12 days ago

FTAs & PTAs: Bangladesh’s dilemma still on

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After graduation, Bangladesh has to compete with developing countries like India, Indonesia and Vietnam in the markets of the developed countries like Canada and Germany. Besides higher tariffs, there will be extended or extensive non-tariff measures like stringent conditions for product standards, writes 

The excitement over the country's graduation from the Least Developed Country (LDC) list has subsided for obvious reasons. If everything goes well, Bangladesh will formally come out of the LDC category by the end of 2026. Nepal and Lao PDR will also be graduated from the UN-defined category of the world's poorest nations.

Graduation means Bangladesh will be a developing country which is non-LDC. No official labelling of 'developing country' or 'developing nation' by the UN or any other international body exists. In some cases, the classification is self-imposed or self-designated. For example, World Trade Organization (WTO) members declare themselves whether they are 'developed' or 'developing' countries. Some global organisations make the classification arbitrary as there has yet to be an official consensus. For instance, the UN's World Economic Situation and Prospect classifies all countries of the world into three broad categories: developed economies, economies in transition and developing economies.

Nevertheless, graduation from LDC reflects the respective country's significant improvement in economic and social areas. It also indicates that the country has become more competitive in the global market. That's why a graduated LDC is no longer eligible for the benefits and preferences it had enjoyed as an LDC. Thus, Bangladesh will also lose various advantages, including the duty-free quota-free (DFQF) market access it has enjoyed as an LDC.

Developed countries, except the United States (US), have granted DFQF market access to Bangladesh and other LDCs. Some developing countries, mostly economically advanced, also provide preferential market access, if not full DFQF. The market access preferences help the LDCs enhance their exports in a less competitive regime.

Currently, 70 per cent of the country's export earnings enjoy preferential market access, which means the importing countries have imposed lower or zero tariffs on Bangladeshi products.   After graduation, Bangladesh has to compete with developing countries like India, Indonesia and Vietnam in the markets of the developed countries like Canada and Germany. Besides higher tariffs, there will be extended or extensive non-tariff measures like stringent conditions for product standards.

And after graduation, Bangladesh will no longer enjoy all 25 special and differential treatments (S&DT) in the WTO agreements. There are 183 S&DT provisions in various agreements of the WTO, of which 25 are exclusively for LDCs. As the 25 benefits will not be available, the rest of the provisions will be there, and those are all for the non-LDC developing members of the WTO.

Bangladesh has been devising various strategies to offset the loss and erosion of preferential treatments. One of the core strategies is signing bilateral and regional free trade agreements with different trade partners. So far, there is little progress in this connection, although the media regularly reports that the country has already decided to strike deals with leading trade partners or is thinking of doing so.

In June last, the commerce minister informed the national parliament that the government has completed feasibility studies on signing free trade agreements (FTAs) and preferential trade agreements (PTAs) with 23 trading partners. He also told the parliament that primary negations or discussions with ten countries and three regional blocs have already been started. The countries are: India, Nepal, Sri Lanka, Malaysia, Indonesia, Japan, China, the United States of America (USA) and Japan.

However, the country's interest in signing a bilateral FTA or PTA with a trading partner is not new. In the last two decades, many researches and studies have also been conducted to estimate the costs and benefits of Bilateral Free Trade Agreements (BFTAs). Debates on the estimated costs and benefits are also there. In some cases, decisions have also been taken to start formal negotiations to move ahead. Meanwhile, the tempo has been lost for various reasons. For instance, it was five years ago when signing a BFTA with Sri Lanka had been finalised. An official announcement was also made. But the final deal is yet to come.

Bangladesh, however, signed a PTA with Bhutan on December 6, 2020. So far, it is the only bilateral free trade deal made by the country, although PTA is not a full-fledged free trade agreement as it allows tariff cuts and tariff waivers of a limited number of products. FTA opens the room for the removal of almost all the tariffs on goods within an agreed time and keeps a limited number of products out of the tariff removal. PTA is generally considered as the first step of economic integration, followed by FTA, which is the second step.

Moreover, the nature and characteristics of FTA have also changed over the years. It is no longer confined to trade in goods but extended to trade in services. Besides tariff rates and rules of origin, the issues of standards and intellectual property (IP) rights are also included. Trade facilitation has also become an essential part of any FTA, which underscores the faster customs clearance of products through electronic systems. Member countries of the WTO, including Bangladesh, have already started to take necessary steps to implement the WTO TFA. Also, investment protection and government procurement are now two critical components of an FTA.

In other words, FTA now means comprehensive economic cooperation or partnership agreement (CECA or CEPA). Bangladesh and India have already agreed to sign a CEPA, and the final negotiation is likely to start soon. CEPA also includes dispute resolution mechanisms, energy cooperation and digital trade. Thus, the scope of CEPA is quite broad.

Moreover, Bangladesh has also shown interest in joining the Regional Comprehensive Economic Partnership (RCEP), the largest regional trade bloc in the world, which comes into effect in 2022. It is a bloc of 10 ASEAN countries (Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam) with five partner countries (Australia, China, Japan, Korea, and New Zealand). Also known as a China-centric deal, it is an ambitious accord. Whether RCEP members will welcome Bangladesh depends on the country's formally approaching the bloc to join, which has a significant geo-political implication.

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