Bangladesh-US free trade deal: An impossible proposition?

The economic relations between Bangladesh and the United States of America (USA) are largely trade-dependent. In fact, the US is the single largest export market for Bangladeshi products, Ready-Made Garment (RMG) to be more precise. The annual export to the US stood at around US$6.0 billion while the annual bilateral trade crossed $7.0 billion in 2017. Thus the trade balance is heavily tilted in favour of Bangladesh.
On the investment front, the US is also one of the top five sources of Foreign Direct Investment (FDI) in Bangladesh. In 2017, Bangladesh received a gross inflow of FDI worth $ 181.49 million from the US while the net inflow stood at $ 166.66 million. The outstanding stock of FDI from the US to Bangladesh stood at $3,331.87 million at the end of 2017. It is the highest amount of the stock of FDI in Bangladesh from any single country.
Bangladesh and the US signed a Bilateral Investment Treaty (BTI) in 1986 which came into force in 1989. Then there is a Bilateral Treaty for the Avoidance of Double Taxation. These two treaties help enhance the bilateral economic activities between the two countries.
The US is also the third major source of remittance for Bangladesh after the Kingdom of Saudi Arabia and the United Arab Emirates (UAE). In FY18, Bangladesh received remittance worth $ 1997.95 million from the Bangladeshi diaspora in the US.
Bangladesh and the US also singed the Trade and Investment Cooperation Forum Agreement (TICFA) in 2014 in a bid to promote bilateral economic cooperation through trade and investment. Thus a number of bilateral agreements are there to strengthen the bilateral relations focused on economic development.

Bangladesh has also been receiving regular foreign aid from the US. In 2016, the country received US assistance to the tune of $266 million, according to the USAID data.
Although bilateral trade is growing, Bangladeshi products are yet to get any preferential market access, let alone the Duty-Free and Quota-Free (DFQF) access to the US market. Rather the US administration suspended the Generalised System of Preference (GSP) facility in 2013.
The GSP is the largest and oldest US trade preference programme. Established under the Trade Act of 1974, the GSP promotes economic development by eliminating duties on a maximum of 5,000 types of products when imported from one of the 121 designated beneficiary countries and territories. In 2017, the total value of the US imports under the GSP was $21.20 billion and 5,059 products were eligible for such entry.
Concerns for workers' rights and safety issues led the US to suspend Bangladesh's GSP trade benefits in June 2013. In fact, the Rana Plaza tragedy that claimed more than 1,100 lives of garment workers prompted the suspension. At the time of the suspension, the US provided the Bangladesh government with an action plan to address the lack of workers' rights and safety as a basis for considering the reinstatement of the GSP trade benefits. Since then, Bangladesh has made important progress in meeting some of the plan's objectives - especially in inspection, safety and security of workers. Several other efforts have also been made to revive the GSP benefit. Nevertheless, there is no indication of reviving the GSP. Though Bangladesh's export to the US under the GSP was very small, around 1.0 per cent of the total exports, suspension of the GSP was a blow to Bangladesh.
In fact, nearly all Bangladeshi products imported by the US are subject to tariffs and the average tariff rate stands at 15.2 per cent which was the highest among the 232 countries, territories and other jurisdictions. So in the past year, the US collected tariff worth US$ 861.14 million against the total import from Bangladesh. Bangladesh exported about $5.7 billion worth of goods to the US in 2017 and 95 per cent of them were apparel, footwear, headgear and related items.
An analytical report prepared by Washington-based Pew Research Centre revealed that total value of 'Apparel and Clothing Accessories' imported in 2017 stood at US$ 80.6 billion which was 3.5 per cent of the total import of the US. Nearly $64 billion or 79 per cent of those imports were 'dutiable', that means subject to duty. The average tariffs on the dutiable portions were 18.7 per cent for knitwear and 15.8 per cent for woven garments. As around 95 per cent of the Bangladeshi exports to the US are clothing items, these are also subject to tariff peaks.
With Mr Donald Trump taking over as US president on January 20, 2017, the US has gone for some big changes in its trade policy. The core idea is to intensify bilateral trade relations with its trading partners and reduce multilateral trade cooperation. Thus attaining the DFQF market access to the US becomes almost impossible. So far, the country has tried to get the tariff-free market access through multilateral trade negotiation under the World Trade Organisation (WTO). But, the US continuously denied the access on the plea that the Doha Round negotiation of the WTO is not complete. The Hong Kong Ministerial declaration of the WTO in 2005 made it incumbent on the developed countries to provide 100 per cent DFQF market access for the LDCs. There is, however, an escape route also as the declaration allowed 'countries not in a position to do so' to provide market access for at least 97 per cent products. Then the Bali Ministerial declaration in 2013 argued for raising the ceiling further from 97 per cent. But the US remains indifferent to this plea.
Against the backdrop, some suggest that the only option for Bangladesh is to sign a Bilateral Free Trade Agreement (BFTA) with the US in order to get the desired DFQF access to the US market. The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) and the Bangladesh Enterprise Institute (BEI) mooted the idea. The commerce minister of Bangladesh also hinted that the government was thinking positively in that line. He was of the view that the country would soon graduate from the Least Developed Country (LDC) status and then it would no longer be entitled to preferential market access under the DFQF and the GSP automatically.
However, striking such a deal with the US sounds ambitious and hardly feasible now or even in the near future for several reasons.
Currently the US has BFTA with only 20 countries (as on July 31, 2018). These are: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru and Singapore. No country has negotiated a BFTA with the US after Mr Trump became president. This is despite the fact that intensification of bilateral trade relations is high on the agenda of the US president.
Again, the structure of the US FTA is beyond trade in goods and services, although termed a trade agreement. It extensively covers investment, intellectual property right and standards of labour and environment. In fact, the country believes in 'deep integration' and so full liberalisation of goods and services is an inherent component of any BFTA with the US. Moreover, any such BFTA goes beyond the obligation of multilateral Intellectual Property Rights (IPRs) or Trade Related Aspects of Intellectual Property Rights (TRIPS) of the WTO. This is known as 'TRIPS Plus' as US emphasises more commitment to IPRs. Thus, to get the full and permanent market access to the US for goods and services, a partner country requires the commitment to protect IPRs beyond the WTO. The US also stresses investment protection as embodied in the FTA, mainly for protection of the interests of the US-based Multi-National Entities (MNEs). The clause for investor-state dispute asks for arbitration instead of going to the domestic court of the partner country, if any dispute with a US investor arises. Finally, there are provisions for environment and labour standards. Any BFTA with the US can't be complete without inclusion of these two components.
In fact, a BFTA with the US is actually a comprehensive agreement that supports economic and even political reforms in the partner countries. This is the reason why very few countries sign any BFTA with the US.
For Bangladesh, a BFTA with the US may open up the duty-free regime for the apparel sector. But, depending on a single product, the country will not be able to tap the full benefit of the free trade agreement.
Evidently, Bangladesh has to go a long way before sitting with the US for negotiation on an FTA. A comprehensive plan and preparation are required for this.
[email protected]