Bangladesh appears to be taking one step forward and then two steps backward in signing of a Free Trade Agreement or FTA with China, now the single largest trading partner of the country in terms of both import and export values. The policymakers in Dhaka suddenly postponed a scheduled meeting for discussion about the issue. The meeting was scheduled to be held in Beijing on January 07-08. As media reports say, the high-ups at the Ministry of Commerce (MoC) suddenly decided not to sit for such a meeting. No good explanation was given for such a postponement, except the fact that the government wanted to give a second thought to economies of such FTA with China.
In fact, Bangladesh, perhaps, is the only country in the world with its present size and level of the economy which could not sign a single FTA till now. Many such economies have signed more than one FTA, in many cases dozens, either with neighbours or with their stronger trade partners. Bangladesh in that sense still remains an isolated country depending on concessions for its exports given by mature economies either on their own or under the World Trade Organisation (WTO) rules. Till now, Bangladesh has done well on its export front, but the trend of export growth seems to be downward in recent times. Only future will tell how good Bangladesh can do with its exports by depending on the WTO rules and other concessions being enjoyed by it as a least developed country (LDC).
No extra concession with respect to reduced duty has been given to Bangladesh by any country so far. The countries that have offered duty-free excess to their markets for certain categories of goods offered the same to all the LDCs. In fact, Bangladesh and a few other LDCs were discriminated in trade facilities by countries like the USA.
Still, because of a competitive edge, Bangladesh could have entered the US market successfully with its exports, especially with exports of readymade garments (RMGs). Had the USA granted Bangladesh a duty-free and quota-free facility, Bangladesh's export to the US market would have seen a quantum jump. However, since there is no chance of further liberalisation of trade under the WTO now, Bangladesh should not expect any more duty-free and quota-free access to the markets of advanced economies for its exports. These types of facilities will now have to be negotiated with willing partners like China. A free trade accord with China, or so to say, with any other economy having strong trade ties with Bangladesh, will ensure that facility. The argument that signing of FTA with China or any other bigger economy will undermine the interest of local industries in Bangladesh is an old argument bearing no merit. Had this argument still been correct, no FTA would have been signed anywhere in the world. When Bangladesh was contemplating signing of the deal with much smaller economies like that of Sri Lanka, the latter could have given the same argument to avoid an FTA with Bangladesh. The reality is that FTAs are signed among big trade partners and they sign those to be benefitted mutually. In signing of FTAs, the level of the economy matters less.
Big and advanced economies have also joined FTAs. But none of them argued against such agreements by saying that it would harm them. Free trade accords are signed to attract more investment in economies through sourcing each other's markets with exports. FTAs give boost to both investment and trade. Now, if the policymakers think that FTA with a country like China will only facilitate its export to Bangladesh, then they are mistaken. Without FTA, China, at present, could export to Bangladesh's market goods worth more than $ 9.0 billion and Bangladesh, in its turn, ships its goods to China worth $800 million per annum. With FTA, exporters say the two-way trades will increase many folds. The policymakers may also fear that if FTA is signed with China, an amount of $ 2.0 billion will be lost as revenue earnings for the government from duty now being imposed on imports from that country. This might be true, but that would be adequately compensated by earnings from sources like those of VAT on investment and corporate incomes from enterprises in Bangladesh if investment goes up significantly because of such FTA. Many people suspect an Indian hand in resisting signing of FTA with China. We do not know whether India opposes such a deal with China. For Bangladesh, connecting with other economies is important, be that with China or India or so to say, with any other country having trade potential. FTA is not a one-way track; it is based on principles of 'give and take'. At the end, all concerned win together. Many countries are not happy only with FTAs as these aim at economic unions, meaning integrating the economies.
FTAs with bigger economies are more beneficial than those with smaller economies like that of Nepal or Bhutan. Pairing with the second largest global economy would have raised people's expectations. Investors would have felt confident with their investments in Bangladesh had they seen FTA signed with China.
The writer is Professor of Economics at the University of Dhaka.
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