Choosing between bilateral and multilateral FTAs
Shahiduzzaman Khan | Thursday, 7 August 2008
In a radical shift in the country's trade negotiations, Bangladesh now decided to start bilateral free trade negotiations with three South Asian countries, shelving the country's long-standing trade policy that favoured multilateral trade deals over bilateralism. The interim government was initially hesitant, but now plans to pursue bilateral free trade deals with India, Pakistan and Sri Lanka.
According to a report published in the FE this week, the move was taken up at a time when the world trade talks under the crucial Doha round collapsed failing to ensure more trade benefits for developing countries. Bangladesh embassies in India, Pakistan and Sri Lanka are expected to start the negotiation process while a core committee at the commerce ministry will prepare the terms of reference (ToR) for each of the three countries before the final talks start. The decision on formation of a multi-stakeholders' working group was taken in the meeting involving both public and private sector representatives and trade experts to identify pros and cons under a free trade agreement (FTA).
Experts have termed the Doha round of the World Trade Organisation (WTO) talks as all but dead, as the developing countries led by China and India have failed to narrow the gap with the developed countries led by the United States and the European Union. If successful, the world trade talks would have guaranteed duty free access to more than 97 per cent of Bangladeshi goods. The country also gained little from its membership of the two regional trade treaties-- South Asian Free Trade Agreement (SAFTA) and the Bay of Bengal Initiative for Multilateral and Sectoral Economic Cooperation (BIMSTEC). Dhaka signed the treaties back in 2006, but both are hit by slow and cumbersome trade negotiations, resulting in little or no concessions from the member countries.
The country's neighbours including India also shelved their policy to pursue multilateral trade deals and instead opted for one-to-one negotiations with countries with whom they have bigger trade stakes. India signed a bilateral trade deal with Sri Lanka in 2001, leading to five-fold increase in trade between the two countries. New Delhi has also started bilateral trade negotiations with the south-east Asia and some Gulf countries. Pakistan has also started similar negotiations.
What the government should do now is that it should request those countries to give Bangladesh an easy market access without any negative list and tough rules of origin for the proposed FTA. Bangladesh trade deficit rose to $2.3 billion until March with India and Pakistan in the just concluded fiscal year, of which India alone accounts for $2.2 billion deficit. The country managed to enjoy a narrow trade surplus with Sri Lanka where the trade figure is only $27 million until March of fiscal 2007-08.
However, there are differences of opinions among the experts about the benefits of bilateral FTAs. Some have particularly cautioned the poor and developing countries on signing FTAs, especially with the rich countries, as the former are likely to be marginalised further in global trade. The moot point for consideration about bilateral FTAs -- whether between a developed country and a least developed one or between a least developed country and a developing economy (which is particularly the case in the South Asian context) -- is whether such accords remove or not the restrictive (tariff, non- and para-tariff) trade conditions and standards that are yet to be resolved under the multilateral framework of the WTO.
Under the WTO framework, there is otherwise no compelling case for pursuing a bilateral FTA. Rather a broad-based liberalisation would be preferable since this would yield much larger economic benefits, minimising risks.
Meanwhile, a World Bank (WB) report noted that a bilateral free trade agreement would benefit Bangladeshi consumers by giving cheaper products from India, and the benefits would outweigh the losses in government revenue or lost profits for local manufacturers.
However, many local businesses consider that insistence by both India and Pakistan on signing bilateral free trade agreements to maximise their "national interests" might not suit Bangladesh's ones. The country may be benefited initially, but in the long run it may lose some of its industries, if the FTA accords do not lead to trade-creating new investments in Bangladesh, and open up effective markets for Bangladeshi goods in the Indian market, to cite here an example only. The FTAs must not likewise cause any trade diversion in Bangladesh's case.
According to a report published in the FE this week, the move was taken up at a time when the world trade talks under the crucial Doha round collapsed failing to ensure more trade benefits for developing countries. Bangladesh embassies in India, Pakistan and Sri Lanka are expected to start the negotiation process while a core committee at the commerce ministry will prepare the terms of reference (ToR) for each of the three countries before the final talks start. The decision on formation of a multi-stakeholders' working group was taken in the meeting involving both public and private sector representatives and trade experts to identify pros and cons under a free trade agreement (FTA).
Experts have termed the Doha round of the World Trade Organisation (WTO) talks as all but dead, as the developing countries led by China and India have failed to narrow the gap with the developed countries led by the United States and the European Union. If successful, the world trade talks would have guaranteed duty free access to more than 97 per cent of Bangladeshi goods. The country also gained little from its membership of the two regional trade treaties-- South Asian Free Trade Agreement (SAFTA) and the Bay of Bengal Initiative for Multilateral and Sectoral Economic Cooperation (BIMSTEC). Dhaka signed the treaties back in 2006, but both are hit by slow and cumbersome trade negotiations, resulting in little or no concessions from the member countries.
The country's neighbours including India also shelved their policy to pursue multilateral trade deals and instead opted for one-to-one negotiations with countries with whom they have bigger trade stakes. India signed a bilateral trade deal with Sri Lanka in 2001, leading to five-fold increase in trade between the two countries. New Delhi has also started bilateral trade negotiations with the south-east Asia and some Gulf countries. Pakistan has also started similar negotiations.
What the government should do now is that it should request those countries to give Bangladesh an easy market access without any negative list and tough rules of origin for the proposed FTA. Bangladesh trade deficit rose to $2.3 billion until March with India and Pakistan in the just concluded fiscal year, of which India alone accounts for $2.2 billion deficit. The country managed to enjoy a narrow trade surplus with Sri Lanka where the trade figure is only $27 million until March of fiscal 2007-08.
However, there are differences of opinions among the experts about the benefits of bilateral FTAs. Some have particularly cautioned the poor and developing countries on signing FTAs, especially with the rich countries, as the former are likely to be marginalised further in global trade. The moot point for consideration about bilateral FTAs -- whether between a developed country and a least developed one or between a least developed country and a developing economy (which is particularly the case in the South Asian context) -- is whether such accords remove or not the restrictive (tariff, non- and para-tariff) trade conditions and standards that are yet to be resolved under the multilateral framework of the WTO.
Under the WTO framework, there is otherwise no compelling case for pursuing a bilateral FTA. Rather a broad-based liberalisation would be preferable since this would yield much larger economic benefits, minimising risks.
Meanwhile, a World Bank (WB) report noted that a bilateral free trade agreement would benefit Bangladeshi consumers by giving cheaper products from India, and the benefits would outweigh the losses in government revenue or lost profits for local manufacturers.
However, many local businesses consider that insistence by both India and Pakistan on signing bilateral free trade agreements to maximise their "national interests" might not suit Bangladesh's ones. The country may be benefited initially, but in the long run it may lose some of its industries, if the FTA accords do not lead to trade-creating new investments in Bangladesh, and open up effective markets for Bangladeshi goods in the Indian market, to cite here an example only. The FTAs must not likewise cause any trade diversion in Bangladesh's case.