Over 80 per cent merchandise exports of Bangladesh are destined to the United States (US) on the Most Favoured Nation (MFN) basis, and the European Union (EU) and other countries which grant Generalised System of Preference (GSP). But these facilities are becoming increasingly restrictive and unpredictable due to unbinding GSP schemes which can be terminated at any time.
On the other hand, prospect of obtaining multilateral duty- and quota-free market access for Bangladesh as a Least Developed Country (LDC) under the World Trade Organisation (WTO) is very remote and increasingly becoming improbable because of proliferation of Regional Trade Agreements (RTAs), Economic Partnership Agreements (EPAs), Bilateral Foreign Trade Agreements (BFTAs) and Comprehensive Economic Partnership Agreement (CEPA) in all strategic combinations.
While all its competitors have multiple free trade agreements with their respective trading partners, Bangladesh is the only country with no bilateral free trade partners anywhere. To give a few examples, Afghanistan has four FTAs, Bhutan - three, Cambodia - nine, India - 28, Indonesia - 17, South Korea - 21, Lao PDR - 11, Myanmar -11, Malaysia - 21, Pakistan - 16, Philippines - 11, Sri Lanka - seven, Thailand - 22 and Vietnam - 17 FTAs.
US, EU and other GSP-granting countries (including Australia and Canada) have signed or in the process of signing free trade agreements with all global trading partners.
By the end of 2018 or early 2019 most of these BFTAs and RFTAs will be in force extending free market to these countries. This would neutralise the existing GSP preferential tariff of Bangladesh export products and the country would have to export products to US on a much higher MFN tariffs.
Bangladesh is almost certain to graduate to a developing country by 2024. It has already fulfilled all the three criteria for graduating from the LDC status during the next UN Committee for Development Policy (CDP) review this year. It is also likely to meet the criteria in 2021 again to be recommended by the CDP for graduating from the LDC list. With the endorsement from the United Nations Economic and Social Council (ECOSOC) and being approved by the UN General Assembly, Bangladesh may graduate from LDC status in 2024.
Bangladesh, therefore, not only needs to diversify its export products but also its export markets with global, regional and domestic trade facilitations to ensure predictable and sustainable destinations of its export products in goods and services around the region and the global market. Bangladesh should look for bilateral Free Trade Agreements (FTAs) with its trading partners.
As Bangladesh is going to meet the eligibility criteria for graduation, the looming reality of losing various benefits and access to the International Support Measures (ISMs) available only to the LDCs by 2027 is a matter of great concern. The main categories of such special support measures related to international trade are - (a) preferential market access, (b) Special and Differential Treatment (S&DT) regarding WTO obligations (other than preferential market access), and (c) trade-related capacity-building.
It is estimated that due to LDC graduation, in terms of actual duty benefits the loss will be the maximum in the EU amounting to US$ 2.035 billion. Other major losses in duty benefits will be in Canada amounting to US$ 188 million, Japan amounting to US$ 106.82 million, and China amounting to US$ 93 million. Given the US suspension of GSP continues, there will be no impact on Bangladesh's exports to the US market.
FTAS AND TICFA: Devising a plausible foreign trade strategy for 2030 and beyond to deal with the emerging realities for Bangladesh in international trade, it is important to conclude FTAs with the GSP/DFQF-providing countries.
In the US market, Bangladesh currently does not enjoy any GSP and Duty-Free Quota-Free (DFQF) facility in the wake of prevailing US trade policy strategy.
Non-reciprocal trade deals like GSP and multilateral and regional arrangements have been excluded from the Trump trade agenda and accordingly the US has withdrawn from Trans-Pacific Partnership (TPP) in preference of bilateral reciprocal trade deals.
The TPP withdrawal memorandum signed by the US President on January 23 last year states, among other things, "Additionally, in order to ensure these outcomes, it is the intention of my Administration to deal directly with individual countries on a one-on-one (or bilateral) basis in negotiating future trade deals."
Bangladesh should therefore, without wasting time on GSP or WTO, immediately take up a proactive initiative in establishing a bilateral free trade arrangement with US.
The Trade and Investment Cooperation Framework Agreement (TICFA) provides the two countries with a platform to work together to address issues of mutual concerns in trade and investment. This also enables them to identify areas for greater collaboration through constructive dialogue. The TICFA can help both Bangladesh and the US focus attention on trade issues including barriers that the two countries face in each other's market, and thereby expand bilateral trade.
An important way for Bangladesh to enhance its exports to the US is to identify tariffs and non-tariff barriers (NTBs) faced by the products of its interest (in terms of export potential), and then negotiate with the US counterpart at TICFA for reduction of such barriers. The TICFA should also be used as a 'bilateral platform' to promote and deepen relations between the two countries in an orderly manner. A bilateral FTA may also be negotiated using the platform of the TICFA.
Again, ensuring and sustaining preferential market access in the EU, the US, the UK, Canada, Australia, Japan, New Zealand, China and South Korea in the aftermath of the loss of DFQF preferential access, the most plausible strategy that Bangladesh may undertake is to look for bilateral Free Trade Agreements (FTAs) with these countries.
