As the prospects of graduating from a least developed nation are becoming stronger by the day – which would shorn Bangladesh of the special benefits on exports that could impact the readymade garment sector of the country – Bangladesh seems to be on a spree to cobble up as many trade agreements with other countries as possible in an effort to minimise the impact of this transition.
As per reports, owing to COVID-19, income inequality and poverty rate have gone up, and side by side, there is a slump in production and external trades. The pandemic has also put negative impacts on food, nutrition, education and other human asset development indices. Despite these, as per Debapriya Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue (CPD), the three indexes essential for Bangladesh’s graduation from the least developed country (LDC) status will not be much affected by COVID-19. Reviewing the latest data, he said Bangladesh in 2021 will be ahead in the three indexes for the LDC graduation in the evaluation of the Committee for Development Policy (CDP) of the United Nations Economic and Social Council.
As such Bangladesh will not have much scope for staying in the LDC after becoming eligible for the developing country status.
The CPD distinguished fellow advised the Government to formulate a strong action plan to deal with the possible impacts the country will face after its LDC graduation. And going by the recent turn of events, the Bangladesh Government seems already at it.
First in line is a preferential trade agreement (PTA) between Bangladesh and Bhutan, which is expected to be signed in the month of December.
“It’s pandemic time now. The signing will be held physically or virtually, but it’s yet to be finalised,” maintained a concerned senior official, while adding that the possible format for signing the proposed PTA would be confirmed through a discussion with Commerce Minister, Tipu Munshi.
Commerce Ministers of both the countries are likely to sign the deal jointly. Dhaka and Thimphu have already got the go-ahead from their respective cabinets for the PTA. Under the deal, 100 Bangladeshi products, including 10 new goods, will enjoy duty-free access to the Bhutanese market, while on the other hand, 34 Bhutanese items, including 16 fresh goods, will also have duty-free access to Bangladesh.
“We are preparing to sign the PTA with Bhutan on 6 December. It will be a remarkable deal. It will also be the first PTA in nearly 50 years,” said Commerce Secretary Md. Jafar Uddin.
Bangladesh was yet to sign any bilateral PTA or FTA, although it is part of several multilateral trade deals, as per an official of the concerned ministry. The two multilateral FTA deals include the South Asian Free Trade Area (SAFTA) agreement and BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) FTA, while on the other hand, three multilateral PTA deals are Asia-Pacific Trade Agreement (APTA), TPS-OIC (Trade Preferential Scheme amongst member states of the OIC) and D-8 (Developing-8) PTA.
“We see opportunities everywhere, especially when it’s within our South Asian region,” Dr. Rubana Huq, President, Bangladesh Garment Manufacturers and Exporters Association (BGMEA), stated on the issue of PTA with Bhutan.
As per the BGMEA chair, Bangladesh exported more than US $ 300,000 worth of garment items to Bhutan at 30 per cent duty.
It may be mentioned here that the volume of bilateral trade between the two countries stood at US $ 57.90 million in fiscal year (FY) 2018-19 compared to a paltry US $ 26.52 million in FY 2012-13.
Meanwhile, another PTA is also expected to be signed with Nepal this year.
Bangladesh has demanded zero-duty benefit on export of 140 products to Nepal, as both the Governments look towards finalising a PTA soon, underlined the Commerce Secretary.
Leading Bangladesh in a Secretary-level virtual negotiation with his Nepalese counterpart, Md. Jafar Uddin said Nepal would be the second amongst South Asian nations after Bhutan with which the bilateral PTA would be signed. “We will hold some technical committee meetings between the two countries before finalising the draft of the PTA. But we have targeted to finalise the draft of the agreement by November,” said the Commerce Secretary.
Md. Abdus Samad Al Azad, Joint Secretary to the Commerce Ministry’s Free Trade Agreement (FTA) Wing, who also took part in the negotiations, said they have a target to sign the deal by this year.
Nepal demanded duty-free facility for 130 of its products, while Bangladesh sought duty-free benefit for export of garment items including men’s T-shirts, knitwear and children’s clothes along with fruit juice, cement and agro-processed food items like noodles and pastas.
Nepal, on the other hand, demanded duty-free benefit on shipment of agricultural products, handicrafts and brooms.
Further, apart from these two, Bangladesh is currently in negotiations with a few other countries to finalise FTAs in order to enjoy duty-free benefits even after its LDC graduation. For instance, a joint study is ongoing over signing a proposed Comprehensive Economic Partnership Agreement (CEPA) between Bangladesh and India. CEPA is a comprehensive partnership between the two countries, which also includes investment, whereas the PTAs and FTAs cover tariff issues.
The country should also sign FTAs with vital trading partners or trading blocs like the Association of Southeast Asian Nations (ASEAN) and European Union to ensure benefits after the graduation, which will eliminate guaranteed duty privileges, experts maintain.
Even as the prospects of signing trade agreements with Bhutan and Nepal draw closer, Bangladesh has strengthened its efforts to secure permission to use the Indian territory for the purpose of transporting goods to Nepal and Bhutan by its own vehicles.
At present, Bangladeshi vehicles cannot reach the land borders of Nepal and Bhutan in the absence of a transit agreement with neighbouring India, but Nepalese and Bhutanese vehicles carrying export-import goods come to the Bangladesh border as Kathmandu and Thimphu both have land transit deals with New Delhi. Besides, Indian and Bangladeshi vehicles are not allowed to cross each other’s land borders for transporting bilateral export-import goods.
