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Exploring FTA with Russia-CIS bloc

Manzur Ahmed | Published: October 25, 2019 20:55:22 | Updated: November 02, 2019 21:34:22


Bangladesh is yet to sign any bilateral free trade agreement (BFTA).  However, it is believed that a free trade deal with Russia and Commonwealth of Independent States (CIS) has the potential to open the country's third biggest export front apart from the United States (US) and European Union (EU).

CIS is a geo-political bloc of ten post-Soviet republics in Eurasia. The member states are: Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan and Uzbekistan. Five of these countries (Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russ) have formed an ambitious bloc named Eurasian Economic Union (EAEU). The union is deemed as an integrated single market of 183 million people with annual import of $ 424.83 billion. Eventually, other CIS countries are likely to join the union and it will be a bigger market.

Russia, world's fifth largest economy in terms of purchasing power parity, and ranked ninth by population, is a hugely significant market in global terms and also a gateway to other CIS countries.

One key competitor of Bangladesh, Vietnam has already signed BFTA with EAEU. The BFTA came into effect in January, 2017. Vietnam's exports to EAEU in 2017 rose sharply by 36.5 per cent to $5.9 billion from $4.3 billion in the previous year and its trade with the bloc is on way to achieve the target of US$10-12 billion bilateral trade by 2020, and US$30 billion by 2030.  India is also negotiating on fast track basis with this block.

Expanding Bangladesh's new export markets in Russia and other CIS countries under a free trade agreement, like India and Vietnam, is of absolute necessity now.

Bangladesh and Russia signed the Protocol of the 1st Russian-Bangladesh Inter-Government Commission on Trade, Economic, Scientific and Technical Cooperation in Moscow on October 24, 20I8. This protocol should be the launching pad for Bangladesh to take up a proactive action plan on the issues related to trade and economic cooperation for fostering sustainable promotion of mutual trade and economic relations with the EAEU.  

The protocol provides opportunity for trade cooperation as both the parties emphasised the availability of necessary preconditions for increasing bilateral trade within the next few years. In order to achieve the goal, both countries need to take several steps.

Streamlining mutual export-import transactions is one of the key steps. In order to effect payments under foreign trade contracts (including letters of credits etc), both sides agreed to explore the possibility to expand inter-bank cooperation and correspondent relations as well as use of direct correspondent accounts. In this regard, central banks of Bangladesh and Russia are required to provide a platform for discussing topical issues of financial and banking cooperation between two countries. Bangladesh Bank governor has already asked his office to start work in liaison with CIS-BCCI and other stakeholders to find out a strategy for introducing banking channel operations smoothly between the two countries. 

Though at present there is no official bar in banking activities, there are two big problems. One is related to currency of transaction. Most of exporters and importers as well as Bangladeshi banks prefer US dollar instead of Russian ruble for trade transactions. Again, there are sanctions from the US and EU on some major Russian banks. That's why, Bangladeshi banks are apprehensive to deal with these Russian banks.

Bangladesh government has made a move to address barriers like the absence of an effective banking transaction system to tap the huge Russian market. A team of top officials from line ministries and the Bangladesh Bank visited Moscow and sat with the Russian central bank officials last year to discuss the issues. The meeting discussed settlement of export-import payments through local currencies under the monitoring of respective central banks.

Dhaka has also proposed Moscow to be a member of Asian Clearing Union (ACU) so that it can make payments under intra-regional transactions among the partner banks. ACU is a 'payment arrangement whereby the participants settle payments for intra-regional transactions among the participating central banks on a net multilateral basis.' Central banks of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are current members of ACU.

 The protocol also stressed on improving connectivity between the two countries. This is very important. For this, Bangladesh needs to join the UNECE-TIR (Transports Internationaux Routiers) Convention 1975. It is to be noted that the TIR system is an international customs transit system having widest geographical coverage. The TIR procedure enables goods to move under customs control across international borders without paying duties and taxes. A condition of the TIR procedure is that movement of goods must include transportation by road. TIR Convention is overseen by UNECE, to facilitate multimodal journey by truck, containers transported by rail, river, or sea with the same customs privileges.

Bangladesh's accession to TIR Convention would create TIR corridors, linking Iran-Russia-CIS countries-Central and South Asia as well as China with Bangladesh. In the light of the ever-growing world trade and the forthcoming introduction of an electronic TIR system (so-called "eTIR-system"), it is expected that the TIR system will continue to remain the only truly global customs transit system. 

Bangladesh, however, should not undertake any additional obligations other than its commitment under WTO (World Trade Organisation) obligations while joining the convention. Regulatory cooperation between Russia and Bangladesh by increasing institutional linkage of trade and investment promotion agencies/bodies of the two countries is another tool provided by the protocol.

In this connection, Bangladesh should take up joint action with Russia as well as the EAEU for harmonisation of mutual trade rules, regulatory measures and streamline bilateral institutional cooperation in the respective fields including customs authorities, and quality and standards bodies.

To enhance trade with Russia and other CIS countries, setting up necessary infrastructures including warehouses and distribution network at both ends is a must. This is also recognised in the protocol. Like China, India and Vietnam and others, Bangladesh may set up warehouses and distribution network in Moscow and St. Petersburg for easy and regular delivery of products to the wholesalers and retailers of the entire EAEU region.

Bangladesh has already proposed a number of items for tariff preferences in the customs territory of the EAEU. A formal request should be sent to expedite action. It should be noted here that there is no provision for granting tariff preference to a single country in the EAEU law. The tariff preferences apply on MFN basis for developing countries (75 per cent) and the LDCs (zero rate).

 

The write-up is based on a paper Manzur Ahmed, adviser, Commonwealth of Independent States-Bangladesh Chamber of Commerce & Industry (CIS-BCCI), presented at a seminar in Dhaka recently.

manzurahmed019@gmail.com 

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