In order to ensure that Bangladesh does not lag behind, a proactive role is urgently needed on the part of Bangladesh to enter into a bilateral FTA with them. Bangladesh may also consider entering into an FTA with the regional mega block of ASEAN in order to have access to newer and prospective export destinations.
Concluding an FTA with another country or region/bloc implies getting market access for its goods and services to that counterpart and vice versa.
Concentrating on the EU market, there are two possible options for Bangladesh for the post 2027 market access strategy in EU. These are; (I) EU GSP or GSP plus; (II) Bangladesh EU FTA.
The 'Standard GSP' grants only duty reductions (not duty-free) for maximum 66 per cent of all EU tariff lines. Under the terms of WTO this unilateral GSP scheme can be withdrawn any time. The 'Standard GSP' is neither meaningful in respect of product coverage and margin of preference nor a sustainable option for Bangladesh.
The GSP plus is available for all the lower and lower middle-income countries provided they fulfil two conditions. These are - (a) the countries applying for GSP plus must be vulnerable in terms of a pre-defined level of economic development and economic diversification; and (b) they have to implement 27 international conventions relating to human and labour rights, environment, sustainable development and good governance. In return, the product covered under the scheme is only 66 per cent of all EU tariff lines.
Thus the GSP plus scheme with only 66 per cent product coverage imposes a bundle of Non-Tariff Barriers (NTBs) covered under 27 core international conventions based on nontrade issues, beyond the scope of Technical Barriers to Trade (TBT) and Sanitary and phytosanitary (SPS) agreements of the WTO. It is therefore neither meaningful in respect of product coverage nor a sustainable option for Bangladesh. Bangladesh must not accept any NTB beyond the scope of WTO framework.
EU-GSP (including Everything-but-arms or EBA) and other GSP beneficiary countries (China, South Korea, India, Vietnam, ASEAN+) are also negotiating bilateral free trade agreement with EU to safeguard long-term sustainable interests. Bangladesh must also act accordingly.
Likewise, to ensure its trade and economic interests in the post-Brexit era Bangladesh should take a strong proactive role in establishing a bilateral free trade arrangement with EU and separately with UK and initiate to form Commonwealth free trade area to bring together a community of countries with the energy and drive to develop fair, resilient and universally acceptable solutions to global trade, economic and environmental problems.
CIS AND OTHER MARKETS: The lack of formal banking channel stands in the way of expanding trade between Bangladesh and Commonwealth of Independent States (CIS) countries. To resolve the problem in payment settlement with Russia, a payment system needs to be established by bypassing US Dollar and settling transactions using national currencies. A trade settlement mechanism has been proposed by the Bangladesh Bank which is currently at the approval phase. This mechanism should be implemented as soon as possible. Russia can be big export market for Bangladeshi exporters if the banking problem could be resolved.
The second significantly important strategy for Bangladesh will be to negotiate and conclude a Free Trade Agreement (FTA) or Economic Partnership Agreement (EPA) with the Russia-led Eurasian Customs Union (EACU) for duty-free quota-free market access of Bangladesh's exports in the Russian market and also in other EACU member states.
The third important strategy for Bangladesh is to gradually adopt telegraphic transfer (TT)-based trade practice with the CIS instead of the current emphasis on LC-based trade.
The fourth strategy is to open warehouses in the CIS, especially in Russia. Exporters from competitor countries, such as India, Vietnam, have opened warehouses in Russia, and conduct business through cash transactions.
Bangladesh may also implement the TIR Convention of 1975. To streamline the economic and speedy global connectivity by ensuring frequent flights, ships and land routes transit facilities through Bandar Abbas to CIS-Russia-Bangladesh should immediately become party, without having to undertake any additional obligations other than its commitment under WTO, to the TIR (Transports Internationaux Routiers) Convention of 1975. TIR is governed by the TIR Convention, overseen by United Nations Economic Commission for Europe (UNECE) which facilitates multimodal journey conducted by truck, containers transported by rail, river, or sea. Accession to TIR Convention would create TIR corridors, linking Iran-Russia-CIS countries-Central and South Asia as well as China with Bangladesh. However, sufficient safeguards under Articles 45, 57 and 58 of the TIR Convention may be invoked if Bangladesh is not willing to cede transit rights.
Bangladesh should integrate itself with the One Belt One Road (OBOR) initiative in right earnest and work for the adoption of a Customs Cooperation Agreement to facilitate trade amongst the member countries as envisaged in the WTO TFA including gradual harmonization of customs documentation and clearance procedure for transit and transhipment of goods across borders of member countries.
Dr Md Khairuzzaman Mozumder is a deputy secretary, Government of Bangladesh. [email protected]
Dr Mohammad Abu Yusuf is a deputy secretary, Government of Bangladesh. ma_yusuf@hotmail com
Manzur Ahmed is a trade expert and advisor to Bangladesh Enterprise Institute (BEI), Bangladesh Chamber of Industry (BCI) and Bangladesh Plastic Goods Manufacturers and Exporters Association (BPGMEA). [email protected]
