Bangladesh sees formidable challenges in negotiating free-trade agreements with both developing and developed nations that warrant major policy decisions and reforms before the kickoff, sources say.
A subcommittee on 'preferential market access and trade agreement', formed to fix challenges Bangladesh may face in graduating to the developing-country status, makes this observation, among others, in a strategy paper crafted by it.
It is mentioned in the paper that Bangladesh may face challenges in negotiating FTA with developing countries for a lack of export-product diversification and possible revenue loss.
Also, difficulties could surface in negotiating trade deals with developed countries when it comes to the question of commitment in areas like trade in services, investment, government procurement, and labour rights.
A study group, led by former member of Bangladesh Tariff Commission Dr Mostafa Abid Khan, prepared the document which the ministry of commerce has sent to the ministries and departments concerned for opinion.
It says new-generation agreements on free-trade area require reduction in tariffs on at least 90 per cent of total bilateral trade within 10 years alongside elimination of non-tariff duties and taxes.
An FTA also presupposes undertaking commitment in the areas like trade in services, investment, intellectual-property rights, environment, competition policy, labour rights, government procurement, and e-commerce, depending on deal partners.
The group spots in the area of trade in goods a number of challenges Bangladesh is likely to face while negotiating FTAs.
"Bangladesh's export is heavily concentrated on apparel, with a minimal share of jute and jute goods. Also, the major export destinations are developed-country markets and it is likely to remain so as developed countries are major destinations of apparel products in the World," it notes.
Thus, the paper reads, it is certain that there is minimum export benefit of forming FTAs with developing countries, where import demand of apparel is very low. "Therefore, unless there is a major drive to diversify the export basket, FTA with developing countries will not create any export opportunity."
The panel further points out that Bangladesh is still dependent on revenues collected from import for its tax revenue though revenue collected from import represents around 27 per cent while the revenue collected from the duties and taxes accounts for around 14 per cent.
Moreover, over the period Bangladesh's dependence on import from developing countries has increased significantly. "Therefore, it is obvious that any FTA with a developing country will possibly lead to revenue loss, unless revenue generation is increased by other tax instruments and there will be always concerns about revenue loss…," the paper notes.
It says Bangladesh imposes duties and charges other than customs duty like regulatory and supplementary duty solely on imports. Also, Bangladesh maintains minimum import price for assessment of duties and taxes on imports.
"It is revealed that these duties exceed average customs duty in case of many products. Under normal course of trade these measures cannot be applied, and any FTA will be required to eliminate those measures."
The rules of origin, technical barrier to trade (TBT) and sanitary and phytosanitary measures are important elements of trade and any agreement on FTA, the paper notes and says Bangladesh needs to clearly define its negotiating position in FTA in these areas.
It says FTAs between developed and developing countries are more extensive in terms of coverage of issues. It is clear from the review that if Bangladesh intends to engage in FTAs with other countries, Bangladesh will be required to cover all issues like trade in services, investment, and intellectual property in addition to trade in goods.
Also, the engagement with the developed countries will require addressing difficult issues like labour, environment, and government procurement.
"In order to diversify the export products, investment may be opened for all including foreign investors by easing the approval procedures for all without any discrimination," the group suggests as a way to overcome the challenges.
Also is made a suggestion for taking initiative to develop pool of skilled labour and mid-level management personnel through ensuring quality education and vocational training.
The group further recommends reform in the tariff policy, "which may include bringing transparency in tariff regime through abolishing duty differences on similar products and user-specific exemption schemes to the extent possible" and abolishing minimum import-price policy by 2026.
Moreover, the paper suggests conducting a study assessing reform requirement in other areas of FTA, which may be done on the basis of commitment undertaken by Vietnam in Regional Comprehensive Economic Partnership (RCEP).
The group emphasises developing a negotiation team comprising senior-and junior-level officials in the government, which will directly get down to FTA negotiations.
Contacted, Dr Mostafa Abid Khan told the FE that Bangladesh would face challenges in FTA negotiation with both developing and developed countries but these can be overcome with necessary policy reforms.
"We have four years in hand before graduation. The time has to be used properly without delay," he says about the urgency of doing the spadework for effective exit from the world's poor-country club.
