BD's move to join trade blocs

Rising protectionism and tariff wars among the world's leading economies in recent years have put the case for multilateralism at a disadvantage. Encouraging local manufacturing by reducing reliance on imported goods or the so-called policy of import substitution might now gain a stronger ground. Unfortunately, the opposite is true. No doubt, high tariffs on imported items raise relative profitability of industries serving the domestic market in the short run. But in the long run, it hampers production for overseas markets, that is, exports. Obviously, for an economy highly dependent on export, the existing policy of high tariffs on imports has created an uneven playing field for Bangladeshi exporters when competing in global markets.

The issue again came to the fore when the ADB chief economist Albert Park was talking to this paper on the sidelines of the multilateral donor agency's recently held annual meeting at an overseas location. In fact, the ADB economist made no bones about the fact that other countries are unwilling to reach both bilateral and multilateral trade arguments with Bangladesh. But the fact that high internal tariff is a number one stumbling block to Bangladesh's expanded trade relations with many international and regional trade blocs is not a realization brought home for the first time.  The issue came up on multiple occasions at discussions forums where local experts  pointed out that Bangladesh's average nominal tariffs are higher than those in other low-income, middle income and high income countries. The nominal tariff, for instance, is 27.6 per cent in Bangladesh which is higher than many of its neighbouring economies such as India where it is 18.1 per cent and in Sri Lanka 22.4 per cent. But it cannot also be said that those South Asian neighbours have liberal tariff regimes. To tell the truth, their differences, when it comes to liberal tariff policies, are just a matter of degree compared to Bangladesh.  So, it is not hard to understand why the South Asian Association for Regional Cooperation (SAARC) could not succeed even four decades after its inception. However, intense political rivalries between two nuclear members, India and Pakistan, are no less to blame for SAARC's stunted growth.

By comparison, the South East Asian economies like Thailand, Vietnam, Malaysia and Indonesia with their 9.7 per cent, 9.6 per cent, 5.6 per cent and 8.0 per cent nominal tariffs are indeed better placed than Bangladesh in reaching mutually beneficial deals with their regional competitors. Small wonder that the 10-member ASEAN with a total GDP of US$4.249 trillion and a population of 683.29 million is a mammoth economic bloc sharing some 8.0 per cent of the global export. Bangladesh could have immensely benefited by being a member of such forward looking trade blocs known for less protectionist trade policies.

The good news is Bangladesh has shown interest, thanks to Chief Adviser, Dr Muhammad Yunus's overture to Malaysia's diplomatic mission in Bangladesh soon after his assumption of office in late August last year, to join ASEAN. Also, Bangladesh's effort to join the Regional Comprehensive Economic Partnership (RCEP) to retain preferential trade access to major markets like China, Japan, South Korea and the ASEAN countries after its LDC graduation  in 2026 is also commendable. However, while making these moves to join less protectionist trade blocs, Bangladesh should also redouble its efforts to widen and diversify its export basket. Out of its some 1,377 non-RMG export items, 174 are highly competitive. What is urgent is to proactively develop and explore the overseas markets for these products.