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The Financial Express

Mega-regional trade agreements and Bangladesh

| Updated: February 07, 2018 11:06:20


Mega-regional trade agreements and Bangladesh

Regional integration has always been a pressing issue for the members of the World Trade Organisation (WTO) who have actively voiced in favour of widespread regional tie-ups in liberalising trade barriers and, in some cases, eliminating the trade barriers between the regionally integrated nations as well. The underlying notion behind the interests shown to escalate the regional integration agreements was originally to promote trade through preferential treatment and attain easy access to markets in the member economies. However, these had gradually led to the emergence of possible 'mega-regionals' or Mega-Regional Trade Agreements (MRTAs) which meant regional integration, cumulatively accounting for a major proportion of world trade and foreign direct investments (FDIs). Although the mega-regionals may seem to share the core perceptions of the WTO in the context of enhancing regional trade agreements, the vested interest behind the implementation of such bodies may not be supportive of global prosperity, particularly that of the non-member countries.

The MRTAs are far more than merely for providing market access to the members. These emphasise on defining new rules and regulations of investment and business to serve the narrow interests of the member countries of the respective groups. Hence, the growth of mega-regionals is likely to give rise to fierce competition among different global trading blocs which would ultimately undermine WTO's 'multilateral trading system' across the world.

This raises deep concerns among the Least Developed Countries (LDCs) like Bangladesh that have benefited from the existing multilateral trading system under the WTO. Over the years, Bangladesh has benefitted from this system and developed its overall economy through the robust growth of the ready-made garment (RMG) sector, in particular. The multilateral trading system has been the main driver of Bangladesh's export-led growth strategy.    

The humungous size of some of the proposed MRTAs may give an idea about their potential impacts on world trade and, in a broader sense, the world economy in general. The Trans-Pacific Partnership (TPP), renamed as Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) following the withdrawal of the USA, was originally a four-member free trade agreement between Brunei, Chile, New Zealand and Singapore. It now encompasses 11 countries with Australia, Canada, Japan, Malaysia, Mexico and Vietnam as the other members joining it. It has a combined population of around 500 million and accounted for 14.5 per cent of world trade in goods and services in 2016. Secondly, the Transatlantic Trade and Investment Partnership (TTIP) is under negotiation between the members of the European Union (EU) and the United States. These two cumulatively accounted for almost one-third and 45.9 per cent of the world gross domestic product (GDP) and world trade respectively in 2016. Thirdly, The Trade in Services Agreement (TISA) is another MRTA which consists of 23 parties including Australia, Canada, Chile, Columbia, Costa Rica, EU, Hong Kong Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Paraguay, Peru, Korea, Switzerland, Taiwan, Turkey and the United States. Finally, the Regional Comprehensive Economic Partnership (RCEP) is a MRTA which comprises the ASEAN countries and also include China, India, Japan, Australia, South Korea and New Zealand. These countries together account for a population of more than 3.5 billion (almost half of the entire world population) and attracted almost 18 per cent of world net FDI inflows in 2016.

Upon coming into effect, these MRTAs would completely restructure the world trading arrangements and the non-member nations like Bangladesh would  be at the receiving end of negative externalities of such regional free trade agreements.  

The probable impacts of the MRTAs on the non-member economies will mostly be negative. Firstly, trade diversion is one of the immediate effects of mega-regional trade agreements which would take place if a member country imports from another member country a product that it previously used to import from a country that is not a member of the mega-regional trade agreement. The second impact would be in the form of  preference erosion whereby a non-member country that was enjoying benefit from preferential treatment in the form of zero tariffs would no longer be the only one enjoying that advantage. The mega-regional RTA would provide the same preferential treatment to its member nations who were not entitled to enjoying this privileged treatment earlier. Thus, preference erosion can be viewed as an erosion of comparative advantage for a non-member country with respect to preferential trading arrangements. Finally, the third impact, a positive one though, is referred to as the trade creation effect which would enhance market access of the non-member countries into the markets of the MRTA-member states provided these non-member nations are either a part of the supply chain to trade between the member nations or are already in unilateral free trade agreements with the member nations.

Bangladesh is likely to face the negative consequences of preference erosion following the conclusion of the MRTAs. For instance, Bangladesh would not then retain its comparative advantage generated from the prevailing duty- and quota-free preferential schemes like the 'Everything but Arms' initiative of the European Union. This would eventually lead to a loss in the country's export market share. As a result, Bangladesh, in spite of having strong comparative advantage in the apparel, textiles and footwear sectors, could face severe competition from Vietnam across the other CPTPP-member markets.

Hence, it is crucially important that Bangladesh should try to get into a couple of  MRTAs currently under negotiation in order to sustain its export sector. 

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