Bangladesh should move to ink free trade agreements with its major partners including China to cope with the possible loss of trade preferences in the post-LDC era, says a new UN report.
The power-based nature of bilateral negotiations, however, makes this a much more challenging task than the multilateralism that has governed trade up to this point, warned the report titled "World Economic Situation and Prospects 2019."
The United Nations Department of Economic and Social Affairs (UN/DESA and the United Nations Conference on Trade and Development (UNCTAD) along with five other United Nations regional commissions produced the report.
The UN report comes a year after Bangladesh officially met the criteria for LDC (Least Developed Country) Graduation for the first time in 2018.
In the current trend, Bangladesh is expected to meet those LDC Graduation criteria for a second time in 2021. In such case, the country would formally graduate from the LDC status by 2024.
There are some concerns, however, that the loss of LDC status may give rise to potentially important economic costs due to the withdrawal of GSP facilities from the European Union, Canada, Japan, Australia and other markets.
Currently Bangladesh enjoys a 12 per cent preference margin for its apparel industry under the EU's 'Everything but Arms' (EBA) initiative, which gives it a substantial price advantage in its biggest export market.
In this context, the UN report said that "an FTA with Europe could be an alternative to EBA and the Generalised System of Preferences Plus (GSP+)."
"The country is unusual in that it has no bilateral trade agreements," the report said noting it is a member of regional agreements like the Bay of Bengal Initiative for Multi-Sectoral, Technical and Economic Cooperation (BIMSTEC) and South Asian Free Trade Area (SAFTA)).
"As Bangladesh becomes unable to rely on multilateral preferences, following its probable loss of EBA in 2027, it may consider negotiating free trade agreements (FTAs) or bilateral agreements with a number of major trading partners, such as China," the UN report said.
The paper further cautioned that for Bangladesh, "the next few years will be crucial given that any bilateral agreements or FTAs negotiated now are likely to set a precedent for future agreements." "The power-based nature of bilateral negotiations, however, makes this a much more challenging environment than the multilateralism that has governed trade up to this point."
The UN observation comes at a time when the government has already exploring avenues to nail down FTAs with a number of countries in the region.
However, those initiatives are now stalled at different stages due to internal and external factors.
For example, a number of steps were taken earlier to sign an FTA with Sri Lanka.
A committee, led by an additional secretary of the ministry of commerce, was formed to carry out the FTA negotiations with the island nation.
A joint study was also conducted for framing the terms of reference (ToR) of holding negotiations in this regard.
"But Sri Lanka is following a go slow approach right now, particularly after the start of their political turmoil," said Md. Shafiqul Islam, additional secretary of the ministry of commerce.
Meanwhile, a committee was formed earlier to conduct a joint-feasibility study for signing an FTA with China.
Insiders said Commerce Ministry officials are inclined to following a cautious approach in signing an FTA with an economic giant like China.
There are some concerns after signing of the proposed FTA, income from Chinese import can go down significantly, lowering the overall revenue collection.
Insiders also pointed out the interest of local industry may get hampered as the cheaper Chinese goods may flood the local market in the aftermath of any such deal with China.
Leading economists of the country called for caution against signing the FTA with big economies like China or Europe.
"It is very true that an FTA with China would hardly be feasible or beneficial for Bangladesh," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, a leading think tank.
"So instead of FTA, we should go for negotiating Preferential Trade Agreements with China," Mr Mansur said.
Meanwhile, when it comes to European Union, the country's strategy should be to gain GSP Plus facilities, he added.
"When it comes to FTA, we should, first of all, target small or mid-sized economies in the region like Sri Lanka or Thailand rather than the big economies," said Professor Mustafizur Rahman, Distinguished Fellow of the Center for Policy Dialogue.
"In the meantime, we have to develop the capacity of our local industries while addressing our labour standard or copyright regime," Mr Rahman said.
"These things would be crucial for us to negotiate better trade deals with the big economies in the post-LDC era," he added.
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