Officials said Prime Minister Sheikh Hasina has underscored the need for exploring ways so that Bangladeshi goods-laden vehicles can reach the land border of Bhutan. Since Bangladesh is signing the PTAs with Bhutan and Nepal soon, the bilateral trade with the two countries is expected to rise significantly in the days to come.
“There is no alternative to strongly negotiate with India for getting the access to Bhutan and we are trying to get in Nepal,” said Debapriya Bhattacharya, adding it should have been done much earlier.
Unfortunately, we did not pursue the issue when the transhipment facility was granted to India, Debapriya lamented.
Keeping its focus on finalising more trade deals that would hold Bangladesh in good stead post the LDC graduation, the Government of Bangladesh is also considering signing a free trade agreement on trade in goods or a comprehensive economic partnership agreement with Japan as well depending on the response of the East Asian country.
The proposed agreement will be beneficial for Bangladesh considering the higher duty structure and complex rules of origin the country may face in Japan after the LDC graduation, a study conducted by the Bangladesh Trade and Tariff Commission mentioned.
Though a non-conventional destination, Japan in last few years has emerged as a very prospective market for ‘Made in Bangladesh’ apparel products. The third largest apparel importer and the fourth largest apparel market in the world after China, USA and Germany, Japan with its population of 127.1 million and US $ 36,194 per capita GDP is one of the most promising export hubs in Asia for Bangladesh.
“The Government may consider negotiating for an FTA on trade in goods if Japan agrees or a comprehensive economic partnership agreement if Bangladesh considers revising the domestic rules and regulations in areas like services and intellectual property rights,” the BTTC report added.
The BTTC sent the report to the Commerce Ministry for scrutiny in the last week of September and any further step would reportedly be taken after the concerned ministry examines the proposal in detail.
The BTTC conducted the study following a request from the Commerce Ministry, which decided to assess the possibility of an FTA or preferential trade agreement with Japan after Japanese Ambassador to Bangladesh on several occasions raised the issue with Commerce and Finance ministers.
Japan is the seventh largest export destination and fifth largest import source for Bangladeshi commodities and bilateral trade is growing, suggesting future potentials in trade.
Japan may also demand the inclusion of a number of issues which may require changes in domestic rules and regulations as the country negotiates FTAs of very high standard and which cover a wide range of issues, including intellectual property, labour, competition, e‑commerce, Government procurement, sanitary and phytosanitary measures and technical barriers to trade, the BTTC report said, adding signing an FTA with Japan may also require elimination of all trade distortive measures which may be a concern for Bangladesh.
It may be mentioned here that the weighted average duty on Bangladesh’s export to Japan was 9.34 per cent in 2018, which clearly indicates that Bangladesh will face higher duty after graduation. Further, the sectoral analysis suggests that Bangladesh will have to face an average tariff of 5.5 per cent on 1,468 HS codes of textiles, 9 per cent on 400 HS codes of clothing, 14.7 per cent on 308 HS codes of leather, rubber and footwear after graduation.
Higher revealed comparative advantage was found for 134 Bangladeshi products where Bangladesh’s global export and Japan’s global import amounted to over US $ 10 million, claimed BTTC report, adding that of those, duty-free benefit is currently not available for 42 products, mainly leather goods.
It indicates that retaining the duty-free access through an FTA may help sustain the existing export flow as well as increasing export.
The report also said that Japan had a higher RCA for 293 products on which Bangladesh imposed 25 per cent duty from the perspective of either local industry protection or revenue collection, which could emerge as a crucial issue for Bangladesh.
Generally, Bangladesh may face regular rates of duty on major export items after its graduation as the general scheme of the Generalised System of Preferences, if it is offered after graduation, does not cover the major exportable items. So, signing an FTA will create an avenue for retaining duty-free access on major exportable products.
Bangladesh exported goods worth US $ 1.36 billion to Japan in the fiscal year 2018-2019 and imported goods worth US $ 1.85 billion from the country.
Meanwhile, in another positive development, Indonesia is also said to be actively looking towards finalising the Indonesia Bangladesh Free Trade Agreement (IBTA) with Bangladesh to boost bilateral trade.
The commitment, in this regard, has come at a meeting organised under the joint initiative of the Indonesian Chambers of Commerce and Industry (KADIN) and the Federation of Bangladesh Chambers of Commerce & Industries (FBCCI).
Underscoring the importance of collaboration in economic recovery, KADIN Indonesia President Rosan Perkasa Roeslani, said “We are hopeful that the ongoing negotiation between IBTA will soon be finalised with changes in the tariff that will boost bilateral trade,” while the Indonesia Ambassador to Bangladesh Rina P. Soemarno said, “Although the bilateral trade between the two nations has been gradually developing over time, we have yet to harness the full potential, which can exceed the current value.”
The bilateral trade between the two countries in FY 2019-20 stood at US $ 1.8 billion.
So, even as the countdown to LDC graduation seems to have already started, Bangladesh is leaving no stone unturned. It has already geared up its efforts to finalise and sign trade agreements with like-minded allies to ensure the LDC graduation remains a smooth transition for the country.