trade deals like GSP and multilateral, regional arrangements have been excluded from the US trade agenda and accordingly the US has withdrawn from Trans-Pacific Partnership (TPP) preferring only to make bilateral reciprocal trade deals.

The TPP withdrawal Memorandum signed by the US President on January 23, 2017 states among other things, "Additionally, in order to ensure these outcomes, it is the intention of my Administration to deal directly with individual countries on a one-on-one (or bilateral) basis in negotiating future trade deals."

Bangladesh should therefore, without wasting time on GSP or WTO, immediately take up a pro-active initiative in establishing a bilateral free trade arrangement with the US like Vietnam, India and others and also with Canada.

The terms of BFTA in goods, services and investment with US should be without prejudice to the rights and obligations under the WTO Agreements and respective international rights and obligations as agreed in Bangladesh-US TICFA.

It should be noted that on the issue of Labour standards Bangladesh is in compliance with ILO, WTO and TICFA requirements. By suspending GSP facility for Bangladesh on the issue of Labour Standards, the US itself is violating the ILO, WTO and TICFA requirements.

The third bloc is EU. There are two possible options for Bangladesh for the post 2024 market access strategy in EU: (1) EU Standard GSP or GSP plus (Under the terms of WTO this unilateral GSP scheme can be withdrawn any time); and (2): Bangladesh-EU FTA

The 'standard GSP' grants only duty reductions (not duty free) for maximum 66.0 per cent of all EU tariff lines. The GSP-plus scheme with only 66.0 per cent product coverage imposes a bundle of Non-Tariff Barriers (NTBs) based on non-trade issues, beyond the scope of WTO TBT, SPS and other Agreements covering no fewer than 27 core international conventions. The GSP-plus applicant country must give a binding undertaking in writing to maintain the ratification of these 27 conventions and to effectively implement them. It must also accept these conventions' reporting and monitoring requirements without reservation and must agree to co-operate with the EU monitoring procedure led by the European Commission. In return the product covered under the scheme is only 66.0 per cent of all EU tariff lines.

Thus neither 'Standard GSP' nor the GSP-plus scheme is meaningful in respect of product coverage. None of these are a sustainable option for Bangladesh and the country must not accept any NTB beyond the scope of WTO framework.

EU and other GSP granting countries (including Australia and Canada) have signed and going to sign free trade agreements with the countries like India, Pakistan, Sri-Lanka, Vietnam, Cambodia, China, Korea, Malaysia, the Philippines and Indonesia.

OTHER BLOCS: During the post-Brexit era, Bangladesh needs to engage with the United Kingdom (UK) which will also lead to a deal with Commonwealth Free Trade Area. Bangladesh needs to take a strong pro-active role in establishing a BFTA with the 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 (UN). Though there is little sign that a free-trade area within the Commonwealth will be emerged in near future, engage with such an effort could be a strategic agenda.

It is to be noted that trade ministers of 53 member-states of the Commonwealth in October this year 'committed to resist protectionism and work urgently together towards reforming the WTO in an effort to break all barriers to free trade.' They reaffirmed their 'commitment to free trade in a transparent, inclusive, fair, and open rules-based multilateral trading system with the WTO as its core institution.'

Bangladesh also needs to ratify BD-D8 FTA. D8 Organisation for Economic Cooperation is a bloc of eight developing countries including Bangladesh. Bangladesh should immediately ratify 2006 D-8 FTA, without any further delay, on the terms of 40.0 per cent Rules of Origin which covers the country's 100 per cent export products.

Bangladesh may also seriously think for FTA negotiations with African Continental Free Trade Agreement (AfCFTA), Association of South-East Asian Nations (ASEAN), Asia-Pacific Economic Cooperation (APEC), Southern Common Market (Mercosur) and Regional Comprehensive Economic Partnership (RCEP).

AfCFTA is the world's largest free trade area. It seeks to create a single market on the continent, as well as to increase intra-African trade through liberalisation.

APEC ensures that goods, services, investment and people move easily across borders. Members facilitate this trade through faster customs procedures at borders; more favorable business climates behind the border; and aligning regulations and standards across the region.

Mercosur's purpose is to promote free trade and the fluid movement of goods, people, and currency. The bloc comprises a population of more than 270 million people, and the combined Gross Domestic Product of the full-member nations is in excess of US$3.0 trillion a year (Purchasing power parity, PPP) according to International Monetary Fund (IMF) numbers, making Mercosur the fifth-largest economy in the World. It is the fourth-largest trading bloc after the European Union.

AN AMBITIOUS LIST: The advocacy for signing BFTA with the above mentioned blocs, regions and countries may appear as a very ambitious list and to some extent sound impossible. After presenting the advocacy paper at a seminar, many also termed it ambitious and long 'shopping list.' Some also argued that this kind of advocacy is based on the thought that FTA is a 'panacea' which is not. Taking the criticisms and views into cognizance, this scribe argues that vigorous effort is must to start the process of FTA negotiations with different trading partners. FTA negotiation is a time consuming process and it is not possible to start all the negotiations at a time let alone completion.

The terms of FTA in trade in goods and services should be within the rights and obligations under the WTO Agreements and international rights and obligations as agreed in respective Bilateral Frame Work Trade Agreements with Bangladesh. One should also keep in mind that Bangladesh already has a very liberal services, public procurement and investment policy regime. Bangladesh should therefore take the credit and claim on reciprocal basis duty free market access in goods and Mode-1, Mode-3 and Mode-4 accesses in Services sector from its mutual trading partners. The Free Trade Agreement should be based on our liberalization commitments under SAFTA in goods and services. This will facilitate trade creation by neutralizing the prevailing trade diversion without any adverse impact on revenue.

Manzur Ahmed is adviser, Commonwealth of Independent States-Bangladesh Chamber of Commerce & Industry (CIS-BCCI). manzurahmed019@gmail.com.

The write-up is drafted based on an advocacy paper presented at a seminar in Dhaka recently.

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