Signing of the much-needed free trade agreements (FTAs) with the important trading partners is still far away for Bangladesh as many countries are not showing interest to go for such deals. The government is now looking for ways to sign preferential trade agreements with the trading partners. The preferential agreements are vital for Bangladesh to remain competitive in the international market.
FTA is an international agreement between two or more countries to reduce or remove trade barriers and bring closer economic integration. FTA offers lower or zero tariff (tariff concession) on exports and imports of goods and components assigned under FTA. This makes products more competitive, as compared to exports and imports from non-FTA partner countries.
FTA is expected to help Bangladesh to continue getting the duty benefits after its full graduation from the league of least developed countries (LDCs).
Bilateral FTAs have been becoming instrumental in the global trading system as the prospects of multilateral trading systems under the World Trade Organisation are decaying gradually. There are more than 200 such deals worldwide.
The country should not only try to sign FTAs, but also lobby with major countries and trade blocs for signing the Comprehensive Economic Partnership Agreement which include trade, tourism and investment.
Currently, Bangladesh enjoys zero-duty benefit on export to 38 countries, including 28 EU nations.
Bangladesh has not signed a single FTA so far. Signing of such agreement is very much essential for the country. There were lots of discussions with many countries in the past about the issue, but FTA has remained elusive.
The first such agreement was supposed to be signed with Sri Lanka late last year. The government announced that the agreement with Sri Lanka would be signed soon as both the countries have already completed a joint feasibility study and examined its pros and cons.
Unfortunately, it has not yet materialised. Once the deal is signed, a joint working committee would be formed with Sri Lanka engaging garment exporters of both countries to produce value-added apparel items for exports to European markets. The formation of the committee is still at the very initial stage.
Sri Lanka is in an advantageous position in value added apparel industry, shipping lines and deep-sea port, financial services, Information and Communications Technology (ICT) and skilled technical people in different sectors.
On the other hand, Bangladesh enjoys advantages in the apparel sector, skilled workforce in the garment sector, agricultural products, processed foods and migrant workers. Bangladesh would be immensely benefited if the FTA is signed with Sri Lanka, as a portion of its exports and imports of goods are done through the Colombo port.
Denying the government's inertia to sign FTAs, a commerce ministry official said that they are now looking for ways to sign preferential trade agreements with the trading partners. The preferential agreements are vital for Bangladesh to remain competitive in the international market.
Signing of FTAs with some countries is being delayed because every country looks after its own interests. For instance, Malaysia is interested to sign an FTA with Bangladesh, but the latter is not that much interested. If Malaysia gets duty-free market access through the process of FTA, it will go in its favour because the trade is already tilted towards that country.
Bangladesh exports $300 million-worth goods to Malaysia while the import figure has hit $2.0 billion. That is the reason for Bangladesh to go slow. After holding meetings for years, Bangladesh backtracked from signing FTA with Malaysia at the final moment.
FTAs have now become instrumental in the global trading system as the prospects of multilateral trading systems under the WTO are decreasing gradually. There are more than 200 such deals worldwide. Why should Bangladesh lag behind? Very recently, the country expressed keen interest to sign FTA with South American trade bloc MERCOSUR to tap the under-exploited South American market.
Bangladesh has already submitted 'Letter of Intent' to that effect to secure greater access for Bangladeshi products to a huge market of 300 million consumers across Argentina, Brazil, Paraguay and Uruguay.
The state minister for commerce expressed the country's interest when new non-resident Argentine ambassador (based in New Delhi) called on him recently. Argentine ambassador, whose country is the current President of this trade bloc, promised full cooperation in this respect.
Trade economists suggested the government to sign FTA with the European Union instead of seeking GSP Plus for continuation of trade privilege following graduation to the developing country bracket in 2027.
In the last fiscal year, about $21 billion out of the country's total export receipts of $36.66 billion came from the EU, where Bangladeshi goods enjoy duty-free privilege under the GSP scheme as a least-developed country.
For continuation of the GSP scheme after graduation, Bangladesh will have to follow some stringent conditions like ratifying 27 UN Conventions and make improvements in four important areas: good governance, labour rights, human rights, and environment protection.
But, the EU can cancel the trade privilege anytime. As such, it is better to sign the FTA with the EU. Analysts also suggested inking an FTA with the UK too once its Brexit negotiations are complete.
Bangladesh will have to be ready and continue lobbying with the major trading partners for FTAs as the erosion of preference will affect trade significantly after LDC graduation.
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